[Federal Register: August 1, 2000 (Volume 65, Number 148)]
[Rules and Regulations]
[Page 47054-47103]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01au00-13]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Parts 410, 412, 413, and 485
[HCFA-1118-F]
RIN 0938-AK09
Medicare Program; Changes to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 2001 Rates
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final rule.
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SUMMARY: We are revising the Medicare hospital inpatient prospective
payment system for operating costs to: implement applicable statutory
requirements, including a number of provisions of the Medicare,
Medicaid, and State Children's Health Insurance Program Balanced Budget
Refinement Act of 1999 (Pub. L. 106-113); and implement changes arising
from our continuing experience with the system. In addition, in the
Addendum to this final rule, we describe changes to the amounts and
factors used to determine the rates for Medicare hospital inpatient
services for
[[Page 47055]]
operating costs and capital-related costs. These changes apply to
discharges occurring on or after October 1, 2000. We also set forth
rate-of-increase limits and make changes to our policy for hospitals
and hospital units excluded from the prospective payment systems.
We are making changes to the policies governing payments to
hospitals for the direct costs of graduate medical education, sole
community hospitals and critical access hospitals.
We are adding a new condition of participation on organ, tissue,
and eye procurement for critical access hospitals that parallels the
condition of participation that we previously published for all other
Medicare-participating hospitals.
Lastly, we are finalizing a January 20, 2000 interim final rule
with comment period (65 FR 3136) that sets forth the criteria to be
used in calculating the Medicare disproportionate share adjustment in
reference to Medicaid expansion waiver patient days under section 1115
of the Social Security Act.
DATES: The provisions of this final rule are effective October 1, 2000.
This rule is a major rule as defined in 5 U.S.C. 804(2). Pursuant to 5
U.S.C. 801(a)(1)(A), we are submitting a report to Congress on this
rule on August 1, 2000.
FOR FURTHER INFORMATION CONTACT:
Steve Phillips, (410) 786-4531,
Operating Prospective
Payment, Diagnostic
Related Groups, Wage
Index, Reclassifications, and Sole Community Hospital Issues
Tzvi Hefter, (410) 786-4487,
Capital Prospective
Payment, Excluded
Hospitals, Graduate
Medical Education and
Critical Access Hospital
Issues
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I. Background
A. Summary
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. Under these prospective
payment systems, 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).
Certain specialty hospitals are excluded from the prospective
payment systems. Under section 1886(d)(1)(B) of the Act, the following
hospitals and hospital units are excluded from the prospective payment
systems: psychiatric hospitals and units, rehabilitation hospitals and
units, children's hospitals, long-term care hospitals, and cancer
hospitals. For these hospitals and units, Medicare payment for
operating costs is based on reasonable costs subject to a hospital-
specific annual limit.
Under sections 1820 and 1834(g) of the Act, payments are made to
critical access hospitals (CAHs) (that is, rural nonprofit 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)(i)(A) of the Act and
existing regulations under 42 CFR Parts 413 and 415.
Under section 1886(a)(4) of the Act, costs of approved educational
activities programs 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 regulations governing the hospital inpatient prospective
payment system are located in 42 CFR Part 412. The regulations
governing excluded hospitals and hospital units are located in 42 CFR
Parts 412 and 413, and the GME regulations are located in 42 CFR Part
413.
On November 29, 1999, the Medicare, Medicaid, and State Children's
Health Insurance Program (SCHIP) Balanced Budget Refinement Act of
1999, Public Law 106-113, was enacted. Public Law 106-113 made a number
of changes to the Act affecting prospective payments to hospitals for
inpatient services and payments to excluded hospitals. This final rule
implements amendments enacted by Public Law 106-113 relating to FY 2001
payments for GME costs, disproportionate share hospitals (DSHs), sole
community hospitals (SCHs), and CAHs. These changes are addressed in
sections IV and VI of this preamble.
Other related provisions of Public Law 106-113 that pertain to
Medicare hospital inpatient payments with an effective date prior to
October 1, 2000, are addressed in an interim final rule with comment
period that is published elsewhere in this issue of the Federal
Register.
Public Law 106-113 also amended section 1886(j) of the Act, which
was added by section 4421 of the Balanced Budget Act of 1997 (Public
Law 105-33). Section 1886(j) of the Act provides for a fully
implemented prospective payment system for inpatient rehabilitation
hospitals and rehabilitation units, effective for cost reporting
periods beginning on or after October 1, 2002, with payment provisions
during a transitional period of October 1, 2000 to October 1, 2002
based on target amounts specified in section 1886(b) of the Act. We are
issuing a separate notice of proposed rulemaking to implement the
prospective payment system for inpatient rehabilitation hospitals and
units.
[[Page 47056]]
B. Summary of the Provisions of the May 5, 2000 Proposed Rule
On May 5, 2000, we published a proposed rule in the Federal
Register (65 FR 26282) that set forth proposed changes to the Medicare
hospital inpatient prospective payment system for operating costs for
FY 2001. In the proposed rule, we made no policy changes relating to
payments for capital-related costs under the hospital inpatient
prospective payment system in FY 2001. However, we did propose changes
to the amounts and factors used in determining the rates for capital-
related costs for FY 2001. The proposed rule also included changes
relating to payments for GME costs and payments to excluded hospitals
and units, SCHs, and CAHs.
The following is a summary of the major changes we proposed and the
issues we addressed in the May 5, 2000 proposed rule:
We proposed changes to the FY 2001 DRG classifications and
relative weights, as required by section 1886(d)(4)(C) of the Act.
We proposed an update to the FY 2001 hospital wage index,
using FY 1997 wage data. We also proposed to implement the second year
phaseout of Part A physician teaching-related costs, Part A certified
registered nurse anesthetist (CRNA) costs and resident costs from the
FY 2001 wage index calculation.
We discussed the impact of our policy on post acute care
transfers and set forth certain proposed changes concerning sole
community hospitals (SCHs), rural referral centers (RRCs), the indirect
medical education adjustment, the DSH adjustment and collection of data
on uncompensated costs for services furnished in hospitals, the
Medicare Geographic Classification Review Board (MGCRB)
classifications, and payment for the direct costs of GME.
We discussed FY 2001 as the last year of a 10-year
transition established to phase-in the prospective payment system for
capital-related costs for inpatient hospital services.
We discussed a number of proposals concerning excluded
hospital and hospital units and CAHs. The proposed changes addressed
limits on and adjustments to the proposed target amounts for FY 2001;
development of a prospective payment system for inpatient
rehabilitation hospitals and units; continuous improvement bonus
payments; clarification that the 5-percent threshold used in
calculating an excluded hospital's cost per discharge is based only on
Medicare inpatients discharged from the hospital-within-a-hospital; an
all-inclusive payment rate option for CAHs; and adding a new condition
of participation for CAHs relating to organ, tissue, and eye
procurement.
In the Addendum to the proposed rule, we set forth
proposed changes to the amounts and factors for determining the FY 2001
prospective payment rates for operating costs and capital-related
costs. We also addressed update factors for determining the rate-of-
increase limits for cost reporting periods beginning in FY 2001 for
hospitals and hospital units excluded from the prospective payment
system.
In Appendix A of the proposed rule, we set forth an
analysis of the impact of the proposed changes on affected entities.
In Appendix B of the proposed rule, we set forth the
technical appendix on the proposed FY 2001 capital cost model.
In Appendix C of the proposed rule, as required by section
1886(e)(3) (B) of the Act, we set forth our report to Congress on our
initial estimate of a recommended update factor for FY 2001 for
payments to hospitals included in the prospective payment systems, and
hospitals excluded from the prospective payment systems.
In Appendix D of the proposed rule, as required by
sections 1886(e)(4) and (e)(5) of the Act, we included our
recommendation of the appropriate percentage change for FY 2001 for:
--Large urban area and other area average standardized amounts (and
hospital-specific rates applicable to sole community and Medicare-
dependent, small rural hospitals) for hospital inpatient services paid
for under the prospective payment system for operating costs; and
--Target rate-of-increase limits to the allowable operating costs of
hospital inpatient services furnished by hospitals and hospital units
excluded from the prospective payment system.
In the proposed rule, we discussed recommendations by the
Medicare Payment Advisory Commission (MedPAC) concerning hospital
inpatient payment policies and presented our responses to those
recommendations. Under section 1805(b) of the Act, MedPAC is required
to submit a report to Congress that reviews and makes recommendations
on Medicare payment policies no later than March 1 of each year. This
year, MedPAC released a subsequent report in June containing additional
recommendations. We respond to those recommendations in section IV.E.
of this preamble.
C. Public Comments Received in Response to the Proposed Rule
We received a total of 290 timely items of correspondence
containing multiple comments on the proposed rule. Major issues
addressed by commenters included the creation of a new DRG for pancreas
and kidney transplants, the adequacy of the DRG for heart assist
devices, various aspects of the wage index calculation, rebasing of the
SCH payment rates, and reclassification of hospitals.
Summaries of the public comments received and our responses to
those comments are set forth below under the appropriate section
heading.
D. Final Rule for the January 20, 2000 Interim Final Rule
On January 20, 2000, we published in the Federal Register an
interim final rule with comment period (65 F 3136) to implement a
change in the Medicare DSH adjustment calculation policy in reference
to section 1115 expansion waiver days. The interim final rule set forth
the criteria to use in calculating the Medicare DSH adjustment for
hospitals for purposes of payment under the prospective payment system.
This final rule finalizes the policy in this interim final rule with
comment period. We discuss this policy in detail in Section IV.E.2. of
this preamble.
II. Changes to DRG Classifications and Relative Weights
A. Background
Under the prospective payment system, 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 takes an individual hospital's
payment rate per case and multiplies it 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. Changes to the DRG
classification system and the recalibration of the DRG
[[Page 47057]]
weights for discharges occurring on or after October 1, 2000, are
discussed below.
B. DRG Reclassification
1. General
Cases are classified into DRGs for payment under the prospective
payment system based on the principal diagnosis, up to eight additional
diagnoses, and up to six procedures performed during the stay, as well
as 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). Medicare fiscal intermediaries enter the
information into their claims processing systems and subject it to a
series of automated screens called the Medicare Code Editor (MCE).
These screens are designed to identify cases that require further
review before classification into a DRG.
After screening through the MCE and any further development of the
claims, 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 demographic information (that is, sex, age, and
discharge status). It is used both to classify past cases in order to
measure relative hospital resource consumption to establish the DRG
weights and to classify current cases for purposes of determining
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.
In the July 30, 1999 final rule (64 FR 41500), we discussed a
process for considering non-MedPAR data in the recalibration process.
In order for the use of particular data to be feasible, 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 data submitted.
Generally, however, a significant sample of the data should be
submitted by August 1, approximately 8 months prior to the publication
of the proposed rule, so that we can test the data and make a
preliminary assessment as to the feasibility of using the data.
Subsequently, a complete database should be submitted no later than
December 1 for consideration in conjunction with the next year's
proposed rule, and as appropriate, in the recalibration in the final
rule following the proposed rule.
Currently, cases are assigned to one of 501 DRGs (including one DRG
for a diagnosis that is invalid as a discharge diagnosis and one DRG
for ungroupable diagnoses) in 25 major diagnostic categories (MDCs).
Most MDCs are based on a particular organ system of the body (for
example, MDC 6 (Diseases and Disorders of the Digestive System));
however, some MDCs are not constructed on this basis since they involve
multiple organ systems (for example, MDC 22 (Burns)).
In general, cases are assigned to an MDC based on the principal
diagnosis, before assignment to a DRG. However, there are presently
five DRGs to which cases are directly assigned on the basis of
procedure codes. These are the DRGs for liver, bone marrow, and lung
transplants (DRGs 480, 481, and 495, respectively) and the two DRGs for
tracheostomies (DRGs 482 and 483). Cases are assigned to these DRGs
before classification to an MDC.
Within most MDCs, cases are then divided into surgical DRGs (based
on a surgical hierarchy that orders individual procedures or groups of
procedures by resource intensity) and medical DRGs. Medical DRGs
generally are differentiated on the basis of diagnosis and age. Some
surgical and medical DRGs are further differentiated based on the
presence or absence of complications or comorbidities (CC).
Generally, the GROUPER does not consider other procedures; that is,
nonsurgical procedures or minor surgical procedures generally not
performed in an operating room are not listed as operating room (OR)
procedures in the GROUPER decision tables. However, there are a few
non-OR procedures that do affect DRG assignment for certain principal
diagnoses, such as extracorporeal shock wave lithotripsy for patients
with a principal diagnosis of urinary stones.
We proposed several changes to the DRG classification system for FY
2001 and discussed other issues concerning DRGs. The proposed changes,
the public comments we received concerning them, and the final DRG
changes are set forth below. Unless otherwise noted, the changes we are
implementing will be effective in the revised GROUPER software (Version
18.0) to be implemented for discharges on or after October 1, 2000.
(Also unless otherwise specified, our DRG analysis is based on the full
(100 percent) FY 1999 MedPAR file (bills received through December 31,
1999 for discharges in FY 1999).
2. MDC 5 (Diseases and Disorders of the Circulatory System)
In the August 29, 1997 final rule with comment period (62 FR
45974), we noted that, because of the many recent changes in heart
surgery, we were considering conducting a comprehensive review of the
MDC 5 surgical DRGs. In the July 31, 1998 final rule with comment
period (63 FR 40956), we did adopt some changes to the MDC 5 surgical
DRGs. Since that time, we have received inquiries on a continuing basis
regarding these DRGs. We have continued to review Medicare claims data
and, based on our analysis, we proposed several DRG changes in MDC 5 in
the May 5, 2000 proposed rule.
a. Heart Transplant (DRG 103). As previously stated, cases are
generally assigned to an MDC based on principal diagnosis and
subsequently assigned to surgical or medical DRGs included in that MDC.
However, cases involving liver, bone marrow, and lung transplants (DRGs
480, 481, and 495, respectively) and the two DRGs for tracheostomies
(DRGs 482 and 483) are directly assigned on the basis of procedure
codes. Cases assigned to these DRGs before classification to an MDC are
referred to as pre-MDC. However, cases involving heart transplants are
currently assigned first to MDC 5 and then to DRG 103.
Currently, when a bone marrow transplant and a heart transplant are
performed during the same admission, the case is assigned to DRG 481
(Bone Marrow Transplant). Because bone marrow transplant cases are
first classified to pre-MDC, while heart transplants are first assigned
to MDC 5, the bone marrow transplant assumes precedence in the
assignment of the case to a DRG. However, payment for DRG 481 is
substantially less than DRG 103. For FY 2000, the relative weight for
DRG 103 is 19.5100, while the relative weight for DRG 481 is 8.7285.
To ensure appropriate DRG assignment of these cases, we proposed
that the heart transplant DRG, which encompasses combined heart-lung
transplantation (ICD-9-CM procedure code 33.6) and heart
transplantation (ICD-9-CM procedure code 37.5) be assigned to pre-MDC.
In this way, cases involving a bone marrow transplant and a heart
transplant would be assigned to DRG 103 (DRG 103 would be reordered
higher in the pre-MDC surgical hierarchy, as discussed in section
II.B.5. of this preamble).
We received two comments in support of this proposed change and are
adopting it as final.
[[Page 47058]]
b. Heart Assist Devices. We continue to review data in MDC 5
(Diseases and Disorders of the Circulatory System) to determine if
cases are being assigned to the most appropriate DRG based on clinical
coherence and similar resource consumption. At the December 1, 1994
ICD-9-CM Coordination and Maintenance Committee meeting, we recommended
that new codes be created to capture single and bi-ventricular heart
assist systems.
These codes, 37.65 (Implant of an external, pulsatile heart assist
system) and 37.66 (Implant of an implantable, pulsatile heart assist
system), were adopted for use for discharges occurring on or after
October 1, 1995. However, code 37.66 was deemed investigational and was
not considered a covered procedure. Effective May 5, 1997, we revised
Medicare coverage of heart assist devices to allow coverage of a
ventricular assist device (code 37.66) used for support of blood
circulation postcardiotomy if certain conditions were met.
Due to some residual misunderstanding regarding this coverage
policy, we emphasize that this device was and will continue to be
listed as a noncovered procedure in the Medicare Code Editor (MCE), the
front-end software product in the GROUPER program that detects and
reports errors in the coding of claims data. The reason that this
device is listed in the MCE, in spite of the fact that its implantation
is covered, is because of the stringent conditions that must be met by
hospitals in order to receive payment.
In the August 29, 1997 final rule (62 FR 45973), we moved procedure
code 37.66 from DRGs 110 and 111 \1\ (Major Cardiovascular Procedures
with and without CCs, respectively) to DRG 108 (Other Cardiothoracic
Procedures). As stated in the July 31, 1998 final rule (63 FR 40956),
we moved procedure code 37.66 to DRGs 104 and 105 (Cardiac Valve and
Other Major Cardiothoracic Procedures with and without CCs,
respectively) for FY 1999.
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\1\ A single title combined with two DRG numbers is used to
signify pairs. Generally, the first DRG is for cases with CC and the
second DRG is for cases without CC. If a third number is included,
it represents cases with patients who are age 0-17. Occasionally, a
pair of DRGs is split between age 17 and age 0-17.
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In the July 30, 1999 final rule (64 FR 41498), we responded to a
comment suggesting that heart assist devices be assigned to DRG 103.
For the proposed rule we reviewed the 100 percent FY 1999 MedPAR file
containing bills through December 31, 1999, and found that there were a
total of 47 implantable heart assist system procedures performed on
Medicare beneficiaries. Of these cases, 13 (approximately 28 percent)
were assigned to DRG 103 (Heart Transplant) and four (approximately 9
percent) were assigned to DRG 483 (Tracheostomy Except for Face, Mouth
and Neck Diagnoses), and, therefore, were paid at significantly higher
rates than the remaining 30 cases. All of the procedure code 37.66
cases have extremely high charges, which is consistent with past
analysis, and all of these cases are subject to payment as cost
outliers.
Our data analysis indicated that the most cases in any one hospital
was 5, while 17 hospitals performed only one heart assist system
implant each. We reiterate that only heart transplant cases can be
properly assigned to the transplant DRG (August 29, 1997 final rule (62
FR 45974)). Since heart assist devices are used across DRGs, many not
involving a transplant, we did not propose to assign procedure code
37.66 to DRG 103.
In addition to the review of 37.66, we also looked at procedure
codes 37.62 (Implant of other heart assist system), 37.63 (Replacement
and repair of heart assist system), and 37.65 (Implant of an external,
pulsatile heart assist system). These cases are currently assigned to
DRGs 110 and 111 (Major Cardiovascular Procedures). We believe that
these procedures are similar both clinically and in terms of resource
utilization to procedure code 37.66, which is already assigned to DRGs
104 and 105. Therefore, we proposed to move codes 37.62, 37.63, and
37.65 from DRGs 110 and 111 to DRGs 104 and 105.
Comment: We received four comments on this proposal.
Two comments in favor of our proposal were received from national
associations concerned with health care delivery.
Two commenters requested reevaluation of the DRG assignment of
mechanical heart assist devices, particularly procedure code 37.66, and
suggested that a new DRG be created to classify this technology, or
that these cases be assigned to DRG 103 (Heart Transplant). The
commenters pointed out that the heart assist implantation procedure is
typically performed in the same medical centers by the same surgical
teams as the heart transplant procedure.
With respect to our past decision not to assign cases with
procedure code 37.66 to DRG 103, one commenter acknowledged our
analysis of 1996 MedPAR data showing the costs of these cases to be
more similar to DRGs 104 and 105 than DRG 103, but suggested that we
look at more recent data. The commenter also questioned our rationale
for not assigning these cases to DRG 103 on the basis that heart assist
devices are used across DRGs.
One commenter argued that, as all the cases with procedure code
37.66 were qualified as cost outliers, the misplacement of this
procedure is evident. This commenter also noted that use of this
procedure is likely to increase in the future and suggested that HCFA
position itself ahead of the curve by increasing payment now in
anticipation of this event. The commenter urged HCFA to examine the
option of combining code 37.66 with other clinically similar low-volume
procedures, and creating a new DRG that would more appropriately pay
these cases. This recommended new DRG could conceivably include codes
37.62, 37.63, and 37.65, as they are similar both clinically and in
terms of resource consumption.
Finally, one commenter expressed concern that the uncovered status
of procedure code 37.66 in the MCE may be resulting in inappropriate
payment denials. The commenter recommended that HCFA review the
procedures employed by fiscal intermediaries to override the MCE edits.
Response: We are adopting our proposed change to assign procedure
codes 37.62, 37.63, and 37.65 to DRGs 104 and 105.
With respect to the comments regarding procedure code 37.66, we
have continually considered the issue of DRG assignment of heart assist
devices since this technology was assigned an ICD-9-CM code in 1995,
and became a Medicare covered procedure (if specific conditions were
met) effective in 1997. As we noted in the proposed rule, these are
costly cases that are currently spread across several DRGs. Although
the outlier policy is intended to help hospitals offset unusually
costly cases, we are concerned when a particular procedure always
qualifies as an outlier case.
However, we do not believe it would be appropriate to redefine DRG
103 to include these cases at this time. The presently limited
incidence of these cases, with very few cases occurring at any
particular hospital over the course of a year, does not warrant
disrupting the clinical coherence of DRG 103. The fact that these cases
are spread across a number of DRGs indicates they do not represent a
clinically cohesive group of patients in terms of their associated
diagnoses or other procedures.
We will continue to monitor and evaluate these cases to determine
whether a better approach might be
[[Page 47059]]
identified, including the possibility of a new DRG for procedure codes
37.62, 37.63, 37.65, and 37.66. We note that the classification of
patients into DRGs is a constantly evolving process. As there are
changes in the coding system, data collection, medical technology, or
medical practice, all DRG definitions will be reviewed and potentially
revised.
Concerning the concept of HCFA positioning itself "ahead of the
curve" by anticipating increased use of heart assist devices and
raising payment accordingly, we are reluctant to attempt to predict
future trends in medical practice, especially when such predictions
would affect payments across all DRGs as a result of DRG recalibration.
We appreciate the industry's continued interest in this system, and
look forward to working together to arrive at equitable payments for
this and other new technologies.
With respect to the comment concerning fiscal intermediary
overrides of MCE edits listing procedure code 37.66 as noncovered, we
will instruct our fiscal intermediaries to be aware of this issue. We
are concerned that Medicare payment for this procedure be limited to
those cases for which coverage is appropriate and that payment is not
inappropriately denied.
c. Platelet Inhibitors. Effective October 1, 1998, procedure code
99.20 (Injection or infusion of platelet inhibitor) was created. The
use of platelet inhibitors have been shown to significantly decrease
the rate of acute vessel closure, as well as the rate of cardiac
complications and death.\2\ Platelet inhibitors are frequently
administered to patients undergoing percutaneous transluminal coronary
angioplasty (PTCA). In addition, patients admitted with unstable angina
may also benefit from platelet inhibitors.\2\ This procedure code is
designated as a non-OR procedure that does not affect DRG assignment
(platelet inhibitors are administered either through intravenous
injection or infusion).
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\2\ Topol EJ and Serruys PW. "Frontiers in Interventional
Cardiology." Circulation.1998; 98: 1802. and Frishman W et al.
"Medical therapies for the Prevention of Restenosis after
Percutaneous Coronary Interventions." Curr Probl Cardology. 1998;
23: 555.
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For the past 2 years, a manufacturer of platelet inhibitors has
submitted data to support its position that cases involving platelet
inhibitor therapy receiving angioplasty should be reclassified from DRG
112 (Percutaneous Cardiovascular Procedures) to DRG 116 (Other
Permanent Cardiac Pacemaker Implant or PTCA with Coronary Artery Stent
Implant). Using the 100 percent FY 1999 MedPAR file that contains
discharges through September 30, 1999, we performed analysis for the
proposed rule of the cases for which procedure code 99.20 was reported.
There were a total of 37,222 cases spread across 123 DRGs.
The majority of the platelet inhibitor cases, 28,022 (75 percent of
all platelet inhibitor cases), are already assigned to DRG 116. The
average standardized charges for these cases are approximately $26,683,
compared to approximately $25,251 for DRG 116 overall. In DRG 112,
there were 4,310 platelet inhibitor cases (12 percent of all platelet
inhibitor cases) assigned. The average standardized charge for these
cases is approximately $22,786, compared to approximately $20,224 for
DRG 112 overall. Although the platelet inhibitor therapy cases that are
classified to DRG 112 do have somewhat higher charges than the average
case assigned to this DRG (11 percent, or $2,563), we found several
procedures in DRG 112 with average standardized charges higher than the
platelet inhibitor cases. For example, there were 1,560 cases in which
a single vessel PTCA or coronary atherectomy with thrombolytic agent
(procedure code 36.02) was performed with an average standardized
charge of approximately $25,181, and there were 4,951 cases in which a
multiple vessel PTCA or coronary atherectomy was performed, with or
without a thrombolytic agent (procedure code 36.05) with an average
standardized charge of approximately $23,608.
We also noted that there are several procedures assigned to DRG 112
that have average standardized charges lower than the average charges
for all cases in the DRG. For example, average charges for cases with
procedure code 37.34 (Catheter ablation of lesion or tissues of heart)
were $18,429.
There is always some variation in charges within a DRG. The
difference in variations of charges in DRG 112 is within the normal
range of charge variations.
Clinical homogeneity within DRGs has always been a fundamental
principle considered when assigning codes to appropriate DRGs.
Currently, DRG 116 includes cases involving the insertion of a
pacemaker as well as the insertion of coronary artery stents with PTCA.
On the other hand, cases assigned to DRG 112 involve less invasive
operating room and, in some cases, nonoperating room procedures.
The basis for DRG assignment has generally been the diagnosis of
the patient or the procedures performed. To the extent the use of a
particular technology becomes prevalent in the treatment of a
particular type of case, the DRG system is designed to account for any
increases or decreases in costs through recalibration. Hospitals
frequently benefit from this process while efficiency-enhancing
technology is being introduced. We believe that the update factors
established in section 1886(b)(3)(B)(i) of the Act, combined with the
potential for continuing improvements in hospital productivity, and
annual recalibration of the DRG weights, are adequate to finance
appropriate care of Medicare patients.
We also discussed in the proposed rule our analysis of cases where
platelet inhibitor therapy is targeted on acute coronary syndrome
patients without coronary intervention. These cases are assigned to DRG
124 (Circulatory Disorders Except Acute Myocardial Infarction with
Cardiac Catheterization and Complex Diagnosis) or DRG 140 (Angina
Pectoris). The concern is that both types of cases, those performed in
conjunction with coronary intervention and those without, be given an
equal focus in this evaluation.
Based on our analysis, we found 410 platelet inhibitor cases (1
percent) assigned to DRG 124. This is a small percentage of cases in
comparison to the overall total of 134,759 cases assigned to this DRG.
The platelet inhibitor cases had an average standardized charge of
approximately $17,378 compared to approximately $14,730 for DRG 124
overall. As we have indicated, there is always some variation in
charges within a DRG and this difference is within normal variation.
There were 66 platelet inhibitor cases (0.2 percent) assigned to
DRG 140. The average standardized charge for these cases is higher than
the overall DRG charge, approximately $8,992 and $5,657, respectively.
However, it represents a small percentage of the total (76,913) cases
assigned to DRG 140.
In summary, currently 75 percent of cases where code 99.20 is
present are assigned to DRG 116. The next most common DRG where these
cases are assigned is DRG 112 (12 percent). Cases assigned to DRG 116
generally involve implantation of a pacemaker or artery stent, while
cases assigned to DRG 112 involve percutaneous cardiovascular
procedures. Our analysis found a $3,897 difference between cases
involving platelet inhibitor therapy that were assigned to DRG 116 and
cases assigned to DRG 112, indicating a clinical distinction between
the cases grouping to the two DRGs. Finally, among platelet
[[Page 47060]]
inhibitor therapy cases that are assigned to DRG 112, our analysis
found that the average charges are well within the normal variation
around the overall average charges within the DRG. Based on these
findings, we believe it would be inappropriate to assign all cases
where procedure code 99.20 is present to DRG 116. Therefore, we did not
propose to change our current policy that specifies that assignment of
cases to this code does not affect the DRG assignment.
Comment: We received two comments on this issue. One commenter from
a national hospital association supported not assigning code 99.20 to
DRG 116. The other commenter argued that the analysis on which our
position was based is flawed. This commenter believed that perhaps as
many as five times the 37,222 cases we identified with ICD-9-CM
procedure code 99.20 actually exist in the data but the procedure was
not coded. To remedy this, the commenter suggested two options HCFA
could pursue. The first option would be to reexamine the data file with
the goal of excluding cases that appear to be miscoded. The commenter
suggested that HCFA might check total pharmacy charges in MedPAR and
exclude from the analysis cases without ICD-9-CM procedure code 99.20
that have pharmacy charges over a certain threshold (for example, a
threshold of $500). The second option would be to use outside data to
capture pharmacy information which would provide more reliable
information than coding with procedure code 99.20.
The commenter recommended that HCFA make a concerted effort,
perhaps through the Medicare fiscal intermediaries, to instruct
hospitals to use ICD-9-CM procedure code 99.20 on the claim of any case
that receives any of the three platelet inhibitors.
Response: We appreciate the support of the hospital association for
our position on this issue.
In response to the comment that the MedPAR data underreport
procedure code 99.20 because the data do not affect DRG assignment and
payment, we believe it is in hospitals' best interest to submit
accurate billing data that are utilized in the DRG reclassification and
recalibration of the DRG relative weights process.
We disagree with the recommendation that we exclude from our
analysis any bill with over $500 in pharmacy charges that does not
report procedure code 99.20. We question the analytical validity of
this approach, particularly given that many Medicare beneficiaries have
multiple chronic conditions requiring multiple medications. It is
simply not possible to determine coding accuracy by reviewing charge
data submitted on bills. The only way to identify coding errors would
be to review the actual medical records. To exclude cases with pharmacy
charges exceeding a certain predetermined threshold would likely skew
the results of any such analysis.
We remain open to considering and using non-MedPAR data to make DRG
changes if the data are reliable and validated. In the July 31, 1999
final rule (64 FR 41499), we described the timetable and process for
interested parties to submit non-MedPAR data.
With respect to the recommendation that we make a concerted effort
to ensure that hospitals use procedure code 99.20 appropriately, from
the inception of this procedure code, effective October 1, 1998, HCFA
has collaborated with the American Hospital Association (AHA) to
educate coders on platelet inhibitor therapy. An extensive article in
AHA's publication, Coding Clinic for ICD-9-CM, Fourth Quarter 1998,
identifies the platelet inhibitor drugs and includes instructions on
the appropriate code assignment. Coding instructions for platelet
inhibitors are also available via the 1998 regulatory updates
teleconference sponsored by AHA.
d. Extracorporeal Membrane Oxygenation. Extracorporeal Membrane
Oxygenation (ECMO) is a cardiopulmonary bypass technique that offers
long-term cardiopulmonary support to patients who have reversible
cardiopulmonary insufficiency that has not responded to conventional
management. It involves passing a patient's blood through an
extracorporeal membrane oxygenator that adds oxygen and removes carbon
dioxide. The oxygenated blood then is passed through a heat exchanger
to warm it to body temperature prior to returning it to the patient.
The process and equipment are similar to those used in open heart
surgery, but are continued over prolonged periods of time. ECMO
attempts to provide the patient with artificial cardiopulmonary
function while his or her own cardiopulmonary functions are incapable
of sustaining life.
Since ECMO involves the use of a device that sustains
cardiopulmonary function while the underlying condition is being
treated, it is important to identify and treat underlying conditions
leading to cardiopulmonary failure if the patient is to return to
normal cardiopulmonary function.
ECMO is assigned to procedure code 39.65 (Extracorporeal membrane
oxygenation (ECMO)). This code is not recognized as an OR procedure
within the DRG system and, therefore, does not affect payment. To
evaluate the appropriateness of payment under the current DRG
assignment, we have reviewed a 10-percent sample of Medicare claims in
the FY 1999 MedPAR file and found only 4 cases in which ECMO was used.
The charges for these cases ranged from $16,006 to $198,014. Since
medical literature indicates that ECMO is predominately used on
newborns and pediatric cases, this low number of claims is not
surprising. Only in recent years have some hospitals started to use
ECMO on adults. It is reserved for cases facing almost certain
mortality.
Because ECMO is a procedure clinically similar to a heart assist
device, we proposed that procedure code 39.65 be classified as an OR
procedure and be classified in DRGs 104 and 105 along with the heart
assist system procedures (as discussed in section II.B.2.b. of this
preamble). Those cases in which ECMO was provided, but for which the
principal diagnosis is not classified to MDC 5, would then be assigned
to DRG 468 (Extensive OR Procedure Unrelated to Principal Diagnosis).
This would be appropriate since it is possible that secondary
conditions or complications may arise during hospitalization that would
require the use of ECMO. The relatively high weight of DRG 468 would be
appropriate for these cases.
Comment: We received two comments in support of the proposal to
classify procedure code 39.65 as an OR procedure and then assign it to
DRGs 104 and 105. One of the commenters stated that most of the adult
patients receiving ECMO will fall within MDC 5 since ECMO is used for
patients with severe, but reversible, heart or lung disorders that have
not responded to the usual treatments of mechanical ventilation,
medicines, and extra oxygen. The commenter further stated that these
severely ill patients may continue on ECMO for a period of days or
weeks until the heart or lungs recover, or until the treatment is no
longer effective.
Response: We acknowledge the support of the commenters to classify
39.65 as an OR procedure and then assign it to DRGs 104 and 105 and are
adopting our proposal as final.
3. MDC 15 (Newborns and Other Neonates With Conditions Originating in
the Perinatal Period)
a. V05.8 (Vaccination for disease, NEC). DRG 390 (Neonate with
Other Significant Problems) contains newborn or neonate cases with
other significant
[[Page 47061]]
problems, not assigned to DRGs 385 through 389, DRG 391, or DRG 469. In
order to be classified into DRG 391 (Normal Newborn), the neonate must
have a principal diagnosis as listed under DRG 391 and either no
secondary diagnosis or a secondary diagnosis as listed under DRG 391.
Neonates with a secondary diagnosis of V05.8 (Vaccination for disease,
NEC) are currently classified to DRG 390. Although it would seem that
healthy newborns who receive vaccinations and have no other problems
would be assigned to DRG 391, code V05.8 is not included as one of the
secondary diagnoses under DRG 391, and therefore the case would not be
classified as a normal newborn (DRG 391). Code V05.8 is assigned to DRG
390 as a default, since it is not included under another complicated
neonate DRG or the normal newborn DRG.
In the proposed rule, we discussed our review of the
appropriateness of including diagnosis code V05.8 on the list of
acceptable secondary diagnoses under DRG 390 based on inquires that we
had received. We pointed out that by including V05.8 on the acceptable
secondary diagnosis list for DRG 390, newborns who receive vaccinations
are classified as having significant health problems. The inquirers
believed this incorrectly labels an otherwise healthy newborn as having
a significant medical condition. Providing a vaccination to a newborn
is performed to prevent the infant from contracting a disease.
We agreed with the inquirers that, absent any evidence of disease,
a newborn should not be considered as having a significant problem
simply because a preventative vaccination was provided. Therefore, we
proposed that V05.8 be removed from the list of acceptable secondary
diagnoses under DRG 390 and assigned as a secondary diagnosis under DRG
391. In doing so, these cases would no longer be classified to DRG 390.
Comment: We received two comments in support of our proposal to
remove code V05.8 from the list of acceptable secondary diagnoses under
DRG 390. These commenters agreed that a prophylactic vaccination should
not be classified as a significant problem. Newborns who receive these
prophylactic vaccinations should still be considered normal newborns.
We received no comments in opposition to the proposal.
