Tables
Note: For purposes of this final rule, and to avoid confusion, we have retained
the designations of Tables 1 through 5 that were first used in the September
1, 1983 initial prospective payment final rule (48 FR 39844). Tables 1A, 1C,
1D, 3C, 4A, 4B, 4C, 4D, 4E, 4F, 5, 7A, 7B, 8A, 8B, and 10 are presented below.
The tables presented are as follows:
IV.Provisions of the Final Regulations
V. Collection of Information Requirements
[Federal Register: July 30, 1999 (Volume 64, Number 146)]
[Rules and Regulations]
[Page 41489-41538]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jy99-21]
[[Page 41489]]
_______________________________________________________________________
Part II
Department of Health and Human Services
_______________________________________________________________________
Health Care Financing Administration
_______________________________________________________________________
42 CFR Parts 412, 413, 483, and 485
Medicare Program; Changes to the Hospital Inpatient Prospective Payment
Systems and Fiscal Year 2000 Rates; Final Rule
[[Page 41490]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Parts 412, 413, 483, and 485
[HCFA-1053-F]
RIN 0938-AJ50
Medicare Program; Changes to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 2000 Rates
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: We are revising the Medicare hospital inpatient prospective
payment systems for operating costs and capital-related costs to
implement changes arising from our continuing experience with the
systems. In addition, in the addendum to this final rule, we describe
changes in the amounts and factors necessary to determine rates for
Medicare hospital inpatient services for operating costs and capital-
related costs. These changes are applicable to discharges occurring on
or after October 1, 1999. We also set forth rate-of-increase limits as
well as policy changes for hospitals and hospital units excluded from
the prospective payment systems. Finally, we are revising certain
policies governing payment to hospitals for the direct costs of
graduate medical education.
DATES: The provisions of this final rule are effective October 1, 1999.
This rule is a major rule as defined in Title 5, United States Code,
section 804(2). Pursuant to 5 U.S.C. section 801(a)(1)(A), we are
submitting a report to Congress on this rule on July 30, 1999.
FOR FURTHER INFORMATION CONTACT:
Steve Phillips, (410) 786-4531, Operating Prospective Payment,
Diagnosis-Related Group (DRG), and Wage Index Issues.
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, and Graduate Medical Education Issues.
SUPPLEMENTARY INFORMATION:
Availability of Copies and Electronic Access
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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 or units, rehabilitation hospitals or
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 section 1886(a)(4) of the Act, costs incurred directly by a
hospital in connection with approved graduate medical education (GME)
programs are excluded from the operating costs of inpatient hospital
services. Hospitals with approved 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 systems are located in 42 CFR part 412. The regulations
governing excluded hospitals and hospital units are located in parts
412 and 413, and the GME regulations are located in part 413.
B. Summary of the Provisions of the May 7, 1999 Proposed Rule
On May 7, 1999, we published a proposed rule in the Federal
Register (64 FR 24716) that set forth proposed changes to the Medicare
hospital inpatient prospective payment systems for both operating costs
and capital-related costs that would be effective for discharges
occurring on or after October 1, 1999. We also proposed changes
concerning GME costs and excluded hospitals and units, as well as
critical access hospitals (CAHs). On June 15, 1999, we issued a
correction notice (64 FR 31995) for the May 7, 1999 proposed rule. That
notice corrected Table 3C of the Addendum (which lists each hospital's
case-mix index and adjusted average hourly wage based on data on file
at HCFA as of February 22, 1999) and made several other technical
corrections.
In the proposed rule, we noted that the efforts that we were
undertaking to make the Medicare computer systems compliant on January
1, 2000, would not delay our ability to make timely and updated
payments to hospitals under the FY 2000 prospective payment systems
final rule. This statement still applies and the changes and updated
rates set forth in this final rule will be implemented on October 1,
1999.
The following is a summary of the contents of the proposed rule:
<bullet> In order to avoid compromising our ability to process and
pay hospital claims during the period leading up to and immediately
following January 1, 2000, we did not propose to implement any
revisions to the International Classification of Diseases, Ninth
Revision, Clinical Modification (ICD-9-CM) coding system. We did
propose to make some limited changes to certain DRG classifications for
FY 2000 and described other proposed decisions
[[Page 41491]]
concerning DRGs. We also recalibrated the DRG relative weights based on
the proposed DRG changes and updated Medicare claims data.
<bullet> We proposed an FY 2000 hospital wage index update, using
FY 1996 wage data, and revisions to the wage index based on hospital
redesignations. In addition, we proposed to begin excluding from the
wage index Part A physician wage costs that are teaching-related, as
well as resident and Part A certified registered nurse anesthetist
(CRNA) costs.
<bullet> We proposed several policy changes in the regulations in
42 CFR parts 412 and 413 and proposed to continue existing policy
concerning classifications of sole community hospitals; the indirect
medical education adjustment; and Medicare Geographic Classification
Review Board (MGCRB) decisions. In addition, we updated the qualifying
criteria for rural referral centers and proposed several changes to the
regulations governing payments for the direct costs of GME programs.
<bullet> We discussed the special exceptions process for certain
eligible hospitals to receive additional payments for major
construction or renovation projects that began soon after the start of
the capital prospective payment system and proposals that we had
received to change the eligibility criteria for these payments.
<bullet> We discussed a number of proposals concerning Medicare
payments to excluded hospitals and hospital units and CAHs. These
proposed changes related to limits on and adjustments to the proposed
target amounts for FY 2000; changes in bed size or status of excluded
hospitals or hospital units; payment for Medicare services furnished at
satellite hospital locations; responsibility for care of patients in
hospitals-within-hospitals; the allowable emergency response time for
CAHs located in frontier or other specifically defined remote areas;
and compliance with minimum data set requirements by CAHs with swing
bed approval.
<bullet> In the addendum to the proposed rule, we set forth
proposed changes to the amounts and factors for determining the FY 2000
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 2000 for
hospitals and hospital units excluded from the prospective payment
system.
<bullet> In Appendix A of the proposed rule, we set forth an
analysis of the impact that the proposed changes would have on affected
entities.
<bullet> In Appendix B of the proposed rule, we set forth the
technical appendix on the proposed FY 2000 capital cost model.
<bullet> 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 2000 for both
hospitals included in and hospitals excluded from the prospective
payment systems.
<bullet> 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 2000 for--
--Large urban area and other area average standardized amounts (and
hospital-specific rates applicable to sole community hospitals 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.
<bullet> In the proposed rule, we discussed the recommendations
concerning hospital inpatient payment policies made by the Medicare
Payment Advisory Commission (MedPAC) and presented our responses to
those recommendations. Under section 1805(b) of the Act, MedPAC is
required to submit a report to Congress, not later than March 1 of each
year, that reviews and makes recommendations on Medicare payment
policies.
C. Public Comments Received in Response to the Proposed Rule
We received a total of 82 timely items of correspondence containing
multiple comments on the proposed rule. The main areas of concern
addressed by the commenters were removal of teaching-related and CRNA
costs from the wage index, payments for services furnished at satellite
hospital locations, and limits on the transfer of patients in
hospitals-within-hospitals. We also received a number of comments
relating to the eligibility criteria for hospitals to qualify for
capital exceptions payments.
Summaries of the public comments received and our responses to
those comments are set forth below under the appropriate section.
II. Changes to DRG Reclassifications and Recalibrations of Relative Weights
A. Background
Under the prospective payment system, we pay for inpatient hospital
services on the basis of a rate per discharge that varies by 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.
As discussed in more detail in section II.B.8 of this preamble, we
are not implementing any revisions to the ICD-9-CM codes. We have
undertaken, and continue to undertake, major efforts to ensure that all
of the Medicare computer systems are ready to function on January 1,
2000. If we were to implement changes to the ICD-9-CM codes on October
1, 1999, we would endanger the functioning of the Medicare computer
systems, and, specifically, we might compromise our ability to process
hospital bills. We can, however, reclassify existing codes into
different DRGs, if appropriate.
The changes to the DRG classification system, and the recalibration
of the DRG weights for discharges occurring on or after October 1,
1999, 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 ICD-9-CM codes.
The Medicare fiscal intermediary enters the information into its claims
processing system and subjects it to a series of automated screens
called the
[[Page 41492]]
Medicare Code Editor (MCE). These screens are designed to identify
cases that require further review before classification into a DRG can
be accomplished.
After screening through the MCE and any further development of the
claims, cases are classified by the GROUPER software program into the
appropriate DRG. 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.
Currently, cases are assigned to one of 499 DRGs 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 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, 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
2000 and other decisions concerning DRGs. The proposed changes, the
comments we received concerning them, and the final DRG changes are set
forth below. Unless otherwise noted, our DRG analysis is based on the
full (100 percent) FY 1998 MedPAR file, which contains data from bills
received through March 31, 1999.
2. MDC 15 (Newborns and Other Neonates with Conditions Originating in
the Perinatal Period)
In the May 7, 1999 proposed rule, we noted that the following codes
in the newborn observation series are included in the allowable
secondary diagnoses under DRG 391 (Normal Newborn):
V29.0, Observation for suspected infectious disease
V29.1, Observation for suspected neurological condition
V29.8, Observation for other specified suspected condition
V29.9, Observation for unspecified suspected condition
There are two related codes, however, that currently are not included
as allowable secondary diagnoses under DRG 391: V29.2 (Observation for
suspected respiratory condition) and V29.3 (Observation for suspected
genetic or metabolic condition). (In the proposed rule, we incorrectly
stated that V29.3 was titled "Observation for other genetic
problem.") Diagnosis codes V29.2 and V29.3 (as well as the other V29.x
codes noted above) are used to indicate that the newborn was suspected
of having an abnormal condition resulting from exposure from the mother
or the birth process, but is without signs or symptoms and, after
examination and observation, no abnormal condition is found to exist.
Currently, when either V29.2 or V29.3 is the only secondary diagnosis
for an otherwise healthy newborn, the case is assigned to DRG 390
(Neonate with Other Significant Problems). Based on a belief that the
presence of diagnosis code V29.2 or V29.3 should not exclude a newborn
from being classified as normal, we proposed to include diagnosis codes
V29.2 and V29.3 in the list of allowable secondary diagnoses under DRG
391 (Normal Newborn).