Response: We are adopting the proposal to include V05.8 on the list
of acceptable secondary diagnoses under DRG 391 Normal Newborn. Codes
V05.3 (Viral hepatitis vaccination) and V05.4 (Varicella vaccination)
are already listed as acceptable secondary diagnoses under DRG 391.
b. Diagnosis code 666.02 (Third-stage postpartum hemorrhage,
delivered with postpartum complication). Diagnosis code 666.02 is
assigned to DRG 373 (Vaginal Delivery without Complicating Diagnoses).
This DRG was created for uncomplicated vaginal deliveries. However,
code 666.22 (Delayed and secondary postpartum hemorrhage, delivered
with postpartum complication) is assigned to DRG 372 (Vaginal Delivery
with Complicating Diagnoses). This means that mothers who have a
delayed and secondary postpartum hemorrhage would be assigned to DRG
372, while mothers who have a third-stage postpartum hemorrhage would
not be considered as a complicated delivery.
We believe a third-stage postpartum hemorrhage should be considered
a complicating diagnosis and, in order to categorize these cases more
appropriately, we proposed to move diagnosis code 666.02 from DRG 373
and assign it as a complicating diagnosis under DRG 372.
Comment: We received two comments supporting the proposal to
classify 666.02 as a complicating diagnosis under DRG 372. The
commenters agreed that a third-stage postpartum hemorrhage should be
classified as a complicated delivery. There were no comments submitted
in opposition to this change.
Response: We are adopting as final our proposal to classify 666.02
as a complication diagnosis under DRG 372.
c. Diagnosis Code 759.89 (Specified congenital anomalies, NEC)
(Alport's Syndrome). Alport's Syndrome (also referred to as hereditary
nephritis) is an inherited disorder involving damage to the kidney,
blood in the urine, and, in some cases, loss of hearing. It may also
include loss of vision. Patients who are not treated early enough or
who do not respond to treatment may progress to renal failure. A kidney
transplant is one treatment option for these cases. As with many of the
congenital anomalies, there is no unique ICD-9-CM code for this
condition. Alport's Syndrome, along with many other rare and diverse
congenital anomalies, is assigned to the rather nonspecific diagnosis
code 759.89 (Specific congenital anomalies, NEC). Examples include
William Syndrome, Brachio-Oto-Renal Syndrome, and Costello's Syndrome.
Each of these is a unique hereditary disorder affecting a variety of
body systems.
Patients can be diagnosed and treated for congenital anomalies
throughout their lives; treatment is not restricted to the neonatal
period. In our GROUPER, however, each diagnosis code is assigned to
just one MDC. In this case, diagnosis code 759.89 is assigned to MDC 15
(Newborns and Other Neonates with Conditions Originating in the
Perinatal Period) although the patient may be an adult.
In the proposed rule, we referred to a request from a physician
concerning renal transplants for patients with Alport's Syndrome. The
physician pointed out that when a patient with Alport's Syndrome is
admitted for a kidney transplant, the case is assigned to DRG 390
(Neonate with Other Significant Problems). In these instances, when the
principal diagnosis is code 759.89, the case is classified to MDC 15
although the patient may no longer be a newborn. The physician believed
that these cases should be assigned to DRG 302 (Kidney Transplant).
The inquirer suggested moving diagnosis code 759.89 to MDC 11
(Diseases and Disorders of the Kidney and Urinary Tract) so that when a
kidney transplant is performed, it will be assigned to DRG 302.
Although this seems quite appropriate for patients with Alport's
Syndrome found in diagnosis code 759.89, it does not work well for the
wide variety of patients also described by this code. Many others would
be inappropriately classified to MDC 11.
Alport's Syndrome cases with code 759.89 as a principal diagnosis
who receive a kidney transplant are assigned to DRG 468 (Extensive OR
Procedure Unrelated to Principal Diagnosis). This DRG has a FY 2000
relative weight of 3.6400. Also for FY 2000, DRG 302 (Kidney
Transplant) has a relative weight of 3.5669. Therefore, the payment
amounts are in fact comparable.
We discussed several options for resolving this issue:
(1) If the case is assigned a principal diagnosis code of renal
failure with Alport's Syndrome as a secondary diagnosis, the case could
be assigned to DRG 302. As this option would represent a change in the
sequencing of congenital anomaly codes and related complications, it
would have to be evaluated and subsequently approved by the Editorial
Advisory Board for Coding Clinic for ICD-9-CM. The Editorial Advisory
Board is comprised of representatives from the physician, coding, and
hospital industry. Final decisions on coding policy issues are made by
the representatives from the AHA, the American Health Information
Management Association, the National Center for Health Statistics, and
HCFA.
[[Page 47062]]
(2) A unique ICD-9-CM diagnosis code could be created for Alport's
Syndrome that could then be evaluated for possible assignment within
MDC 11. This issue has been referred to the National Center for Health
Statistics for consideration as a future coding modification.
One difficulty with this option is the large number of congenital
anomalies and the limited number of unused codes in this section of
ICD-9-CM. Each new code must be carefully evaluated for
appropriateness.
(3) A third option, which was already addressed, involves moving
diagnosis code 759.89 to MDC 11. The problem with this approach is that
many cases would then be misassigned to MDC 11 because the congenital
anomaly would not involve diseases of the kidney and urinary tract.
(4) A fourth option would be to leave the coding and DRG assignment
as they currently exist. Since few cases exist, the overall impact may
be minimal.
To evaluate the impact of leaving the DRG assignment as it
currently exists, in the proposed rule we examined data from a 10-
percent sample of Medicare cases in the FY 1999 MedPAR file. There were
95 cases assigned to a wide range of DRGs with code 759.89 as a
secondary diagnosis. There was only one case assigned to MDC 15 with a
principal diagnosis of code 759.89.
In the proposed rule, we recommended that diagnosis code 759.89
remain in MDC 15, since it encompasses such a wide variety of
conditions.
Comment: We received two comments in support of modifying the
coding advice for this particular congenital anomaly so that renal
failure is reported as the principal diagnosis and Alport's Syndrome is
reported as a secondary diagnosis. One commenter pointed out that a
distinction exists between those manifestations that are integral to
the congenital anomaly (and thus, according to the official coding
guidelines, would not be coded at all) and those that are not
considered integral. This commenter also supported the recommendation
for a change in guidelines that would allow sequencing a manifestation
that is not integral to the congenital anomaly as the principal
diagnosis. The other commenter indicated that while renal disease is
usually present in Alport's Syndrome, it does not always lead to renal
failure. The commenter also supported the reporting of renal failure as
the principal diagnosis, with Alport's Syndrome as a secondary
diagnosis.
Response: The coding and sequencing of Alport's Syndrome patients
with renal failure who are admitted for renal transplant were addressed
at the June 2000 meeting of the Editorial Advisory Board of Coding
Clinic for ICD-9-CM. Coding Clinic for ICD-9-CM is a publication of the
AHA. The issue specifically addressed was whether the code used for
Alport's Syndrome or the code for renal failure should be sequenced
first when the patient is admitted for a renal transplant for the renal
failure. In cases where manifestations are a key aspect of the
congenital anomaly, the congenital anomaly code is usually sequenced
first.
After careful evaluation, the Board determined that, in this
specific case, the code for renal failure would be sequenced first,
followed by the code for Alport's Syndrome. The Board also determined
that renal failure is not always present for patients with Alport's
Syndrome. These patients may, in fact, develop renal failure as a
result of other factors. Therefore, hospitals do not have to sequence
the congenital anomaly code first. By reporting renal failure as the
principal diagnosis, the case is appropriately assigned to DRG 302. The
Board's advice will be published in the third quarter 2000 issue of
Coding Clinic for ICD-9-CM and will be effective for discharges
occurring on or after September 1, 2000.
4. MDC 17 (Myeloproliferative Diseases and Disorders and Poorly
Differentiated Neoplasm)
Diagnosis code 273.8 (Disorders of plasma protein metabolism, NEC)
is assigned to DRG 403 (Lymphoma and Nonacute Leukemia with CC) and DRG
404 (Lymphoma and Nonacute Leukemia without CC). A disorder of plasma
protein metabolism does not mean one has a lymphoma with nonacute
leukemia. An individual can have a disorder of plasma protein
metabolism without having a lymphoma or leukemia.
In the proposed rule, we considered the appropriateness of
including diagnosis code 273.8 in DRGs 403 and 404. Disorders of plasma
protein metabolism are not lymphomas or leukemia, thus diagnosis code
273.8 is more closely related to DRG 413 (Other Myeloproliferative
Disorders or Poorly Differentiated Neoplasm Diagnoses with CC) and DRG
414 (Other Myeloproliferative Disorders or Poorly Differentiated
Neoplasm Diagnoses without CC).
We also examined charge data drawn from cases assigned to diagnosis
code 273.8 in a 10-percent sample of Medicare cases in the FY 1999
MedPAR file and found that the average charges for these cases were
also more closely related to DRGs 413 and 414 than to DRGs 403 and 404.
We proposed to move diagnosis code 273.8 from DRGs 403 and 404 to DRGs
413 and 414.
We also noted that diagnosis code 273.8 is included in the
following surgical DRGs that are performed on patients with lymphoma or
leukemia:
DRG 400 (Lymphoma and Leukemia with Major OR Procedure)
DRG 401 (Lymphoma and Nonacute Leukemia with Other OR
Procedure with CC)
DRG 402 (Lymphoma and Nonacute Leukemia with Other OR
Procedure without CC)
The same clinical issue would apply to these surgical DRGS
performed on patients with lymphoma and leukemia. Code 273.8 should be
assigned to the surgical DRGs for myeloproliferative disorders since
the cases are clinically similar and, as stated before, code 273.8 is
not clinically similar to lymphomas and leukemias. Therefore, we
proposed to remove code 273.8 from the surgical DRGs related to
lymphoma and leukemia (DRGS 400, 401, and 402) and assigned to the
following myeloproliferative surgical DRGS, based on the procedure
performed:
DRG 406 (Myeloproliferative Disorders or Poorly
Differentiated Neoplasms with Major OR Procedures with CC)
DRG 407 (Myeloproliferative Disorders Or Poorly
Differentiated Neoplasms with Major OR Procedures without CC)
DRG 408 (Myeloproliferative Disorders or Poorly
Differentiated Neoplasms with Other OR Procedures)
Comment: We received two comments supporting our proposal to remove
code 273.8 from the DRGs for lymphomas and leukemia (medical DRGs 403
and 404 as well as surgical DRGs 400 through 402). They supported
moving 273.8 to the DRGs for other myeloproliferative disorders
(medical DRGs 413 and 414 as well as surgical DRGs 406 through 408).
One commenter also pointed out that code 273.9 (Unspecified disorder of
plasma protein metabolism) is clinically similar to 273.8 and is also
included with the DRGs for lymphomas and leukemia. The commenter asked
if HCFA also planned to move 273.9 in a similar fashion to that
proposed for code 273.8 since they appear to be companion codes. The
commenter asserted that it was inappropriate to keep 273.9 in the DRGS
for lymphoma and leukemia.
Response: We agree that code 273.8 should be moved out of the DRGs
for lymphoma and leukemia and into the DRGs for other
myeloproliferative disorders. Also, we agree with the commenter who
stated that code 273.9
[[Page 47063]]
is clinically similar to 273.8 and should be treated in the same
manner. Each code would be more appropriately assigned to the DRGS for
other myeloproliferative disorders. Therefore, we are removing 273.9
from medical DRGS 403 and 404 and assigning it to DRGS 413 and 414. We
are adopting as final our proposal to remove 273.8 from medical DRGs
403 and 404 and assign it to medical DRGs 413 and 414. We are also
removing 273.8 and 273.9 from surgical DRGs 400, 401, and 402 and
assigning them to surgical DRGs 406, 407, and 408.
5. Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different DRG within the MDC to which the principal diagnosis is
assigned. Therefore, it is necessary to have a decision rule by which
these cases are assigned to a single DRG. The surgical hierarchy, an
ordering of surgical classes from most to least resource intensive,
performs that function. Its application ensures that cases involving
multiple surgical procedures are assigned to the DRG associated with
the most resource-intensive surgical class.
Because the relative resource intensity of surgical classes can
shift as a function of DRG reclassification and recalibration, we
reviewed the surgical hierarchy of each MDC, as we have for previous
reclassifications, to determine if the ordering of classes coincided
with the intensity of resource utilization, as measured by the same
billing data used to compute the DRG relative weights.
A surgical class can be composed of one or more DRGs. For example,
in MDC 11, the surgical class "kidney transplant" consists of a
single DRG (DRG 302) and the class "kidney, ureter and major bladder
procedures" consists of three DRGs (DRGs 303, 304, and 305).
Consequently, in many cases, the surgical hierarchy has an impact on
more than one DRG. The methodology for determining the most resource-
intensive surgical class involves weighting each DRG for frequency to
determine the average resources for each surgical class. For example,
assume surgical class A includes DRGs 1 and 2 and surgical class B
includes DRGs 3, 4, and 5. Assume also that the average charge of DRG 1
is higher than that of DRG 3, but the average charges of DRGs 4 and 5
are higher than the average charge of DRG 2. To determine whether
surgical class A should be higher or lower than surgical class B in the
surgical hierarchy, we would weight the average charge of each DRG by
frequency (that is, by the number of cases in the DRG) to determine
average resource consumption for the surgical class. The surgical
classes would then be ordered from the class with the highest average
resource utilization to that with the lowest, with the exception of
"other OR procedures" as discussed below.
This methodology may occasionally result in a case involving
multiple procedures being assigned to the lower-weighted DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER searches for the procedure in the
most resource-intensive surgical class, this result is unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average relative
weight is ordered above a surgical class with a higher average relative
weight. For example, the "other OR procedures" surgical class is
uniformly ordered last in the surgical hierarchy of each MDC in which
it occurs, regardless of the fact that the relative weight for the DRG
or DRGs in that surgical class may be higher than that for other
surgical classes in the MDC. The "other OR procedures" class is a
group of procedures that are least likely to be related to the
diagnoses in the MDC but are occasionally performed on patients with
these diagnoses. Therefore, these procedures should only be considered
if no other procedure more closely related to the diagnoses in the MDC
has been performed.
A second example occurs when the difference between the average
weights for two surgical classes is very small. We have found that
small differences generally do not warrant reordering of the hierarchy
since, by virtue of the hierarchy change, the relative weights are
likely to shift such that the higher-ordered surgical class has a lower
average weight than the class ordered below it.
Based on the preliminary recalibration of the DRGs, we proposed to
modify the surgical hierarchy as set forth below. As we stated in the
September 1, 1989 final rule (54 FR 36457), we were unable to test the
effects of proposed revisions to the surgical hierarchy and to reflect
these changes in the proposed relative weights because the revised
GROUPER software was unavailable at the time the proposed rule was
completed. Rather, we simulated most major classification changes to
approximate the placement of cases under the proposed reclassification,
then determined the average charge for each DRG. These average charges
then served as our best estimate of relative resource use for each
surgical class.
We proposed to revise the surgical hierarchy for the pre-MDC DRGs,
MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue), and MDC 10 (Endocrine, Nutritional, and Metabolic
Diseases and Disorders) as follows:
In the pre-MDC DRGs, we proposed to move DRG 103 (Heart
Transplant) from MDC 5 to pre-MDC. We proposed to reorder DRG 103
(Heart Transplant) above DRG 483 (Tracheostomy Except for Face, Mouth,
and Neck Diagnoses).
In the pre-MDC DRGs, we proposed to reorder DRG 481 (Bone
Marrow Transplant) above DRG 495 (Lung Transplant).
In MDC 8, we proposed to reorder DRG 230 (Local Excision
and Removal of Internal Fixation Devices of Hip and Femur) above DRGs
226 and 227 (Soft Tissue Procedures).
In MDC 10, we proposed to reorder DRG 288 (OR Procedures
for Obesity) above DRG 285 (Amputation of Lower Limb for Endocrine,
Nutritional, and Metabolic Disorders).
Comment: One commenter supported the surgical hierarchy proposals.
Another commenter opposed the reordering of DRG 230 above DRGs 226 and
227 in MDC 8. The commenter stated that, if both procedures are
performed during the same operative episode, reordering DRGs 226 and
227 above DRG 230 would more appropriately capture facility resources.
Response: Although local excision and removal of internal fixation
devices of hip and femur procedures may be less resource intensive than
many of the surgical procedures in DRGs 226 and 227, we proposed the
surgical hierarchy change because our data indicated cases of local
excision and removal of internal fixation devices of hip and femur are
more resource intensive than cases in DRGs 226 and 227. At the time of
our proposed surgical hierarchy change, the average standardized
charges for cases in DRG 230 were approximately $1,000 more than the
average standardized charges for cases in DRGs 226 and 227. We are
adopting the proposed surgical hierarchy change as final so that cases
with multiple procedures will be assigned to the higher-weighted DRG.
We will continue to monitor the MDC 8 surgical hierarchy as part of our
ongoing review.
Based on a test of the proposed revisions using the most recent
MedPAR file and the final GROUPER software, we have found that all the
proposed
[[Page 47064]]
revisions are still supported by the data and no additional changes are
indicated. Therefore, we are adopting these changes in this final rule.
6. Refinement of Complications and Comorbidities (CC) List
In the September 1, 1987 final notice (52 FR 33143) concerning
changes to the DRG classification system, we modified the GROUPER logic
so that certain diagnoses included on the standard list of CCs would
not be considered a valid CC in combination with a particular principal
diagnosis. Thus, we created the CC Exclusions List. We made these
changes for the following reasons: (1) To preclude coding of CCs for
closely related conditions; (2) to preclude duplicative coding or
inconsistent coding from being treated as CCs; and (3) to ensure that
cases are appropriately classified between the complicated and
uncomplicated DRGs in a pair. We developed this standard list of
diagnoses using physician panels to include those diagnoses that, when
present as a secondary condition, would be considered a substantial
complication or comorbidity. In previous years, we have made changes to
the standard list of CCs, either by adding new CCs or deleting CCs
already on the list. In the May 5, 2000 proposed rule, we proposed no
deletions of the diagnosis codes on the CC list.
In the May 19, 1987 proposed notice (52 FR 18877) concerning
changes to the DRG classification system, we explained that the
excluded secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another (as subsequently corrected
in the September 1, 1987 final notice (52 FR 33154)).
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for a condition should not be considered CCs for
one another.
Conditions that may not coexist, such as partial/total,
unilateral/bilateral, obstructed/unobstructed, and benign/malignant,
should not be considered CCs for one another.
The same condition in anatomically proximal sites should
not be considered CCs for one another.
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. The FY 1988 revisions were intended only
as a first step toward refinement of the CC list in that the criteria
used for eliminating certain diagnoses from consideration as CCs were
intended to identify only the most obvious diagnoses that should not be
considered complications or comorbidities of another diagnosis. For
that reason, and in light of comments and questions on the CC list, we
have continued to review the remaining CCs to identify additional
exclusions and to remove diagnoses from the master list that have been
shown not to meet the definition of a CC. See the September 30, 1988
final rule (53 FR 38485) for the revision made for the discharges
occurring in FY 1989; the September 1, 1989 final rule (54 FR 36552)
for the FY 1990 revision; the September 4, 1990 final rule (55 FR
36126) for the FY 1991 revision; the August 30, 1991 final rule (56 FR
43209) for the FY 1992 revision; the September 1, 1992 final rule (57
FR 39753) for the FY 1993 revision; the September 1, 1993 final rule
(58 FR 46278) for the FY 1994 revisions; the September 1, 1994 final
rule (59 FR 45334) for the FY 1995 revisions; the September 1, 1995
final rule (60 FR 45782) for the FY 1996 revisions; the August 30, 1996
final rule (61 FR 46171) for the FY 1997 revisions; the August 29, 1997
final rule (62 FR 45966) for the FY 1998 revisions; and the July 31,
1998 final rule (63 FR 40954) for the FY 1999 revisions. In the July
30, 1999 final rule (64 FR 41490), no modifications were made to the CC
Exclusions List for FY 2000 because we made no changes to the ICD-9-CM
codes for FY 2000.
In this final rule, we are making limited revisions of the CC
Exclusions List to take into account the changes that will be made in
the ICD-9-CM diagnosis coding system effective October 1, 2000. (See
section II.B.8. below, for a discussion of ICD-9-CM changes.) These
changes are being made in accordance with the principles established
when we created the CC Exclusions List in 1987.
Tables 6F and 6G in section V. of the Addendum to this final rule
contain the revised CC Exclusions List that is effective for discharges
occurring on or after October 1, 2000. Each table shows the principal
diagnoses along with changes to the excluded CCs. Each of these
principal diagnoses is shown with an asterisk and the additions or
deletions to the CC Exclusions List are provided in an indented column
immediately following the affected principal diagnosis.
CCs that were added to the list appear in Table 6F--Additions to
the CC Exclusions List. Beginning with discharges on or after October
1, 2000, the indented diagnoses will not be recognized by the GROUPER
as valid CCs for the asterisked principal diagnosis.
CCs that were deleted from the list are in Table 6G--Deletions from
the CC Exclusions List. Beginning with discharges on or after October
1, 2000, the indented diagnoses will be recognized by the GROUPER as
valid CCs for the asterisked principal diagnosis.
Copies of the original CC Exclusions List applicable to FY 1988 can
be obtained from the National Technical Information Service (NTIS) of
the Department of Commerce. It is available in hard copy for $92.00
plus $6.00 shipping and handling and on microfiche for $20.50, plus
$4.00 for shipping and handling. A request for the FY 1988 CC
Exclusions List (which should include the identification accession
number (PB) 88-133970) should be made to the following address:
National Technical Information Service, United States Department of
Commerce, 5285 Port Royal Road, Springfield, Virginia 22161; or by
calling (703) 487-4650.
Users should be aware of the fact that all revisions to the CC
Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996,
1997, 1998, 1999, and those in Tables 6F and 6G of this document) must
be incorporated into the list purchased from NTIS in order to obtain
the CC Exclusions List applicable for discharges occurring on or after
October 1, 2000. (Note: There was no CC Exclusions List in FY 2000
because we did not make changes to the ICD-9-CM codes for FY 2000.)
Alternatively, the complete documentation of the GROUPER logic,
including the current CC Exclusions List, is available from 3M/Health
Information Systems (HIS), which, under contract with HCFA, is
responsible for updating and maintaining the GROUPER program. The
current DRG Definitions Manual, Version 17.0, is available for $225.00,
which includes $15.00 for shipping and handling. Version 18.0 of this
manual, which includes the final FY 2001 DRG changes, will be available
in October 2000 for $225.00. These manuals may be obtained by writing
3M/HIS at the following address: 100 Barnes Road, Wallingford,
Connecticut 06492; or by calling (203) 949-0303. Please specify the
revision or revisions requested.
We received no comments on the CC Exclusions List in the proposed
rule.
7. Review of Procedure Codes in DRGs 468, 476, and 477
Each year, we review cases assigned to DRG 468 (Extensive OR
Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic OR
Procedure Unrelated to Principal Diagnosis), and DRG 477
[[Page 47065]]
(Nonextensive OR Procedure Unrelated to Principal Diagnosis) to
determine whether it would be appropriate to change the procedures
assigned among these DRGs.
DRGs 468, 476, and 477 are reserved for those cases in which none
of the OR procedures performed is related to the principal diagnosis.
These DRGs are intended to capture atypical cases, that is, those cases
not occurring with sufficient frequency to represent a distinct,
recognizable clinical group. DRG 476 is assigned to those discharges in
which one or more of the following prostatic procedures are performed
and are unrelated to the principal diagnosis:
60.0 Incision of prostate
60.12 Open biopsy of prostate
60.15 Biopsy of periprostatic tissue
60.18 Other diagnostic procedures on prostate and periprostatic
tissue
60.21 Transurethral prostatectomy
60.29 Other transurethral prostatectomy
60.61 Local excision of lesion of prostate
60.69 Prostatectomy NEC
60.81 Incision of periprostatic tissue
60.82 Excision of periprostatic tissue
60.93 Repair of prostate
60.94 Control of (postoperative) hemorrhage of prostate
60.94 Transurethral balloon dilation of the prostatic urethra
60.99 Other operations on prostate
All remaining OR procedures are assigned to DRGs 468 and 477, with
DRG 477 assigned to those discharges in which the only procedures
performed are nonextensive procedures that are unrelated to the
principal diagnosis. The original list of the ICD-9-CM procedure codes
for the procedures we consider nonextensive procedures, if performed
with an unrelated principal diagnosis, was published in Table 6C in
section IV. of the Addendum to the September 30, 1988 final rule (53 FR
38591). As part of the final rules published on September 4, 1990 (55
FR 36135), August 30, 1991 (56 FR 43212), September 1, 1992 (57 FR
23625), September 1, 1993 (58 FR 46279), September 1, 1994 (59 FR
45336), September 1, 1995 (60 FR 45783), August 30, 1996 (61 FR 46173),
and August 29, 1997 (62 FR 45981), we moved several other procedures
from DRG 468 to 477, and some procedures from DRG 477 to 468. No
procedures were moved in FY 1999, as noted in the July 31, 1998 final
rule (63 FR 40962), or in FY 2000, as noted in the July 30, 1999 final
rule (64 FR 41496).
a. Moving Procedure Codes from DRGs 468 or 477 to MDCs. We annually
conduct a review of procedures producing assignment to DRG 468 or DRG
477 on the basis of volume, by procedure, to determine the
appropriateness of moving procedure codes out of these DRGs into one of
the surgical DRGs for the MDC into which the principal diagnosis falls.
The data are arrayed two ways for comparison purposes. We look at a
frequency count of each major operative procedure code. We also compare
procedures across MDCs by volume of procedure codes within each MDC.
That is, using procedure code 57.49 (Other transurethral excision or
destruction of lesion or tissue of bladder) as an example, we
determined that this particular code accounted for the highest number
of major operative procedures (162 cases, or 9.8 percent of all cases)
reported in the sample of DRG 477. In addition, we determined that
procedure code 57.49 appeared in MDC 4 (Diseases and Disorders of the
Respiratory System) 28 times as well as in 9 other MDCs.
Using a 10-percent sample of the FY 1999 MedPAR file, we determined
that the quantity of cases in DRG 477 totaled 1,650. There were 106
instances where the major operative procedure appeared only once (6.4
percent of the time), resulting in assignment to DRG 477.
Using the same 10-percent sample of the FY 1999 MedPAR file, we
reviewed DRG 468. There were a total of 3,858 cases, with one major
operative code causing the DRG assignment 311 times (or 8 percent) and
230 instances where the major operative procedure appeared only once
(or 6 percent of the time).
Our medical consultants then identified those procedures occurring
in conjunction with certain principal diagnoses with sufficient
frequency to justify adding them to one of the surgical DRGs for the
MDC in which the diagnosis falls. Based on this year's review, we did
not identify any necessary changes in procedures under either DRG 468
or 477 and, therefore, did not propose to move any procedures from
either DRG 468 or DRG 477 to one of the surgical DRGs. We received no
comments on our review results and, therefore, we will not move any
procedures from these DRGs for FY 2001.
b. Reassignment of Procedures Among DRGs 468, 476, and 477. We also
conduct an annual review of a list of ICD-9-CM procedures that, when in
combination with their principal diagnosis code, result in assignment
to DRGs 468, 476, and 477, to ascertain if any of those procedures
should be moved from one of these DRGs to another of these DRGs based
on average charges and length of stay. We analyze the data for trends
such as shifts in treatment practice or reporting practice that would
make the resulting DRG assignment inappropriate. If our medical
consultants were to find these shifts, we would propose moving cases to
keep the DRGs clinically similar or to provide payment for the cases in
a similar manner. Generally, we move only those procedures for which we
have an adequate number of discharges to analyze the data. Based on
this year's review, we proposed not to move any procedures from DRG 468
to DRGs 476 or 477, from DRG 476 to DRGs 468 or 477, or from DRG 477 to
DRGs 468 or 476. We received no comments on this proposal, and
therefore are not moving any procedures from the DRGs indicated.
c. Adding Diagnosis Codes to MDCs. It has been brought to our
attention that an ICD-9-CM diagnosis code should be added to DRG 482
(Tracheostomy for Face, Mouth and Neck Diagnoses) to preserve clinical
coherence and homogeneity of the system. In the case of a patient who
has a facial infection (diagnosis code 682.0 (Other cellulitis and
abscess, Face)), the face may become extremely swollen and the
patient's ability to breathe might be impaired. It might be deemed
medically necessary to perform a temporary tracheostomy (procedure code
31.1) on the patient until the swelling subsides enough for the patient
to once again breathe on his or her own.
The combination of diagnosis code 682.0 and procedure code 31.1
resulted in assignment to DRG 483 (Tracheostomy Except for Face, Mouth
and Neck Diagnoses). The absence of diagnosis code 682.0 in DRG 483
forces the GROUPER algorithm to assign the case based solely on the
procedure code, without taking this diagnosis into account. Clearly
this was not the intent, as diagnosis code 682.0 should be included
with other face, mouth and neck diagnosis. We believe that cases such
as these would appropriately be assigned to DRG 482. Therefore, we
proposed to add diagnosis code 682.0 to the list of other face, mouth
and neck diagnoses already in the principal diagnosis list in DRG 482.
We received one comment in support of the proposed change, and are
adopting as final the proposal to add diagnosis code 682.0 to DRG 482.
8. Changes to the ICD-9-CM Coding System
As described in section II.B.1 of this preamble, the ICD-9-CM is a
coding system that is used for the reporting of diagnoses and
procedures performed on a patient. In September 1985, the ICD-9-CM
Coordination and Maintenance Committee was formed. This is a Federal
interdepartmental committee, co-chaired by the National Center for
[[Page 47066]]
Health Statistics (NCHS) and HCFA, charged with maintaining and
updating the ICD-9-CM system. The Committee is jointly responsible for
approving coding changes, and developing errata, addenda, and other
modifications to the ICD-9-CM to reflect newly developed procedures and
technologies and newly identified diseases. The Committee is also
responsible for promoting the use of Federal and non-Federal
educational programs and other communication techniques with a view
toward standardizing coding applications and upgrading the quality of
the classification system.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes
included in the Tabular List and Alphabetic Index for Diseases, while
HCFA has lead responsibility for the ICD-9-CM procedure codes included
in the Tabular List and Alphabetic Index for Procedures.
The Committee encourages participation in the above process by
health-related organizations. In this regard, the Committee holds
public meetings for discussion of educational issues and proposed
coding changes. These meetings provide an opportunity for
representatives of recognized organizations in the coding field, such
as the American Health Information Management Association (AHIMA)
(formerly American Medical Record Association (AMRA)), the AHA), and
various physician specialty groups as well as physicians, medical
record administrators, health information management professionals, and
other members of the public to contribute ideas on coding matters.
After considering the opinions expressed at the public meetings and in
writing, the Committee formulates recommendations, which then must be
approved by the agencies.
The Committee presented proposals for coding changes for FY 2000 at
public meetings held on June 4, 1998 and November 2, 1998. Even though
the Committee conducted public meetings and considered approval of
coding changes for FY 2000 implementation, we did not implement any
changes to ICD-9-CM codes for FY 2000 because of our major efforts to
ensure that all of the Medicare computer systems were compliant with
the year 2000. Therefore, the code proposals presented at the public
meetings held on June 4, 1998 and November 2, 1998, that (if approved)
ordinarily would have been included as new codes for October 1, 1999,
were held for consideration for inclusion in the annual update for FY
2001.
The Committee also presented proposals for coding changes for
implementation in FY 2001 at public meetings held on May 13, 1999 and
November 12, 1999, and finalized the coding changes after consideration
of comments received at the meetings and in writing by January 7, 2000.
Copies of the Coordination and Maintenance Committee minutes of the
1999 meetings can be obtained from the HCFA Home Page by typing http://
www.hcfa.gov/medicare/icd9cm.htm. Paper copies of these minutes are no
longer available and the mailing list has been discontinued.
The ICD-9-CM code changes that have been approved will become
effective October 1, 2000. The new ICD-9-CM codes are listed, along
with their DRG classifications, in Tables 6A and 6B (New Diagnosis
Codes and New Procedure Codes, respectively) in section VI. of the
Addendum to this final rule. As we stated above, the code numbers and
their titles were presented for public comment at the ICD-9-CM
Coordination and Maintenance Committee meetings. Both oral and written
comments were considered before the codes were approved. In the May 5,
2000 proposed rule, we solicited comments only on the proposed DRG
classification of these new codes.
Further, the Committee has approved the expansion of certain ICD-9-
CM codes to require an additional digit for valid code assignment.
Diagnosis codes that have been replaced by expanded codes or other
codes, or have been deleted are in Table 6C (Invalid Diagnosis Codes).
These invalid diagnosis codes will not be recognized by the GROUPER
beginning with discharges occurring on or after October 1, 2000. For
codes that have been replaced by new or expanded codes, the
corresponding new or expanded diagnosis codes are included in Table 6A
(New Diagnosis Codes). No procedure codes were replaced by expanded
codes or other codes, and no procedure codes were deleted. Revisions to
diagnosis code titles appear in Table 6D (Revised Diagnosis Code
Titles), which also includes the DRG assignments for these revised
codes. Revisions to procedure code titles appear in Table 6E (Revised
Procedure Codes Titles).
Comment: One commenter questioned the DRG assignments in Table 6A
for new ICD-9-CM codes V45.74, V45.76, V45.77, V45.78 and V45.79. The
commenter pointed out that it has been HCFA's longstanding practice to
assign a new code to the same DRG or DRGs as its predecessor code. The
commenter had seen a draft conversion table prepared by the NCHS for
codes being revised October 1, 2000, and indicated that the conversion
table did not support the DRG assignments for these specific codes.
Response: The commenter is correct. HCFA bases DRG assignments on
the DRG assignment of the predecessor code. Tables 6A through 6E in the
proposed rule were prepared prior to NCHS' completion of the conversion
table. The DRG assignments were based on a mapping of codes V45.74,
V45.76, V45.77, and V45.78 from code V45.89. However, the correct
mapping on the conversion table now shows the following predecessor
codes:
------------------------------------------------------------------------
Previous
New Code Code Previous DRG
------------------------------------------------------------------------
V45.74.......................... 593.89 331, 332, 333
596.8 331, 332, 333
V45.76.......................... 518.89 101, 102
V45.77.......................... 602.8 352
607.89 352
608.89 352
620.8 358, 359, 369
621.8 358, 359, 369
622.8 358, 359, 369
V45.78.......................... 360.89 46, 47, 48
V45.79.......................... 255.8 300, 301
289.59 398, 399
388.8 73, 74
569.49 188, 189, 190
577.8 204
[[Page 47067]]
V45.89 467
------------------------------------------------------------------------
We have modified the DRG assignments for V45.74, V45.76, V45.77,
and V45.78 in Table 6A of this final rule according to the mapping
indicated in the third column in the preceding table. However, V45.79
has a number of predecessor codes appearing in multiple MDCs and, thus,
would not relate to any specific MDC. After discussions with NCHS, we
determined that this code should continue to use V45.89 as its
predecessor code for purposes of DRG assignment, since it is not
restricted to a specific body system. Therefore, the DRG assignment for
V45.79 was not changed in Table 6A.
9. Other Issues
a. Immunotherapy. Effective October 1, 1994, procedure code 99.28
(Injection or infusion of biologic response modifier (BRM) as an
antineoplastic agent) was created and designated as a non-OR procedure
that does not affect DRG assignment. This cancer treatment involving
biological response modifiers is also known as BRM therapy or
immunotherapy.
In response to a comment on the May 7, 1999 proposed rule, for the
FY 2000 final rule we analyzed cases for which procedure code 99.28 was
reported using the 100 percent FY 1998 MedPAR file. The commenter
requested that we create a new DRG for BRM therapy or assign cases in
which BRM therapy is performed to an existing DRG with a high relative
weight. The commenter suggested that DRG 403 (Lymphoma and Nonacute
Leukemia with CC) would be an appropriate DRG.
For the proposed rule, we analyzed all cases for which procedure
code 99.28 was reported. We identified 1,179 cases in 136 DRGs in 22
MDCs. No more than 141 cases were assigned to any one particular DRG.
Of the 1,179 cases, 141 cases (approximately 12 percent) were
assigned to DRG 403 in MDC 17. We found approximately one-half of these
cases had other procedures performed in addition to receiving
immunotherapy, such as chemotherapy, bone marrow biopsy, insertion of
totally implantable vascular access device, thoracentesis, or
percutaneous abdominal drainage, which may account for the increased
charges. There were 123 immunotherapy cases assigned to DRG 82
(Respiratory Neoplasms) in MDC 4 (Diseases and Disorders of the
Respiratory System). We noted that, in some cases, in addition to
immunotherapy, other procedures were performed, such as insertion of an
intercostal catheter for drainage, thoracentesis, or chemotherapy.
There were 84 cases assigned to DRG 416 (Septicemia, Age >17) in
MDC 18 (Infectious and Parasitic Diseases (Systemic or Unspecified
Sites)). The principal diagnosis for this DRG is septicemia and, in
addition to receiving treatment for septicemia, immunotherapy was also
given. There were 79 cases assigned to DRG 410 (Chemotherapy without
Acute Leukemia as Secondary Diagnosis) in MDC 17.
The cost of immunotherapy is averaged into the weight for these
DRGS and, based on our analysis, we did not believe a reclassification
of these cases was warranted. Due to the limited number of cases that
were distributed throughout 136 DRGs in 22 MDCs and the variation of
charges, we concluded that it would be inappropriate to classify these
cases into a single DRG.
Although there were 141 cases assigned to DRG 403, it would be
inappropriate to place all immunotherapy cases, regardless of
diagnosis, into a DRG that is designated for lymphoma and nonacute
leukemia. We establish DRGs based on clinical coherence and resource
utilization. Each DRG encompasses a variety of cases, reflecting a
range of services and a range of resources. Generally, then, each DRG
reflects some higher cost cases and some lower cost cases. To the
extent a new technology is extremely costly relative to the cases
reflected in the DRG relative weight, the hospital might qualify for
outlier payments, that is, additional payments over and above the
standard prospective payment rate.
We did not receive any comments regarding payment for immunotherapy
cases.
b. Pancreas Transplant. Effective July 1, 1999, Medicare covers
whole organ pancreas transplantation if the transplantation is
performed simultaneously with or after a kidney transplant (procedure
codes 55.69, Other kidney transplantation, and V42.0, Organ or tissue
replaced by transplant, Kidney) (Transmittal No. 115, April 1999). We
noted that when we published the notification of this coverage in the
July 30, 1999 final rule (64 FR 41497), we inadvertently made an error
in announcing the covered codes. We cited the incorrect codes for
pancreas transplantation as procedure code 52.80 (Pancreatic
transplant, not otherwise specified) and 52.83 (Heterotransplant of
pancreas). The correct procedure codes for pancreas transplantation are
52.80 (Pancreatic transplant, not otherwise specified) and 52.82
(Homotransplant of pancreas). The Coverage Issues Manual was revised to
reflect this change via Transmittal 124, April 2000, effective October
1, 2000.
Pancreas transplantation is generally limited to those patients
with severe secondary complications of diabetes, including kidney
failure. However, pancreas transplantation is sometimes performed on
patients with labile diabetes and hypoglycemic unawareness. Pancreas
transplantation for diabetic patients who have not experienced end-
stage renal failure secondary to diabetes is excluded from coverage.
Medicare also excludes coverage of transplantation of partial
pancreatic tissue or islet cells.
In the July 30, 1999 final rule (64 FR 41497), we indicated that we
planned to review discharge data to determine whether a new DRG should
be created, or existing DRGs modified, to further classify pancreas
transplantation in combination with kidney transplantation.
Under the current DRG classification, if a kidney transplant and a
pancreas transplant are performed simultaneously on a patient with
chronic renal failure secondary to diabetes with renal manifestations
(diagnosis codes 250.40 through 250.43), the case is assigned to DRG
302 (Kidney Transplant) in MDC 11 (Diseases and Disorders of the Kidney
and Urinary Tract). If a pancreas transplant is performed following a
kidney transplant (that is, during a different hospital admission) on a
patient with chronic renal failure secondary to diabetes with renal
manifestations, the case is assigned to DRG 468 (Extensive OR Procedure
Unrelated to Principal Diagnosis). This is because pancreas transplant
is not assigned to MDC 11, the MDC to which a principal diagnosis of
chronic renal failure secondary to diabetes is assigned.
For the proposed rule, using 100 percent of the data in the FY 1999
MedPAR file (which contains hospital bills received for FY 1999 through
[[Page 47068]]
December 31, 1999), we analyzed the cases for which procedure codes
52.80 and 52.83 were reported. We identified a total of 79 cases in 8
DRGs, in 3 MDCs, and in 1 pre-MDC. Of the 79 cases identified, 49 cases
were assigned to DRG 302, 14 cases were assigned to DRG 468, and 8
cases were assigned to DRG 191 (Pancreas, Liver and Shunt Procedures
with CC). The additional 8 cases were distributed over 5 other assorted
DRGs, and due to their disparity, were not considered in our
evaluation.
We examined our data to determine whether it was appropriate to
propose a new kidney and pancreas transplant DRG. We identified 49 such
dual transplant cases in the FY 1999 MedPAR file. We do not believe
this to be a sufficient sample size to warrant the creation of a new
DRG. Furthermore, we noted that nearly half of these cases occurred at
a hospital in Maryland, which is not paid under the prospective payment
system. The rest of the cases are spread across multiple hospitals,
with no single hospital having more than 5 cases in the FY 1999 MedPAR.
We received 261 comments on this issue, 244 of which were form
letters.
We will continue to monitor these dual transplant cases to
determine whether it may be appropriate in the future to establish a
new DRG. However, we are not establishing a new DRG for these cases for
FY 2001 and the current procedure code classification will remain in
effect.
Comment: All commenters called for the establishment of a unique
DRG recognizing the combined transplant of kidney and pancreas in the
same operative episode. Some commenters cited increased utilization of
hospital resources, especially operating-room time, recovery time, and
immunosuppressive drugs as justification for a separate DRG for a
combined pancreas-kidney transplant. One commenter forwarded to us
facility-specific charge data for four dual-transplant patients seen at
that center through December 1997.
Response: We stated in the proposed rule that there does appear to
be a difference between the charges for dual kidney-pancreas transplant
patients assigned to DRG 302 (Kidney Transplant) and those patients who
received only a kidney transplant. However, the numbers of dual
transplant cases in our database were insufficient to warrant
establishing a new DRG for dual transplants.
We point out that, given the low volume of these cases and their
infrequent occurrence in any particular hospital, we believe our
outlier policy will provide adequate protection for any extraordinarily
costly cases. Furthermore, there is always variation in terms of the
costs for cases within a DRG relative to the payments under the
prospective payment system for that DRG. Although examining these cases
in isolation from other DRG 302 cases appears to suggest that dual
transplants are more expensive, the nature of the prospective payment
system is such that hospitals are expected to be able to offset cases
where costs are greater than payments with those cases where payments
exceed costs.
We further point out that additional Medicare coverage of a
transplanted organ does not necessarily and immediately result in
creation of a unique DRG. A specific example of not creating a unique
DRG is the combined heart-lung transplant procedure. Effective for
discharges occurring on or after October 1, 1990, Medicare was able to
identify combined heart-lung transplant using ICD-9-CM code 33.6
(Combined heart-lung transplantation). Instead of assigning this new
code to its own specific DRG, however, it was combined with heart
transplant in DRG 103 (Heart Transplant). When DRG 495 (Lung
Transplant) was created for cases discharged on or after October 1,
1994, review of our data revealed that assignment of code 33.6 was more
clinically coherent with DRG 103 than DRG 495. Therefore, code 33.6 was
not moved into the new lung transplant DRG. Although this does not
indicate we will not create a distinct DRG for combined kidney and
pancreas transplants, it does show a precedent for allowing a
sufficient sample of cases to accumulate before deciding whether a new
DRG is necessary.
Finally, one of the risks of establishing a new DRG based on few
documentable cases is that a few extremely low-cost cases could
dramatically reduce the average charges in a year, thereby lowering the
relative weight and potentially underpaying cases in this DRG by a
significant amount.
Comment: Several commenters argued that combined pancreas and
kidney transplants are underpaid every time they are performed and
expressed concern that this lack of funding provides limited access to
this procedure for Medicare beneficiaries.
Response: We do not believe that beneficiaries' access will be
limited by our decision. In addition, it is a violation of a hospital's
Medicare provider agreement to place restrictions on the number of
Medicare beneficiaries it accepts for treatment unless it places the
same restrictions on all other patients.
Comment: One commenter argued that the incremental cost of the
pancreas transplant was insufficient to cause the claim to move into
outlier status.
Response: Our data show covered charges submitted by hospitals
ranging from a low of approximately $42,000 to a high in excess of
$182,000 for cases in DRG 302. Outlier payments are meant to alleviate
the financial effects of treating extraordinarily high-cost cases.
Therefore, the commenter may be correct in saying that some of the
cases with lower charges might not be further compensated by outlier
payments. However, other cases are further compensated to mitigate
losses experienced by hospitals.
Comment: One commenter stated we underrepresented the volume of
future dual transplants under Medicare, citing mid-year approval of
Medicare coverage for pancreas transplants, and noting that this is not
enough time to accurately reflect the numbers of procedures since
patients normally must accrue longer wait times before they receive
organ offers for transplant.
Response: It is true that we did not attempt to project the future
volume of combined kidney and pancreas transplant procedures. We
reported the number of actual hospital claims in our MedPAR data base,
submitted through December 1999, when we published the proposed rule in
the May 5, 2000 Federal Register (65 FR 26294). DRG categories and
payment are always based on actual historical hospital charge data, not
projected data. What must also be considered, however, is that dual
transplants would only appear in statistics concerning DRG 302, while
HCFA also covers pancreas transplants performed in separate operative
episodes, subsequent to kidney transplantation. Those pancreatic
transplants occurring after kidney transplant would appear in DRG 468,
or potentially other DRGs as well, depending on the principal
diagnosis.
Comment: Several commenters noted that the 1998 Annual Report of
United Network for Organ Sharing (UNOS) indicated there were 966
simultaneous kidney-pancreas transplants, and questioned HCFA's
reported 49 cases appearing in DRG 302 as being too low. One commenter,
citing the inability of HCFA to be able to identify cases of dual
kidney-pancreas transplants, pointed out the need for a specific DRG
for this category of patients. Another commenter noted that data were
lost because of the incorrect publication of ICD-9-CM code 52.83
(Heterotransplant
[[Page 47069]]
of pancreas) as being a covered procedure.
Response: Most patients who are experiencing end-stage renal
disease should be eligible for Medicare benefits. We note, however,
that none of the commenters submitted specific evidence contrary to our
finding that, outside of a single hospital in Maryland, no individual
hospital had more than five Medicare dual transplant cases during FY
1999.
Obviously one issue is the timing of the creation of the coverage
benefit, which was conferred for cases discharged on or after July 1,
1999. Cases transplanted prior to that date should not have appeared in
our data as covered procedures.
We recognize that 52.83 is an incorrect code, and have corrected
this typographical error in the Medicare Coverage Issues Manual, as
noted above. Interestingly, the original data reported in the proposed
notice contained 79 cases of pancreas transplant, but there were only 7
instances in which code 52.83 was reported. We believe that hospital
coders recognized the error in the original coverage instruction, and
chose to submit the less specific code 52.80 instead.
Comment: Several commenters asserted that it was contradictory for
us to argue that 49 cases is too few to establish a DRG but we
indicated in the May 5, 2000 proposed rule that there were 40 DRGs with
fewer than 10 cases per year.
Response: These low-volume DRGs are not new, but in most cases were
created very early during or even prior to the implementation of the
prospective payment system. Many of these DRGs are related to patient
categories that are rare in the Medicare population, such as age less
than 17 or labor and delivery during childbirth. The DRG relative-
weights for these DRGs are adjusted based on the overall change in the
DRG weights rather than through normal recalibration.
We do not believe our policy not to establish a new dual transplant
DRG for combined kidney and pancreas transplants is contradicted by the
existence of these low-volume DRGs. As the commenters indicated, the
number of combined kidney and pancreas transplants is likely to
increase in the next few years, and therefore it is important to ensure
an accurate and stable DRG payment is established.
Comment: Several commenters offered to work closely with HCFA to
identify cases and costs associated with this category of patients.
Response: We appreciate these offers and the cooperative spirit in
which they were presented. Our ability to evaluate and implement
potential DRG changes depends on the availability of validated,
representative data. We remain open to using non-MedPAR data if the
data are reliable and validated and enable us to appropriately measure
relative resource use. We will continue to monitor this category of
patients, and will address this issue in the FY 2002 proposed rule.
C. Recalibration of DRG Weights
We proposed to use the same basic methodology for the FY 2001
recalibration as we did for FY 2000 (July 30, 1999 final rule (64 FR
41498)). That is, we recalibrated the weights based on charge data for
Medicare discharges. However, we used the most current charge
information available, the FY 1999 MedPAR file. (For the FY 2000
recalibration, we used the FY 1998 MedPAR file.) The MedPAR file is
based on fully coded diagnostic and procedure data for all Medicare
inpatient hospital bills.
The final recalibrated DRG relative weights are constructed from FY
1999 MedPAR data (discharges occurring between October 1, 1998 and
September 30, 1999), based on bills received by HCFA through March
2000, from all hospitals subject to the prospective payment system and
short-term acute care hospitals in waiver States. The FY 1999 MedPAR
file includes data for approximately 11.0 million Medicare discharges.
The methodology used to calculate the DRG relative weights from the
FY 1999 MedPAR file is as follows:
To the extent possible, all the claims were regrouped
using the proposed DRG classification revisions discussed in section
II.B. of this preamble.
Charges were standardized to remove the effects of
differences in area wage levels, indirect medical education and
disproportionate share payments, and, for hospitals in Alaska and
Hawaii, the applicable cost-of-living adjustment.
The average standardized charge per DRG was calculated by
summing the standardized charges for all cases in the DRG and dividing
that amount by the number of cases classified in the DRG.
We then eliminated statistical outliers, using the same
criteria used in computing the current weights. That is, all cases that
are outside of 3.0 standard deviations from the mean of the log
distribution of both the charges per case and the charges per day for
each DRG are eliminated.
The average charge for each DRG was then recomputed
(excluding the statistical outliers) and divided by the national
average standardized charge per case to determine the relative weight.
A transfer case is counted as a fraction of a case based on the ratio
of its transfer payment under the per diem payment methodology to the
full DRG payment for nontransfer cases. That is, transfer cases paid
under the transfer methodology equal to half of what the case would
receive as a nontransfer would be counted as 0.5 of a total case.
We established the relative weight for heart and heart-
lung, liver, and lung transplants (DRGs 103, 480, and 495) in a manner
consistent with the methodology for all other DRGs except that the
transplant cases that were used to establish the weights were limited
to those Medicare-approved heart, heart-lung, liver, and lung
transplant centers that have cases in the FY 1999 MedPAR file.
(Medicare coverage for heart, heart-lung, liver, and lung transplants
is limited to those facilities that have received approval from HCFA as
transplant centers.)
Acquisition costs for kidney, heart, heart-lung, liver,
lung, and pancreas transplants continue to be paid on a reasonable cost
basis. Unlike other excluded costs, the acquisition costs are
concentrated in specific DRGs (DRG 302 (Kidney Transplant); DRG 103
(Heart Transplant); DRG 480 (Liver Transplant); DRG 495 (Lung
Transplant); and DRG 468 (Pancreas)). Because these costs are paid
separately from the prospective payment rate, it is necessary to make
an adjustment to prevent the relative weights for these DRGs from
including the acquisition costs. Therefore, we subtracted the
acquisition charges from the total charges on each transplant bill that
showed acquisition charges before computing the average charge for the
DRG and before eliminating statistical outliers.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. We proposed to use the same case threshold
in recalibrating the DRG weights for FY 2001. Using the FY 1999 MedPAR
data set, there were 40 DRGs containing fewer than 10 cases. We
computed the weights for these 40 low-volume DRGs by adjusting the FY
2000 weights of these DRGs by the percentage change in the average
weight of the cases in the other DRGs.
The weights developed according to the methodology described above,
using the DRG classification changes, resulted in an average case
weight that differs from the average case weight before recalibration.
Therefore, the new weights are normalized by an adjustment factor
(1.45507) so that the
[[Page 47070]]
average case weight after recalibration is equal to the average case
weight before recalibration. This adjustment is intended to ensure that
recalibration by itself neither increases nor decreases total payments
under the prospective payment system.
We received no comments on DRG recalibration.
Section 1886(d)(4)(C)(iii) of the Act requires that, beginning with
FY 1991, reclassification and recalibration changes be made in a manner
that assures that the aggregate payments are neither greater than nor
less than the aggregate payments that would have been made without the
changes. Although normalization is intended to achieve this effect,
equating the average case weight after recalibration to the average
case weight before recalibration does not necessarily achieve budget
neutrality with respect to aggregate payments to hospitals because
payment to hospitals is affected by factors other than average case
weight. Therefore, as we have done in past years and as discussed in
section II.A.4.a. of the Addendum to this final rule, we make a budget
neutrality adjustment to assure that the requirement of section
1886(d)(4)(C)(iii) of the Act is met.
III. Changes to the Hospital Wage Index
A. Background
Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary must adjust the standardized amounts "for area differences
in hospital wage levels by a factor (established by the Secretary)
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level." In
accordance with the broad discretion conferred under the Act, we
currently define hospital labor market areas based on the definitions
of Metropolitan Statistical Areas (MSAs), Primary MSAs (PMSAs), and New
England County Metropolitan Areas (NECMAs) issued by the Office of
Management and Budget (OMB). The OMB also designates Consolidated MSAs
(CMSAs). A CMSA is a metropolitan area with a population of one million
or more, comprising two or more PMSAs (identified by their separate
economic and social character). For purposes of the hospital wage
index, we use the PMSAs rather than CMSAs since they allow a more
precise breakdown of labor costs. If a metropolitan area is not
designated as part of a PMSA, we use the applicable MSA. Rural areas
are areas outside a designated MSA, PMSA, or NECMA. For purposes of the
wage index, we combine all of the rural counties in a State to
calculate a rural wage index for that State.
We note that, effective April 1, 1990, the term Metropolitan Area
(MA) replaced the term MSA (which had been used since June 30, 1983) to
describe the set of metropolitan areas consisting of MSAs, PMSAs, and
CMSAs. The terminology was changed by OMB in the March 30, 1990 Federal
Register to distinguish between the individual metropolitan areas known
as MSAs and the set of all metropolitan areas (MSAs, PMSAs, and CMSAs)
(55 FR 12154). For purposes of the prospective payment system, we will
continue to refer to these areas as MSAs.
Beginning October 1, 1993, section 1886(d)(3)(E) of the Act
requires that we update the wage index annually. Furthermore, this
section provides that the Secretary base the update on a survey of
wages and wage-related costs of short-term, acute care hospitals. The
survey should measure, to the extent feasible, the earnings and paid
hours of employment by occupational category, and must exclude the
wages and wage-related costs incurred in furnishing skilled nursing
services. As discussed below in section III.F of this preamble, we also
take into account the geographic reclassification of hospitals in
accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when
calculating the wage index.
B. FY 2001 Wage Index Update
The FY 2001 wage index values in section VI of the Addendum to this
final rule (effective for hospital discharges occurring on or after
October 1, 2000 and before October 1, 2001) are based on the data
collected from the Medicare cost reports submitted by hospitals for
cost reporting periods beginning in FY 1997 (the FY 2000 wage index was
based on FY 1996 wage data).
The FY 2001 wage index includes the following categories of data
associated with costs paid under the hospital inpatient prospective
payment system (as well as outpatient costs), which were also included
in the FY 2000 wage index:
Salaries and hours from short-term, acute care hospitals.
Home office costs and hours.
Certain contract labor costs and hours.
Wage-related costs.
Consistent with the wage index methodology for FY 2000, the wage
index for FY 2001 also continues to exclude the direct and overhead
salaries and hours for services not paid through the inpatient
prospective payment system such as skilled nursing facility services,
home health services, or other subprovider components that are not
subject to the prospective payment system.
We calculate a separate Puerto Rico-specific wage index and apply
it to the Puerto Rico standardized amount. (See 62 FR 45984 and 46041.)
This wage index is based solely on Puerto Rico's data. Finally, section
4410 of Public Law 105-33 provides that, for discharges on or after
October 1, 1997, the area wage index applicable to any hospital that is
not located in a rural area may not be less than the area wage index
applicable to hospitals located in rural areas in that State.
Comment: One commenter believed that the FY 2001 wage calculation
does not allow for inflationary effects or existing contractual
increases, and recommended that we consider using a more recent
Medicare cost reporting year and allow for inflationary wage
adjustments.
Response: Due to the time period allowed for: (1) hospitals to
complete and submit their cost reports to their intermediaries, (2)
intermediaries to review and submit the cost reports to HCFA, (3)
intermediaries to perform a separate, detailed review of all wage data
and submit the results to HCFA, and (4) HCFA to compile a complete set
of all hospitals' wage data from a given Federal fiscal year, we do not
have available more recent reliable data to calculate the wage index.
As described in the proposed rule (65 FR 26299) and section III.E. of
this final rule, we adjust the wage data to a common period that
reflects the latest cost reporting period for the filing year. Because
the wage index is a relative measure, comparing area average hourly
wages to a national average hourly wage, we believe the wage index is
minimally impacted by inflationary effects beyond those accounted for
by adjusting the data to a common period.
C. FY 2001 Wage Index
Because the hospital wage index is used to adjust payments to
hospitals under the prospective payment system, it should, to the
extent possible, reflect the wage costs associated with the areas of
the hospital included under the hospital inpatient prospective payment
system. In response to concerns within the hospital community related
to the removal from the wage index calculation costs related to GME
(teaching physicians and residents) and certified registered nurse
anesthetists (CRNAs), which are paid by Medicare separately from the
prospective
[[Page 47071]]
payment system, in 1998 the AHA convened a workgroup to develop a
consensus recommendation on this issue. The workgroup recommended that
costs related to GME and CRNAs be phased out of the wage index
calculation over a 5-year period. Based upon our analysis of hospitals'
FY 1996 wage data, and consistent with the AHA workgroup's
recommendation, we specified in the July 30, 1999 final rule (64 FR
41505) that we would phase-out these costs from the calculation of the
wage index over a 5-year period, beginning in FY 2000. In keeping with
the decision to phase-out costs related to GME and CRNAs, the final FY
2001 wage index is based on a blend of 60 percent of an average hourly
wage including these costs, and 40 percent of an average hourly wage
excluding these costs.
Comment: We received one comment in support of our continued
transition of removing GME and CRNA costs from the wage index
calculation. We also received a comment from a national association
representing nurse anesthetists expressing concern that, as a result of
disparities in cost reporting systems and vague fiscal intermediary
instructions, CRNA costs that should be paid under Part B might still
be reported in hospitals' FY 1997 cost reports. The commenter also
stated that removing CRNA costs from the wage index eliminates a
payment mechanism for the indirect patient care activities performed by
CRNAs, resulting in a disincentive for hospitals to employ CRNAs. To
avoid any disruption in the "continuous operations of hospitals," the
commenter recommended that, prior to implementing any changes to the
wage index calculation, HCFA should refine the Part A cost data
collection and cost reporting process and instruct the fiscal
intermediaries to provide all hospitals with "explicit instructions as
to the appropriate reporting of CRNA costs." The commenter believed
this refinement to the cost data will identify and exclude only the
CRNA salary costs related to the rural hospital cost pass-through
provisions and allow Part A reimbursement for indirect patient care
which are not reimbursed under Medicare Part B. In keeping with the
general policy to exclude costs that are not paid through the Medicare
prospective payment system, the commenter also recommended that HCFA
exclude salaries reported under Medicare Part A for anesthesia
assistants.
Response: We note that the FY 2001 wage index is the second year of
the transition to eliminating Part A CRNA costs from the wage index. As
evidenced in the impact analysis in the May 5, 2000 proposed rule (65
FR 26415), eliminating these CRNA and GME costs has an insignificant
impact, with no category of hospitals impacted by more than 0.1
percent. Therefore, we do not believe it is necessary to delay further
removal of CRNA costs.
Payment for CRNA services is made under a fee schedule under
Medicare Part B (Supplementary medical insurance), with the sole
exception of payments to hospitals under the rural pass-through
provision. Although a hospital contracting for CRNA services would
include the costs on its cost report, the fiscal intermediary forwards
the information to the carrier for payment under the fee schedule. As
the commenter noted, this payment structure has been in place since
January 1, 1989. We believe that intermediaries and carriers are
generally well informed and experienced in the handling of these costs.
However, we will consider whether further clarification of our
instructions is necessary.
The commenter also stated that Medicare does not specifically
exclude anesthesia assistants, who are also reimbursed under Part B,
from the wage index. The cost report instructions for Worksheet A, Line
20, refer to nonphysician anesthetists, which include both CRNAs and
anesthesia assistants. We will consider whether our Worksheet S-3
instructions need to be revised to explicitly instruct hospitals to
remove the Part B costs associated with anesthesia assistants as well.
1. Teaching Physician Costs and Hours Survey
As discussed in the July 30, 1999 final rule, because the FY 1996
cost reporting data did not separate teaching physician costs from
other physician Part A costs, we instructed our fiscal intermediaries
to survey teaching hospitals to collect data on teaching physician
costs and hours payable under the per resident amounts (Sec. 413.86)
and reported on Worksheet A, Line 23 of the hospitals' cost report.
The FY 1997 cost reports also do not separately report teaching
physician costs. Therefore, we once again conducted a special survey to
collect data on these costs. (For the FY 1998 cost reports, we have
revised the Worksheet S-3, Part II so that hospitals can separately
report teaching physician Part A costs. Therefore, after this year, it
will no longer be necessary for us to conduct this special survey.)
The survey data collected as of mid-January 2000 were included in
the preliminary public use data file made available on the Internet in
February 2000 at HCFA's home page (http://www.hcfa.gov). At that time,
we had received teaching physician data for 459 out of 770 teaching
hospitals reporting physician Part A costs on their Worksheet S-3, Part
II. Also, in some cases, fiscal intermediaries reported that teaching
hospitals did not incur teaching physician costs. In early January
2000, we instructed fiscal intermediaries to review the survey data for
consistency with the Supplemental Worksheet A-8-2 of the hospitals'
cost reports. Supplemental Worksheet A-8-2 is used to apply the
reasonable compensation equivalency limits to the costs of provider-
based physicians, itemizing these costs by the corresponding line
number on Worksheet A.
When we notified the hospitals, through our fiscal intermediaries,
that they could review the survey data on the Internet, we also
notified hospitals that requests for changes to the teaching survey
data had to be submitted by March 6, 2000. We instructed fiscal
intermediaries to review the requests for changes received from
hospitals and submit necessary data revisions to HCFA by April 3, 2000.
We removed from the wage data the physician Part A teaching costs and
hours reported on the survey form for every hospital that completed the
survey. These data had been verified by the fiscal intermediary before
submission to HCFA.
For the FY 2000 wage index, the AHA workgroup recommended that, if
reliable teaching physician data were not available for removing
teaching costs from hospitals' total physician Part A costs, HCFA
should remove 80 percent of the costs and hours reported by hospitals
attributable to physicians' Part A services. In calculating the FY 2000
wage index, if we did not receive survey data for a teaching hospital,
we removed 80 percent of the hospital's reported total physician Part A
costs and hours from the calculation. In the May 5, 2000 proposed rule,
for the FY 2001 wage index, we proposed a different approach. In some
instances, fiscal intermediaries had verified that teaching hospitals
do not have teaching physician costs; for these hospitals, it is not
necessary to adjust the hospitals' physician Part A costs. We conferred
with the fiscal intermediaries to distinguish teaching hospitals that
did not have teaching physician costs from teaching hospitals that had
not identified the portion of their physician Part A costs associated
with teaching physicians (that is, hospitals that did not complete the
teaching survey).
[[Page 47072]]
In calculating the final FY 2001 wage index, we removed 100 percent
of the physician Part A costs and hours (reported on Worksheet S-3,
Lines 4, 10, 12, and 18) in the FY 2001 wage index calculation for
those hospitals where the fiscal intermediary verifies that the
hospital has otherwise unidentified teaching physician costs included
in physician Part A costs and hours. For those teaching hospitals whose
fiscal intermediaries identified as having costs attributable to
teaching physicians but reported no physician Part A costs on the
Worksheet S-3, we removed 100 percent of Worksheet A, Line 23, Column
1. To determine the hours to be removed, the costs reported on Line 23
of the Worksheet A, Column 1 are divided by the national average hourly
wage for teaching physicians of $59.17 based upon the survey.
We note that Line 23 of Worksheet A, Column 1, flows directly into
hospitals' total salaries on Worksheet S-3, Part II. Line 23 contains
GME costs not directly attributable to residents' salaries or fringe
benefits. Therefore, these costs tend to be costs associated with
teaching physicians. To the extent a hospital fails to separately
identify the proportion of its Line 23, Worksheet A costs associated
with teaching physicians, we believe it is reasonable to remove all of
these costs under the presumption that they are all associated with
teaching physicians.
Thus, as we proposed in the May 5 proposed rule, for the FY 2001
wage index, we are either using the data submitted on the teaching
physician survey (837 hospitals), or, in the absence of such data,
removing 100 percent of physician Part A costs reported on Worksheet S-
3 (287 hospitals), or removing the amount reported on Line 23 of
Worksheet A, Column 1 (18 hospitals).
We received one comment in support of removing 100 percent of
physician Part A costs and hours from teaching hospitals where the
fiscal intermediary verifies that the hospital has otherwise
unidentifiable teaching costs included in physician Part A costs and
hours.
2. Nurse Practitioner and Clinical Nurse Specialist Costs
The current wage index includes salaries and wage-related costs for
nurse practitioners (NPs) and clinical nurse specialists (CNSs) who,
similar to physician assistants and CRNAs (unless at hospitals under
the rural pass-through exception for CRNAs), are paid under the
physician fee schedule. Over the past year, we have received several
inquiries from hospitals and fiscal intermediaries regarding NP costs
and how they should be handled for purposes of the hospital wage index.
Because Medicare generally pays for NP and CNS costs under Part B
outside the hospital prospective payment system, removing NP and CNS
Part B costs from the wage index calculation would be consistent with
our general policy to exclude, to the extent possible, costs that are
not paid through the hospital prospective payment system. Because NP
and CNS costs are not separately reported on the Worksheet S-3 for FYs
1997, 1998, and 1999, the FY 2000 Worksheet S-3 and cost reporting
instructions will be revised to allow for separate reporting of NP and
CNS Part A and Part B costs. We plan to exclude the Part B costs
beginning with the FY 2004 wage index. These services are pervasive in
both rural and urban settings. As such, because the wage index is a
relative measure, we believe there will be no significant overall
impact resulting from the removal of Part B costs for NPs and CNSs.
We did not receive any public comments on our plan to exclude NP
and CNS Part B costs from the wage index calculation, beginning with
the FY 2004 wage index.
3. Severance and Bonus Pay Costs
On October 6, 1999, we issued a memorandum to hospitals and fiscal
intermediaries regarding our policy on treatment of severance and bonus
pay costs in developing the wage index, effective beginning with the FY
2001 wage index. (The hospital cost report instructions also will be
amended to reflect our policy on these costs.) We stated that severance
pay costs may be included on Worksheet S-3 as salaries on Part II, Line
1, only if the associated hours are included. If the hospital has no
accounting of the hours, or if the costs are not based on hours, the
severance pay costs may not be included in the wage index. On the other
hand, bonus pay costs may be included in the cost report on Line 1 of
Worksheet S-3 with no corresponding hours. Due to the inquiries we
continue to receive from hospitals regarding the inclusion of severance
pay costs on cost reports, in the May 5 proposed rule, we clarified our
policy in this area.
Hospitals vary in their accounting of severance pay costs. Some
hospitals base the amounts to be paid on hours, for example, 80 hours
worth of pay. Others do not; for example, a 15-year employee may be
offered a $25,000 buyout package. Some hospitals record associated
hours; others do not. The Wage Index Workgroup has suggested that we
not include any severance pay costs in the wage index calculation, that
these costs are for terminated employees, and, therefore, they should
be considered an administrative rather than a salary expense.
Severance pay costs can be substantial amounts, particularly in
periods of downsizing. In the proposed rule, we state our view that, if
severance pay costs are included with no associated hours, the wage
index, which is a relative measure of wage costs across labor market
areas, would be distorted.
We included severance pay costs in the proposed FY 2001 wage index
as a salary cost to the extent that associated hours also were
reported. However, we solicited public comments on this issue. We
received two comments on this issue.
Comment: Two national hospital associations disagree with our
policy clarification that severance pay costs may be included on
Worksheet S-3, Part II, Line 1 as salaries only if associated hours are
included. These commenters argued that HCFA's wage index policy is that
wages and benefits are to be determined in accordance with generally
accepted accounting principles (GAAP) rather than Medicare cost
reimbursement principles and that under GAAP severance pay is
classified as salaries and wages. They also argued that, unless a
terminated employee continues to work or is still considered to be
employed by the provider after the last regular pay period that
additional hours should not be reported for severance pay. Further, for
employees receiving severance pay, "there are no hours to report"
because "their job has been eliminated and they are no longer employed
by the provider."
Response: As indicated in the proposed rule, we exclude severance
pay costs from the wage index calculation if there are no associated
hours because we believe that inclusion of such costs might lead to a
distortion of the wage index. The wage index is a relative measure of
average hourly wages across geographic areas, and we believe that
severance pay costs (which might be significant) without associated
hours might inappropriately inflate the average hourly wage for a given
hospital or area for a given time period (which in turn would distort
the relative measure of wages across areas). For example, if we
included severance pay costs with no associated hours, then a hospital
might be more likely to qualify for geographic reclassification for
purposes of the wage index simply because it incurred significant
severance pay costs in a given year. In light of the comments, we will
continue to examine this issue to determine whether inclusion of
severance pay costs with no
[[Page 47073]]
associated hours would lead to a better measure of relative wages as
opposed to a distortion in the measure and to determine whether it is
feasible and appropriate to revise our policy on severance pay costs in
the future.
4. Health Insurance and Health-Related Costs
In the September 1, 1994 final rule (59 FR 45356), we stated that
health insurance, purchased or self-insurance, is a core wage-related
cost. Over the past year, we have received several inquiries from
hospitals and hospital associations requesting that we define
"purchased health insurance costs." In response, in the May 5
proposed rule, we clarified that, for wage index purposes, we define
"purchased health insurance costs" as the premiums and administrative
costs a hospital pays on behalf of its employees for health insurance
coverage. "Self-insurance" includes the hospital's costs (not
charges) for covered services delivered to its employees, less any
amounts paid by the employees, and less the personnel costs for
hospital staff who delivered the services (these costs are already
included in the wage index). For purchased health insurance and self-
health insurance, the included costs must be for services covered in a
health insurance plan.
Also, in the September 1, 1994 final rule (59 FR 45357), we
addressed a comment about the inclusion of health-related costs in the
calculation of the wage index. Such health-related costs include
employee physical examinations, flu shots, and clinic visits, and other
services that are not covered by employees' health insurance plans but
are provided at no cost or at discounted rates to employees of the
hospital. In the May 5 proposed rule, we proposed to clarify that the
costs for these services may be included as an "other" wage-related
cost if (among other criteria), when all such health-related costs are
combined, the total of such costs is greater than one percent of the
hospital's total salaries (less excluded area salaries). As discussed
in the September 1, 1994 final rule, a cost may be allowable as an
"other wage-related cost" if it meets certain criteria. Under one
criterion, the wage-related cost must be greater than one percent of
total salaries (less excluded area salaries). For purposes of applying
this 1-percent test with respect to the health-related costs at issue
here, we look at the combined total of the health-related costs (not
charges) for services delivered to its employees, less any amounts
employees paid, and less the personnel costs for hospital staff who
delivered the services (as these costs are already included in the wage
index).