We received one comment on this proposal.
Comment: The commenter questioned whether any of the codes in the
V29 series should be assigned to DRG 391. The commenter believes that
the infants assigned to diagnosis code in the V29 series do not belong
in the same clinical group as "normal newborn." The commenter
recommended that, before moving codes V29.2 and V29.3 to DRG 391, we
should examine data such as the average length of stay for DRGs 390 and
391 and those cases coded with V29.x. Citing one hospital's experience,
the commenter noted that 2.7 percent of the cases in DRG 391 were
assigned a secondary diagnosis of V29.0 (Observation for suspected
infectious disease). In addition, cases with secondary diagnosis codes
V29.1, V29.8, and V29.9 represented less than 1 percent each of all
cases in DRG 391. The commenter also reported that, for DRG 390, less
than 1 percent of cases were assigned a secondary diagnosis code of
V29.2 or V29.3. The commenter believes that the length of stay and
resource consumption for these cases should be compared to other cases
assigned to DRG 390 and DRG 391 to determine whether a separate DRG
should be created to adequately categorize these infants.
Response: The experience of the hospital reported by the commenter
indicates that newborn cases with a secondary diagnosis of V29.2 or
V29.3 represent a small percentage of newborn cases. Medicare data do
not contain enough data on newborns to verify this.
In the FY 1998 MedPAR file, there are only nine cases assigned to
DRG 390 and none to DRG 391. In fact, in FY 1998, there were only 18
cases assigned to all of MDC 15. Because of the lack of data on
newborns in the Medicare claims file, the relative weights and lengths
of stay for the DRGs in MDC 15 are based on non-Medicare data collected
from 19 States. (See the September 1, 1995 final rule (60 FR 45781) for
a detailed discussion of this policy.) Therefore, we rely closely on
experts outside of HCFA when we make any changes in MDC 15. We had
received information before publication of the proposed rule suggesting
that V29.2 and V29.3 should be included with the other V29.x codes in
DRG 391. After verifying with our medical consultants that this
information was clinically accurate, we proposed to make this DRG
classification change. We do note that the average lengths of stay for
DRG 390 and 391 do not differ dramatically (3.4 and 3.1 days,
respectively). However, the relative weight for DRG 390 is
significantly higher than that for DRG 391 (1.5908 and 0.1516,
respectively). Thus, we believe the amount of resource use devoted to
newborns in DRG 390 is not
[[Page 41493]]
connected to the amount of time spent in the hospital.
The commenter did not provide any length of stay or resource use
data nor did the commenter provide any reason that codes V29.2 or V29.3
should be treated differently than the other codes in category V29.x.
We believe that DRG 390, as its title indicates, should be used to
classify newborns with significant problems. Newborns who exhibit no
signs or symptoms and are merely evaluated or observed for a suspected
condition that is ruled out should not be classified with newborns who
have significant problems that require treatment.
We note that DRG 391 includes newborns who have minor problems or
conditions that require treatment. For example, some newborns with
jaundice, newborns with scalp injuries or mild birth asphyxia, and
newborns with minor skin infections are all classified to DRG 391.
Thus, that DRG does contain newborn cases for which some medical
treatment must be provided. We believe that including newborns observed
for suspected respiratory, genetic, or metabolic conditions in DRG 391
is clinically appropriate. Therefore, as proposed, we will include
V29.2 and V29.3 as allowable secondary diagnoses under DRG 391, as are
the rest of the codes in that category.
3. MDC 19 (Mental Diseases and Disorders)
We proposed to revise the title of DRG 425, "Acute Adjustment
Reaction and Disturbances of Psychosocial Dysfunction" under MDC 19 to
read "Acute Adjustment Reaction and Psychosocial Dysfunction."
Correspondents had stated that the terms "disturbances" and
"dysfunction" were redundant since the terms have similar meanings.
We received one comment in support of this revision. Therefore, we
are adopting this proposed revision as final.
4. MDC 22 (Burns)
In the July 31, 1998 final rule (63 FR 40957), we implemented an
extensive redesign of the DRGs for burns to more appropriately capture
the variation in resource use associated with different classes of burn
patients. After these DRGs went into effect on October 1, 1998, we were
contacted by several hospitals about our inclusion of the fifth digit
"0" on codes 948.10 through 948.90 to capture cases of full-thickness
burns. These hospitals stated that codes in category 948 with a fifth
digit of "0" should not be assigned to DRGs 506 through 509 as full-
thickness burns since not all of these cases will have a full-thickness
(third degree) burn. The fifth digit "0" can capture cases in which
there actually is no third degree burn. The hospitals requested that we
consider removing from the full-thickness burn DRGs 506 through 509 all
codes in the 948 category with a fifth digit of "0" as follows:
948.00 Body burn involving less than 10 percent of body surface, third
degree less than 10 percent or unspecified
948.10 Body burn involving 10 to 19 percent of body surface, third
degree less than 10 percent or unspecified
948.20 Body burn involving 20 to 29 percent of body surface, third
degree less than 10 percent or unspecified
948.30 Body burn involving 30 to 39 percent of body surface, third
degree less than 10 percent or unspecified
948.40 Body burn involving 40 to 49 percent of body surface, third
degree less than 10 percent or unspecified
948.50 Body burn involving 50 to 59 percent of body surface, third
degree less than 10 percent or unspecified
948.60 Body burn involving 60 to 69 percent of body surface, third
degree less than 10 percent or unspecified
948.70 Body burn involving 70 to 79 percent of body surface, third
degree less than 10 percent or unspecified
948.80 Body burn involving 80 to 89 percent of body surface, third
degree less than 10 percent or unspecified
948.90 Body burn involving 90 percent or more of body surface, third
degree less than 10 percent or unspecified.