Comment: We received several comments regarding our policy and
definitions for health insurance and health-related costs. Some
commenters interpreted the policy clarification in the proposed rule as
stating that self-insurance will no longer be included as core wage-
related costs. They believe that not including these costs is
inconsistent with the fundamental concept of core wage-related costs.
One commenter pointed to the 1994 HCFA/Industry workgroup which
established the list of core wage-related costs still in use, and
contended that "(t)hese proposed changes are inconsistent with the
agreements reached in those original workgroup meetings."
Response: As noted in the May 5 proposed rule, we previously stated
our policy regarding health insurance and health-related costs in the
FY 1995 final rule. We emphasize again in this final rule that, health
insurance costs, whether purchased or self-insured, is, and will
continue to be, a core wage-related cost. We did not propose a change
in this policy, nor are we implementing a change in this policy in this
final rule.
Comment: Some commenters objected to our statement in the proposed
rule that only health self-insurance costs (not charges, and exclusive
of any amounts paid by covered employees and less the personnel costs
for hospital staff who delivered the services) are allowable core wage-
related costs, and also argued that health self-insurance costs should
be determined in accordance with GAAP which would include charges and
personnel costs. They suggested that excluding costs that are
determined in accordance with GAAP would create major inconsistencies
among hospitals and inevitably result in major swings in the wage index
for individual MSAs.
Two commenters recommended that HCFA review this policy to avoid
creating disincentives to hospitals that develop cost-effective health-
insurance benefits; they asserted that there should be no
differentiation between purchased health insurance and self-funded
health insurance.
Response: We disagree with the commenters that we are unfairly and
inconsistently treating hospitals that self-insure by not allowing as a
wage-related cost the salary costs for employees who deliver the health
services. The personnel costs of delivering health care to all of a
hospital's patients are already included in the wage index through line
1 of Worksheet S-3, Part II. Accounting for these hospital personnel
costs on lines 13 or 14 for wage-related costs would falsely overstate
a hospital's average hourly wage. Unless a hospital actually incurs the
personnel costs twice, it is inappropriate to include the costs twice.
Our policy does not require the exclusion of staff personnel costs from
the premium costs for hospitals that purchase health insurance. As
defined above and in the proposed rule, purchased health insurance
costs include the premiums and administrative costs a hospital pays on
behalf of its employees for health insurance coverage. The commenters
suggested that the premium costs may include a hospital's staff
personnel costs. We believe it is appropriate to allow the entire
premium cost to a hospital as a wage-related cost if the intermediary
verifies that the amount is an actual cost to the hospital.
Nevertheless, we agree with the commenters that, overall, for
"wage-related costs", the application of GAAP creates a more static
wage index and a better measure of relative wages across areas. For the
FY 2002 wage index, we will advise hospitals to apply GAAP for wage-
related costs, including health insurance and health-related costs.
However, for self-health insurance and health-related costs, personnel
costs associated with hospital staff that deliver the services to the
employees must continue to be excluded from wage-related costs, if the
costs are already included in the wage data as salaries on Worksheet S-
3, Part II, Line I.
Comment: One commenter recommended that the insurance plan
requirements be eliminated from our definition of health insurance
costs, stating that hospitals should be required to maintain adequate
records in support of the services they provide to their employees at
either no cost or below cost. In expressing the concern that employee
health benefits are ever-changing, the commenter recommended that not
only must HCFA's definition of insurance plans be specific but it
should also be implemented prospectively with sufficient clarification
to reduce inconsistency in interpretation by the fiscal intermediaries.
Response: We are concerned that adopting this recommendation would
make it difficult for intermediaries to accurately track benefits
provided to a hospital's employees, leading to greater disparity in the
treatment of these costs across hospitals. We will give further
consideration to the implications of this recommendation, however.
Comment: One commenter recommended that health-related costs, for
such items as "employee physicals,
[[Page 47074]]
flu shots, and clinic visits" should be included as a core wage-
related cost; therefore, the 1-percent threshold criteria for health
related costs should be eliminated.
Response: In the September 1, 1994 final rule, when we published
the list of core wage-related costs agreed upon by the workgroup, we
responded to comments specifically suggesting that health-related
services (as opposed to self-insured health services, which was clearly
on the original core list) be added to the core list. In our response,
we pointed out that the core list was developed in conjunction with the
hospital industry, to establish a list of commonly recognized costs
that contribute significantly to the wage costs of a hospital and are
readily identifiable in the hospital's records. Health-related benefits
was not included on the core list at that time. We continue to believe
these health-related benefits do not fit the criteria established by
the workgroup for identifying core wage-related costs.
5. Elimination of Wage Costs Associated With Rural Health Clinics and
Federally Qualified Health Centers
The current hospital wage index includes the salaries and wage-
related costs of hospital-based rural health clinics (RHCs) and
federally qualified health centers (FQHCs). However, Medicare pays for
these costs outside the hospital inpatient prospective payment system.
Effective January 1, 1998, under section 1833(f) of the Act, as amended
by section 4205 of Public Law 105-33, Medicare pays both hospital-based
and freestanding RHCs and FQHCs on a cost-per-visit basis. Medicare
cost reporting forms for RHCs and FQHCs were revised to reflect this
legislative change, beginning with cost reporting periods ending on or
after September 30, 1998 (the FY 1998 cost report). Other cost-
reimbursed outpatient departments, such as ambulatory surgical centers,
community mental health centers, and comprehensive outpatient
rehabilitation facilities, are presently excluded from the wage index.
Therefore, consistent with our wage index refinements that exclude, to
the extent possible, costs associated with services not paid under the
hospital inpatient prospective payment system, we believe it would be
appropriate to exclude all salary costs associated with RHCs and FQHCs
from the wage index calculation if we had feasible, reliable data for
such exclusion.
Because RHC and FQHC costs are not separately reported on the
Worksheet S-3 for FYs 1997, 1998, and 1999, we cannot exclude these
costs from the FY 2001, FY 2002, or FY 2003 wage indexes. Therefore, we
will revise the FY 2000 Worksheet S-3 to begin providing for the
separate reporting of RHC and FQHC salaries, wage-related costs, and
hours. We will evaluate the wage data for RHCs and FQHCs in developing
the FY 2004 wage index.
We received no public comments on this issue.
D. Verification of Wage Data From the Medicare Cost Report
The data for the FY 2001 wage index were obtained from Worksheet S-
3, Parts II and III of the FY 1997 Medicare cost reports. The data file
used to construct the wage index includes FY 1997 data submitted to
HCFA as of mid-July 2000. As in past years, we performed an intensive
review of the wage data, mostly through the use of edits designed to
identify aberrant data.
We asked our fiscal intermediaries to revise or verify data
elements that resulted in specific edit failures. The unresolved data
elements that were included in the calculation of the proposed FY 2001
wage index have been resolved and are reflected in calculation of the
final FY 2001 wage index. We note that, as part of this process to
identify aberrant data and correct any errors prior to the calculation
of the final FY 2001 wage index, we notified by letter those hospitals
that were leading to large variations in the wage indexes of their
labor market areas compared to the FY 2000 wage index. These hospitals
were instructed to review their data to identify the reason for the
large increases or decreases and notify their fiscal intermediary of
any necessary corrections. This resulted in several revisions to the
data.
Also, as part of our editing process, in the final wage index, we
removed data for 15 hospitals that failed edits. For eight of these
hospitals, we were unable to obtain sufficient documentation to verify
or revise the data because the hospitals are no longer participating in
the Medicare program or are in bankruptcy status. Two hospitals had
erroneous average hourly wages (negative and zero) after allocating
overhead to their excluded areas and, therefore, were removed from the
calculation. The data from the remaining five hospitals also failed the
edits and were removed. As a result, the final FY 2001 wage index is
calculated based on FY 1997 wage data for 4,950 hospitals.
E. Computation of the FY 2001 Wage Index
The method used to compute the FY 2001 wage index follows. We note
one technical change to the formula used to calculate the proposed wage
index. For the first time, in the proposed rule we subtracted line 13
of Worksheet S-3, Part III from total hours when determining the
excluded hours ratio used to estimate the amount of overhead attributed
to excluded areas. Although we continue to believe this is the correct
formula for determining this ratio, it resulted in very large and
inappropriate increases in the average hourly wages for some hospitals.
Therefore, in calculating the final FY 2001 wage index, we are not
subtracting line 13 of Worksheet S-3, Part III in the calculation.
Step 1--As noted above, we based the FY 2001 wage index on wage
data reported on the FY 1997 Medicare cost reports. We gathered data
from each of the non-Federal, short-term, acute care hospitals for
which data were reported on the Worksheet S-3, Parts II and III of the
Medicare cost report for the hospital's cost reporting period beginning
on or after October 1, 1996 and before October 1, 1997. In addition, we
included data from a few hospitals that had cost reporting periods
beginning in September 1996 and reported a cost reporting period
exceeding 52 weeks. These data were included because they did not have
a cost report begin during the period described above. However, we
generally describe these wage data as FY 1997 data. We note that, if a
hospital had more than one cost reporting period beginning during FY
1997 (for example, a hospital had two short cost reporting periods
beginning on or after October 1, 1996 and before October 1, 1997), we
included wage data from only one of the cost reporting periods, the
longest, in the wage index calculation. If there was more than one cost
reporting period and the periods were equal in length, we included the
wage data from the latest period in the wage index calculation.
Step 2--Salaries--The method used to compute a hospital's average
hourly wage is a blend of 60 percent of the hospital's average hourly
wage including all GME and CRNA costs, and 40 percent of the hospital's
average hourly wage after eliminating all GME and CRNA costs.
In calculating a hospital's average salaries plus wage-related
costs, including all GME and CRNA costs, we subtracted from Line 1
(total salaries) the Part B salaries reported on Lines 3 and 5, home
office salaries reported on
[[Page 47075]]
Line 7, and excluded salaries reported on Lines 8 and 8.01 (that is,
direct salaries attributable to skilled nursing facility services, home
health services, and other subprovider components not subject to the
prospective payment system). We also subtracted from Line 1 the
salaries for which no hours were reported on Lines 2, 4, and 6. To
determine total salaries plus wage-related costs, we added to the net
hospital salaries the costs of contract labor for direct patient care,
certain top management, and physician Part A services (Lines 9 and 10),
home office salaries and wage-related costs reported by the hospital on
Lines 11 and 12, and nonexcluded area wage-related costs (Lines 13, 14,
16, 18, and 20).
We note that contract labor and home office salaries for which no
corresponding hours are reported were not included. In addition, wage-
related costs for specific categories of employees (Lines 16, 18, and
20) are excluded if no corresponding salaries are reported for those
employees (Lines 2, 4, and 6, respectively).
We then calculated a hospital's salaries plus wage-related costs by
subtracting from total salaries the salaries plus wage-related costs
for teaching physicians, Part A CRNAs (Lines 2 and 16), and residents
(Lines 6 and 20).
Step 3--Hours--With the exception of wage-related costs, for which
there are no associated hours, we computed total hours using the same
methods as described for salaries in Step 2.
Step 4--For each hospital reporting both total overhead salaries
and total overhead hours greater than zero, we then allocated overhead
costs. First, we determined the ratio of excluded area hours (sum of
Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours
(Line 1 minus the sum of Part II, Lines 3, 5, and 7). We then computed
the amounts of overhead salaries and hours to be allocated to excluded
areas by multiplying the above ratio by the total overhead salaries and
hours reported on Line 13 of Worksheet S-3, Part III. Finally, we
subtracted the computed overhead salaries and hours associated with
excluded areas from the total salaries and hours derived in Steps 2 and
3.
Step 5--For each hospital, we adjusted the total salaries plus
wage-related costs to a common period to determine total adjusted
salaries plus wage-related costs. To make the wage adjustment, we
estimated the percentage change in the employment cost index (ECI) for
compensation for each 30-day increment from October 14, 1996 through
April 15, 1998 for private industry hospital workers from the Bureau of
Labor Statistics' Compensation and Working Conditions. We use the ECI
because it reflects the price increase associated with total
compensation (salaries plus fringes) rather than just the increase in
salaries. In addition, the ECI includes managers as well as other
hospital workers. This methodology to compute the monthly update
factors uses actual quarterly ECI data and assures that the update
factors match the actual quarterly and annual percent changes. The
factors used to adjust the hospital's data were based on the midpoint
of the cost reporting period, as indicated below.
Midpoint of Cost Reporting Period
------------------------------------------------------------------------
Adjustment
After Before factor
------------------------------------------------------------------------
10/14/96........................... 11/15/96.............. 1.02848
11/14/96........................... 12/15/96.............. 1.02748
12/14/96........................... 01/15/97.............. 1.02641
01/14/97........................... 02/15/97.............. 1.02521
02/14/97........................... 03/15/97.............. 1.02387
03/14/97........................... 04/15/97.............. 1.02236
04/14/97........................... 05/15/97.............. 1.02068
05/14/97........................... 06/15/97.............. 1.01883
06/14/97........................... 07/15/97.............. 1.01695
07/14/97........................... 08/15/97.............. 1.01520
08/14/97........................... 09/15/97.............. 1.01357
09/14/97........................... 10/15/97.............. 1.01182
10/14/97........................... 11/15/97.............. 1.00966
11/14/97........................... 12/15/97.............. 1.00712
12/14/97........................... 01/15/98.............. 1.00451
01/14/98........................... 02/15/98.............. 1.00213
02/14/98........................... 03/15/98.............. 1.00000
03/14/98........................... 04/15/98.............. 0.99798
------------------------------------------------------------------------
For example, the midpoint of a cost reporting period beginning
January 1, 1997 and ending December 31, 1997 is June 30, 1997. An
adjustment factor of 1.01695 would be applied to the wages of a
hospital with such a cost reporting period. In addition, for the data
for any cost reporting period that began in FY 1997 and covers a period
of less than 360 days or more than 370 days, we annualized the data to
reflect a 1-year cost report. Annualization is accomplished by dividing
the data by the number of days in the cost report and then multiplying
the results by 365.
Step 6--Each hospital was assigned to its appropriate urban or
rural labor market area before any reclassifications under section
1886(d)(8)(B) or section 1886(d)(10) of the Act. Within each urban or
rural labor market area, we added the total adjusted salaries plus
wage-related costs obtained in Step 5 (with and without GME and CRNA
costs) for all hospitals in that area to determine the total adjusted
salaries plus wage-related costs for the labor market area.
Step 7--We divided the total adjusted salaries plus wage-related
costs obtained under both methods in Step 6 by the sum of the
corresponding total hours (from Step 4) for all hospitals in each labor
market area to determine an average hourly wage for the area.
Because the FY 2001 wage index is based on a blend of average
hourly wages, we then added 60 percent of the average hourly wage
calculated without removing GME and CRNA costs, and 40 percent of the
average hourly wage calculated with these costs excluded.
Step 8--We added the total adjusted salaries plus wage-related
costs obtained in Step 5 for all hospitals in the nation and then
divided the sum by the national sum of total hours from Step 4 to
arrive at a national average hourly wage (using the same blending
methodology described in Step 7). Using the data as described above,
the national average hourly wage is $21.7702.
Step 9--For each urban or rural labor market area, we calculated
the hospital wage index value by dividing the area average hourly wage
obtained in Step 7 by the national average hourly wage computed in Step
8.
Step 10--Following the process set forth above, we developed a
separate Puerto Rico-specific wage index for purposes of adjusting the
Puerto Rico standardized amounts. (The national Puerto Rico
standardized amount is adjusted by a wage index calculated for all
Puerto Rico labor market areas based on the national average hourly
wage as described above.) We added the total adjusted salaries plus
wage-related costs (as calculated in Step 5) for all hospitals in
Puerto Rico and divided the sum by the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an overall average hourly wage of
$10.1902 for Puerto Rico.
For each labor market area in Puerto Rico, we calculated the Puerto
Rico-specific wage index value by dividing the area average hourly wage
(as calculated in Step 7) by the overall Puerto Rico average hourly
wage.
Step 11--Section 4410 of Public Law 105-33 provides that, for
discharges on or after October 1, 1997, the area wage index applicable
to any hospital that is located in an urban area may not be less than
the area wage index applicable to hospitals located in rural areas in
that State. Furthermore, this wage index floor is to be implemented in
such a manner as to assure that aggregate prospective payment system
payments are not greater or less than those that would have been made
in the year if this section did not apply. For FY 2001, this change
affects 193 hospitals in 34 MSAs. The MSAs affected by this
[[Page 47076]]
provision are identified in Table 4A by a footnote.
F. Revisions to the Wage Index Based on Hospital Redesignation
Under section 1886(d)(8)(B) of the Act, hospitals in certain rural
counties adjacent to one or more MSAs are considered to be located in
one of the adjacent MSAs if certain standards are met. Under section
1886(d)(10) of the Act, the Medicare Geographic Classification Review
Board (MGCRB) considers applications by hospitals for geographic
reclassification for purposes of payment under the prospective payment
system. Applications for MGCRB reclassification are now on the internet
at http://www.hcfa.gov/regs/appeals.
1. Provisions of Public Law 106-113
Under section 152(b) of Public Law 106-113, hospitals in certain
counties are deemed to be located in specified areas for purposes of
payment under the hospital inpatient prospective payment system, for
discharges occurring on or after October 1, 2000. For payment purposes,
these hospitals are to be treated as though they were reclassified for
purposes of both the standardized amount and the wage index. In the May
5 proposed rule we calculated FY 2001 wage indexes for hospitals in the
affected counties as if they were reclassified to the specified area.
For purposes of making payments under section 1886(d) of the Act
for FY 2001, section 152(b) provides the following:
Iredell County, North Carolina is deemed to be located in
the Charlotte-Gastonia-Rock Hill, North Carolina-South Carolina MSA;
Orange County, New York is deemed to be located in the New
York, New York MSA;
Lake County, Indiana and Lee County, Illinois are deemed
to be located in the Chicago, Illinois MSA;
Hamilton-Middletown, Ohio is deemed to be located in the
Cincinnati, Ohio-Kentucky-Indiana MSA;
Brazoria County, Texas is deemed to be located in the
Houston, Texas MSA;
Chittenden County, Vermont is deemed to be located in the
Boston-Worcester-Lawrence-Lowell-Brockton, Massachusetts-New Hampshire
MSA.
Section 152(b) also requires that these reclassifications be
treated for FY 2001 as though they are reclassification decisions by
the MGCRB. Therefore, in the May 5 proposed rule, we proposed that the
wage indexes for the areas to which these hospitals are reclassifying,
as well as the wage indexes for the areas in which they are located,
would be subject to all of the normal rules for calculating wage
indexes for hospitals affected by reclassification decisions by the
MGCRB, as described below.
In addition, we proposed that the reclassifications enacted by
section 152(b) pertain only to the hospitals located in the specified
counties, not to hospitals in other counties within the MSA or
hospitals reclassified into the MSA by the MGCRB.
Under section 154(b) of Public Law 106-113, the Allentown-
Bethlehem-Easton, Pennsylvania MSA wage index was calculated including
the wage data for Lehigh Valley Hospital. Section 154(b) states that,
for FY 2001, "[n]otwithstanding any other provision of section 1886(d)
of the Social Security Act (42 U.S.C. 1395ww(d)), in calculating and
applying the wage indices under that section for discharges occurring
during fiscal year 2001, Lehigh Valley Hospital shall be treated as
being classified in the Allentown-Bethlehem-Easton Metropolitan
Statistical Area." We stated in the proposed rule that this statutory
language directs us to include Lehigh Valley Hospital's wage data in
the wage index calculation for the Allentown-Bethlehem-Easton MSA for
FY 2000 and FY 2001.
Section 1886(d)(8)(B) of the Act established that a hospital
located in a rural county adjacent to one or more urban areas is
treated as being located in the MSA to which the greatest number of
workers in the county commute, if the rural county would otherwise be
considered part of an MSA (or NECMAs), if the commuting rates used in
determining outlying counties were determined on the basis of the
aggregate number of resident workers who commute to (and, if applicable
under the standards, from) the central county or counties of all
contiguous MSAs. Through FY 2000, hospitals are required to use
standards published in the Federal Register on January 3, 1980, by the
Office of Management and Budget. For FY 2000, there were 27 hospitals
affected by this provision.
Section 402 of Public Law 106-113 amended section 1886(d)(8)(B) of
the Act to allow hospitals to elect to use the standards published in
the Federal Register on January 3, 1980 (1980 decennial census data) or
March 30, 1990 (1990 decennial census data) during FY 2001 and FY 2002.
As of FY 2003, hospitals will be required to use the standards
published in the Federal Register by the Director of the Office of
Management and Budget based on the most recent available decennial
population data.
We are in the process of working with the Office of Management and
Budget to identify the hospitals that would be affected by this
amendment. We will revise payments to hospitals in the affected
counties as soon as data is available. Hospitals will have this option
during FY 2001 and FY 2002. After FY 2002, hospitals will be required
to use data based on the 2000 decennial census. We refer the reader to
the September 30, 1988 final rule (53 FR 38499) for a complete
discussion of our approach to identify the outlying counties using the
standards published in the January 3, 1980 Federal Register.
Comment: We received three comments on our proposed policy to treat
hospitals reclassifying into an area containing one of the counties
reclassified by section 152(b) in a manner similar to any other
situation where a hospital reclassifies into an area where hospitals in
that area have been reclassified into another area. The commenters, all
hospitals that have been granted a reclassification into an area
containing a county reclassified by section 152(b), requested that they
should be permitted to reclassify along with the county identified by
section 152(b). They added that, in the event it was determined that
their preferred solution was not permissible, the wage index of the
area to which they were reclassified should be calculated by including
the wage data for the hospitals reclassified by section 152(b).
The commenters noted that they would be at a competitive
disadvantage by the section 152(b) reclassifications if they were
treated similar to other decisions by the MGCRB. In addition, they
believed that the Secretary has some discretion with respect to
calculating the wage indexes for areas with hospitals that have been
reclassified, noting that the legislation does not specifically direct
the Secretary to exclude reclassified hospitals from the calculation
for the area in which a hospital is actually located.
Response: We have reconsidered the methodology for calculating the
wage index applicable to hospitals reclassified into the MSAs that
contain the counties specified in section 152(b) of Public Law 106-113.
We continue to believe that the hospitals located in the counties
specified in section 152(b) should be distinguished from the hospitals
that were reclassified by the MGCRB into the MSAs containing those
counties. Congress provided special treatment for hospitals in the
counties specified in the statute, but it did not provide special
treatment for hospitals
[[Page 47077]]
reclassified to the MSAs that contain those counties. Moreover, under
the MGCRB process, hospitals are reclassified into MSAs as a whole, not
into specific counties within an MSA; for example, some hospitals were
reclassified by the MGCRB into the Newburgh, NY-PA MSA, which contains
Orange County, NY and one other county, but those hospitals were not
reclassified into Orange County itself. Thus, the benefits of section
152(b) apply only to the hospitals located in the counties specified by
Congress.
Consistent with one of the suggestions of the commenters, however,
we are revising the methodology reflected in the proposed rule with
respect to the calculation of the wage index values for the MSAs
containing the counties specified in section 152(b). The proposed rule
reflected our normally applicable policy with respect to
reclassifications, under which the wages of hospitals reclassified out
of an MSA would be excluded from the calculation of the wage index
value for that MSA; application of our normal rules might lead to an
unexpected decrease in the wage index value for an MSA arising from the
provisions of section 152(b). To address the unexpected decrease that
might otherwise occur, we believe that it is appropriate to calculate
the wage index values for the MSAs that contain the counties specified
in section 152(b) (e.g., the Newburgh MSA) by including the wages of
hospitals that were reclassified out of the area by section 152(b). We
believe that we should not exclude the wages of those hospitals because
Congress has provided special treatment for those hospitals, and we
believe that including the wages of the reclassified hospitals
appropriately reconciles the provisions of section 152(b) of Public Law
106-113, the MGCRB statutory and regulatory scheme, section
1886(d)(3)(E) of the Act, as well as the expectations of the hospitals
prior to the enactment of section 152(b).
Comment: We received one comment related to our proposed treatment
of Lehigh Valley Hospital's wage data under section 154(b) of Public
Law 106-113. For FY 2001, Lehigh Valley Hospital was reclassified by
the MGCRB to the Philadelphia MSA. The commenter argued that it was not
Congress' intent that Lehigh Valley Hospital should be precluded from
reclassifying.
The commenter also contended that the statutory language of section
154(b) could allow HCFA to permit Lehigh Valley Hospital to reclassify
to Philadelphia, while the hospital's wage data would still be used to
calculate the Allentown-Bethlehem-Easton MSA wage index. The commenter
stated that by indicating this provision that Lehigh Valley "shall be
treated" as being in the Allentown MSA, Congress did not intend to
prohibit Lehigh Valley from reclassifying. If this had been Congress'
intent, it would have been stated as such.
Response: In the proposed rule, we included Lehigh Valley
Hospital's wage data in the wage index calculation for the Allentown-
Bethlehem-Easton MSA. We also indicated that we believed the statutory
language of section 154(b) required us to apply the Allentown-
Bethlehem-Easton MSA wage index to Lehigh Valley Hospital for payments
during FY 2001. However, we note that, despite the language of section
154(b), the MGCRB did reclassify Lehigh Valley Hospital to the
Philadelphia MSA for FY 2001, and the HCFA Administrator did not
reverse that decision. This has the effect of leaving stand the
decision by the MGCRB to reclassify Lehigh Valley Hospital into the
Philadelphia MSA for purposes of calculating and applying the
Philadelphia wage index.
With respect to calculating the Allentown-Bethlehem-Easton MSA wage
index, section 154(b) requires that we include Lehigh Valley Hospital's
wage data in calculating the wage index for this MSA. We note that the
provision is effective "(n)otwithstanding any other provision of
section 1886(d) of the Social Security Act." Therefore, although our
normal policy is to remove the wage data of a hospital reclassified out
of an area when calculating that area's wage index, section 154(b)
directs us to include Lehigh's wage data in calculating the wage index
for the A-B-E MSA.
2. Effects of Reclassification
The methodology for determining the wage index values for
redesignated hospitals is applied jointly to the hospitals located in
those rural counties that were deemed urban under section 1886(d)(8)(B)
of the Act and those hospitals that were reclassified as a result of
the MGCRB decisions under section 1886(d)(10) of the Act. Section
1886(d)(8)(C) of the Act provides that the application of the wage
index to redesignated hospitals is dependent on the hypothetical impact
that the wage data from these hospitals would have on the wage index
value for the area to which they have been redesignated. Therefore,
except as discussed above, as provided in section 1886(d)(8)(C) of the
Act, the wage index values were determined by considering the
following:
If including the wage data for the redesignated hospitals
would reduce the wage index value for the area to which the hospitals
are redesignated by 1 percentage point or less, the area wage index
value determined exclusive of the wage data for the redesignated
hospitals applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
reduces the wage index value for the area to which the hospitals are
redesignated by more than 1 percentage point, the redesignated
hospitals are subject to that combined wage index value.
If including the wage data for the redesignated hospitals
increases the wage index value for the area to which the hospitals are
redesignated, both the area and the redesignated hospitals receive the
combined wage index value.
The wage index value for a redesignated urban or rural
hospital cannot be reduced below the wage index value for the rural
areas of the State in which the hospital is located.
Rural areas whose wage index values would be reduced by
excluding the wage data for hospitals that have been redesignated to
another area continue to have their wage index values calculated as if
no redesignation had occurred.
Rural areas whose wage index values increase as a result
of excluding the wage data for the hospitals that have been
redesignated to another area have their wage index values calculated
exclusive of the wage data of the redesignated hospitals.
The wage index value for an urban area is calculated
exclusive of the wage data for hospitals that have been reclassified to
another area. However, geographic reclassification may not reduce the
wage index value for an urban area below the statewide rural wage index
value.
We note that, except for those rural areas in which redesignation
would reduce the rural wage index value, the wage index value for each
area is computed exclusive of the wage data for hospitals that have
been redesignated from the area for purposes of their wage index. As a
result, several urban areas listed in Table 4A have no hospitals
remaining in the area. This is because all the hospitals originally in
these urban areas have been reclassified to another area by the MGCRB.
These areas with no remaining hospitals receive the prereclassified
wage index value. The prereclassified wage index value will apply as
long as the area remains empty.
The final wage index values for FY 2001 are shown in Tables 4A, 4B,
4C, and 4F in the Addendum to this final rule. Hospitals that are
redesignated
[[Page 47078]]
should use the wage index values shown in Table 4C. Areas in Table 4C
may have more than one wage index value because the wage index value
for a redesignated urban or rural hospital cannot be reduced below the
wage index value for the rural area of the State in which the hospital
is located. When the wage index value of the area to which a hospital
is redesignated is lower than the wage index value for the rural area
of the State in which the hospital is located, the redesignated
hospital receives the higher wage index value; that is, the wage index
value for the rural area of the State in which it is located, rather
than the wage index value otherwise applicable to the redesignated
hospitals.
Tables 4D and 4E list the average hourly wage for each labor market
area, before the redesignation of hospitals, based on the FY 1997 wage
data. In addition, Table 3C in the Addendum to this final rule includes
the adjusted average hourly wage for each hospital based on the FY 1997
data as of July 2000 (reflecting the phase-out of GME and CRNA wages as
described at section III.C of this preamble). The MGCRB will use the
average hourly wage published in this final rule to evaluate a
hospital's application for reclassification for FY 2002 (unless that
average hourly wage is later revised in accordance with the wage data
correction policy described in Sec. 412.63(w)(2)). We note that in
adjudicating these wage index reclassifications the MGCRB will use the
average hourly wages for each hospital and labor market area that are
reflected in the final FY 2001 wage index.
We indicated in the proposed rule that, at the time the proposed
wage index was constructed, the MGCRB had completed its review of FY
2001 reclassification requests. The final FY 2001 wage index values
incorporate all 493 hospitals redesignated for purposes of the wage
index (hospitals redesignated under section 1886(d)(8)(B) or
1886(d)(10) of the Act, and section 152(b) Public Law 106-113) for FY
2001). Since publication of the May 5 proposed rule, the number of
reclassifications has changed because some MGCRB decisions were still
under review by the Administrator and because some hospitals decided to
withdraw their requests for reclassification.
Changes to the wage index that resulted from withdrawals of
requests for reclassification, wage index corrections, appeals, and the
Administrator's review process have been incorporated into the wage
index values published in this final rule. The changes affect not only
the wage index value for specific geographic areas, but also the wage
index value redesignated hospitals receive; that is, whether they
receive the wage index value for the area to which they are
redesignated, or a wage index value that includes the data for both the
hospitals already in the area and the redesignated hospitals. Further,
the wage index value for the area from which the hospitals are
redesignated is affected.
Comment: One commenter recommended that the average hourly wages
shown in Tables 4D and 4E should be consistent with the values shown in
Tables 4A and 4B. In support of this recommendation, the commenter
suggested that, because our policy for computing the wage index values
for urban areas excludes wages for hospitals that have reclassified to
another area, the average hourly wages shown in Table 4D should be
computed exclusive of the reclassified hospitals. The commenter
believed the recommended change has the potential of impacting a
hospital's efforts to reclassify because the hospital may not qualify
based on the "unadjusted" hourly wage currently shown in Table 4D.
Response: As discussed above and in the May 5 proposed rule (65 FR
26301), the average hourly wages in Tables 4D and 4E reflect the labor
market area average hourly wages before hospital redesignations. We
provide the unadjusted rather than adjusted average hourly wages
because the MGCRB must use unadjusted average hourly wages in
determining a hospital's eligibility for reclassification. A hospital
that wishes to apply for reclassification for the FY 2002 wage index
(deadline is September 1, 2000) should use the average hourly wage data
in Tables 3C, 4D, and 4E of the FY 2001 proposed and final rules to
determine whether it meets the requirements for reclassification. With
the exception of urban areas that receive the statewide rural wage
index value, an urban area's adjusted average hourly wage may be
calculated by multiplying the area wage index value in Table 4A by the
national average hourly wage.
Comment: One commenter questioned whether the number of hospitals
reclassified for the wage index for FY 2001 cited in the proposed rule
(586) was accurate.
Response: The correct number of wage index reclassifications for FY
2001 at the time the proposed rule was published was 386. As stated
above, the final number of wage index reclassifications is 490.
A. Wage Data Corrections
In the proposed rule, we stated that, to allow hospitals time to
evaluate the wage data used to construct the proposed FY 2001 hospital
wage index, we would make available in May 2000 a final public data
file containing the FY 1997 hospital wage data.
The final wage data file was released on May 5, 2000. As noted
above in section III.C. of this preamble, this file included hospitals'
teaching survey data as well as cost report data. As with the file made
available in February 2000, we made the final wage data file released
in May 2000 available to hospital associations and the public (on the
Internet). However, this file was made available only for the limited
purpose of identifying any potential errors made by HCFA or the fiscal
intermediary in the entry of the final wage data that the hospital
could not have known about before the release of the final wage data
public use file. It is not for the initiation of new wage data
correction requests.
If, after reviewing the May 2000 final data file, a hospital
believed that its wage data were incorrect due to a fiscal intermediary
or HCFA error in the entry or tabulation of the final wage data, it was
provided an opportunity to send a letter to both its fiscal
intermediary and HCFA, outlining why the hospital believed an error
exists and provide all supporting information, including dates. These
requests had to be received by us and the intermediaries no later than
June 5, 2000.
Changes to the hospital wage data were made only in those very
limited situations involving an error by the intermediary or HCFA that
the hospital could not have known about before its review of the final
wage data file. Specifically, neither the intermediary nor HCFA
accepted the following types of requests at this stage of the process:
Requests for wage data corrections that were submitted too
late to be included in the data transmitted to HCRIS on or before April
3, 2000.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the February 2000
wage data file.
Requests to revisit factual determinations or policy
interpretations made by the intermediary or HCFA during the wage data
correction process.
Verified corrections to the wage index received timely
(that is, by June 5, 2000) are incorporated into the final wage index
in this final rule, to be effective October 1, 2000.
We believe the wage data correction process provides hospitals with
sufficient opportunity to bring errors in
[[Page 47079]]
their wage data to the intermediary's attention. Moreover, because
hospitals had access to the final wage data by early May 2000, they had
the opportunity to detect any data entry or tabulation errors made by
the intermediary or HCFA before the development and publication of the
FY 2001 wage index and its implementation on October 1, 2000. If
hospitals avail themselves of this opportunity, the FY 2001 wage index
implemented on October 1 should be free of these errors. Nevertheless,
we retain the right to make midyear changes to the wage index under
very limited circumstances.
Specifically, in accordance with Sec. 412.63(w)(2), we may make
midyear corrections to the wage index only in those limited
circumstances in which a hospital can show (1) that the intermediary or
HCFA made an error in tabulating its data; and (2) that the hospital
could not have known about the error, or did not have an opportunity to
correct the error, before the beginning of FY 2001 (that is, by the
June 5, 2000 deadline). As indicated earlier, since a hospital had the
opportunity to verify its data, and the intermediary notified the
hospital of any changes, we do not foresee any specific circumstances
under which midyear corrections would be made. However, should a
midyear correction be necessary, the wage index change for the affected
area will be effective prospectively from the date the correction is
made.
Comment: One commenter expressed concern about the process used in
preparing the final wage index data, especially teaching survey data.
The commenter was concerned that errors would not be corrected before
the publication of the final rule. Without providing specific
information, the commenter further stated that it still believed that
there were a number of "omission errors in the data" and that the
situation would have been better handled if the data were corrected and
reposted.
Response: We acknowledge the commenter's concern and reiterate that
the purpose of making the wage data available for review on the
Internet is to allow hospitals time to evaluate the wage data used in
constructing the hospital wage index. We encourage hospitals to review
their data and to address and resolve issues in dispute prior to the
publication of the final wage index data file. We acknowledge that the
teaching physician data submitted by several providers were not
accurately reported in the public use wage index data file published on
May 5, 2000. Once we became aware of the errors, we took the necessary
steps to review and incorporate the appropriate data. The updated file
was then made available on our Internet website at: http://
www.hcfa.gov/medicare/ippsmain.htm.
IV. Other Decisions and Changes to the Prospective Payment System
for Inpatient Operating Costs and Graduate Medical Education Costs
A. Expanding the Transfer Definition to Include Postacute Care
Discharges (Sec. 412.4)
In accordance with section 1886(d)(5)(I) of the Act, the
prospective payment system distinguishes between "discharges,"
situations in which a patient leaves an acute care (prospective
payment) hospital after receiving complete acute care treatment, and
"transfers," situations in which the patient is transferred to
another acute care hospital for related care. Our policy, as set forth
in the regulations at Sec. 412.4, provides that, in a transfer
situation, full payment is made to the final discharging hospital and
each transferring hospital is paid a per diem rate for each day of the
stay, not to exceed the full DRG payment that would have been made if
the patient had been discharged without being transferred.
Effective with discharges on or after October 1, 1998, section
1886(d)(5)(J) of the Act required the Secretary to define and pay as
transfers all cases assigned to one of 10 DRGs (identified below)
selected by the Secretary if the individuals are discharged to one of
the following settings:
A hospital or hospital unit that is not a subsection
1886(d) hospital. (Section 1886(d)(1)(B) of the Act identifies the
hospitals and hospital units that are excluded from the term
"subsection (d) hospital" as psychiatric hospitals and units,
rehabilitation hospitals and units, children's hospitals, long-term
care hospitals, and cancer hospitals.)
A skilled nursing facility (as defined at section 1819(a)
of the Act).
Home health services provided by a home health agency, if
the services relate to the condition or diagnosis for which the
individual received inpatient hospital services, and if the home health
services are provided within an appropriate period (as determined by
the Secretary).
Therefore, any discharge from a prospective payment hospital from
one of the selected 10 DRGs that is admitted to a hospital excluded
from the prospective payment system on the date of discharge from the
acute care hospital, on or after October 1, 1998, would be considered a
transfer and paid accordingly under the prospective payment systems
(operating and capital) for inpatient hospital services. Similarly, a
discharge from an acute care inpatient hospital paid under the
prospective payment system to a skilled nursing facility on the same
date would be defined as a transfer and paid as such. We consider
situations in which home health services related to the condition or
diagnosis of the inpatient admission are received within 3 days after
the discharge as a transfer.
The statute specifies that the Secretary select 10 DRGs based upon
a high volume of discharges to postacute care and a disproportionate
use of postacute care services. We identified the following DRGs with
the highest percentage of postacute care:
DRG 14 (Specific Cerebrovascular Disorders Except
Transient Ischemic Attack (Medical))
DRG 113 (Amputation for Circulatory System Disorders
Except Upper Limb and Toe (Surgical))
DRG 209 (Major Joint Limb Reattachment Procedures of Lower
Extremity (Surgical))
DRG 210 (Hip and Femur Procedures Except Major Joint
Procedures Age >17 with CC (Surgical))
DRG 211 (Hip and Femur Procedures Except Major Joint
Procedures Age >17 without CC (Surgical))
DRG 236 (Fractures of Hip and Pelvis (Medical))
DRG 263 (Skin Graft and/or Debridement for Skin Ulcer or
Cellulitis with CC (Surgical))
DRG 264 (Skin Graft and/or Debridement for Skin Ulcer or
Cellulitis without CC (Surgical))
DRG 429 (Organic Disturbances and Mental Retardation
(Medical))
DRG 483 (Tracheostomy Except for Face, Mouth and Neck
Diagnoses (Surgical))
Generally, we pay for transfers based on a per diem payment,
determined by dividing the DRG payment by the average length of stay
for that DRG. The transferring hospital receives twice the per diem
rate the first day and the per diem rate for each following day, up to
the full DRG payment. Of the 10 selected DRGs, 7 are paid under this
method. However, three DRGs exhibit a disproportionate share of costs
very early in the hospital stay. For these three DRGs, hospitals
receive one-half of the DRG payment for the first day of the stay and
one-half of the payment they would receive under the current transfer
payment method, up to the full DRG payment.
[[Page 47080]]
As required by section 1886(d)(5)(J)(iv) of the Act, we included in
the FY 2001 proposed rule published on May 5, 2000 (65 FR 26302), a
description of the effect of the provision to treat as transfers cases
that are assigned to one of the 10 selected DRGs and receive postacute
care upon their discharge from the hospital. Under contract with HCFA
(Contract No. 500-95-0006), Health Economics Research, Inc. (HER)
conducted an analysis of the impact on hospitals and hospital payments
of the postacute transfer provision. The analysis sought to obtain
information on four primary areas: How hospitals responded in terms of
their transfer practices; a comparison of payments and costs for these
cases; whether hospitals are attempting to circumvent the policy by
delaying postacute care or coding the patient's discharge status as
something other than a transfer; and what the next possible step is for
expanding the transfer payment policy beyond the current 10 selected
DRGs or the current postacute destinations.
In addition, in accordance with section 1886(d)(5)(J)(iv)(I) of the
Act, we included in the May 5, 2000 proposed rule for FY 2001 a
discussion of whether other postdischarge services should be added to
this postacute care transfer provision. Since FY 1999 was the first
year this policy was effective and because of pending changes to
payment policies for other postacute care settings such as hospital
outpatient departments, we have limited data to assess whether
additional postacute care settings should be included. We will continue
to closely monitor this issue as more data become available.
In its analysis, HER relied on HCFA's Standard Analytic Files
containing claims submission data through September 1999. However, the
second and third quarter submissions for calendar year 1999 were not
complete. It was decided that transfer cases would be identified by
linking acute hospital discharges with postacute records based on
Medicare beneficiary numbers and dates of discharge from the acute
hospital with dates of admission or provision of service by the
postacute provider. This method was used rather than selecting cases
based on the discharge status code on the claim even though this code
is being used for payment to these cases because we wanted to also
assess how accurately hospitals are coding this status. However, the
need to link acute and postacute episodes further limited the analytic
data, due to the greater time lag for collecting postacute records.
Therefore, much of HER's analysis focused on only the first two
quarters of FY 1999. The two preceding fiscal years served as a
baseline for purposes of comparison.
Since the publication of the May 5, 2000 proposed rule for FY 2001,
HER has updated the results of its study of the impact on hospitals and
hospital payments of the postacute transfer provision. In its revised
analysis, HER found that the volume of postacute transfers qualifying
for the lower per diem payment during the first 6 months of FY 1999
fell from 28 percent of total discharges under the 10 DRGs before the
implementation of the payment change to 18 percent. It appears this
decline was largely the result of a drop in the geometric mean length
of stay in two high-volume DRGs (DRGs 14 and 209) that reduced the
number of days qualifying a case for the per diem payment. In FY 1998,
the geometric mean length of stay was 5.1 days for DRG 14 and 5.3 days
for DRG 209. The geometric mean length of stay for both DRGs in FY 1999
was 4.9 days. To qualify for a per diem payment, a case's length of
stay must be less than the DRG's geometric mean length of stay minus
one day. Therefore, cases in these two DRGs with lengths of stay of
five days were counted as qualified for per diem payments under the
postacute care transfer rules in FY 1998 but not in FY 1999. Because
DRGs 14 and 209 account for approximately 65 percent of the cases in
the 10 DRGs, the drop in the threshold for qualifying cases contributed
significantly to the magnitude of the decline in qualifying cases
overall.
Correspondingly, HER found an increase in the volume and share of
postacute transfers that did not qualify for the lower per diem
payment. The share of long-stay postacute transfers paid under the full
DRG amount (e.g., those with a length of stay equal to at least one day
less than the geometric mean length of stay minus one day) increased
from 35 percent during the first half of FY 1998 to 43 percent during
the first 6 months of FY 1999. Again, some of this increase is
attributable to the drop in the geometric mean lengths of stay in DRGs
14 and 209.
According to HER, to some extent, the shift in the distribution of
postacute transfers from qualifying to nonqualifying cases may suggest
that hospitals have responded to the policy change by holding patients
longer before releasing them to a postacute care provider. Total
postacute transfers fell by 13 percent between the two payment periods,
suggesting that hospitals may also have responded by resuming the
provision of services that were previously performed by postacute care
providers, resulting in an elimination of some postacute transfers.
However, additional analysis would be necessary to separate the effects
of the drop in the geometric mean length of stay from the hospital
behavioral effects.
The study shows that the average length of stay of qualifying
postacute transfers rose slightly between the two payment periods, from
4.16 days before the policy change to 4.33 days after. In contrast, the
average length of stay of long-stay transfers and nontransfers for the
same set of DRGs fell between the two 6-month study periods, by 15.9
and 16.6 percent, respectively. This indicates that, overall, hospitals
were keeping cases slightly longer prior to transfer.
The figures on the impact of "delayed" transfers (for example,
those patients transferred to a postacute care provider beyond the 1 or
3 day qualifying time period) remain unchanged. HER found little
evidence that hospitals are responding to the policy change by
increasing the time interval between prospective payment system
discharge and postacute care admission or visit.
The study also did not find evidence that changes in prospective
payment system hospital treatment and discharge behavior are resulting
in increased lengths of stay or numbers of visits during the subsequent
postacute care episode. Average lengths of stay and number of visits at
postacute care providers following provider payment system discharge
actually fell between the two payment periods. It is likely that any
adverse effects of hospital behavior on patient care would have
manifested itself in greater postacute care lengths of stay and number
of visits following the implementation of the payment reform. HER found
no evidence of this.
The average cost of qualifying postacute transfers rose in real
terms by 2.4 percent after the policy change. According to HER, average
profits for qualifying postacute transfers fell from $3,496 per case
prior to the transfer policy change to $2,255 following the
implementation of the payment reform. Average payments with adjustments
for IME, DSH and outliers declined in real terms by 9.6 percent.
HER found that the postacute transfer policy resulted in a
reduction in expenditures of $239 million during the first half of FY
1999. Annualized over a 1-year period, the policy reform lowered annual
payments by an estimated $478 million. (In our estimate of the impacts
of this policy, we estimated the total impact to be $480
[[Page 47081]]
million (63 FR 40977).) The estimated annual savings resulting from the
policy change is equivalent to a 4.5 percent reduction in program
expenditures in the 10 pilot DRGs and a 0.5 percent reduction in
overall prospective payment system expenditures. The "price" effect
(for example, holding hospital treatment and admission patterns
constant) resulted in a savings of $276 million during the first half
of FY 1999 (or an estimated $552 million annually). However, the
decline in the number of transfers qualifying for the lower per diem,
as well as the longer lengths of stay of short-stay postacute transfer
cases, resulted in an offsetting reduction in savings of $37 million
during the first 6 months of FY 1999 (or $74 million annually). As
stated above, the combination of the positive "price" effect and the
negative "volume" effect led to a net savings of $239 million during
the first half of FY 1999 (or an estimated $478 million annually).
The study also examined the discharge destination codes as reported
on the acute care hospital claims against postacute care transfers
identified on the basis of a postacute care claim indicating the
patient qualifies as a transfer. This analysis found that, in 1998,
only 74 percent of transfer cases had discharge destination codes on
the acute care hospital claim that were consistent with whether there
was a postacute care claim for the case matching the date of discharge.
In FY 1999, the year the postacute care transfer policy went into
effect, this rate rose to 79 percent. This indicates that hospitals are
improving the accuracy of coding transfer cases.
Transfers to hospitals or units excluded from the prospective
payment system must have a discharge destination code (Patient Status)
of 05. Transfers to a skilled nursing facility must have a discharge
destination code of 03. Transfers to a home health agency must have a
discharge destination code of 06. If the hospital's continuing care
plan for the patient is not related to the purpose of the inpatient
hospital admission, a condition code 42 must be entered on the claim.
If the continuing care plan is related to the purpose of the inpatient
hospital admission, but care did not start within 3 days after the date
of discharge, a condition code 43 must be entered on the claim. The
presence of either of these condition codes in conjunction with
discharge destination code 06 will result in full payment rather than
the transfer payment amount. We intend to closely monitor the accuracy
of hospitals' discharge destination coding in this regard and take
whatever steps are necessary to ensure that accurate payment is made
under this policy.
Section 1886(d)(5)(J)(iv)(II) of the Act authorized but did not
require the Secretary to include as part of the proposed rule
additional DRGs to include under the postacute care transfer provision.
As part of "The President's Plan to Modernize and Strengthen Medicare
for the 21st Century" (July 2, 1999), the Administration committed to
not expanding the number of DRGs included in the policy until FY 2003.
Therefore, we did not propose any change to the postacute care settings
or the 10 DRGs.
HER did undertake an analysis of how additional DRGs might be
considered for inclusion under the policy. The analysis supports the
initial 10 DRGs selected as being consistent with the nature of the
Congressional mandate. According to HER, "[t]he top 10 DRGs chosen
initially by HCFA exhibit very large PAC [postacute care] levels and
PAC discharge rates (except for DRG 264, Skin Graft and/or Debridement
for Skin Ulcer or Cellulitis without CC, which was paired with DRG
263). All 10 appear to be excellent choices based on the other criteria
as well. Most have fairly high short-stay PAC [postacute care] rates
(except possibly for Strokes, DRG 14, and Mental Retardation, DRG
429)."
Extending the policy beyond these initial DRGs, however, may well
require more extensive analysis and grouping of like-DRGs. One concern
raised in the analysis relates to single DRGs including multiple
procedures with varying lengths of stay. Because the transfer payment
methodology only considers the DRG overall geometric mean length of
stay for a DRG, certain procedures with short lengths of stay relative
to other procedures in the same DRG may be more likely to be treated as
transfers. The analysis also considers pairs of DRGs, such as DRGs 263
and 264, as well as larger bundles of DRGs (grouped by common elements
such as trauma, infections, and major organ procedures). According to
HER, "[i]n extending the PAC transfer policy, it is necessary to go
beyond the flawed concept of a single DRG to discover multiple DRGs
with a common link that exhibit similar PAC statistics. Aggregation of
this sort provides a logical bridge in expanding the PAC transfer
policy that is easily justified to Congress and that avoids unintended
inequities in the way DRGs-and potentially hospitals-are treated under
this policy. Hospitals can be inadvertently penalized or not under the
current implementation criteria due to systematic differences in the
DRG mix."
Finally, the HER report concludes with a discussion of the issues
related to potentially expanding the postacute care transfer policy to
all DRGs. On the positive side, HER points to the benefits of expanding
the policy to include all DRGs:
A simple, uniform formula-driven policy;
Same policy rationale exists for all DRGs-the statutory
provision requiring the Secretary to select only 10 DRGs was a
political compromise;
DRGs with little utilization of short-stay postacute care
would not be harmed by the policy;
Less confusion in discharge destination coding; and
Hospitals that happen to be disproportionately treating
the current 10 DRGs may be harmed more than hospitals with an
aggressive short-stay postacute care transfer policy for other DRGs.
According to HER, the negative implications of expanding the policy
to all DRGs include:
The postacute care transfer policy is irrelevant for many
DRGs;
Added burden for the fiscal intermediaries to verify
discharge destination codes;
Diluted program savings beyond the initial 10 DRGs;
Difficulty in identifying ongoing postacute care that
resumes after discharge; and
Heterogeneous procedures within single DRGs having varying
lengths of stay.
The HER report in final format may be obtained from the HCFA
website at: http://www.hcfa.gov/medicare/ippsmain.htm
Comment: One commenter observed that in our discussion in the
proposed rule (65 FR 26303) of postacute care transfers to a skilled
facility, we stated that "(t)his would include cases discharged from
one of the 10 selected DRGs to a designated swing bed for skilled
nursing facilities." The commenter believed that HCFA clearly excluded
swing bed transfers from the postacute care transfer policy in the July
31, 1998 final rule and asked for clarification.
Response: The commenter is correct that we excluded swing bed
transfers from the postacute care transfer policy in the July 31, 1998
final rule (63 FR 40977). We are not changing the policy to include
swing beds at this time. The sentence in question was inadvertently
included in the proposed rule.
Comment: One commenter believed the transfer policy is contrary to
the
[[Page 47082]]
design of the prospective payment system and penalizes clinical
decision making by physicians in discharging their patients to the
appropriate level of care. The commenter suggested that the HER study
shows that the net outcome of the policy has been to pay hospitals less
and increase the complexity and administrative costs of the inpatient
prospective payment system. The commenter cited the disadvantages of
expanding the policy to all DRGs set forth in the HER report and
recommended that the Administration revisit this policy in light of the
findings of the researchers that care, not finances, is driving the
length of stay in these cases.
Response: We disagree with the commenter that the postacute
transfer policy penalizes clinical decisionmaking by physicians in
discharging their patients to the appropriate level of care, but rather
believe that the policy appropriately adjusts payments to hospitals to
reflect the amount of care actually provided in the acute care setting.
Furthermore, this policy does not require a change in physician
clinical decisionmaking nor in the manner in which physicians and
hospitals practice medicine. It simply addresses the appropriate level
of payments once those decisions have been made.
With respect to whether the provision is contrary to the original
intent of the prospective payment system, we believe it is entirely
consistent with the following statement made in the Federal Register
during the first year of the prospective payment system in response to
a comment concerning the hospital-to-hospital transfer policy: "(t)he
rationale for per diem payments as part of our transfer policy is that
the transferring hospital generally provides only a limited amount of
treatment. Therefore, payment of the full prospective payment rate
would be unwarranted" (49 FR 244). We also note that in its earliest
update recommendations, the Prospective Payment Assessment Commission
(MedPAC's predecessor organization) included what it called a site-of-
service substitution adjustment to account for the shifting of portions
of inpatient care to other settings. We believe this provision is an
appropriate and consistent response to the changing treatment practice
of the hospital industry.
Though we are not expanding the policy to include all DRGs at this
time, HER points to advantages as well as the disadvantages cited by
the commenter of doing so, including:
A simple, uniform formula-driven policy;
Same policy rationale exists for all DRGs--the statutory
provision requiring the Secretary to select only 10 DRGs was a
political compromise;
DRGs with little utilization of short-stay postacute care
would not be harmed by the policy;
Less confusion in discharge destination coding; and
Hospitals that happen to be disproportionately treating
the current 10 DRGs may be harmed more than hospitals with an
aggressive short-stay postacute care transfer policy for other DRGs.
Finally, we also believe that care, not finances, should drive the
length of stay and all other clinical decisions in these cases, and
that payments should be aligned with the care given in each provider
setting.
Comment: One commenter agreed with our decision to not expand the
number of DRGs subject to the postacute transfer policy. The commenter
believed that the policy should be revoked because the cost savings
have far exceeded the estimates relied on in developing the policy and,
more fundamentally, because it violates the notion of averaging that is
at the heart of an appropriate prospective payment system. The
commenter also believed that the introduction of prospective payment in
virtually all postacute settings obviates the need for this expansion
of transfer policy.
The commenter stated that the use of the geometric mean length of
stay to determine the payment amount does not fully consider the
medical practice patterns of physicians in different regions of the
country and appears to penalize those areas that already achieved a
lower length of stay.
Response: Since updating its study after the proposed rule was
published, HER reports that the policy resulted in savings of $478
million, remarkably close to our estimate of $480 million published in
the July 31, 1998 final rule (63 FR 40977). Furthermore, as we stated
in our previous response, we believe that the policy is entirely
consistent with the original intent of the prospective payment system.
We disagree with the commenter's belief that the introduction of
prospective payment systems to postacute settings obviates the need for
the transfer policy. The purpose of the policy is to align payments
with the care actually provided in the inpatient setting. The policy is
particularly appropriate for areas of the country where care has been
more aggressively shifted from acute to postacute settings.
B. Sole Community Hospitals (SCHs)(Secs. 412.63, 412.73, and 413.75,
proposed new Sec. 412.77, and Sec. 412.92)
Under the hospital inpatient prospective payment system, special
payment protections are provided to sole community hospitals (SCHs).
Section 1886(d)(5)(D)(iii) of the Act defines an SCH as, among other
things, a hospital that, by reason of factors such as isolated
location, weather conditions, travel conditions, or absence of other
hospitals (as determined by the Secretary), is the sole source of
inpatient hospital services reasonably available to Medicare
beneficiaries. The regulations that set forth the criteria a hospital
must meet to be classified as an SCH are located at Sec. 412.92(a).
Currently SCHs are paid based on whichever of the following rates
yields the greatest aggregate payment to the hospital for the cost
reporting period: The Federal national rate applicable to the hospital;
or the hospital's "target amount"--that is, either the updated
hospital-specific rate based on FY 1982 costs per discharge, or the
updated hospital-specific rate based on FY 1987 costs per discharge.
Section 405 of Public Law 106-113, which amended section 1886(b)(3)
of the Act, provides that an SCH that was paid for its cost reporting
period beginning during 1999 on the basis of either its FY 1982 or FY
1987 target amount (the hospital-specific rate as opposed to the
Federal rate) may elect to receive payment under a methodology using a
third hospital-specific rate based on the hospital's FY 1996 costs per
discharge. This amendment to the statute means that, for cost reporting
periods beginning on or after October 1, 2000, eligible SCHs can elect
to use the allowable FY 1996 operating costs for inpatient hospital
services as the basis for their target amount, rather than either their
FY 1982 or FY 1987 costs.
We are aware that language in the Conference Report accompanying
Public Law 106-113 indicates that the House bill (H.R. 3075) would have
permitted SCHs that were being paid the Federal rate to rebase, not
SCHs that were paid on the basis of either their FY 1982 or FY 1987
target amount (H.R. Conf. Rep. No. 106-479, 106th Cong., 1st Sess. at
890 (1999)). The language of the section 405 amendment to section
1886(b)(3) (which added new subparagraph (I)(ii)) clearly limits the
option to substitute the FY 1996 base year to SCHs that were paid for
their cost reporting periods beginning during 1999 on the basis of the
target amount applicable to the hospital under section 1886(b)(3)(C).
[[Page 47083]]
In the May 5 proposed rule, we proposed that, when calculating an
eligible SCH's FY 1996 hospital-specific rate, we utilize the same
basic methodology used to calculate FY 1982 and FY 1987 bases. That
methodology is set forth in Secs. 412.71 through 412.75 of the
regulations and discussed in detail in several prospective payment
system documents published in the Federal Register on September 1, 1983
(48 FR 3977); January 3, 1984 (49 FR 256); June 1, 1984 (49 FR 23010);
and April 20, 1990 (55 FR 15150).
Since we anticipate that eligible hospitals will elect the option
to rebase using their FY 1996 cost reporting periods, we proposed that
our fiscal intermediaries would identify those SCHs that were paid for
their cost reporting periods beginning during 1999 on the basis of
their target amounts. For these hospitals, fiscal intermediaries would
calculate the FY 1996 hospital-specific rate as described below in this
section IV.B. If this rate exceeds a hospital's current target amount
based on the greater of the FY 1982 or FY 1987 hospital-specific rate,
the hospital will receive payment based on the FY 1996 hospital-
specific rate (based on the blended amounts described at section
1886(b)(3)(I)(i) of the Act) unless the hospital notifies its fiscal
intermediary in writing prior to the end of the cost reporting period
that it does not wish to be paid on the basis of the FY 1996 hospital-
specific rate. Thus, if a hospital does not notify its fiscal
intermediary before the end of the cost reporting period that it
declines the rebasing option, we would deem the lack of such
notification as an election to have section 1886(b)(3)(I) of the Act
apply to the hospital.
We further proposed that an SCH's decision to decline this option
for a cost reporting period will remain in effect for subsequent
periods until such time as the hospital notifies its fiscal
intermediary otherwise.
The FY 1996 hospital-specific rate will be based on FY 1996 cost
reporting periods beginning on or after October 1, 1995 and before
October 1, 1996, that are 12 months or longer. If the hospital's last
cost reporting period ending on or before September 30, 1996 is less
than 12 months, the hospital's most recent 12-month or longer cost
reporting period ending before the short period report would be
utilized in the computations. If a hospital has no cost reporting
period beginning in FY 1996, it would not have a hospital-specific rate
based on FY 1996.
For each hospital eligible for FY 1996 rebasing, the fiscal
intermediary will calculate a hospital-specific rate based on the
hospital's FY 1996 cost report as follows:
Determine the hospital's total allowable Medicare
inpatient operating cost, as stated on the FY 1996 cost report.
Divide the total Medicare operating cost by the number of
Medicare discharges in the cost reporting period to determine the FY
1996 base period cost per case. For this purpose, transfers are
considered to be discharges.
In order to take into consideration the hospital's
individual case-mix, divide the base year cost per case by the
hospital's case-mix index applicable to the FY 1996 cost reporting
period. This step is necessary to standardize the hospital's base
period cost for case-mix and is consistent with our treatment of both
FY 1982 and FY 1987 base-period costs per case. A hospital's case-mix
is computed based on its Medicare patient discharges subject to DRG-
based payment.
We proposed that the fiscal intermediary will notify eligible
hospitals of their FY 1996 hospital-specific rate prior to October 1,
2000. Consistent with our policies relating to FY 1982 and FY 1987
hospital-specific rates, we proposed to permit hospitals to appeal a
fiscal intermediary's determination of the FY 1996 hospital-specific
rate under the procedures set forth in 42 CFR part 405, subpart R,
which concern provider payment determinations and appeals. In the event
of a modification of base period costs for FY 1996 rebasing due to a
final nonappealable court judgment or certain administrative actions
(as defined in Sec. 412.72(a)(3)(i)), the adjustment would be
retroactive to the time of the intermediary's initial calculation of
the base period costs, consistent with the policy for rates based on FY
1982 and FY 1987 costs.
Section 405 prescribes the following formula to determine the
payment for SCHs that elect rebasing:
For discharges during FY 2001:
75 percent of the updated FY 1982 or FY 1987 former target
(identified in the statute as the "subparagraph (C) target amount"),
plus
25 percent of the updated FY 1996 amount (identified in
the statute as the "rebased target amount").
For discharges during FY 2002:
50 percent of the updated FY 1982 or FY 1987 former
target, plus
50 percent of the updated FY 1996 amount.
For discharges during FY 2003:
25 percent of the updated FY 1982 or FY 1987 former
target, plus
75 percent of the updated FY 1996 amount.
For discharges during FY 2004 or any subsequent fiscal year, the
hospital-specific rate would be determined based on 100 percent of the
updated FY 1996 amount.
We proposed to add a new Sec. 412.77 and amend Sec. 412.92(d) to
incorporate the provisions of section 1886(b)(3)(I) of the Act, as
added by section 405 of Public Law 106-113.
Section 406 of Public Law 106-113 amended section
1886(b)(3)(B)(i)(XVI) of the Act to provide, for fiscal year 2001, for
full market basket updates to both the Federal and hospital-specific
payment rates applicable to sole community hospitals. In the May 5
proposed rule, we proposed to amend Secs. 412.63, 412.73, and 412.75 to
incorporate the amendment made by section 406 of Public Law 106-113.
We received several public comments on our proposal.
Comment: Several commenters discussed the difference between the
language in the statutory provision, which limits the updated 1996-
rebasing option to SCHs that were paid on the basis of their target
amount (hospital specific rate) in 1999, and the language of the
accompanying Conference report (H.R. Conf. Rep. No. 106-479, 106th
Cong., 1st Sess. at 890 (1999)). The Conference report indicated that
the House bill (H.R. 3075) would have permitted SCHs that were being
paid the Federal rate to rebase rather than SCHs that were paid on the
basis of either their FY 1982 or FY 1987 target amount. One commenter,
in particular, believed that despite the clear statutory language, HCFA
had the ability to allow leeway in determining which hospitals were
eligible to elect 1996 rebasing. In support of this view, the commenter
made the assertion that the Federal rate used in SCH payment
computations included outlier and disproportionate share payments (DSH)
as well as other special provisions. Therefore, the hospital-specific
rate should be compared to the base Federal rate of the geographic
area, without the add-ons, to determine which amount would yield the
largest payment. Additionally, the total Federal payments on the
hospital's cost report may exceed the hospital-specific payments in
some years, while falling below them in other years because of the
potential fluctuations of outliers and DSH payments. The commenter
argued, therefore, that to determine whether an SCH is to be paid on
the basis of the target amount, hospital-specific payments should be
compared to the base Federal payments without the addition of outliers
and DSH payments.
[[Page 47084]]
Response: We disagree with the commenter's argument. The commenter
is correct in saying that in any one year, the target amount may be
exceeded by calculations of the Federal rate. This is the reason why
the calculation is done yearly, so that the hospital may receive the
highest possible payment for that specific year based on a comparison
of what each payment scheme would generate for the hospital. The
statute clearly states the rebasing option is available to an SCH that,
for its cost reporting period beginning on or after October 1, 2000, is
paid on the basis of the target amount. As we stated in the proposed
rule, we are aware of the difference between this rebasing plan set
forth in section 405 of Public Law 106-113 and the one described in the
Conference Report, but the unambiguous language of the statute controls
over the language of the Conference Report.
Comment: One commenter pointed to an inconsistency between the text
of proposed Sec. 412.77 and the preamble to the proposed rule. The
preamble stated that, in the absence of notification to the contrary
from the hospital, the intermediary will base payment on the 1996
hospital specific rate, if this rate exceeds the 1982 or 1987 hospital-
specific rate. The proposed regulation language at Sec. 412.77(a)
indicated that, in the absence of notification, the hospital payment
would be based on the 1996 hospital specific rate without the
qualification that this rate would need to exceed the 1982 or 1987 base
year rates.
Response: We believe that the commenter's concern about
inconsistency may stem from a typographical error that appeared in the
text of proposed Sec. 412.77 in the proposed rule, that incorrectly
referenced Sec. 412.72, rather than revised Sec. 412.92. The payment
determination formula used for SCHs is set forth in Sec. 412.92(d),
which has been revised to include the 1996 rebasing option. That
formula clearly states that an SCH is paid based on whichever yields
the greatest aggregate payment for the cost reporting period: the
Federal payment rate, the 1982 or 1987 hospital-specific rate, or the
1996 hospital-specific rate. We have deleted the incorrect reference to
Sec. 412.72. In addition, for the sake of clarity, we have added a
sentence to Sec. 412.77(a)(1), further modified Sec. 412.92(d)(1), and
added a new Sec. 412.92(d)(2) (the existing paragraph (d)(2) is
redesignated as paragraph (d)(3)).
Comment: One commenter disagreed with the proposal that the
intermediary should include the 1996 hospital specific rate in its
payment calculations it if it is higher than either the 1982 or 1987
hospital specific rates, in the absence of notification to the
contrary. Rather, the commenter suggested that an eligible hospital be
required to state its choice to be paid on this basis.
Response: We believe that it is more efficient from an
administrative standpoint to require a hospital to notify its fiscal
intermediary if it chooses not to receive payment based on the (higher)
FY 1996 hospital-specific rate. The only time that a hospital that is
eligible for rebasing will be paid based on its 1996 amount is if that
amount is higher than either the 1982 or 1987 hospital specific rates
and also higher than the Federal rate. We do not know why a hospital
would elect not to receive payment based on the highest of its possible
choices. Therefore, rather than requiring a hospital to provide written
notification to the fiscal intermediary when its FY 1996 hospital-
specific rate is higher than its FY 1982 and FY 1987 hospital-specific
rates, we deem the hospital to have made an election to be paid based
on the FY 1996 hospital-specific rate, unless it notifies its fiscal
intermediary otherwise.
Comment: Two commenters requested a clarification as to the
proposed timing for a hospital that is eligible for payment based on
its 1996 hospital-specific rate to notify its intermediary of its
intention not to elect payment based on this rate.
Response: We agree that in the proposed rule the preamble and the
proposed regulation language were contradictory. Accordingly, we are
revising Sec. 412.77(a)(2) to require that an eligible hospital must
notify its intermediary of its intent not to elect payment based on its
FY 1996 hospital-specific rate prior to the end of the cost reporting
period for which the payments would otherwise be made. This schedule
will allow hospitals an opportunity to consider their options.
C. Rural Referral Centers (Sec. 412.96)
Under the authority of section 1886(d)(5)(C)(i) of the Act, the
regulations at Sec. 412.96 set forth the criteria a hospital must meet
in order to receive special treatment under the prospective payment
system as a rural referral center (RRC). For discharges occurring
before October 1, 1994, RRCs received the benefit of payment based on
the other urban amount rather than the rural standardized amount.
Although the other urban and rural standardized amounts were the same
for discharges beginning with that date, RRCs would continue to receive
special treatment under both the DSH payment adjustment and the
criteria for geographic reclassification.
As discussed in 62 FR 45999 and 63 FR 26317, under section 4202 of
Public Law 105-33, a hospital that was classified as an RRC for FY 1991
is to be classified as an RRC for FY 1998 and later years so long as
that hospital continued to be located in a rural area and did not
voluntarily terminate its RRC status. Otherwise, a hospital seeking RRC
status must satisfy applicable criteria. One of the criteria under
which a hospital may qualify as an RRC is to have 275 or more beds
available for use. A rural hospital that does not meet the bed size
requirement can qualify as an RRC if the hospital meets two mandatory
prerequisites (specifying a minimum case-mix index and a minimum number
of discharges) and at least one of three optional criteria (relating to
specialty composition of medical staff, source of inpatients, or
referral volume). With respect to the two mandatory prerequisites, a
hospital may be classified as an RRC if its--
Case-mix index is at least equal to the lower of the
median case-mix index for urban hospitals in its census region,
excluding hospitals with approved teaching programs, or the median
case-mix index for all urban hospitals nationally; and
Number of discharges is at least 5,000 per year, or if
fewer, the median number of discharges for urban hospitals in the
census region in which the hospital is located. (The number of
discharges criterion for an osteopathic hospital is at least 3,000
discharges per year.)
1. Case-Mix Index
Section 412.96(c)(1) provides that HCFA will establish updated
national and regional case-mix index values in each year's annual
notice of prospective payment rates for purposes of determining RRC
status. The methodology we use to determine the national and regional
case-mix index values is set forth in regulations at
Sec. 412.96(c)(1)(ii). The proposed national case-mix index value for
FY 2001 in the May 5 proposed rule included all urban hospitals
nationwide, and the regional values are the median values of urban
hospitals within each census region, excluding those with approved
teaching programs (that is, those hospitals receiving indirect medical
education payments as provided in Sec. 412.105). These values were
based on discharges occurring during FY 1999 (October 1, 1998 through
September 30, 1999) and include bills posted to HCFA's records through
March 2000.
[[Page 47085]]
We proposed that, in addition to meeting other criteria, hospitals
with fewer than 275 beds, if they are to qualify for initial RRC status
for cost reporting periods beginning on or after October 1, 2000, must
have a case-mix index value for FY 1999 that is at least--
1.3408; or
The median case-mix index value for urban hospitals
(excluding hospitals with approved teaching programs as identified in
Sec. 412.105) calculated by HCFA for the census region in which the
hospital is located. (See the table set forth in the May 5, 2000
proposed rule at 65 FR 26306.)
Based on the latest data available (FY 1999 bills received through
March 31, 2000), the median case-mix values by region are set forth in
the table below.
------------------------------------------------------------------------
Case-mix
Region index value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................... 1.2289
2. Middle Atlantic (PA, NJ, NY)............................ 1.2385
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..... 1.3113
4. East North Central (IL, IN, MI, OH, WI)................. 1.2623
5. East South Central (AL, KY, MS, TN)..................... 1.2661
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......... 1.1822
7. West South Central (AR, LA, OK, TX)..................... 1.2813
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............... 1.3250
9. Pacific (AK, CA, HI, OR, WA)............................ 1.3036
------------------------------------------------------------------------
For the benefit of hospitals seeking to qualify as RRCs or those
wishing to know how their case-mix index value compares to the
criteria, we are publishing each hospital's FY 1999 case-mix index
value in Table 3C in section VI. of the Addendum to this final rule. In
keeping with our policy on discharges, these case-mix index values are
computed based on all Medicare patient discharges subject to DRG-based
payment.