We agreed with the hospitals and proposed that the codes listed
above be removed from DRGs 506 through 509 and added to DRG 510
(Nonextensive Burns with CC or Significant Trauma) and DRG 511
(Nonextensive Burns without CC or Significant Trauma). Hospitals have
been instructed in Coding Clinic for ICD-9-CM, Fourth Quarter, 1994
(pages 22 through 28) to code the site of the burn first (codes 940
through 947), when known. Codes from category 948 may be used as a
principal diagnosis only when the site of the burn is not specified.
Category 948 is used as an additional code to provide information on
the percentage of total body that is burned or to show the percentage
of burn that was third degree. When hospitals report codes properly,
full-thickness burns would be assigned to a code for burn of the
specific site (940 through 947). This site code also shows the degree
of the burn. Furthermore, for those rare cases in which the site is not
provided, but it is known that 10 percent or more of the body has a
third degree burn, hospitals may report this information through the
use of category 948 with a fifth digit of "1" through "9." All of
these cases would continue to be classified as full-thickness burns in
DRGs 506 through 509. Therefore, the proposed removal of codes 948.1
through 948.9 with a fifth digit of "0" would not prevent cases from
being assigned to one of the full-thickness DRGs when there is a third
degree burn and the case is correctly coded.
Comment: One commenter stated that while it is true that codes in
category 948 with a fifth digit of "0" may be assigned when there is
no third degree burn, fifth digit "0" is also used to report cases
that have a body surface of 1 to 9 percent involved in third degree
burns. The commenter suggested that consideration be given to these
cases as the presence of a third degree burn represents additional risk
to the patient.
Response: We agree with the commenter that the presence of third
degree burns represents additional risk to the patient and may result
in a higher resource use. More accurately capturing this fact was one
of the primary purposes in revising the burn DRGs in FY 1999. However,
as the commenter noted, in category 948, the fifth digit of "0"
includes cases with no third degree burns as well as third degree burns
involving 1 to 9 percent of the body surface. It is precisely because
many of the cases coded in 948 with a "0" fifth digit have no third
degree burns that we believe it is not appropriate to include these
codes in DRGs 506 through 509. As stated above, hospitals have been
instructed to code the site of the burn first (codes 940 through 947),
when known. These codes capture information on the site of the burn as
well as whether the burn is a third degree burn. Therefore, by using
the more precise codes in the 940 through 947 series, hospitals will be
appropriately assigning cases with minor third degree burns to DRGs 506
through 509.
We are adopting as final our proposal to remove codes in the 948
category with a fifth digit of "0" from the list of full-thickness
burns.
5. Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in
[[Page 41494]]
assignment of the case to a different DRG within the MDC to which the
principal diagnosis is assigned. It is, therefore, 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 5, the surgical class "heart transplant" consists of a single
DRG (DRG 103), and the class "major cardiovascular procedures"
consists of two DRGs (DRGs 110 and 111). 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 be considered only
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. However, in
developing the proposed rule, we were unable to test the effects of
proposed revisions to the surgical hierarchy and to reflect these
changes in the proposed relative weights due to the unavailability of
revised GROUPER software at the time the proposed rule was prepared.
Rather, we simulated most major classification changes to approximate
the placement of cases under the proposed reclassification and then
determined the average charge for each DRG. These average charges then
serve as our best estimate of relative resource use for each surgical
class. We tested the proposed surgical hierarchy changes after the
revised GROUPER was received. The final changes in the DRG relative
weights are reflected in this final rule.
We proposed to revise the surgical hierarchy for the Pre-MDC DRGs
and MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth and Throat)
as follows:
<bullet> In the Pre-MDC DRGs, we proposed to reorder Lung
Transplant (DRG 495) above Bone Marrow Transplant (DRG 481).
<bullet> In MDC 3, we proposed to reorder Tonsil and Adenoid
Procedure Except Tonsillectomy and/or Adenoidectomy Only (DRGs 57 and
58) above Cleft Lip and Palate Repair (DRG 52).
We received two comments in support of the two surgical hierarchy
proposals. In addition, based on a test of the proposed revisions using
the most recent MedPAR file and the revised GROUPER software, we have
found that the revisions are still supported by the data and no
additional changes are indicated. Therefore, we are incorporating the
proposed revisions and reorders in this final rule.
6. Refinement of Complications and Comorbidities (CC) List
There is a standard list of diagnoses that are considered CCs. We
developed this list 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
by deleting CCs already on the list. In the May 7, 1999 proposed rule,
we did not propose to delete any of the diagnosis codes on the CC list.
In the September 1, 1987 final notice concerning changes to the DRG
classification system (52 FR 33143), 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 to preclude coding of CCs for closely related conditions, to
preclude duplicative coding or inconsistent coding from being treated
as CCs, and to ensure that cases are appropriately classified between
the complicated and uncomplicated DRGs in a pair.
In the May 19, 1987 proposed notice concerning changes to the DRG
classification system (52 FR 18877), we explained that the excluded
secondary diagnoses were established using the following five
principles:
<bullet> 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)).
<bullet> Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for a condition should not be considered CCs for
one another.
<bullet> Conditions that may not co-exist, such as partial/total,
unilateral/bilateral, obstructed/unobstructed, and benign/malignant,
should not be considered CCs for one another.
[[Page 41495]]
<bullet> The same condition in anatomically proximal sites should
not be considered CCs for one another.
<bullet> 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 to be
only 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 for the revision made for the discharges occurring in FY
1989 (53 FR 38485); the September 1, 1989 final rule for the FY 1990
revision (54 FR 36552); the September 4, 1990 final rule for the FY
1991 revision (55 FR 36126); the August 30, 1991 final rule for the FY
1992 revision (56 FR 43209); the September 1, 1992 final rule for the
FY 1993 revision (57 FR 39753); the September 1, 1993 final rule for
the FY 1994 revisions (58 FR 46278); the September 1, 1994 final rule
for the FY 1995 revisions (59 FR 45334); the September 1, 1995 final
rule for the FY 1996 revisions (60 FR 45782); the August 30, 1996 final
rule for the FY 1997 revisions (61 FR 46171); the August 29, 1997 final
rule for the FY 1998 revisions (62 FR 45966); and the July 31, 1998
final rule for the FY 1999 revisions (63 FR 40954).) In the May 7, 1999
proposed rule, we did not propose to add or delete any codes from the
CC list.
In addition, because we are not making changes to the ICD-9-CM
codes for FY 2000, we are not modifying the current list for new or
deleted codes. Therefore, there are no revisions to the CC Exclusions
List for FY 2000.
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 (Nonextensive
OR Procedure Unrelated to Principal Diagnosis) in order 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
that do not occur 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
60.95 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,
August 30, 1991, September 1, 1992, September 1, 1993, September 1,
1994, September 1, 1995, August 30, 1996, and August 29, 1997, we moved
several other procedures from DRG 468 to 477, and some procedures from
DRG 477 to 468. (See 55 FR 36135, 56 FR 43212, 57 FR 23625, 58 FR
46279, 59 FR 45336, 60 FR 45783, 61 FR 46173, and 62 FR 45981,
respectively.) No procedures were moved in FY 1999, as noted in the
July 31, 1998 final rule (63 FR 40962).
a. Adding Procedure Codes to MDCs
We annually conduct a review of procedures producing DRG 468 or 477
assignments on the basis of volume of cases in these DRGs with each
procedure. Our medical consultants then identify 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 identified several procedures that we proposed to move to surgical
DRGs for additional MDCs so that they are not assigned to DRG 468. We
did not identify any necessary changes in procedures under DRG 477 and,
therefore, did not propose to move any procedures from DRG 477 to one
of the surgical DRGs.
First, we proposed to move three codes from DRG 468 to MDC 1
(Diseases and Disorders of the Nervous System), all of which would be
assigned to DRGs 7 and 8 (Peripheral and Cranial Nerve and Other
Nervous System Procedure).\1\ Procedure code 38.7 (Interruption of the
vena cava) is sometimes performed in conjunction with treatment for the
principal diagnosis 434.11 (Cerebral embolism with infarction), which
is assigned to MDC 1. Our medical advisors believe that procedure code
38.7 is appropriately performed for some neurological conditions such
as a cerebral embolism with infarction. Because the current DRG
configuration does not allow this assignment, we proposed to add
procedure code 38.7 to DRGs 7 and 8.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
Second, we proposed that procedure codes 83.92 (Insertion or
replacement of skeletal muscle stimulator) and 83.93 (Removal of
skeletal muscle stimulator) both be categorized with other procedures
on the nervous system. These procedures can be performed on patients
with a principal diagnosis in MDC 1, such as 344.00 (Quadriplegia
unspecified) or 344.31 (Monoplegia of lower limb, affecting dominant
side). Therefore, these two codes would also be assigned to DRGs 7 and
8.
Third, procedure code 39.50 (Angioplasty or atherectomy of
noncoronary vessel) is not currently assigned to MDC 4 (Diseases and
Disorders of the Respiratory System). This procedure is performed for
patients who develop pulmonary embolism. The principal diagnosis for
pulmonary embolism is in MDC 4, and, to increase clinical coherence, we
proposed to add procedure code 39.50 to that MDC in DRGs 76 and 77
(Other Respiratory System OR Procedures).
Fourth, insertion of totally implantable infusion pump (procedure
code 86.06) is not assigned to MDC 5 (Diseases and Disorders of the
Circulatory System) in the current DRG configuration. Infusion pumps
should
[[Page 41496]]
be assigned to all MDCs in which subcutaneous insertion of the pump is
appropriate. Procedure code 86.06 may be performed on patients with a
principal diagnosis in MDC 5 such as 451.83 (Phlebitis and
thrombophlebitis of the deep veins of other extremities). Therefore, we
proposed to add procedure code 86.06 to DRG 120 (Other Circulatory
System OR Procedures) in MDC 5.