2. Discharges
Section 412.96(c)(2)(i) provides that HCFA will set forth the
national and regional numbers of discharges in each year's annual
notice of prospective payment rates for purposes of determining RRC
status. As specified in section 1886(d)(5)(C)(ii) of the Act, the
national standard is set at 5,000 discharges. However, in the May 5
proposed rule, we proposed to update the regional standards. The
proposed regional standards were based on discharges for urban
hospitals' cost reporting periods that began during FY 1998 (that is,
October 1, 1997 through September 30, 1998). That is the latest year
for which we have complete discharge data available.
Therefore, we proposed that, in addition to meeting other criteria,
a hospital, if it is to qualify for initial RRC status for cost
reporting periods beginning on or after October 1, 2000, must have as
the number of discharges for its cost reporting period that began
during FY 1999 a figure that is at least--
5,000; or
The median number of discharges for urban hospitals in the
census region in which the hospital is located. (See the table set
forth in the May 5, 2000 proposed rule at 65 FR 26307.)
Based on the latest discharge data available for FY 1999, the final
median number of discharges for urban hospitals by census region areas
are as follows:
------------------------------------------------------------------------
Number of
Region discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................... 6,725
2. Middle Atlantic (PA, NJ, NY)............................ 8,736
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..... 7,911
4. East North Central (IL, IN, MI, OH, WI)................. 7,661
5. East South Central (AL, KY, MS, TN)..................... 6,883
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......... 5,829
7. West South Central (AR, LA, OK, TX)..................... 5,385
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............... 8,026
9. Pacific (AK, CA, HI, OR, WA)............................ 6,268
------------------------------------------------------------------------
We note that the number of discharges for hospitals in each census
region is greater than the national standard of 5,000 discharges.
Therefore, 5,000 discharges is the minimum criterion for all hospitals.
We reiterate that an osteopathic hospital, if it is to qualify for
RRC status for cost reporting periods beginning on or after October 1,
2000, must have at least 3,000 discharges for its cost reporting period
that began during FY 1999.
We did not receive any comments on the RRC criteria.
D. Indirect Medical Education (IME) Adjustment(Sec. 412.105)
Section 1886(d)(5)(B) of the Act provides that prospective payment
hospitals that have residents in an approved graduate medical education
(GME) program receive an additional payment to reflect the higher
indirect operating costs associated with GME. The regulations regarding
the calculation of this additional payment, known as the indirect
medical education (IME) adjustment, are located at Sec. 412.105.
Section 111 of Public Law 106-113 modified the transition for the
IME adjustment that was established by Public Law 105-33. We are
publishing these changes in a separate interim final rule with comment
period that appears elsewhere in this issue of the Federal Register.
However, for discharges occurring during FY 2001, the adjustment
formula equation used to calculate the IME adjustment factor is 1.54
x [(1+r) \.405\-1]. (The variable r represents the hospital's
resident-to-bed ratio.)
In the proposed rule, we inadvertently omitted the revised
transition for the IME adjustment for FYs 2002 and thereafter.
Specifically, for discharges occurring on or after October 1, 2001, the
adjustment formula equation used to calculate the IME adjustment factor
is 1.35 x [(1+r)\.405\-1]. We are adding a new Sec. 412.105(d)(3)(vi)
to reflect this change.
In the July 30, 1999 final rule (64 FR 41517), we set forth certain
policies that affected payment for both direct and indirect GME. These
policies related to adjustments to full-time equivalent (FTE) resident
caps for new medical residency programs affecting both direct and
indirect GME programs; the adjustment to GME caps for certain hospitals
under construction prior to August 5, 1997 (the enactment date of
Public Law 105-33) to account for residents in new medical residency
training programs; and the temporary adjustment to FTE caps to reflect
residents affected by hospital closures. When we amended the
regulations under Sec. 413.86 for direct GME, we inadvertently did not
make the corresponding changes in Sec. 412.105 for IME. In the May 5
proposed rule, we proposed to make the following conforming changes:
To amend Sec. 412.105(f)(1)(vii) to provide for an
adjustment to the FTE caps for new medical residency programs as
specified under Sec. 413.86(g)(6).
To add a new Sec. 412.105(f)(1)(viii) related to the
adjustment to the FTE caps for newly constructed hospitals that sponsor
new residency programs in effect on or after January 1, 1995, and on or
before August 5, 1997, that either received initial accreditation by
the appropriate accrediting body or temporarily trained residents at
another hospital(s) until the facility was completed, to conform to the
provisions of Sec. 413.86(g)(7).
To add a new Sec. 412.105(f)(1)(ix) to specify that a
hospital may receive a
[[Page 47086]]
temporary adjustment to its FTE cap to take into account residents
added because of another hospital's closure if the hospital meets the
criteria listed under Sec. 413.86(g)(8).
In addition, we proposed to add a cross-reference to
"Sec. 413.86(d)(3)(i) through (v)" in Sec. 412.105(g), and to correct
the applicable period in both Secs. 412.105(g) and 413.86(d)(3) by
revising the phrase "For portions of cost reporting periods beginning
on or after January 1, 1998" to read "For portions of cost reporting
periods occurring on or after January 1, 1998".
We received one public comment on the proposed changes to the IME
regulations.
Comment: One commenter recommended that the temporary adjustment
allowed to a hospital's FTE cap under the proposed
Sec. 412.105(f)(1)(ix) to account for residents added because of
another hospital's closure should be a permanent adjustment to maintain
the current level of trainees.
Response: In the proposed rule, we were merely making a conforming
change to the IME regulations based on a change in the GME regulations
in the July 30, 1999 final rule. As indicated in the July 30, 1999
final rule (65 FR 41522), we continue to believe that, when a hospital
assumes the training of additional residents because of another
hospital's closure, an adjustment to the hospital's FTE cap should only
be available for the period of time necessary to train those displaced
residents. At that time we provided for the temporary adjustment
because of hospitals' reluctance to accept additional residents from a
closed hospital without a temporary adjustment to their caps. We do not
believe currently there is justification for a permanent adjustment
because of the temporary training provisions for the displaced
residents.
E. Payments to DSH Hospitals (Sec. 412.106)
1. Changes to the DSH Formula
Effective for discharges beginning on or after May 1, 1986,
hospitals that treat a disproportionately large number of low-income
patients (as defined in section 1886(d)(5)(F) of the Act) receive
additional payments through the DSH adjustment. Section 4403(a) of
Public Law 105-33 amended section 1886(d)(5)(F) of the Act to reduce
the payment a hospital would otherwise receive under the current DSH
formula by 1 percent for FY 1998, 2 percent for FY 1999, 3 percent for
FY 2000, 4 percent for FY 2001, 5 percent for 2002, and 0 percent for
FY 2003 and each subsequent fiscal year. Subsequently, section 112 of
Public Law 106-113 modified the amount of the reductions under Public
Law 105-33 by changing the reduction to 3 percent for FY 2001 and 4
percent for FY 2002. The reduction continues to be 0 percent for FY
2003 and each subsequent fiscal year. In the May 5 proposed rule, we
proposed to revise Sec. 412.106(e) to reflect the changes in the
statute made by Public Law 106-113.
Section 112 of Public Law 106-113 also directs the Secretary to
require prospective payment system hospitals to submit data on the
costs incurred by the hospitals for providing inpatient and outpatient
hospital services for which the hospitals are not compensated,
including non-Medicare bad debt, charity care, and charges for medical
and indigent care to the Secretary as part of hospitals' cost reports.
These data are required for cost reporting periods beginning on or
after October 1, 2001. We will be revising our instructions to
hospitals for cost reports for FY 2002 to capture these data.
Comment: Several commenters provided positive reinforcement
concerning the impending collection of uncompensated care data via
offers of assistance in this effort. Also, commenters made the point
that, at this time, uncompensated care does not have a common national
definition.
Response: We are aware that uncompensated care does not currently
have a common national definition. One of our tasks will be to define
the reporting parameters so that the data will be reported in a uniform
manner. This is the main reason that we have not sought to use
uncompensated care data in the Medicare DSH adjustment calculation in
the past. We will keep these comments in mind as we proceed.
Comment: One commenter was concerned about the pending publication
of the Report to Congress on the Medicare DSH formula. This commenter
asked HCFA to complement its data collection efforts by issuing the
report as required by Public Law 105-33.
Response: We are in the process of completing this report and
intend to submit it to Congress in the near future.
2. DSH Adjustment Calculation: Change in the Treatment of Certain
Medicaid Patient Days in States With Section 1115 Expansion Waivers
On January 20, 2000, we published in the Federal Register an
interim final rule with comment period (65 FR 3136) to implement a
change in the Medicare DSH adjustment calculation policy in reference
to section 1115 expansion waiver days. That interim final rule set
forth criteria to use in calculating the Medicare DSH adjustment for
hospitals for purposes of payment under the prospective payment system.
Under section 1886(d)(5)(F) of the Act, an adjustment is made to
the hospital's inpatient prospective payment system payment for serving
a disproportionate share of low-income or Medicaid and Medicare
patients. The size of a hospital's Medicare DSH adjustment is based on
the sum of the percentage of patient days attributable to patients
eligible for both Medicare Part A and Supplemental Security Income
(SSI) and the percentage of patient days attributable to patients
eligible for Medicaid but not Medicare Part A.
Some States provide medical assistance (Medicaid) under a
demonstration project (also referred to as a section 1115 waiver).
Under policy in existence before the January 20, 2000 interim final
rule, hospitals were to include in the Medicare DSH calculation only
those days for populations under the section 1115 waiver who were or
could have been made eligible under a State Medicaid plan. Patient days
of the expanded eligibility groups, however, were not to be included in
the Medicare DSH calculation.
In the January 20, 2000 interim final rule with comment period, we
revised the policy, effective with discharges occurring on or after
January 20, 2000, to allow hospitals to include the patient days of all
populations eligible for Title XIX matching payments in a State's
section 1115 waiver in calculating the hospital's Medicare DSH
adjustment. This policy was reflected in a revision to Sec. 412.106 of
the regulations.
We received 11 public comments on the inclusion of Section 1115
waiver days in the Medicare disproportionate share adjustment
calculation.
Comment: Several commenters were concerned with the inclusion in
the January 20, 2000 interim final rule with comment period of
expansion waiver days in the Medicaid portion of the Medicare DSH
adjustment calculation. States without a Medicaid expansion waiver in
place believed that States that did have a Medicaid expansion waiver in
place received an unfair advantage. In addition, comments from
Pennsylvania hospitals supported the continued inclusion of general
assistance days in the Medicaid portion of the Medicare DSH adjustment
calculation as well as expansion waiver days. Finally, some commenters
urged HCFA to revise the
[[Page 47087]]
Medicare DSH adjustment calculation to include charity care days.
Response: While we initially determined that States under a
Medicaid expansion waiver could not include those expansion waiver days
as part of the Medicare DSH adjustment calculation, we have since
consulted extensively with Medicaid staff and have determined that
section 1115 expansion waiver days are utilized by patients whose care
is considered to be an approved expenditure under Title XIX. While this
does advantage States that have a section 1115 expansion waiver in
place, these days are considered to be Title XIX days by Medicaid
standards.
Some States operate under a section 1115 waiver without an
expansion (for example, Arizona). The days that are utilized by
patients under the section 1115 waiver are already part of the Medicaid
portion of the Medicare DSH adjustment calculation because the section
1115 waiver includes patients who otherwise would have been eligible
for Medicaid Title XIX.
General assistance days are days for patients covered under a
State-only or county-only general assistance program, whether or not
any payment is available for health care services under the program.
Charity care days are those days that are utilized by patients who
cannot afford to pay and whose care is not covered or paid by any
health insurance program. While we recognize that these days may be
included in the calculation of a State's Medicaid DSH payments, these
patients are not Medicaid-eligible under the State plan and are not
considered Title XIX beneficiaries. Therefore, Pennsylvania, and other
States that have erroneously included these days in the Medicare
disproportionate share adjustment calculation in the past, will be
precluded from including such days in the future. We would like to
point out that these States were held harmless from adverse action in
this matter for any cost reporting period beginning prior to December
31, 1999. We are in the process of preparing a Report to Congress on
the Medicare DSH adjustment calculation which presents various options
for calculating the adjustment.
Comment: One commenter was concerned about the inclusion of days in
the Medicaid portion of the Medicare DSH adjustment calculation for
additional States that are approved for expansion waivers in the
future. Also, this commenter questioned whether or not the expenditures
related to the expansion waiver days for Medicare DSH would be
considered in the budget neutrality evaluation prior to approval of the
expansion waiver application.
Response: As stated in the January 20, 2000 interim final rule with
comment period, days utilized under section 1115 expansion waivers will
be included in the Medicaid portion of the Medicare DSH adjustment
calculation. As a result, the days utilized under any approved section
1115 expansion waiver in the future would be included in this
calculation. However, the State will not be held accountable for the
expenditures associated with Medicare DSH in the budget neutrality test
for the section 1115 expansion waiver, as those payments are made from
the Medicare program, not the Medicaid program.
Comment: Several commenters were concerned that the inclusion of
section 1115 expansion waiver days was effective on January 20, 2000,
rather than on January 1, 2000. These same commenters pointed out that
the hold harmless provisions of Program Memorandum A-99-62 (December
1999) concern hospitals whose cost reporting periods begin on or prior
to December 31, 1999. Therefore, many hospitals may be paid differently
during different periods of the same cost report.
Response: We understand that discharges prior to January 20, 2000
will be handled one way, and discharges as of January 20, 2000 may be
paid differently. While we can enforce an existing policy for a
previous time period, we do not believe we can retroactively institute
new policy.
F. Medicare Geographic Classification Review Board (Secs. 412.256 and
412.276)
With the creation of the Medicare Geographic Classification Review
Board (MGCRB), beginning in FY 1991, under section 1886(d)(10) of the
Act, hospitals could request reclassification from one geographic
location to another for the purpose of using the other area's
standardized amount for inpatient operating costs or the wage index
value, or both (September 6, 1990 interim final rule with comment
period (55 FR 36754), June 4, 1991 final rule with comment period (56
FR 25458), and June 4, 1992 proposed rule (57 FR 23631)). Implementing
regulations in Subpart L of Part 412 (Sec. 412.230 et seq.) set forth
criteria and conditions for redesignations from rural to urban, rural
to rural, or from an urban area to another urban area with special
rules for SCHs and RRCs.
1. Provisions of Public Law 106-113
Section 401 of Public Law 106-113 amended section 1886(d)(8) of the
Act by adding subparagraph (E), which creates a mechanism, separate and
apart from the MGCRB, permitting an urban hospital to apply to the
Secretary to be treated as being located in the rural area of the State
in which the hospital is located. The statute directs the Secretary to
treat a qualifying hospital as being located in a rural area for
purposes of provisions under section 1886(d) of the Act. In addition,
section 401 of Public Law 106-113 went on to provide for such
reclassifications from urban to rural for purposes of Medicare payments
to outpatient departments and to hospitals that would qualify to become
critical access hospitals.
Regulations implementing section 1886(d)(8)(E) of the Act are
included in an interim final rule with comment period implementing
certain provisions of Public Law 106-111 published elsewhere in this
issue of the Federal Register. The statutory language of section
1886(d)(8)(E) of the Act does not address the issue of interactions
between changes in classification under section 1886(d)(8)(E) of the
Act and the MGCRB reclassification process under section 1886(d)(10) of
the Act. The Secretary has extremely broad authority under section
1886(d)(10) of the Act to establish criteria for reclassification under
the MGCRB process. Section 401 of Public Law 106-113 does not amend
section 1886(d)(10) of the Act to limit the agency's discretion under
the provision in any way, nor does section 1886(d)(8)(E) of the Act (as
added by section 401) refer to section 1886(d)(10) of the Act. However,
we note that in the Conference Report accompanying Public Law 106-113,
the language discussing the House bill (H.R. 3075, as passed) indicates
that: "[H]ospitals qualifying under this section shall be eligible to
qualify for all categories and designations available to rural
hospitals, including sole community, Medicare dependent, critical
access, and referral centers. Additionally, qualifying hospitals shall
be eligible to apply to the Medicare Geographic Reclassification Review
Board for geographic reclassification to another area".
In the May 5, 2000 proposed rule, we indicated that we are
concerned that section 1886(d)(8)(E) might create an opportunity for
some urban hospitals to take advantage of the MGCRB process by first
seeking to be reclassified as rural under section 1886(d)(8)(E) (and
receiving the benefits afforded to rural hospitals) and in turn seek
reclassification through the MGCRB back to the urban area for purposes
of their standardized amount and wage index and thus also receive the
higher payments that might result from being treated as being located
in an urban area. That is, we were concerned that
[[Page 47088]]
some hospitals might inappropriately seek to be treated as being
located in a rural area for some purposes and as being located in an
urban area for other purposes. In light of the Conference Report
language noted above discussing the House bill and what appears to be
the potential for inappropriately inconsistent treatment of the same
hospital on the other hand, in the May 5 proposed rule, we solicited
public comment on this issue, and indicated that we might impose a
limitation on such MGCRB reclassifications in this final rule for FY
2001, if such action appears warranted. We also sought specific
comments on how such a limitation, if any, should be imposed and
provided several examples and alternatives.
We received seven public comments on the interaction of urban to
rural reclassification under section 1886(d)(8)(E) and reclassification
under the MGCRB. Several additional comments were received regarding
specific aspects of implementation of section 1886(d)(8)(E) of the Act
(added by section 401 of Public Law 106-113). These issues are
addressed in the interim final rule with comment period, published
elsewhere in this issue of the Federal Register, that implements
certain provisions of Public Law 106-113.
Comment: Several of our commenters urged HCFA to place no
restrictions on access to MGCRB reclassification for urban hospitals
that have elected to reclassify to rural under section 1886(d)(8)(E) of
the Act, citing the Conference Report as evidence of the Congressional
intent in enacting this provision. These commenters argued that these
now-rural hospitals should receive the same treatment as geographically
rural hospitals, noting that current Medicare policy permits
geographically rural hospitals to reclassify, under the MGCRB, to urban
areas for their wage index or standard payment amounts, or both. This
means that geographically rural hospitals can take advantage of both
rural as well as urban payment amounts. This same option, these
commenters asserted, should be available to urban hospitals that
petition for reclassification under section 1886(d)(8)(E).
Response: Under section 1886(d)(8)(E) of the Act, as added by
section 401 of the Public Law 106-113, a hospital located in an urban
area may file an application to be treated as being located in a rural
area for purposes of payment under section 1886(d) of the Act. The
issue here is whether a hospital that has been reclassified from an
urban area to a rural area under section 1886(d)(8)(E) of the Act
should be permitted to subsequently be reclassified under the MGCRB
process from the rural area to another area. As discussed below, we
believe that, for purposes of the MGCRB process, it is appropriate to
distinguish between hospitals that are reclassified as rural under
section 1886(d)(8)(E) of the Act and hospitals that are geographically
rural. However, in light of our understanding of the intent underlying
the language in the Conference Report for Public Law 106-113, we are
revising a policy relating to RRCs so that certain urban hospitals that
are not RRCs under current policy will be granted RRC status and can
receive special treatment under the MGCRB process.
Section 1886(d)(8)(E) of the Act, as added by section 401 of Public
Law 106-113, provides that, for purposes of section 1886(d) of the Act,
if a hospital files an application and meets applicable criteria, the
Secretary "shall treat the hospital as being located in the rural area
* * * of the State in which the hospital is located." As discussed
above and in the proposed rule, a description of the House bill in the
Conference Report for Public Law 106-113 indicates that hospitals
reclassified as rural under section 1886(d)(8)(E) of the Act would be
"eligible to apply" to the MGCRB for reclassification under the MGCRB
process. Significantly, however, the terms of section 1886(d)(8)(E) of
the Act do not refer to section 1886(d)(10) of the Act (which addresses
the MGCRB reclassification process), and section 401 of Public Law 106-
113 did not amend section 1886(d)(10) of the Act to limit the agency's
discretion under that provision in any way. Put another way, section
1886(d)(8)(E) of the Act does not contain any language indicating that
hospitals treated as rural under that provision can subsequently be
treated as urban under section 1886(d)(10) of the Act, and section
1886(d)(10) does not contain language indicating that the Secretary
must permit reclassification to an urban area of hospitals treated as
rural under section 1886(d)(8)(E) of the Act. Thus, under the statute,
the Secretary has broad discretion to determine when MGCRB
reclassification is appropriate and, in enacting section 401 of Public
Law 106-113, Congress did not enact any statutory amendments to limit
that discretion in any way.
The statutory language of section 1886(d)(8)(E) of the Act directs
the Secretary to treat qualifying hospitals, for purposes of section
1886(d) of the Act, "as being located in the rural area * * * of the
State in which the hospital is located". Section 1886(d) of the Act
encompasses the hospital wage index and the standardized amount.
Consistent with the statutory language, we are providing that a
hospital reclassified as rural under section 1886(d)(8)(E) of the Act
will be treated as being located in a rural area for purposes of
section 1886(d) of the Act, and cannot subsequently be reclassified
under the MGCRB process to an urban area (in order to be treated as
being located in an urban area for certain purposes under section
1886(d) of the Act).
This policy is consistent not only with the statutory language but
also with the policy considerations underlying the MGCRB process. The
MGCRB process permits a hospital to be reclassified from one geographic
area to another if it is significantly disadvantaged by its geographic
location and would be paid more appropriately if it were reclassified
to another area. We believe that it would be illogical to permit a
hospital that applied to be reclassified from urban to rural under
section 1886(d)(8)(E) of the Act because it was disadvantaged as an
urban hospital to then utilize a process that was established to enable
hospitals significantly disadvantaged by their rural or small urban
location to reclassify to another urban location. If an urban hospital
applies under section 1886(d)(8)(E) of the Act in order to be treated
as being located in a rural area, then it would be anomalous at best
for the urban hospital to subsequently claim that it is significantly
disadvantaged by the rural status for which it applied and should be
reclassified to an urban area.
Furthermore, permitting hospitals the option of seeking rural
reclassification under section 1886(d)(8)(E) of the Act for certain
payment advantages, coupled with the ability to pursue a subsequent
MGCRB reclassification back to an urban area, could have implications
beyond those originally envisioned under Public Law 106-113. In
particular, we are concerned about the potential interface between
rural reclassifications under section 401 and section 407(b)(2) of
Public Law 106-113, which authorizes a 30-percent expansion in a rural
hospital's resident full-time equivalent count for purposes of Medicare
payment for the indirect costs of medical education (IME) under section
1886(d)(5)(B) of the Act. (Reclassification from urban to rural under
section 1886(d)(8)(E) of the Act can affect IME payments to a hospital,
which are made under section 1886(d)(5)(B) of the Act, but not payments
for the direct costs of GME,
[[Page 47089]]
which are made under section 1886(h) of the Act.)
Congress clearly intended hospitals that become rural under section
1886(d)(8)(E) of the Act to receive some benefit as a result. For
example, some hospitals currently located in very large urban counties
are in fact fairly small, isolated hospitals. Some of these hospitals
will now be able to be designated a rural hospital and become eligible
to be designated a critical access hospital.
In addition, one of the criteria under section 1886(d)(8)(E) of the
Act is that the hospital would qualify as an SCH or an RRC if it were
located in a rural area. An SCH would be eligible to be paid on the
basis of the higher of its hospital-specific rate or the Federal rate.
On the other hand, the only benefit under section 1886(d) of the Act
for an urban hospital to become an RRC would be waiver of the proximity
requirements that are otherwise applicable under the MGCRB process, as
set forth in Sec. 412.230(a)(3).
We agree with the commenters that Congress contemplated that
hospitals might seek to be reclassified as rural under section
1886(d)(E) of the Act in order to become RRCs so that the hospital
would be exempt from the MGCRB proximity requirement and could be
reclassified by the MGCRB to another urban area. -
Therefore, we sought a policy approach that would appropriately
account for our concern that these urban to rural redesignations not be
utilized inappropriately, but would benefit hospitals seeking to
reclassify under the MGCRB process by achieving RRC status. We decided
to reconsider our application of section 4202(b) of Public Law 105-33,
which states, in part, "Any hospital classified as a rural referral
center by the Secretary * * * for FY 1991 shall be classified as such a
rural referral center for fiscal year 1998 and each subsequent fiscal
year." In the August 29, 1997 final rule with comment period, we
reinstated RRC status for all hospitals that lost the status due to
triennial review or MGCRB reclassification, but not to hospitals that
lost RRC status because they were now urban for all purposes because of
the OMB designation of their geographic area as urban (62 FR 45999).
Our rationale at that time for not reinstating RRC status for these
hospitals was that a hospital had to be rural in order to qualify for
reinstatement as an RRC, and these hospitals were no longer located in
rural areas.
We are aware of several specific hospitals that were RRCs for FY
1991, but subsequently lost their status when the county in which they
were located became urban, and have expressed their wish to be
redesignated as an RRC in order to be eligible to reclassify. We
believe that the language in the Conference Report accompanying Public
Law 106-113 was intended to address these hospitals; that is, we
believe that the intent underlying this language (a description of the
House bill) was to allow certain urban hospitals to become RRCs (upon
reclassifying from urban to rural under section 1886(d)(8)(E) of the
Act) and then reclassify under the MGCRB process (as RRCs, the
hospitals would be exempt from the MGCRB's proximity requirements).
Accordingly, in light of section 1886(d)(8)(E) of the Act and the
language in the Conference Report, we have decided to revisit our
policy decision on section 4202(b) of Public Law 105-33. Effective as
of October 1, 2000, hospitals located in what is now an urban area, if
they were ever an RRC, will be reinstated to RRC status under section
4202(b) of Public Law 105-33. (In the August 27, 1997 final rule, we
indicated that we recognized there were hospitals that qualified for
RRC status after 1991 that lost their status in a subsequent year due
to MGCRB reclassification. Therefore, we determined that we would
permit any hospital that qualified as an RRC at any point that had lost
its RRC status as a result of MGCRB reclassification to be reinstated,
regardless of whether it was designated an RRC in 1991. Similarly, for
purposes of this policy, we will permit hospitals that previously
qualified as an RRC and that lost their status due to OMB redesignation
of the county in which they are located from rural to urban to be
reinstated as an RRC.) Such hospitals would benefit from the waiver of
the MGCRB's proximity requirements, as long as they are designated as
RRCs at the time the MGCRB acts on their application.
We are not permitting hospitals redesignated as rural under section
1886(d)(8)(E) of the Act to be eligible for subsequent reclassification
by the MGCRB, and are revising the regulations governing MGCRB
reclassifications (Sec. 412.230) accordingly.
Comment: Several commenters suggested alternative policy options
regarding the interaction of the distinct reclassification provisions
found under sections 1886(d)(8)(E) and 1886(d)(10) of the Act. First,
it was recommended that HCFA formulate a policy that would allow urban
hospitals reclassifying to rural under section 1886(d)(8)(E) of the Act
the same access to urban reclassification under the MGCRB process that
the law makes available to geographically rural hospitals. One
commenter posits two possible limitations on MGCRB reclassifications
for these now-rural hospitals. One possibility is that an urban
hospital that reclassifies to rural under section 1886(d)(8)(E) of the
Act be permitted to reclassify only to another MSA, but be precluded
from reclassifying back to the MSA in which it is situated. Second, the
commenter suggested that reclassifications under the MGCRB process be
restricted solely to the wage index for formerly urban hospitals that
have elected to reclassify to rural under section 1886(d)(8)(E) of the
Act.
Response: Although the alternatives suggested by the commenters
would limit to some degree the possible inappropriate incentives for
hospitals to become rural under section 1886(d)(8)(E) of the Act, we
are concerned that they would still allow these hospitals to receive
inappropriate payments, albeit on a more limited basis. Therefore, we
have not selected these alternative approaches.
Comment: One health system argued that preventing an urban hospital
that has reclassified to rural under section 1886(d)(8)(E) of the Act
from reclassifying through restricting the MGCRB process would reduce
the number of hospitals reclassifying as rural under section
1886(d)(8)(E) of the Act. The commenter further noted that even if we
permitted an urban hospital that reclassified to a rural area under
section 1886(d)(8)(E) of the Act to reclassify through the MGCRB
process, the hospital would suffer financial losses during the period
between when it was rural for all payment purposes and its
reclassification back to urban.
Response: We wish to emphasize that urban to rural reclassification
under section 1886(d)(8)(E) of the Act is entirely voluntary. Each
hospital anticipating that it may qualify under this provision should
determine the impact of Medicare payment policies if it were to
reclassify. As discussed above, we believe that our policies here are
consistent with the Secretary's broad authority under section
1886(d)(10) of the Act, the statutory language in section 1886(d)(8)(E)
of the Act, as well as our understanding of the intent underlying the
description of the House bill in the Conference Report.
2. Revised Thresholds Applicable to Rural Hospitals for Wage Index
Reclassifications
Existing Secs. 412.230(e)(1)(iii) and (e)(1)(iv) provide that
hospitals may obtain reclassification to another area for purposes of
calculating and applying
[[Page 47090]]
the wage index if the hospital's average hourly wages are at least 108
percent of the average hourly wages in the area where it is physically
located, and at least 84 percent of the average hourly wages in a
proximate area to which the hospital seeks reclassification. These
thresholds apply equally to urban and rural hospitals seeking
reclassification.
Historically, the financial performance of rural hospitals under
the prospective payment system has lagged behind that of urban
hospitals. Despite an overall increase in recent years of Medicare
inpatient operating profit margins, some rural hospitals continue to
struggle financially (as measured by Medicare inpatient operating
prospective payment system payments minus costs, divided by payments).
For example, during FY 1997, while the national average hospital margin
was 15.1 percent, it was 8.9 percent for rural hospitals. In addition,
approximately one-third of rural hospitals continue to experience
negative Medicare inpatient margins despite this relatively high
average margin.
In response to the lower margins of rural hospitals and the
potential for a negative impact on beneficiaries' access to care if
these hospitals were to close, we considered potential administrative
changes that could help improve payments for rural hospitals. One
approach in that regard would be to make it easier for rural hospitals
to reclassify for purposes of receiving a higher wage index. The
current thresholds for applying for wage index reclassification are
based on our previous analysis showing the average hospital wage as a
percentage of its area wage was 96 percent, and one standard deviation
from that average was equal to 12 percentage points (see the June 4,
1992 proposed rule (57 FR 23635) and the September 1, 1992 final rule
(57 FR 39770)). Because rural hospitals' financial performance has
consistently remained below that of urban hospitals, we now believe
that rural hospitals merit special dispensation with respect to
qualifying for reclassification for purposes of the wage index.
Therefore, we proposed to change those average wage threshold
percentages so more rural hospitals can be reclassified. Specifically,
we proposed to lower the upper threshold for rural hospitals to 106
percent and the lower threshold to 82 percent. The thresholds for urban
hospitals seeking reclassification for purposes of the wage index would
be unchanged. We note that rural hospitals comprised nearly 90 percent
of FY 2000 wage index reclassifications. Under the proposal, beginning
October 1, 2000, rural hospitals would be able to reclassify for the
wage index if, among other things, their average hourly wages are at
least 106 percent of the area in which they are physically located, and
at least 82 percent of the average hourly wages in the proximate area
to which it seeks reclassification.
Although it is difficult to estimate precisely how many additional
hospitals might qualify by lowering the thresholds because we do not
have data indicating which hospitals meet all of the other
reclassification criteria (e.g., proximity), our analysis indicated
that, if we were to raise the 108 percent threshold to 109 percent,
approximately 20 rural hospitals would no longer qualify. If the upper
threshold were to be raised to 110 percent, another 16 hospitals would
not qualify. On the other hand, increasing the lower threshold from 84
percent to 85 percent would result in only 2 rural hospitals becoming
ineligible to reclassify. Only 1 additional hospital would be affected
by raising the threshold to 86 percent. Based on this analysis, we
anticipated approximately 50 rural hospitals are likely to benefit from
the proposed change.
We believe this proposal, as adopted, achieves an appropriate
balance between allowing certain hospitals that are currently just
below the thresholds to become eligible for reclassification, while not
liberalizing the criteria so much that an excessive number of hospitals
begin to reclassify. Because these reclassifications are budget
neutral, nonreclassified hospitals' payments are negatively impacted by
reclassification.
We believe there are many factors associated with lower margins
among rural hospitals. We note that section 410 of Public Law 106-113
requires the Comptroller General of the United States to "conduct a
study of the current laws and regulations for geographic
reclassification of hospitals to determine whether such
reclassification is appropriate for purposes of applying wage
indices." In addition, section 411 of Public Law 106-113 requires
MedPAC to conduct a study on the adequacy and appropriateness of the
special payment categories and methodologies established for rural
hospitals. We anticipate that the results of these studies will help
identify other areas to help improve payments for rural hospitals,
either through reclassifications or other means.
Comment: Commenters were unclear about the effective date for the
change in wage index thresholds for rural hospitals applying for
reclassification.
Response: The revised thresholds apply to applications submitted to
the MGCRB (by September 1, 2000) for reclassification for FY 2002.
These revised guidelines do not apply to decisions that have already
been issued by the MGCRB for FY 2001.
G. Payment for Direct Costs of Graduate Medical Education (Sec. 413.86)
1. Background
Under section 1886(h) of the Act, Medicare pays hospitals for the
direct costs of graduate medical education (GME). The payments are
based on the number of residents trained by the hospital. Section
1886(h) of the Act, as amended by section 4623 of Public Law 105-33,
caps the number of residents that hospitals may count for direct GME.
Section 9202 of the Consolidated Omnibus Reconciliation Act (COBRA)
of 1985 (Pub. L. 99-272) established a methodology for determining
payments to hospitals for the costs of approved GME programs at section
1886(h)(2) of the Act. Section 1886(h)(2) of the Act, as implemented in
regulations at Sec. 413.86(e), sets forth a payment methodology for the
determination of a hospital-specific, base-period per resident amount
(PRA) that is calculated by dividing a hospital's allowable costs of
GME for a base period by its number of residents in the base period.
The base period is, for most hospitals, the hospital's cost reporting
period beginning in FY 1984 (that is, the period of October 1, 1983
through September 30, 1984). The PRA is multiplied by the number of
full-time equivalent (FTE) residents working in all areas of the
hospital complex (or non-hospital sites, when applicable), and the
hospital's Medicare share of total inpatient days to determine
Medicare's direct GME payments. In addition, as specified in section
1886(h)(2)(D)(ii) of the Act, for cost reporting periods beginning on
or after October 1, 1993, through September 30, 1995, each hospital's
PRA for the previous cost reporting period is not adjusted for any FTE
residents who are not either a primary care or an obstetrics and
gynecology resident. As a result, hospitals with both primary care/
obstetrics and gynecology residents and non-primary care residents have
two separate PRAs for FY 1994 and, thereafter, one for primary care and
one for non-primary care. (Thus, for purposes of this proposed rule,
when we refer to a hospital's PRA, this amount is inclusive of any CPI-
U adjustments the hospital may have received since the hospital's base-
year, including any CPI-U adjustments the hospital may have received
because the hospital trains primary care/non-
[[Page 47091]]
primary care residents, as specified under existing
Sec. 413.86(e)(3)(ii)).
2. Use of National Average Per Resident Amount Methodology in Computing
Direct GME Payments
Section 311 of Public Law 106-113 amended section 1886(h)(2) of the
Act to establish a methodology for the use of a national average PRA in
computing direct GME payments for cost reporting periods beginning on
or after October 1, 2000 and on or before September 30, 2005.
Generally, section 311 establishes a "floor" and a "ceiling" based
on a locality-adjusted, updated, weighted average PRA. Each hospital's
PRA is compared to the floor and ceiling to determine whether its PRA
should be revised. Accordingly, in the May 5, 2000 proposed rule, we
proposed to implement section 311 by setting forth the prescribed
methodology for calculation of the weighted average PRA. We then
discussed the proposed steps for determining whether a hospital's PRA
will be adjusted based upon the proposed calculated weighted average
PRA, in accordance with the methodology specified under section 311 of
Public Law 106-113.