We received two comments on these MDC and DRG assignments, both of
which concurred with our proposed changes. Therefore, we are adopting
them as final.
b. Reassignment of Procedures Among DRGs 468, 476, and 477
We also reviewed the list of procedures that produce assignments to
DRGs 468, 476, and 477 to ascertain if any of those procedures should
be moved from one of these DRGs to another based on average charges and
length of stay. Generally, we move only those procedures for which we
have an adequate number of discharges to analyze the data. Based on our
review this year, we did not propose 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.
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
Health Statistics (NCHS) and HCFA, that is charged with the mission of
maintaining and updating the ICD-9-CM system. That mission includes
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 American
Hospital Association (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 and November 2, 1998. Even though the
Committee conducted public meetings and considered approval of coding
changes for FY 2000 implementation, we are not implementing any changes
to ICD-9-CM codes for FE 2000. We have undertaken, and continue to
undertake, major efforts to ensure that all of the Medicare computer
systems are ready to function on January 1, 2000. If we were to make
system changes to capture additions, deletions, and modifications to
ICD-9-CM codes for FY 2000, we would endanger the functioning of the
Medicare computer systems, and, specifically, we might compromise our
ability to process hospital bills. Therefore, the code proposals
presented at the public meetings held on June 4 and November 2, 1998,
that (if approved) ordinarily would have been included as new codes for
October 1, 1999, are not included in this final rule. These code
changes to ICD-9-CM will be considered for inclusion in the annual
update for FY 2001. The initial meeting for consideration of coding
changes for implementation in FY 2001 was held on May 13, 1999.
Copies of the minutes of the 1998 meetings and the May 13, 1999
meeting can be obtained from the HCFA Home Page at http://www.hcfa.gov/
medicare/icd9cm.htm or from http://www.hcfa.gov/events, click on
"meetings and workshops" link, and then click on "reports of the
ICD-9-CM coordination and maintenance committee" link. Paper copies of
these minutes are no longer available and the mailing list has been
discontinued. We encourage commenters to address suggestions on coding
issues involving diagnosis codes to: Donna Pickett, Co-Chairperson;
ICD-9-CM Coordination and Maintenance Committee; NCHS; Room 1100; 6525
Belcrest Road; Hyattsville, Maryland 20782. Comments may be sent by E-
mail to dfp4@cdc.gov.
Questions and comments concerning the procedure codes should be
addressed to: Patricia E. Brooks, Co-Chairperson; ICD-9-CM Coordination
and Maintenance Committee; HCFA, Center for Health Plans and Providers,
Plan and Provider Purchasing Policy Group, Division of Acute Care; C4-
07-07; 7500 Security Boulevard; Baltimore, Maryland 21244-1850.
Comments may be sent by E-mail to pbrooks@hcfa.gov.
We received one comment in support of our decision not to update
ICD-9-CM codes given the magnitude of system changes needed during the
period leading up to the year 2000.
9. Other Issues
a. Implantation of Muscle Stimulator
In the July 31, 1998 final rule, we responded to a comment on the
DRG assignment for implantation of a muscle stimulator (63 FR 40964).
In that document, we stated that we would readdress this issue after
reviewing the FY 1998 MedPAR file.
There is concern in the manufacturing industry that the current DRG
assignment for the implantation of a muscle stimulator and the
associated tendon transfer for quadriplegics is inappropriate. When the
procedures are performed during two separate admissions, the tendon
transfer (procedure code 82.56 (Other hand tendon transfer or
transplantation)) is assigned to DRGs 7 and 8, and the insertion of the
muscle stimulator (procedure code 83.92 (Insertion or replacement of
skeletal muscle stimulator)) is assigned to DRG 468. However, when both
procedures are performed in the same admission, the case is assigned to
DRGs 7 and 8.
As discussed in section II.B.7.a of this preamble, in the May 7,
1999 proposed rule, we proposed to assign code 83.92 to DRGs 7 and 8 in
MDC 1. Therefore, if a case involves either procedure code 82.56 or
83.92, or both procedure codes, the case would be assigned to DRGs 7
and 8.
A presentation on one type of muscle stimulator was made by a
device manufacturer before the ICD-9-CM Coordination and Maintenance
Committee on November 2, 1998. The manufacturer strongly suggested that
a
[[Page 41497]]
new code assignment be made for the procedure for insertion of this
stimulator and that it be placed in category 04.9 (Other operations on
cranial and peripheral nerves). However, based on comments received by
the Committee, there was an overwhelming response from the coding
community that a new code should not be created. The commenters believe
that these codes (82.56 and 83.92) adequately described the procedures
since the patient receives a tendon transfer in addition to the
skeletal muscle stimulator insertion. This is done so that the
quadriplegic patient can achieve some hand grasping ability where there
was none before. Some quadriplegic patients receive the tendon transfer
on one admission and the stimulator insertion on a subsequent
admission. Others have both procedures performed on the same admission.
Since the tendon transfer and stimulator insertion are being performed
on quadriplegic patients, a condition found in MDC 1, we proposed to
add procedure codes 82.56 and 83.92 to DRGs 7 and 8. We did not receive
any comments on this proposal. Therefore, we are adopting it as final.
b. Pancreas Transplant
Through a Medicare Coverage Issues Manual revision (Transmittal No.
115, April 1999), HCFA announced that, effective July 1, 1999, Medicare
covers whole organ pancreas transplantation (procedure codes 52.80 or
52.83) if it is performed simultaneous with or after a kidney
transplant.
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 continue to
be excluded from coverage. Medicare also excludes coverage of
transplantation of partial pancreatic tissue or islet cells. Claims
processing instructions to intermediaries were contained in Program
Memorandum Transmittal No. A-99-16 (April 1999).
We received one comment regarding the coverage and claims
processing instructions for pancreas transplants.
Comment: The commenter requested clarification on the date of
coverage for services related to pancreas transplantation services
furnished on or after July 1, 1999. Specifically, the commenter asked
whether coverage is effective for admissions, discharges, or actual
transplant surgery on or after that date. In addition, the commenter
believes that if the resource use for a pancreas-kidney transplant is
significantly greater than for a kidney transplant alone, then a new
DRG should be created for the dual transplant. Finally, the commenter
was unsure how hospitals should report the organ acquisition costs
attributable to pancreas. Specifically, the commenter wanted to know if
the costs should be included, on the hospital cost report with the
kidney costs or whether a separate organ acquisition cost center will
be established for pancreas acquisition costs.
Response: As stated in Transmittal No. 115, coverage is effective
for dates of service on or after July 1, 1999. Therefore, any pancreas
transplant performed on or after July 1, 1999 is covered by Medicare if
all other qualifying criteria are met.
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 (Disease and Disorders of the Kidney
and Urinary Tract. If a pancreas transplant is performed following a
kidney transplant (that is, in a different hospital admission) on a
patient with chronic renal failure secondary to diabetes with renal
manifestations, the case is assigned to DRG 468 (Major OR Procedure
Unrelated to Principal Diagnosis) 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.
If a kidney and pancreas transplant are performed simultaneously or
if a pancreas transplant is performed following a kidney transplant, on
a patient with chronic renal failure secondary to diabetes with
ketoacidosis (diagnosis codes 250.10 through 250.13), diabetes with
hyperosmolarity (diagnosis codes 250.20 through 250.23), diabetes with
other coma (diagnosis codes 250.30 through 250.33), diabetes with other
specified manifestations (diagnosis codes 250.80 through 250.83), or
diabetes with unspecified complication (diagnosis codes 250.90 through
250.93), the case would be assigned to DRG 292 or 293 (Other Endocrine,
Nutritional and Metabolic OR Procedures) in MDC 10 (Endocrine,
Nutritional, and Metabolic Diseases and Disorders). As the commenter
notes, it is possible that the resource use for a pancreas-kidney
transplant or a pancreas-only transplant might be significantly
different from a kidney-only transplant. We intend to review the
Medicare data in our FY 1999 MedPAR file in order to analyze whether we
should either reassign these transplants to a different DRG or create a
new DRG. We will announce any proposals on that issue in the FY 2001
proposed rule, which will be published in the Spring of 2000.
A separate organ acquisition cost center has been established for
pancreas transplantation. The Medicare cost report will include a
separate line to account for pancreas transplantation costs. In
addition, in this final rule, we are making a conforming change to '
412.2(e)(4) to include pancreas in the list of organ acquisition costs
that are paid on a reasonable cost basis.
c. Immunotherapy
Effective October 1, 1994, procedure code 99.28 (Injection or
infusion of biological response modifier [BRM] as an antineoplastic
agent) was created. This procedure is also known as BRM therapy or
immunotherapy. At that time, we designated the code as a Anon-OR@ code
that does not affect DRG assignment.
Comment: One commenter, a manufacturer of a biologic response
modifier, 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
Non-Acute Leukemia with CC) would be an appropriate DRG. The
manufacturer=s particular drug is used in the treatment of metastatic
renal cell carcinoma and metastatic melanoma.
Response: Using the 100 percent FY 1998 MedPAR file that contains
bills through December 31, 1998, we performed an analysis of the cases
for which procedure code 99.28 was reported. Based on the commenter's
request, for purposes of this analysis we examined cases only for
hospitals that use the particular drug manufactured by the commenter.
We identified 121 cases in 19 DRGs in 9 MDCs. No more than 31 cases
were assigned to any one particular DRG. Of the 121 cases identified,
31 cases were assigned to DRG 318 (Kidney and Urinary Tract Neoplasms
with CC) and 30 of the cases were assigned to DRG 82 (Respiratory
Neoplasms). There was a wide range of charges (between approximately
$1,300 and $125,000 per case) associated with this therapy. The average
length of stay was approximately 5 days. Due to the limited number of
cases that were
[[Page 41498]]
distributed throughout 19 DRGs and the variation of charges, we
concluded that it would be inappropriate to classify these cases into a
single DRG. Because of the numerous principal diagnoses reported with
BRM therapy, a single DRG for procedure code 99.28 would need to be
placed in the pre-MDC DRG category. Similarly, it would be impossible
to classify these cases into DRG 403 because only a few cases were
coded with a principal diagnosis assigned to MDC 17 (Myeloproliferative
Diseases and Disorders, and Poorly Differentiated Neoplasms), the MDC
that includes DRG 403. Finally, the variation in charges reflected in
the 121 cases do not persuade us that there is an analytic basis for
combining these cases into one DRG. Using the FY 1999 MedPAR, we intend
to do a full analysis of these cases, which we will discuss in the FY
2001 proposed rule.