We proposed to calculate the weighted average PRA based upon data
from hospitals' cost reporting periods ending during FY 1997 (October
1, 1996 through September 30, 1997), as directed by section 311 of
Public Law 106-113. We accessed these FY 1997 cost reporting data from
the Hospital Cost Report Information System (HCRIS) and also obtained
the necessary data for those hospitals that are not included in HCRIS
(because they file manual cost reports), from those hospitals' fiscal
intermediaries. If a hospital had more than one cost reporting period
ending in FY 1997, we proposed to include all of its cost reports
ending in FY 1997 in our calculations. However, if a hospital did not
have a cost reporting period ending in FY 1997, such as a hospital with
a long cost reporting period beginning in FY 1996 and ending in FY
1998, the hospital is excluded from our calculations.
We have slightly revised the weighted average PRA in this final
rule because of changes in the data that have come to our attention
since the publication of the proposed rule. In the proposed rule, one
hospital was excluded from our calculations because it was a new
teaching hospital with no established PRA (the first year of training
for a new teaching hospital is paid for by Medicare on a cost basis; a
PRA is applied in calculating a hospital's payment beginning with the
hospital's second year of residency training) even though it did have a
cost reporting period ending during FY 1997. In the weighted average
calculation in this final rule, we have excluded one more hospital
because we learned that this hospital was also a new teaching hospital
in FY 1997 with no established PRA. We also have added one hospital to
the weighted average calculation because it was inadvertently excluded
in the calculation in the proposed rule. In addition, we found that the
data of two hospitals that were used in the weighted average
calculation in the proposed rule were incorrect, and we have made the
corrections for the weighted average calculation in this final rule.
The total number of hospitals that we include in our calculation is
unchanged from the proposed rule and remains at 1,235. Thirty-five of
these hospitals are hospitals with more than one cost report.
In accordance with section 311 of Public Law 106-113, we proposed
to calculate the weighted average PRA in the following manner:
Step 1: We determine each hospital's single PRA by adding each
hospital's primary care and non-primary care PRAs, weighted by its
respective FTEs, and dividing by the sum of the FTEs for primary care
and non-primary care residents.
Step 2: We standardize each hospital's single PRA by dividing it by
the 1999 geographic adjustment factor (GAF) (which is an average of the
three geographic index values (weighted by the national average weight
for the work component, practice expense component, and malpractice
component)) in accordance with section 1848(e) of the Act and 42 CFR
414.26 (which is used to adjust physician payments for the different
wage areas), for the physician fee schedule area in which the hospital
is located.
Step 3: We add all the standardized hospital PRAs (as calculated in
Step 2), each weighted by hospitals' respective FTEs, and then divide
by the total number of FTEs.
Based upon this three-step calculation, we determined the weighted
average PRA (for cost reporting periods ending during FY 1997) to be
$68,464. (The weighted average PRA calculated for the proposed rule was
$68,487.)
For cost reporting periods beginning on or after October 1, 2000
and on or before September 30, 2005 (FY 2001 through FY 2005), the
national average PRA is applied using the following three steps:
Step 1: Update the weighted average PRA for inflation. Under
section 1886(h)(2) of the Act, as amended by section 311 of Public Law
106-113, the weighted average PRA is updated by the estimated
percentage increase in the consumer price index for all urban consumers
(CPI-U) during the period beginning with the month that represents the
midpoint of the cost reporting periods ending during FY 1997 and ending
with the midpoint of the hospital's cost reporting period that begins
in FY 2001. Therefore, the weighted average standardized PRA ($68,464)
would be updated by the increase in CPI-U for the period beginning with
the midpoint of all cost reporting periods for hospitals with cost
reporting periods ending during FY 1997 (October 1, 1996), and ending
with the midpoint of the individual hospital's cost reporting period
that begins during FY 2001.
For example, Hospital A has a calendar year cost reporting period.
Thus, for Hospital A, the weighted average PRA is updated from October
1, 1996 to July 1, 2001, because July 1 is the midpoint of its cost
reporting period beginning on or after October 1, 2000. Or, for
example, if Hospital B has a cost reporting period starting October 1,
the weighted average PRA is updated from October 1, 1996 to April 1,
2001, the midpoint of the cost reporting period for Hospital B.
Therefore, the starting point for updating the weighted average PRA is
the same date for all hospitals (October 1, 1996), but the ending date
is different because it is dependent upon the cost reporting period for
each hospital.
Step 2: Adjust for locality. In accordance with section 1886(h)(2)
of the Act, as amended by section 311 of Public Law 106-113, once the
weighted average PRA is updated according to each hospital's cost
reporting period, the updated weighted average PRA (the national
average PRA) is further adjusted to calculate a locality-adjusted
national average PRA for each hospital. This is done by multiplying the
updated national average PRA by the 1999 GAF (as specified in the
October 31, 1997 Federal Register (62 FR 59257)) for the fee schedule
area in which the hospital is located.
Step 3: Determine possible revisions to the PRA. For cost reporting
periods beginning on or after October 1, 2000 and on or before
September 30, 2005, the locality-adjusted national average PRA, as
calculated in Step 2, is then compared to the hospital's individual
PRA. Based upon the provisions of section 1886(h)(2) of the Act, as
amended by section 311 of Public Law 106-113, a hospital's PRA is
revised, if appropriate, according to the following:
[[Page 47092]]
Floor--For cost reporting periods beginning in FY 2001, to
determine which PRAs (primary care and non-primary care separately) are
below the 70 percent floor, a hospital's locality-adjusted national
average PRA is multiplied by 70 percent. This resulting number is then
compared to the hospital's PRA that is updated for inflation to the
current cost reporting period. If the hospital's PRA would be less than
70 percent of the locality-adjusted national average PRA, the
individual PRA is replaced by 70 percent of the locality-adjusted
national average PRA for that cost reporting period and would be
updated for inflation in future years by the CPI-U.
We noted that there may be some hospitals with primary care and
non-primary care PRAs where both PRAs are replaced by 70 percent of the
locality-adjusted national average PRA. In these situations, the
hospital would receive identical PRAs; no distinction in PRAs would be
made for differences in inflation (because a hospital has both primary
care and non-primary care PRAs, each of which is updated as described
in Sec. 413.86(e)(3)(ii)) as of cost reporting periods beginning on or
after October 1, 2000.
For example, if the FY 2001 locality-adjusted national average PRA
for Area X is $100,000, then 70 percent of that amount is $70,000. If,
in Area X, Hospital A has a primary care FY 2001 PRA of $69,000 and a
non-primary care FY 2001 PRA of $67,000, both of Hospital A's FY 2001
PRAs are replaced by the $70,000 floor. Thus, $70,000 is the amount
that would be used to determine Hospital A's direct GME payments for
both primary care and non-primary care FTEs in its cost reporting
period beginning in FY 2001, and the $70,000 PRA would be updated for
inflation by the CPI-U in subsequent years.
Ceiling--For cost reporting periods beginning on or after
October 1, 2000 and on or before September 30, 2005 (FY 2001 through FY
2005), a ceiling that is equal to 140 percent of each locality-adjusted
national average PRA is calculated and compared to each individual
hospital's PRA. If the hospital's PRA is greater than 140 percent of
the locality-adjusted national average PRA, the PRA would be adjusted
depending on the fiscal year as follows:
a. FY 2001. For cost reporting periods beginning in FY 2001, each
hospital's PRA from the preceding cost reporting period (that is, the
PRA with which its direct GME payments were made in FY 2000) is
compared to the FY 2001 locality-adjusted national average PRA. If the
individual hospital's FY 2000 PRA exceeds 140 percent of the FY 2001
locality-adjusted national average PRA, the PRA is frozen at the FY
2000 PRA, and is not updated in FY 2001 by the CPI-U factor, subject to
the limitation in section IV.G.2.d. of this preamble.
For example, if the FY 2001 locality-adjusted national average PRA
"ceiling" for Area Y is $140,000 (that is, 140 percent of $100,000,
the hypothetical locality-adjusted national average PRA), and if, in
this area, Hospital B has a FY 2000 PRA of $140,001, then for FY 2001,
Hospital B's PRA is frozen at $140,001 and is not updated by the CPI-U
for FY 2001.
b. FY 2002. For cost reporting periods beginning in FY 2002, the
methodology used to calculate each hospital's individual PRA would be
the same as described in section IV.G.2.a. above for FY 2001. Each
hospital's PRA from the preceding cost reporting period (that is, the
PRA with which its direct GME payments were made in FY 2001) is
compared to the FY 2002 locality-adjusted national average PRA. If the
individual hospital's FY 2001 PRA exceeds 140 percent of the FY 2002
locality-adjusted national average PRA, the PRA is frozen at the FY
2001 PRA, and is not updated in FY 2002 by the CPI-U factor, subject to
the limitation in section IV.G.2.d. of this preamble.
c. FY 2003, FY 2004, and FY 2005. For cost reporting periods
beginning in FY 2003, FY 2004, and FY 2005, if the hospital's PRA for
the previous cost reporting period is greater than 140 percent of the
locality-adjusted national average PRA for that same previous cost
reporting period (for example, for the cost reporting period beginning
in FY 2003, compare the hospital's PRA from the FY 2002 cost reporting
period to the locality-adjusted national average PRA from FY 2002),
then, subject to the limitation in section IV.G.2.d. of this preamble,
the hospital's PRA is updated in accordance with section
1886(h)(2)(D)(i) of the Act, except that the CPI-U applied is reduced
(but not below zero) by 2 percentage points.
For example, for purposes of Hospital A's FY 2003 cost report,
Hospital A's PRA for FY 2002 is compared to Hospital A's locality-
adjusted national average PRA ceiling for FY 2002. If, in FY 2002,
Hospital A's PRA is $100,001 and the FY 2002 locality-adjusted national
average PRA ceiling is $100,000, then for FY 2003, Hospital A's PRA is
updated with the FY 2003 CPI-U minus 2 percent. If, in this scenario,
the CPI-U for FY 2003 is 1.024, Hospital A would update its PRA in FY
2003 by 1.004 (the CPI-U minus 2 percentage points). However, if the
CPI-U factor for FY 2003 is 1.01 and subtracting 2 percentage points of
1.01 yields 0.99, the PRA for FY 2003 would not be updated, and would
remain $100,001.
We note that, while the language in section 1886(h)(2)(D)(iv)(I)
and in section 1886(h)(2)(D)(iv)(II) of the Act (the sections that
describe the adjustments to PRAs for hospitals that exceed 140 percent
of the locality-adjusted national average PRA) is very similar, the
language does differ. Section 1886(h)(2)(D)(iv)(I) of the Act states
that for a cost reporting period beginning during FY 2000 or FY 2001,
"if the approved FTE resident amount for a hospital for the preceding
cost reporting period exceeds 140 percent of the locality-adjusted
national average per resident amount * * * for that hospital and period
* * *, the approved FTE resident amount for the period involved shall
be the same as the approved FTE resident amount for such preceding cost
reporting period." (Emphasis added.) Section 1886(h)(2)(D)(iv)(II) of
the Act states that for a cost reporting period beginning during FY
2003, FY 2004, or FY 2005, "if the approved FTE resident amount for a
hospital for the preceding cost reporting period exceeds 140 percent of
the locality-adjusted national average per resident amount * * * for
that hospital and preceding period, the approved FTE resident amount
for the period involved shall be updated * * *." (Emphasis added.)
Accordingly, for FYs 2001 and 2002, a hospital's PRA from the previous
cost reporting period is compared to the locality-adjusted national
average PRA of the current cost reporting period. For FY 2003, FY 2004,
or FY 2005, a hospital's PRA from the previous cost reporting period is
compared to the locality-adjusted national average PRA from the
previous cost reporting period.
d. General rule for hospitals that exceed the ceiling. For cost
reporting periods beginning in FY 2001 through FY 2005, if a hospital's
PRA exceeds 140 percent of the locality-adjusted national average PRA
and it is adjusted under any of the above criteria, the current year
PRA cannot be reduced below 140 percent of the locality-adjusted
national average PRA.
For example, to determine the PRA of Hospital A, in FY 2003,
Hospital A had a FY 2002 PRA of $100,001 and the FY 2002 locality-
adjusted national average PRA ceiling is $100,000. For FY 2003,
applying an update of the CPI-U factor minus 2 percentage points (for
example, 1.024 - .02 = 1.004 would yield an updated PRA of $100,401)
while the locality-adjusted national average PRA (before calculation of
the ceiling) is
[[Page 47093]]
updated for FY 2003 with the full CPI-U factor (1.024) so that the
ceiling of $100,000 is now increased to $102,400 (that is, $100,000 x
1.024 = $102,400). Therefore, applying the adjustment would result in a
PRA of $100,401, which is under the ceiling of $102,400 for FY 2003. In
this situation, for purposes of the FY 2003 cost report, Hospital A's
PRA equals $102,400.
We note that if the hospital's PRA does not exceed 140 percent of
the locality-adjusted national average PRA, the PRA is updated by the
CPI-U for the respective fiscal year. If a hospital's PRA is updated by
the CPI-U because it is less than 140 percent of the locality-adjusted
national average PRA for a respective fiscal year, and once updated,
the PRA exceeds the 140 percent ceiling for the respective fiscal year,
the updated PRA would still be used to calculate the hospital's direct
GME payments. Whether a hospital's PRA exceeds the ceiling is
determined before the application of the update factors; if a
hospital's PRA exceeds the ceiling only because of the application of
the update factors, the hospital's PRA would retain the CPI-U factors.
For example, if, in FY 2001, the locality-adjusted national average
PRA ceiling for Area Y is $140,000, and if, in this area, Hospital B
has a FY 2000 PRA of $139,000, then for FY 2001, Hospital B's PRA is
updated for inflation for FY 2001 because the PRA is below the ceiling.
However, once the update factors are applied, Hospital B's PRA is now
$142,000 (that is, above the $140,000 ceiling). In this scenario,
Hospital B's inflated PRA would be used to calculate its direct GME
payments because Hospital B has only exceeded the ceiling after the
application of the inflation factors.
PRAs greater than or equal to the floor and less than or
equal to the ceiling. For cost reporting periods beginning in FY 2001
through FY 2005, if a hospital's PRA is greater than or equal to 70
percent and less than or equal to 140 percent of the locality-adjusted
national average PRA, the hospital's PRA is updated using the existing
methodology specified in Sec. 413.86(e)(3)(i).
For cost reporting periods beginning in FY 2006 and thereafter, a
hospital's PRA for its preceding cost reporting period would be updated
using the existing methodology specified in Sec. 413.86(e)(3)(i).
We proposed to redesignate the existing Sec. 413.86(e)(4) as
Sec. 413.86(e)(5) and add the rules implementing section 1886(h)(2) of
the Act, as amended by section 311 of Public Law 106-113, in the
vacated Sec. 413.86(e)(4). Because we proposed to apply the methodology
for updating the PRA for inflation that is described in existing
Sec. 413.86(e)(3), we also proposed to amend Sec. 413.86(e)(3) to make
those rules applicable to the cost reporting periods (FY 2001 through
FY 2005) specified in the proposed Sec. 413.86(e)(4), and in subsequent
cost reporting periods.
In addition, we proposed to make a conforming change by amending
proposed redesignated Sec. 413.86(e)(5) to account for situations in
which hospitals do not have a 1984 base period and establish a PRA in a
cost reporting period beginning on or after October 1, 2000. We believe
there are two factors to consider when a new teaching hospital
establishes its PRA under proposed redesignated Sec. 413.86(e)(5).
First, for example, when calculating the weighted mean value of PRAs of
hospitals located in the same geographic area or the weighted mean of
the PRAs in the hospital's census region (as specified in
Sec. 412.62(f)(1)(i)), the hospitals' PRAs used to calculate the
weighted mean values are subject to the provisions of proposed
Sec. 413.86(e)(4), the national average PRA methodology. Second, the
resulting PRA established under proposed redesignated Sec. 413.86(e)(5)
also would be subject to the national average PRA methodology specified
in proposed Sec. 413.86(e)(4).
We also proposed to make a clarifying amendment to the proposed
redesignated Sec. 413.86(e)(5)(i)(B) to account for an oversight in the
regulations text when we amended our regulations on August 29, 1997 (62
FR 46004). In the preamble of the August 29, 1997 final rule, in
setting forth our policy on the determination of per resident amounts
for hospitals that did not have residents in the 1984 GME base period,
we stated that we would use a "weighted" average of the per resident
amounts for hospitals located in the same geographic area. However, we
inadvertently did not include a specific reference to "weighted" in
the language of the regulation text. Therefore, we are proposing to
specify that the "weighted mean value" of per resident amounts of
hospitals located in the same geographic wage area is used for
determining the base period for certain hospitals for cost reporting
periods beginning in the same fiscal years.
We received two public comments on the GME provisions included in
the proposed rule.
Comment: One commenter supported the implementation of section 311
of Public Law 106-113. Another commenter suggested that there is
ambiguity in our volunteer physician policy regarding the rotation of
residents to nonhospital sites. The commenter requested that we
explicitly state that, so long as the other criteria under the
nonhospital policy are met, hospitals may receive direct GME payments
for residents training in nonhospital sites when the hospitals do not
incur supervisory costs, if the written agreement, which is signed by
both the hospital and nonhospital site, indicates that the supervisory
physician has agreed to volunteer his or her time in supervising
activities.
Response: We did not propose to make any revisions to our policy
regarding training residents in nonhospital sites. Any changes in
policy regarding an adjustment for training at nonhospital sites would
need to go through the notice and comment procedures. We will consider
the merits of the commenter's recommendation for a change in policy for
a future proposed rulemaking.
H. Outliers: Miscellaneous Change
Under the provisions of section 1886(d)(5)(A)(i) of the Act, the
Secretary does not pay for day outliers for discharges from hospitals
paid under the prospective payment systems that occur after September
30, 1997. In the May 5 proposed rule, we proposed to make a conforming
change to Sec. 412.2(a) by deleting the reference to an additional
payment for both inpatient operating and inpatient capital-related
costs for cases that have an atypically long length of stay. We did not
receive any comments on this proposal and are adopting the change as
final.
V. The Prospective Payment System for Capital-Related Costs: The
Last Year of the Transition Period
Since FY 2001 is the last year of the 10-year transition period
established to phase in the prospective payment system for hospital
capital-related costs, for the readers' benefit, we are providing a
summary of the statutory basis for the system, the development and
evolution of the system, the methodology used to determine capital-
related payments to hospitals, and the policy for providing exceptions
payments during the transition period.
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." Under
the statute, the Secretary has broad authority in establishing and
implementing the capital prospective payment system. We initially
implemented the capital prospective payment system in the August 30,
1991 final rule (56 FR 43409), in which we
[[Page 47094]]
established a 10-year transition period to change the payment
methodology for Medicare inpatient capital-related costs from a
reasonable cost-based methodology to a prospective methodology (based
fully on the Federal rate).
The 10-year transition period established to phase in the
prospective payment system for capital-related costs is effective for
discharges occurring on or after October 1, 1991 (FY 1992) through
discharges occurring on or before September 30, 2001. For FY 2001,
hospitals paid under the fully prospective transition period
methodology will be paid 100 percent of the Federal rate and zero
percent of their hospital-specific rate, while hospitals paid under the
hold-harmless transition period methodology will be paid 85 percent of
their allowable old capital costs (100 percent for sole community
hospitals) plus a payment for new capital costs based on the Federal
rate. Fiscal year 2001 is the final year of the capital transition
period and, therefore, the last fiscal year for which a portion of a
hold-harmless hospital's capital costs per discharge will be paid on a
cost basis (except for new hospitals). In the proposed rule, we stated
that since fully prospective hospitals will be paid based on 100
percent of the Federal rate and zero percent of their hospital-specific
rate, we did not determine a proposed hospital-specific rate update for
FY 2001 in section IV of the Addendum of the proposed rule. However, it
has come to our attention that an update to the hospital-specific rate
is necessary on October 1, 2000, for hospitals with cost reporting
periods that do not coincide with the Federal fiscal year. Therefore,
the hospital-specific rate update for FY 2001 is shown in section IV of
the Addendum of this final rule. For cost reporting periods beginning
on or after October 1, 2001 (FY 2002), payment for capital-related
costs will be determined based solely on the capital standard Federal
rate. Hospitals that were defined as "new" for the purposes of
capital payments during the transition period (Sec. 412.30(b)) will
continue to be paid according to the applicable payment methodology
outlined in Sec. 412.324.
Generally, during the transition period, inpatient capital-related
costs are paid on a per discharge basis, and the amount of payment
depends on the relationship between the hospital-specific rate and the
Federal rate during the hospital's base year. A hospital with a base
year hospital-specific rate lower than the Federal rate is paid under
the fully prospective payment methodology during the transition period.
This method is based on a dynamic blend percentage of the hospital's
hospital-specific rate and the applicable Federal rate for each year
during the transition period. A hospital with a base period hospital-
specific rate greater than the Federal rate is paid under the hold-
harmless payment methodology during the transition period. A hospital
paid under the hold-harmless payment methodology receives the higher of
(1) a blended payment of 85 percent of reasonable cost for old capital
plus an amount for new capital based on a portion of the Federal rate
or (2) a payment based on 100 percent of the adjusted Federal rate. The
amount recognized as old capital is generally limited to the allowable
Medicare capital-related costs that were in use for patient care as of
December 31, 1990. Under limited circumstances, capital-related costs
for assets obligated as of December 31, 1990, but put in use for
patient care after December 31, 1990, also may be recognized as old
capital if certain conditions are met. These costs are known as
obligated capital costs. New capital costs are generally defined as
allowable Medicare capital-related costs for assets put in use for
patient care after December 31, 1990. Beginning in FY 2001, at the
conclusion of the transition period for the capital prospective payment
system, capital payments will be based solely on the Federal rate for
the vast majority of hospitals.
During the transition period, new hospitals are exempt from the
prospective payment system for capital-related costs for their first 2
years of operation and are paid 85 percent of their reasonable cost
during that period. The hospital's first 12-month cost reporting period
(or combination of cost reporting periods covering at least 12 months)
beginning at least 1 year after the hospital accepts its first patient
serves as the hospital's base period. Those base year costs qualify as
old capital and are used to establish its hospital-specific rate used
to determine its payment methodology under the capital prospective
payment system. Effective with the third year of operation, the
hospital is paid under either the fully prospective methodology or the
hold-harmless methodology. If the fully prospective methodology is
applicable, the hospital is paid using the appropriate transition blend
of its hospital-specific rate and the Federal rate for that fiscal year
until the conclusion of the transition period, at which time the
hospital will be paid based on 100 percent of the Federal rate. If the
hold-harmless methodology is applicable, the hospital will receive
hold-harmless payment for assets in use during the base period for 8
years, which may extend beyond the transition period.
The basic methodology for determining capital prospective payments
based on the Federal rate is set forth in Sec. 412.312. For the purpose
of calculating payments for each discharge, the standard Federal rate
is adjusted as follows:
(Standard Federal Rate) x (DRG Weight) x (GAF) x (Large Urban
Add-on, if applicable) x
(COLA Adjustment for Hospitals Located in Alaska and Hawaii) x (1 +
DSH Adjustment Factor + IME Adjustment Factor).
Hospitals may also receive outlier payments for those cases that
qualify under the thresholds established for each fiscal year. Section
412.312(c) provides for a single set of thresholds to identify outlier
cases for both inpatient operating and inpatient capital-related
payments.
During the capital prospective payment system transition period, a
hospital may also receive an additional payment under an exceptions
process if its total inpatient capital-related payments are less than a
minimum percentage of its allowable Medicare inpatient capital-related
costs for qualifying classes of hospitals. For up to 10 years after the
conclusion of the transition period, a hospital may also receive an
additional payment under a special exceptions process if certain
qualifying criteria are met and its total inpatient capital-related
payments are less than the 70 percent minimum percentage of its
allowable Medicare inpatient capital-related costs.
In accordance with section 1886(d)(9)(A) of the Act, under the
prospective payment system for inpatient operating costs, hospitals
located in Puerto Rico are paid for operating costs under a special
payment formula. Prior to FY 1998, hospitals in Puerto Rico were paid a
blended rate that consisted of 75 percent of the applicable
standardized amount specific to Puerto Rico hospitals and 25 percent of
the applicable national average standardized amount. However, effective
October 1, 1997, under amendments to the Act enacted by section 4406 of
Public Law 105-33, operating payments to hospitals in Puerto Rico are
based on a blend of 50 percent of the applicable standardized amount
specific to Puerto Rico hospitals and 50 percent of the applicable
national average standardized amount. In conjunction with this change
to the
[[Page 47095]]
operating blend percentage, effective with discharges on or after
October 1, 1997, we compute capital payments to hospitals in Puerto
Rico based on a blend of 50 percent of the Puerto Rico rate and 50
percent of the Federal rate.
Section 412.374 provides for the use of this blended payment system
for payments to Puerto Rico hospitals under the prospective payment
system for inpatient capital-related costs. Accordingly, for capital-
related costs, we compute a separate payment rate specific to Puerto
Rico hospitals using the same methodology used to compute the national
Federal rate for capital-related costs.
In the August 30, 1991 final rule, we established a capital
exceptions policy, which provides for exceptions payments during the
transition period (Sec. 412.348). Section 412.348 provides that, during
the transition period, a hospital may receive additional payment under
an exceptions process when its regular payments are less than a minimum
percentage, established by class of hospital, of the hospital's
reasonable capital-related costs. The amount of the exceptions payment
is the difference between the hospital's minimum payment level and the
payments the hospital would receive under the capital prospective
payment system in the absence of an exceptions payment. The comparison
is made on a cumulative basis for all cost reporting periods during
which the hospital is subject to the capital prospective payment
transition rules. The minimum payment percentages for regular capital
exceptions payments by class of hospitals for FY 2001 are:
For sole community hospitals, 90 percent;
For urban hospitals with at least 100 beds that have a
disproportionate share patient percentage of at least 20.2 percent or
that received more than 30 percent of their net inpatient care revenues
from State or local governments for indigent care, 80 percent;
For all other hospitals, 70 percent of the hospital's
reasonable inpatient capital-related costs.
The provision for regular exceptions payments will expire at the
end of the transition period. Payments will no longer be adjusted to
reflect regular exceptions payments at Sec. 412.348. Accordingly, for
cost reporting periods beginning on or after October 1, 2001, hospitals
will receive only the per discharge payment based on the Federal rate
for capital costs (plus any applicable DSH or IME and outlier
adjustments) unless a hospital qualifies for a special exceptions
payment under Sec. 412.348(g).
Under the special exceptions provision at Sec. 412.348(g), an
additional payment may be made for up to 10 years beyond the end of the
capital prospective payment system transition period for eligible
hospitals. The capital special exceptions process is budget neutral;
that is, even after the end of the capital prospective payment system
transition, we will continue to make an adjustment to the capital
Federal rate in a budget neutral manner to pay for exceptions, as long
as an exceptions policy is in force. Currently, the limited special
exceptions policy will allow for exceptions payments for 10 years
beyond the conclusion of the 10-year capital transition period or
through September 30, 2011.
VI. Changes for Hospitals and Hospital Units Excluded From the
Prospective Payment System
A. Limits on and Adjustments to the Target Amounts for Excluded
Hospitals and Units (Secs. 413.40(b)(4) and (g))
1. Updated Caps
Section 1886(b)(3) of the Act (as amended by section 4414 of Public
Law 105-33) establishes caps on the target amounts for certain existing
excluded hospitals and units for cost reporting periods beginning on or
after October 1, 1997 through September 30, 2002. The caps on the
target amounts apply to the following three classes of excluded
hospitals: Psychiatric hospitals and units, rehabilitation hospitals
and units, and long-term care hospitals.
A discussion of how the caps on the target amounts were calculated
can be found in the August 29, 1997 final rule with comment period (62
FR 46018); the May 12, 1998 final rule (63 FR 26344); the July 31, 1998
final rule (63 FR 41000), and the July 30, 1999 final rule (64 FR
41529). For purposes of calculating the caps on existing facilities,
the statute required us to calculate the national 75th percentile of
the target amounts for each class of hospital (psychiatric,
rehabilitation, or long-term care) for cost reporting periods ending
during FY 1996. Under section 1886(b)(3)(H)(iii) of the Act, the
resulting amounts are updated by the market basket percentage to the
applicable fiscal year. In establishing the caps on the target amounts
within each class of hospital for new hospitals, section 1886(b)(7)(C)
of the Act, as amended by section 4416 of Public Law 105-33, explicitly
instructed the Secretary to provide an appropriate adjustment to take
into account area differences in wage-related costs. However, since the
statutory language under section 4414 of Public Law 105-33 did not
provide for the Secretary to account for area differences in wage-
related costs in establishing the caps on the target amounts for
existing hospitals, HCFA did not account for wage-related differences
in establishing the caps on the target amounts for existing facilities
in FY 1998.
Section 121 of Public Law 106-113 amended section 1886(b)(3)(H) of
the Act to direct the Secretary to provide for an appropriate wage
adjustment to the caps on the target amounts for psychiatric hospitals
and units, rehabilitation hospitals and units, and long-term care
hospitals, effective for cost reporting periods beginning on or after
October 1, 1999, through September 30, 2002. Elsewhere in this issue of
the Federal Register we are publishing an interim final rule with
comment period implementing this provision for cost reporting periods
beginning on or after October 1, 1999 and before October 1, 2000. This
final rule addresses the wage adjusted caps on the target amounts for
excluded hospitals and units for cost reporting periods beginning on or
after October 1, 2000.
For purposes of calculating the caps on the target amounts, section
1886(b)(3)(H)(ii) of the Act requires the Secretary to first "estimate
the 75th percentile of the target amounts for such hospitals within
such class for cost reporting periods ending during fiscal year 1996."
Furthermore, section 1886(b)(3)(H)(iii), as added by Public Law 106-
113, requires the Secretary to provide for "an appropriate adjustment
to the labor-related portion of the amount determined under such
subparagraph to take into account the differences between average wage-
related costs in the area of the hospital and the national average of
such costs within the same class of hospital."
For cost reporting periods beginning in FY 2000, we update the FY
1996 wage-neutralized national 75th percentile target amount for each
class of hospital by the market basket increase through FY 2000. For
cost reporting periods beginning during FY 2001 and FY 2002, we update
the previous year's wage-neutralized national 75th percentile target
amount for each class of hospital by the applicable market basket
percentage increase. In determining the wage-neutralized 75th
percentile target amount for each class of hospital and consistent with
the broad authority conferred on the Secretary by section
1886(b)(3)(H)(iii) of the Act (as added by Pub. L. 106-113) to
determine the appropriate wage
[[Page 47096]]
adjustment, we accounted for differences in wage-related costs by
adjusting the caps on the target amounts for each class of hospital
(psychiatric, rehabilitation, and long-term care) using the
methodology, which is described in detail in the interim final rule
with comment period that implements the provisions of section 121
Public Law 106-113 that is published elsewhere in this issue of the
Federal Register.
As stated in the May 5, 2000 proposed rule, we wage neutralized
each hospital's FY 1996 target amount to account for area differences
in wage-related costs. For each class of hospitals, we determined the
labor-related portion of each hospital's FY 1996 target amount by
multiplying its target amount by the most recent actuarial estimate of
the labor-related portion of excluded hospital costs (or 0.71553). This
actuarial estimate of the labor-related share of PPS-excluded hospital
costs was revised in connection with other revisions to the PPS-
excluded hospital market basket published in the August 29, 1997 final
rule (62 FR 45996). Based on the relative weights of the labor cost
categories (wages and salaries, employee benefits, professional fees,
postal services, and all other labor intensive services), the labor-
related portion is 71.553 percent. The remaining 28.447 percent is the
nonlabor-related portion. Similarly, we determined the nonlabor-related
portion of each hospital's FY 1996 target amount by multiplying its
target amount by the actuarial estimate of the nonlabor-related portion
of costs (or 0.28447).
Next, as we stated in the May 5 proposed rule, we wage neutralize
each hospital's FY 1996 target amount by dividing the labor-related
portion of each hospital's FY 1996 target amount by the hospital's FY
1998 hospital wage index under the hospital inpatient prospective
payment system (see Sec. 412.63), as shown in Tables 4A and 4B of the
August 29, 1997 final rule (62 FR 46070). Each hospital's wage-
neutralized FY 1996 target amount was calculated by adding the
nonlabor-related portion of its target amount and the wage-neutralized
labor-related portion of its target amount. Then, the wage-neutralized
target amounts for hospitals within each class were arrayed in order to
determine the national wage-neutralized 75th percentile caps on the
target amounts for each class of hospital.
As stated in the May 5 proposed rule, this methodology for wage-
neutralizing the national 75th percentile of the target amounts is
identical to the methodology we utilized for the wage index adjustment
described in the August 29, 1997 final rule (62 FR 46020) to calculate
the wage-adjusted 110 percent of the national median target amounts for
new excluded hospitals and units. Again, we recognize that wages may
differ for prospective payment hospitals and excluded hospitals, but we
believe that the acute care hospital wage data utilized reflect area
differences in wage-related costs. Moreover, in light of the short
timeframe for implementing this provision, we used the wage data for
acute hospitals since they are the most feasible data source. Reliable
wage data for excluded hospitals and units are not available.
Comment: One commenter objected to our use of the FY 1998 hospital
wage index, which is based on FY 1994 wage data from Medicare cost
reports, to wage neutralize the labor-related portion of each
hospital's FY 1996 target amount in establishing area wage adjustments
to the caps on the target amounts for long-term care hospitals. The
commenter favored using the most current wage data (the FY 2001 wage
index, based on FY 1997 Medicare cost report data) to estimate wage
adjustments to the caps on the target amounts for excluded hospitals
and units.
Response: We reconsidered our methodology for wage-neutralizing
each hospital's FY 1996 target amount used in determining the wage-
neutralized national 75th percentile target amount for each class of
hospital. In the May 5, 2000 proposed rule, the labor-related portion
of each hospital's FY 1996 target amount was wage neutralized by
dividing it by the FY 1998 hospital inpatient prospective payment
system wage index. The FY 1998 hospital inpatient prospective payment
system wage index was calculated using FY 1994 wage data due to the 4-
year lag time in receiving the data used in the annual calculation of
the wage index. We have reconsidered this methodology and believe it is
appropriate to wage neutralize the labor-related portion of each
hospital's FY 1996 target amount by the FY 2000 hospital inpatient
prospective payment system wage index. The FY 2000 wage index is the
most current wage data available to wage neutralize each hospital's FY
1996 target amount, and the FY 2000 wage index was calculated based on
FY 1996 wage data and therefore reflects area differences in wage-
related FY 1996 costs. The FY 2001 wage index will be applied to the
wage-related portion of the cap to determine each hospital's FY 2001
wage-adjusted cap on its target amount.
In the May 5, 2000 proposed rule (65 FR 26314), we proposed the
labor-related and nonlabor-related shares of the wage-neutralized
national 75th percentile caps on the target amounts for FY 2001 as
follows:
------------------------------------------------------------------------
FY 2001 FY 2001
proposed proposed
Class of excluded hospital or unit labor- nonlabor-
related related
share share
------------------------------------------------------------------------
Psychiatric................................... $8,106 $3,223
Rehabilitation................................ 15,108 6,007
Long-Term Care................................ 29,312 11,654
------------------------------------------------------------------------
Taking into account the national 75th percentile of the target
amounts for cost reporting periods ending during FY 1996 (wage-
neutralized using the FY 2000 acute care wage index), the wage
adjustment provided for under Public Law 106-113, and the applicable
update factor based on the market basket percentage increase to FY
2001, we are establishing the labor-related and nonlabor-related
portions of the caps on the target amounts for FY 2001 using the
methodology outlined above as follows:.
------------------------------------------------------------------------
FY 2001 FY 2001
labor- nonlabor-
Class of excluded hospital or unit related related
share share
------------------------------------------------------------------------
Psychiatric................................... $8,131 $3,233
Rehabilitation................................ 15,164 6,029
Long-Term Care................................ 29,284 11,642
------------------------------------------------------------------------
These caps on the target amounts for FY 2001 reflect the use of the
FY 2000 wage index in determining the FY 1996 national wage-neutralized
75th percentile target amounts, updated to FY 2001 by the applicable
market basket percentage increase. The market basket percentage
increase for excluded hospitals and units for FY 2001 is currently
forecast at 3.4 percent. At the time the proposed rule was issued, the
market basket increase was forecast at 3.1 percent.
Finally, the cap on a hospital's FY 2001 target amount per
discharge is determined by adding the hospital's nonlabor-related
portion of the national 75th percentile target amount to its wage-
adjusted labor-related portion of the national 75th percentile target
amount. A hospital's wage-adjusted labor-related portion of the target
amount is calculated by multiplying the labor-related portion of the
wage-neutralized national 75th percentile target amount for the
hospital's class by the hospital's applicable wage index. For FY 2001,
a hospital's applicable wage index is the wage index under the hospital
inpatient prospective payment system (see Sec. 412.63). For cost
reporting periods beginning on or after October 1, 2000 and ending on
or before September 30, 2001 as shown in Tables 4A and 4B of this final
rule, a hospital's applicable wage index corresponds to the area in
which the hospital or unit is physically
[[Page 47097]]
located (MSA or rural area) and is not subject to prospective payment
system hospital reclassification under section 1886(d)(10) of the Act.
Comment: One commenter requested that HCFA provide long-term care
hospitals the opportunity to redesignate to another rural or urban area
under the standards outlined in Sec. 412.230 for prospective payment
system hospitals. The commenter believed that section 121 of Public Law
106-113 directs HCFA to make accurate area wage adjustments for
excluded hospitals and that, in the interest of equity, HCFA should
afford long-term care hospitals a process analogous to the MGCRB so
that these providers would be able to redesignate their wage area to a
rural or urban area. Additionally, the commenter recommended that long-
term care hospitals located in "close proximity" (as defined in
Sec. 412.230(b)) to a prospective payment system hospital that has been
allowed to reclassify its area wage index, should also be allowed to
reclassify to that wage area.
Response: Section 121 of Public Law 106-113 directs the Secretary
to make "an appropriate adjustment" to account for area wage-related
differences. As we stated in the May 5 proposed rule, long-term care
hospitals and psychiatric and rehabilitation hospitals and units which
are exempt from the prospective payment system are not subject to
prospective payment system hospital reclassification under section
1886(d)(10)(A) of the Act. This section establishes the MGCRB for the
purpose of evaluating applications from short-term acute care
providers. There is no equivalent statutory provision for HCFA to
develop an alternative board for long-term care hospitals or for
psychiatric and rehabilitation hospitals and units, or both.
While it would be feasible to allow units physically located in PPS
hospitals that have been reclassified by the MGCRB to use the wage-
index for the area to which that hospital has been reclassified, at the
present time there is no process in place to make reclassification
determinations for excluded free-standing providers. The wage-
adjustment to the cap on the target amounts for existing excluded
providers is only effective through FY 2002 and there is not enough
time to develop and implement a process to determine reclassification
for free-standing excluded providers. There are approximately 1000
free-standing excluded facilities (529 psychiatric, 196 rehabilitation
and 242 long-term care). Therefore, in the interest of equity, we
believe that in determining a hospital's wage-adjusted cap on its
target amount, it is appropriate for excluded hospitals and units to
use the wage index associated with the area in which it is physically
located (MSA or rural area) and prospective payment system
reclassification under section 1886(d)(10) of the Act is not
applicable. This policy is consistent with the determination of the
wage-adjusted caps on the target amounts for new excluded hospitals and
units, which are not subject to reclassification when applying the wage
index in the calculation of the cap. Additionally, skilled-nursing
facility and ambulatory surgical center payment systems both use the
acute-care inpatient hospital PPS wage index and do not allow for
reclassifications since there is no analogous determination process to
the MGCRB, which only has authority over PPS hospitals under section
1886(d)(10)(a) of the Act. Therefore, consistent with these policies
regarding the application of the acute care wage index to other types
of facilities, we are not implementing the commenter's recommendation
to permit reclassification of an excluded hospital's or unit's wage
index in determining the wage-adjusted cap on their target amount under
Sec. 41340(c)(4)(iii).
Comment: One commenter asserted that this is the first time HCFA
has applied area wage adjustments to excluded hospitals and units. The
commenter suggested that HCFA assess whether long-term care hospitals
have a different mix of occupations compared to short-term acute care
facilities and recommended that HCFA propose an appropriate adjustment
to the acute care wage index to account for the relative wage-related
costs for the occupational categories of long-term care hospitals or
establish a long-term care hospital specific area wage index. The
commenter noted that the acute care wage index includes some wage data
derived from hospital-based psychiatric and rehabilitation units, but
contains no data from long-term care hospitals. Also, the commenter
argued that HCFA did not meet the statutory requirements of section
1886(b)(3)(H) of the Act as amended by section 121 of Public Law 106-
113, which states that the Secretary shall provide for an appropriate
adjustment "to take into account differences between average wage-
related costs in the area of the hospital and the national average of
such costs within the same class of hospital" (emphasis added), since
the acute care wage index data are based on data exclusively from
short-term acute care hospitals.
Response: As stated in the May 5, 2000 proposed rule (65 FR 26314),
we recognize that wages may differ for prospective payment system acute
care hospitals and excluded hospitals, but we believe the acute care
wage index data accurately reflects area differences in wage-related
costs and they are the most feasible data source. For this reason the
acute care hospital wage index is used for the Medicare prospective
payment systems for outpatient facilities, skilled nursing facilities,
and home health facilities.
Currently, there is hospital specific wage data available to
develop a wage index based on data from excluded hospitals (or, as the
commenter specifically requested, a long-term care hospital exclusive
wage index). We may consider exploring the feasibility of developing a
wage index for excluded hospitals and units in the future. However, the
commenter has not presented any evidence that the acute care wage index
inappropriately reflects the differences in wage-related costs for
excluded hospital and units. We believe that the acute care wage index
provides for an appropriate adjustment to account for wage-related
costs in determining a hospital's wage-adjusted cap on its target
amount.
In the interim final rule with comment period implementing certain
provisions of Public Law 106-113 that we are publishing elsewhere in
this issue of the Federal Register we revised Secs. 413.40(c)(4)(i) and
(c)(4)(ii) to incorporate the changes in the formula used to determine
the limitation on the target amounts for excluded hospitals and units,
as provided for by section 121 of Public Law 106-113.
In response to the May 5, 2000 proposed rule, we received two
public comments relating to establishment of the wage-adjusted caps on
the target amounts for excluded hospitals and units.
Comment: One commenter believed that the provision for a wage-
adjustment to the national 75th percentile target amount cap placed on
hospitals excluded from the prospective payment system provided HCFA
with the broad authority to transition to a wage-adjusted cap over more
than one period. The commenter suggested that the wage-adjusted caps on
target amounts be phased-in over a period of time in a manner similar
to the removal of teaching physician costs from the wage index
calculation.
Response: Public Law 106-113, which was enacted November 29, 1999,
directed us to retroactively provide for
[[Page 47098]]
a wage adjustment for the national 75th percentile target amounts for
psychiatric and rehabilitation hospitals and units and for long-term
care hospitals as of October 1, 1999. The purpose of the wage-
adjustment to the 75th percentile cap on target amounts for excluded
providers is to account for area differences in wage-related costs. We
believe that the intent of this provision is to account for these wage
differences beginning with cost reporting periods starting during FY
2000. Phasing-in the wage-adjustment to the caps on the target amounts
would mitigate the purpose of the wage-adjustment because hospitals
located in areas with wage index values greater than one would not
receive the full intended benefit of the provision. Additionally, as we
stated in the interim final rule with comment that we are publishing
elsewhere in this issue of the Federal Register we estimate that most
providers (93.3 percent of psychiatric hospitals and units, 97.5
percent of rehabilitation hospitals and units, and 93.5 percent of
long-term care hospitals) are either not effected or are positively
effected by the wage adjustment to the caps on the target amounts.
Therefore, we believe it is inappropriate to phase in the wage-
adjustment to the caps on the target amounts as the commenter
recommended.
Additionally, the removal of the teaching physician costs on the
wage index is set for a 5-year phase-out, while the wage-adjusted caps
on national target amounts are only legislated to remain in effect from
FY 2000 to FY 2002. As such, the remaining period of time for which
these caps are in effect is too brief to warrant the administrative
resources that would be involved in such a transition. The 5-year
phase-out of the removal of teaching costs from the wage index was
implemented based on the recommendation of an industry group made up of
representatives from national and state hospital associations. While
one commenter advocated the phase-in of the wage-adjustment to the caps
on the target amounts, another commenter supported the complete
implementation of the wage-adjustment to the caps on the target amounts
effective FY 2000, since this adjustment reflects the higher cost
incurred by providers located in areas with higher than the national
average of labor expenditures.
Comment: One commenter commended the wage-adjustment to the caps on
the target amounts for psychiatric and rehabilitation hospital and
units and long-term care hospitals mandated by section 121 of Public
Law 106-113. The commenter supported the application of the acute care
wage index to the caps on the national target amounts since the wage
adjustment aids providers who incur costs higher than the national
average simply because they are located in marketplaces with higher
labor prices. The commenter also noted that the target amounts for
existing hospitals are now in line with the target amounts for new
hospitals, which have been wage adjusted since their implementation in
FY 1998 by Public Law 105-33. The commenter further suggested that, if
the three classes of hospitals have not been transitioned to
prospective payment systems by FY 2002, the wage adjustment to the
national target amounts for both new and existing providers should
remain in place.
Response: We agree with the comment and we believe that our
implementation of the wage adjustment is consistent with the statutory
provision in Public Law 106-113. However, regardless of whether the
prospective payment systems for these classes of providers have been
implemented, we will only be in a position to continue the use of the
wage-adjusted caps on the target amounts beyond FY 2002 if Congress
directs us to do so through additional legislation.
2. Updated Caps for New Excluded Hospitals and Units (Sec. 413.40(f))
Section 1886(b)(7) of the Act establishes a payment methodology for
new psychiatric hospitals and units, rehabilitation hospitals and
units, and long-term care hospitals. Under the statutory methodology,
for a hospital that is within a class of hospitals specified in the
statute and that first receives payment as a hospital or unit excluded
from the prospective payment system on or after October 1, 1997, the
amount of payment will be determined as follows:
For the first two 12-month cost reporting periods, the amount of
payment is the lesser of (1) the operating costs per case; or (2) 110
percent of the national median of target amounts for the same class of
hospitals for cost reporting periods ending during FY 1996, updated to
the first cost reporting period in which the hospital receives payments
and adjusted for differences in area wage levels. The amounts included
in the following table reflect the updated 110 percent of the wage
neutral national median target amounts for each class of excluded
hospitals and units for cost reporting periods beginning during FY
2001. These figures are updated to reflect the market basket increase
of 3.4 percent. For a new provider, the labor-related share of the
target amount is multiplied by the appropriate geographic area wage
index and added to the nonlabor-related share in order to determine the
per case limit on payment under the statutory payment methodology for
new providers.
------------------------------------------------------------------------
Labor- Nonlabor-
Class of excluded hospital or unit related related
share share
------------------------------------------------------------------------
Psychiatric................................... $6,611 $2,630
Rehabilitation................................ 13,002 5,169
Long-Term Care................................ 16,757 6,662
------------------------------------------------------------------------
3. Development of Prospective Payment System for Inpatient
Rehabilitation Hospitals and Units
Section 4421 of Public Law 105-33 added section 1886(j) to the Act.
Section 1886(j) of the Act mandates the phase-in of a case-mix adjusted
prospective payment system for inpatient rehabilitation services
(freestanding hospitals and units) for cost reporting periods beginning
on or after October 1, 2000 and before October 1, 2002. The prospective
payment system will be fully implemented for cost reporting periods
beginning on or after October 1, 2002. Section 1886(j) was amended by
section 125 of Public Law 106-113 to require the Secretary to use the
discharge as the payment unit under the prospective payment system for
inpatient rehabilitation services and to establish classes of patient
discharges by functional-related groups.
We will issue a separate notice of proposed rulemaking in the
Federal Register on the prospective payment system for inpatient
rehabilitation facilities. That document will discuss the requirements
in section 1886(j)(1)(A)(i) of the Act for a transition phase covering
the first two cost reporting periods under the prospective payment
system. During this transition phase, inpatient rehabilitation
facilities will receive a payment rate comprised of a blend of the
facility specific rate (the TEFRA percentage) based on the amount that
would have been paid under Part A with respect to these costs if the
prospective payment system would not be implemented and the inpatient
rehabilitation facility prospective payment rate (prospective payment
percentage). As set forth in sections 1886(j)(1)(C)(i) and (ii) of the
Act, the TEFRA percentage for a cost reporting period beginning on or
after October 1, 2000, and before October 1, 2001, is 66\2/3\ percent;
the prospective payment percentage is 33\1/3\ percent. For cost
reporting periods beginning on or after October 1, 2001 and before
October 1, 2002, the TEFRA percentage is 33\1/3\
[[Page 47099]]
percent and the prospective payment percentage is 66\2/3\ percent.
As provided in section 1886(j)(3)(A) of the Act, the prospective
payment rates will be based on the average inpatient operating and
capital costs of rehabilitation facilities and units. Payments will be
adjusted for case-mix using patient classification groups, area wages,
inflation, outlier status and any other factors the Secretary
determines necessary. We will propose to set the prospective payment
amounts in effect during FY 2001 so that total payments under the
system are projected to equal 98 percent of the amount of payments that
would have been made under the current payment system. Outlier payments
in a fiscal year may not be projected or estimated to exceed 5 percent
of the total payments based on the rates for that fiscal year.
4. Continuous Improvement Bonus Payment
Under Sec. 413.40(d)(4), for cost reporting periods beginning on or
after October 1, 1997, an "eligible" hospital may receive continuous
improvement bonus payments in addition to its payment for inpatient
operating costs plus a percentage of the hospital's rate-of-increase
ceiling (as specified in Sec. 413.40(d)(2)). An eligible hospital is a
hospital that has been a provider excluded from the prospective payment
system for at least three full cost reporting periods prior to the
applicable period and the hospital's operating costs per discharge for
the applicable period are below the lowest of its target amount,
trended costs, or expected costs for the applicable period. Prior to
enactment of Public Law 106-113, the amount of the continuous
improvement bonus payment was equal to the lesser of--
(a) 50 percent of the amount by which operating costs were less
than the expected costs for the period; or
(b) 1 percent of the ceiling.
Section 122 of Public Law 106-113 amended section 1886(b)(2) of the
Act to provide, for cost reporting periods beginning on or after
October 1, 2000, and before September 30, 2001, for an increase in the
continuous improvement bonus payment for long-term care and psychiatric
hospitals and units. Under section 1886(b)(2) of the Act, as amended, a
hospital that is within one of these two classes of hospitals
(psychiatric hospitals or units and long-term-care hospitals) will
receive the lesser of 50 percent of the amount by which the operating
costs are less than the expected costs for the period, or the increased
percentages mandated by statute as follows:
(a) For a cost reporting period beginning on or after October 1,
2000 and before September 30, 2001, 1.5 percent of the ceiling; and
(b) For a cost reporting period beginning on or after
October 1, 2001, and before September 30, 2002, 2 percent of the
ceiling.
We did not receive any public comments on our proposed revision of
Sec. 413.40(d)(4) to incorporate this provision of the statute and,
therefore, are adopting it as final.
5. Changes in the Types of Patients Served or Inpatient Care Services
That Distort the Comparability of a Cost Reporting Period to the Base
Year Are Grounds for Requesting an Adjustment Payment in Accordance
With Section 1886(b)(4) of the Act
Section 4419(b) of Public Law 104-33 requires the Secretary to
publish annually in the Federal Register a report describing the total
amount of adjustment (exception) payments made to excluded hospitals
and units, by reason of section 1886(b)(4) of the Act, during the
previous fiscal year. However, the data on adjustment payments made
during the previous fiscal year are not available in time to publish a
report describing the total amount of adjustment payments made to all
excluded hospitals and units in the subsequent year's final rule
published in the Federal Register.
The process of requesting, adjudicating, and awarding an adjustment
payment for a given cost reporting period occurs over a 2-year period
or longer. An excluded hospital or unit must first file its cost report
for the previous fiscal year with its intermediary within 5 months
after the close of the previous fiscal year. The fiscal intermediary
then reviews the cost report and issues a Notice of Program
Reimbursement (NPR) in approximately 2 months. If the hospital's
operating costs are in excess of the ceiling, the hospital may file a
request for an adjustment payment within 6 months from the date of the
NPR. The intermediary, or HCFA, depending on the type of adjustment
requested, then reviews the request and determines if an adjustment
payment is warranted. This determination is often not made until more
than 6 months after the date the request is filed. Therefore, it is not
possible to provide data in a final rule on adjustments granted for
cost reports ending in the previous Federal fiscal year, since those
adjustments have not even been requested by that time. However, in an
attempt to provide interested parties at least some relevant data on
adjustments, we are publishing data on requests for adjustments that
were processed by the fiscal intermediaries or HCFA during the previous
Federal fiscal year.
The table below includes the most recent data available from the
fiscal intermediaries and HCFA on adjustment payments that were
adjudicated during FY 1999. By definition these were for cost reporting
periods ending in years prior to FY 1998. The total adjustment payments
awarded to excluded hospitals and units during FY 1999 are $73,532,146.
The table depicts for each class of hospital, in aggregate, the number
of adjustment requests adjudicated, the excess operating cost over the
ceiling, and the amount of the adjustment payment.
----------------------------------------------------------------------------------------------------------------
Excess cost over Adjustment
Class of hospital Number ceiling payment
----------------------------------------------------------------------------------------------------------------
Psychiatric.................................................. 198 $100,861,663 $49,986,012
Rehabilitation............................................... 53 32,690,736 16,798,634
Long-term care............................................... 4 3,239,164 2,577,455
Children's................................................... 7 3,311,758 1,470,670
Cancer....................................................... 2 4,849,093 2,699,375
----------------------------------------------------------------------------------------------------------------
[[Page 47100]]
B. Responsibility for Care of Patients in Hospitals-Within-Hospitals
(Sec. 413.40(a)(3))
Effective October 1, 1999, for hospitals-within-hospitals, we
implemented a policy that allows for a 5-percent threshold for cases in
which a patient discharged from an excluded hospital-within-a-hospital
and admitted to the host hospital was subsequently readmitted to the
excluded hospital-within-a-hospital. With respect to these cases, if
the excluded hospital exceeds the 5-percent threshold, we do not
include any previous discharges to the prospective payment hospital in
calculating the excluded hospital's cost per discharge. That is, the
entire stay is considered one Medicare "discharge" for purposes of
payments to the excluded hospital. The effect of this rule, as
explained more fully in the May 7, 1999 proposed rule (64 FR 24716) and
in the July 30, 1999 final rule (64 FR 41490), is to prevent
inappropriate Medicare payment to hospitals having a large number of
such stays.
In the existing regulations at Sec. 413.40(a)(3), we state that the
5-percent threshold is determined based on the total number of
discharges from the hospital-within-a-hospital. We have received
questions as to whether, in determining whether the threshold is met,
we consider Medicare patients only or all patients (Medicare and non-
Medicare). To avoid any further misunderstanding, in the May 5, 2000
proposed rule, we indicated our intent to clarify the definition of
"ceiling" in Sec. 413.40(a)(3) by specifying that the 5-percent
threshold is based on the Medicare inpatients discharged from the
hospital-within-a-hospital in a particular cost reporting period, not
on total Medicare and non-Medicare inpatient discharges.
We did not receive any public comments on our proposed
clarification of the definition of "ceiling" in Sec. 413.40(a)(3)
and, therefore, are adopting the revision as final.
C. Critical Access Hospitals (CAHs)
1. Election of Payment Method (Sec. 413.70)
Section 1834(g) of the Act, as in effect before enactment of Public
Law 106-113, provided that the amount of payment for outpatient CAH
services is the reasonable costs of the CAH in providing such services.
However, the reasonable costs of the CAH's services to outpatients
included only the CAH's costs of providing facility services, and did
not include any payment for professional services. Physicians and other
practitioners who furnished professional services to CAH outpatients
billed the Part B carrier for these services and were paid under the
physician fee schedule in accordance with the provisions of section
1848 of the Act.
Section 403(d) of Public Law 106-113 amended section 1834(g) of the
Act to permit the CAH to elect to be paid for its outpatient services
under another option. CAHs making this election would be paid amounts
equal to the sum of the following, less the amount that the hospital
may charge as described in section 1866(a)(2)(A) of the Act (that is,
Part A and Part B deductibles and coinsurance):
(1) For facility services, not including any services for which
payment may be made as outpatient professional services, the reasonable
costs of the CAH in providing the services; and
(2) For professional services otherwise included within outpatient
CAH services, the amounts that would otherwise be paid under Medicare
if the services were not included in outpatient CAH services.
Section 403(d) of Public Law 106-113 added section 1834(g)(3) to
the Act to further specify that payment amounts under this election are
be determined without regard to the amount of the customary or other
charge.
The amendment made by section 403(d) is effective for cost
reporting periods beginning on or after October 1, 2000.
In the May 5, 2000 proposed rule, we proposed to revise Sec. 413.70
to incorporate the provisions of section 403(d) of Public Law 106-113.
The existing Sec. 413.70 specifies a single set of reasonable cost
basis payment rules applicable to both inpatient and outpatient
services furnished by CAHs. As section 403(d) of Public Law 106-113
provides that, for outpatient CAH services, CAHs may elect to be paid
on a reasonable cost basis for facility services and on a fee schedule
basis for professional services, we proposed to revise the section to
allow for separate payment rules for CAH inpatient and outpatient
services.
We proposed to place the provisions of existing Sec. 413.70(a) and
(b) that relate to payment on a reasonable cost basis for inpatient
services furnished by a CAH under proposed Sec. 413.70(a). Proposed
Sec. 413.70(a)(2) also stated that payment to a CAH for inpatient
services does not include professional services to CAH inpatients and
is subject to the Part A hospital deductible and coinsurance determined
under 42 CFR Part 409, Subpart G.
We proposed to include under Sec. 413.70(b) the payment rules for
outpatient services furnished by CAHs, including the option for CAHs to
elect to be paid on the basis of reasonable costs for facility services
and on the basis of the physician fee schedule for professional
services. Under proposed Sec. 413.70(b)(2), we would retain the
existing provision that unless the CAH elects the option provided for
under section 403 of Public Law 106-113, payment for outpatient CAH
services is on a reasonable cost basis, as determined in accordance
with section 1861(v)(1)(A) of the Act and the applicable principles of
cost reimbursement in Parts 413 and 415 (except for certain payment
principles that do not apply; that is, the lesser of costs or charges,
RCE limits, any type of reduction to operating or capital costs under
Sec. 413.124 or Sec. 413.130(j)(7), and blended payment amounts for
ambulatory surgical center services, radiology services, and other
diagnostic services).
Under proposed Sec. 413.70(b)(3), we specified that any CAH that
elects to be paid under the optional method must make an annual request
in writing, and deliver the request for the election to the fiscal
intermediary at least 60 days before the start of the affected cost
reporting period. In addition, proposed Sec. 413.70(b)(3)(ii) stated
that if a CAH elects payment under this method, payment to the CAH for
each outpatient visit will be the sum of the following two amounts:
For facility services, not including any outpatient
professional services for which payment may be made on a fee schedule
basis, the amount would be the reasonable costs of the services as
determined in accordance with applicable principles of cost
reimbursement in 42 CFR Parts 413 and 415, except for certain payment
principles that would not apply as specified above; and
For professional services, otherwise payable to the
physician or other practitioner on a fee schedule basis, the amounts
would be those amounts that would otherwise be paid for the services if
the CAH had not elected payment under this method.
We also proposed in Sec. 413.70(b)(3)(iii) that payment to a CAH
for outpatient services would be subject to the Part B deductible and
coinsurance amounts, as determined under Secs. 410.152, 410.160, and
410.161. In proposed Sec. 413.70(c), we stated that final payment to
the CAH for its facility services to inpatients and outpatients
furnished during a cost reporting would be based on a cost report for
that period, as required under Sec. 413.20(b).
[[Page 47101]]
Comment: One commenter expressed concern about several CAH payment
issues on which we did not propose to change existing policy. These
comments related to payment for costs attributable to Medicare bed
debts, counting of beds toward the 15- and 25-bed maximums, and payment
for swing-bed services in CAHs.
Response: Because these comments dealt with matters beyond the
scope of the proposed rule, we have received them with interest and
will consider whether any changes in policy are needed at a later date.
We are adopting the proposed revisions to Sec. 413.70 as final. The
revised Sec. 413.70 includes at paragraph (b)(2)(iii) the text of a
paragraph (c) that was added in the interim final rule with comment
period that implemented certain provisions of Public Law 106-33
published elsewhere in this issue of the Federal Register. We did not
revise the text of this paragraph (c); we merely changed the paragraph
coding to fit it into the scheme of coding of the revised Sec. 413.70.
2. Condition of Participation: Organ, Tissue, and Eye Procurement
(Sec. 485.643)
Sections 1820(c)(2)(B) and 1861(mm) of the Act set forth the
criteria for designating a CAH. Under this authority, the Secretary has
established in regulations the minimum requirements a CAH must meet to
participate in Medicare (42 CFR Part 485, Subpart F).
Section 1905(a) of the Act provides that Medicaid payments may be
made for any other medical care, and any other type of remedial care
recognized under State law, specified by the Secretary. The Secretary
has specified CAH services as Medicaid services in regulations.
Specifically, the regulations at 42 CFR 440.170(g)(1)(i), define CAH
services under Medicaid as those services furnished by a provider
meeting the Medicare conditions of participation (CoP).
Section 1138 of the Act provides that a CAH participating in
Medicare must establish written protocols to identify potential organ
donors that: (1) Assure that potential donors and their families are
made aware of the full range of options for organ or tissue donation as
well as their rights to decline donation; (2) encourage discretion and
sensitivity with respect to the circumstances, views, and beliefs of
those families; and (3) require that an organ procurement agency
designated by the Secretary be notified of potential organ donors.
On June 22, 1998, as part of the Medicare hospital conditions of
participation under Part 482, subpart C, we added to the regulations at
Sec. 482.45, a condition that specifically addressed organ, tissue, and
eye procurement. However, Part 482 does not apply to CAHs, as CAHs are
a distinct type of provider with separate CoP under Part 485.
Therefore, in the proposed rule, we proposed to add a CoP for organ,
tissue, and eye procurement for CAHs at a new Sec. 485.643 that
generally parallels the CoP at Sec. 482.45 for all Medicare hospitals
with respect to the statutory requirement in section 1138 of the Act
concerning organ donation. CAHs are not full service hospitals and
therefore are not equipped to perform organ transplantations.
Therefore, we did not propose to include the standard applicable to
Medicare hospitals that CAHs must be a member of the Organ Procurement
and Transplantation Network (OPTN), abide by its rules and provide
organ transplant-related data to the OPTN, the Scientific Registry,
organ procurement agencies, or directly to the Department on request of
the Secretary.
The proposed CoP for CAHs included several requirements designed to
increase organ donation. One of these requirements is that a CAH must
have an agreement with the Organ Procurement Organization (OPO)
designated by the Secretary, under which the CAH will contact the OPO
in a timely manner about individuals who die or whose death is
imminent. The OPO will then determine the individual's medical
suitability for donation. In addition, the CAH must have an agreement
with at least one tissue bank and at least one eye bank to cooperate in
the retrieval, processing, preservation, storage, and distribution of
tissues and eyes, as long as the agreement does not interfere with
organ donation. The proposed CoP would require a CAH to ensure, in
collaboration with the OPO with which it has an agreement, that the
family of every potential donor is informed of its option to either
donate or not donate organs, tissues, or eyes. The CAH may choose to
have OPO staff perform this function, have CAH and OPO staff jointly
perform this function, or rely exclusively on CAH staff. Research
indicates that consent to organ donation is highest when the formal
request is made by OPO staff or by OPO staff and hospital staff
together. While we require collaboration, we also recognize that CAH
staff may wish to perform this function and may do so when properly
trained. Moreover, the CoP would require the CAH to ensure that CAH
employees who initiate a request for donation to the family of a
potential donor have been trained as designated requestors.
Finally, we proposed that the CoP would require the CAH to work
with the OPO and at least one tissue bank and one eye bank in educating
staff on donation issues, reviewing death records to improve
identification of potential donors, and maintaining potential donors
while necessary testing and placement of organs and tissues is
underway.
Because we were sensitive to the possible burden the proposed CoP
could place on CAHs, we invited public comments and information
concerning the following requirements: (1) Developing written protocols
for donations; (2) developing agreements with OPOs, tissue banks, and
eye banks; (3) referring all deaths to the OPO; (4) working
cooperatively with the designated OPO, tissue bank, and eye bank in
educating staff on donation issues, reviewing death records, and
maintaining potential donors. We note that the proposed requirement
allowed some degree of flexibiilty for the CAH. For example, the CAH
would have the option of using an OPO-approved education program to
train its own employees as routine requestors or deferring requesting
services to the OPO, the tissue bank, or the eye bank to provide
requestors.
We did not receive any public comments on the proposed CAH CoP on
organ, tissue, and eye procurement. We are adopting Sec. 485.643 as
final.
VII. MedPAC Recommendations
On March 1, 2000 the Medicare Payment Advisory Commission (MedPAC)
issued its annual report to Congress, including several recommendations
related to the inpatient operating payment system. Those related to the
inpatient prospective payment systems were: Congress should establish a
single set of payment adjustors for both the operating and capital
systems; HCFA should expand the definition of transfers which applies a
transfer policy to patients transferred to postacute settings; and,
Congress should reformulate the Medicare DSH adjustment. In the
proposed rule, we responded to these recommendations.
In addition, this year MedPAC published another report in June with
additional recommendations. Among the recommendations were: FY 2001
updates to the operating and capital payment rates; moving to refined
DRGs to better capture variations in patient severity; adopting DRG-
specific outlier offsets; Congress should provide the Secretary the
authority to adjust the
[[Page 47102]]
base payment amounts for anticipated coding changes; and, Congress
should fold inpatient direct GME into the prospective payment system
through a revised teaching hospital adjustment. A discussion of
MedPAC's update recommendation can be found in Appendix D of this final
rule.
A. Combined Operating and Capital Prospective Payment Systems
(Recommendation 3J: March Report)
Recommendation: The Congress should combine prospective payment
system operating and capital payment rates to create a single
prospective rate for hospital inpatient care. This change would require
a single set of payment adjustments--in particular, for indirect
medical education and disproportionate share hospital payments--and a
single payment update.
Response: We responded to a similar comment in the July 30, 1999
final rule (64 FR 41552), the July 31, 1998 final rule (63 FR 41013),
and the September 1, 1995 final rule (60 FR 45816). In those rules, we
stated that our long-term goal was to develop a single update framework
for operating and capital prospective payments and that we would begin
development of a unified framework. However, we have not yet developed
such a single framework as the actual operating system update has been
determined by Congress through FY 2002. In the meantime, we intend to
maintain as much consistency as possible with the current operating
framework in order to facilitate the eventual development of a unified
framework. We maintain our goal of combining the update frameworks at
the end of the 10-year capital transition period (the end of FY 2001)
and may examine combining the payment systems post-transition. Because
of the similarity of the update frameworks, we believe that they could
be combined with little difficulty.
In the discussion of its recommendation, MedPAC notes that it "is
examining broad reforms to the prospective payment system, including
DRG refinement and modifications of the graduate medical education
payment and the IME and DSH adjustments. The Commission believes that a
combined hospital prospective payment rate should be established
whether or not broader reforms are undertaken. However, if the Congress
acts on any or all of the Commission's recommendations, it should
consider combining operating and capital payments as part of a larger
package."
We agree that ultimately the operating and capital prospective
payment systems should be combined into a single system. However, we
believe that, because of MedPAC's ongoing analysis and the
Administration's pending DSH report to Congress, any such unification
should occur within the context of other system refinements.
B. Continuing Postacute Transfer Payment Policy (Recommendation 3K:
March Report)
Recommendation: The Commission recommends continuing the existing
policy of adjusting per case payments through an expanded transfer
policy when a short length of stay results from a portion of the
patient's care being provided in another setting.
Response: As noted in section IV.A. of this preamble, we have
undertaken (through a contract with HER) an analysis of the impact on
hospitals and hospital payments of the postacute transfer provision.
That analysis (based on preliminary data covering only approximately 6
months of discharge data) showed a minimal impact on the rate of short-
stay postacute transfers after implementation of the policy. However,
average profit margins as measured by HER declined from $3,496 prior to
implementation of the policy to $2,255 after implementation. We believe
these preliminary findings demonstrate that the postacute transfer
provision has had only marginal impact on existing practice patterns
while more closely aligning the payments to hospitals for these cases
with the costs incurred. Therefore, we agree with MedPAC's
recommendation that the policy should be continued.
C. Disproportionate Share Hospitals (DSH) (Recommendations 3L and 3M:
March Report)
Recommendation: To address longstanding problems and current legal
and regulatory developments, Congress should reform the
disproportionate share adjustment to: Include the costs of all poor
patients in calculating low-income shares used to distribute
disproportionate share payments, and use the same formula to distribute
payments to all hospitals covered by prospective payment.
Response: As we noted in section IV.E. of this preamble, Public Law
106-113 directed the Secretary to require subsection (d) hospitals (as
defined in section 1886(d)(1)(B) of the Act) to submit data on costs
incurred for providing inpatient and outpatient hospital services for
which the hospital is not compensated, including non-Medicare bad debt,
charity care, and charges for Medicaid and indigent care. These data
must be reported on the hospital's cost reports for cost reporting
periods beginning on or after October 1, 2001, and will provide
information that will enable MedPAC and us to evaluate potential
refinements to the DSH formula to address the issues referred to by
MedPAC.
Medicare fiscal intermediaries will audit these data to ensure
their accuracy and consistency. Our experience with administering the
current DSH formula leads us to believe that this auditing function
would necessarily be extensive, because the non-Medicare data that
would be collected have never before been collected and reviewed by
Medicare's fiscal intermediaries. The data would have to be determined
to be accurate and usable, and corrected if necessary.
We agree that the current statutory payment formula could be
improved, largely because of different threshold levels and different
formula parameters applicable to different groups of hospitals. We are
in the process of preparing a report to Congress on the Medicare DSH
adjustment that includes options for amending the statutory formula.
Comment: We received one comment regarding MedPAC's recommendation.
The commenter expressed the concern that any unrecoverable costs from
certified registered nurse anesthetist services in providing anesthesia
and related care to indigent patients may not be included in the bad
debt costs of hospitals.
Response: One of the difficulties in collecting uncompensated care
and non-Medicare bad debt data is defining exactly the types of data
being sought, particularly when there are no existing cost reporting
guidelines to follow. We will be working closely with the hospital
industry to identify and collect these data.
Recommendation: To provide further protection for the primarily
voluntary hospitals with mid-level low-income shares, the minimum
value, or threshold, for the low-income share that a hospital must have
before payment is made should be set to make 60 percent of hospitals
eligible to receive disproportionate share payments.
Response: Currently, fewer than 40 percent of all prospective
payment system hospitals receive DSH payments. Therefore, this
recommendation would entail significant redistributions of existing DSH
payments if implemented in a budget neutral manner. We are particularly
concerned about the effect of this recommendation on hospitals
receiving substantial DSH payments currently, including major teaching
hospitals and public hospitals. The analysis by MedPAC demonstrates
that
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