As a final note, any DRG classification change for procedure code
99.28 must be appropriate for all cases that receive BRM therapy, not
just those that use the commenter's drug. Even if we might consider
such an assignment appropriate, we have no way to distinguish between
different drug therapies assigned to the same procedure code. The FY
1998 MedPAR file we analyzed contained 930 cases with procedure code
99.28. These 930 cases were assigned to 18 MDCs.
d. Heart Assist Devices
Effective May 5, 1997, we revised Medicare coverage of heart assist
devices to allow coverage of a ventricular assist device used for
support of blood circulation postcardiotomy if certain conditions were
met. In the August 29, 1997 final rule (62 FR 45973), we moved
procedure code 37.66 (Implant of an implantable pulsatile heart assist
device) from DRGs 110 and 111 (Major Cardiovascular Procedures) to DRG
108 (Other Cardiothoracic Procedures) to improve payment for these
procedures. In the July 31, 1998 final rule (63 FR 40956), in a further
effort to improve payment for these cases, we moved procedure code
37.66 to DRGs 104 and 105 (Cardiac Valve and Other Major Cardiothoracic
Procedures).
We received one comment regarding the DRG classification of
procedure code 37.66.
Comment: The commenter recommended that we either reclassify heart
assist device cases to DRG 103 (Heart Transplant) or create a new DRG
specifically for this device and technology. The commenter cited a
discrepancy between the cost of the device implantation and payment for
DRGs 104 and 105 as the basis for these recommendations.
Response: We refer the reader to our response to a similar comment
in the August 29, 1997 final rule (62 FR 45967). We note that the FY
1998 MedPAR file has 22 cases coded with procedure code 37.66. Of these
22 cases, 8 cases were assigned to DRG 103 (Heart Transplant) and 4
cases to DRG 483 (Tracheostomy Except for Face, Mouth, and Neck
Diagnoses). The remaining 10 cases would have been assigned to DRGs 104
and 105 under the current classification.
C. Recalibration of DRG Weights
We proposed to use the same basic methodology for the FY 2000
recalibration as we did for FY 1999. (See the July 31, 1998 final rule
(63 FR 40965).) That is, we recalibrated the weights based on charge
data for Medicare discharges. However, we used the most current charge
information available, the FY 1998 MedPAR file. (For the FY 1999
recalibration, we used the FY 1997 MedPAR file.) The MedPAR file is
based on fully coded diagnostic and surgical procedure data for all
Medicare inpatient hospital bills.
The final recalibrated DRG relative weights are constructed from FY
1998 MedPAR data, based on bills received by HCFA through March 1999,
from all hospitals subject to the prospective payment system and short-
term acute care hospitals in waiver States. The FY 1998 MedPAR file
includes data for approximately 11.3 million Medicare discharges.
The methodology used to calculate the DRG relative weights from the
FY 1998 MedPAR file is as follows:
<bullet> All the claims were regrouped using the DRG classification
revisions discussed above in section II.B of this preamble.
<bullet> Charges were standardized to remove the effects of
differences in area wage levels, indirect medical education (IME) and
disproportionate share hospital (DSH) payments, and, for hospitals in
Alaska and Hawaii, the applicable cost-of-living adjustment.
<bullet> 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.
<bullet> We then eliminated statistical outliers, using the same
criteria as were 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.
<bullet> 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 length of stay to the geometric mean length of stay of the cases
assigned to the DRG. That is, a 5-day length of stay transfer case
assigned to a DRG with a geometric mean length of stay of 10 days is
counted as 0.5 of a total case.
<bullet> 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 1998 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.)
<bullet> Acquisition costs for kidney, heart, heart-lung, liver,
and lung 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
for Heart and Heart-Lung Transplants); DRG 480 (Liver Transplant); and
DRG 495 (Lung Transplant)). 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 effect of 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 used that same case threshold in
recalibrating the DRG weights for FY 2000. Using the FY 1998 MedPAR
data set, there are 40 DRGs that contain fewer than 10 cases. We
computed the weights for the 40 low-volume DRGs by adjusting the FY
1999 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 final DRG classification changes, result in an average case
weight that is different from the average case weight
[[Page 41499]]
before recalibration. Therefore, the new weights are normalized by an
adjustment factor, so that the 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.
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 ensures 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.b of the Addendum to this final rule, we make a budget
neutrality adjustment to ensure that the requirement of section
1886(d)(4)(C)(iii) of the Act is met.
D. Use of Non-MedPAR Data for Reclassification and Recalibration of the
DRGs
1. Introduction
As in past years, in the DRG reclassification and recalibration
process for the FY 2000 final rule, we used the MedPAR file, which
consists of data for approximately 11.3 million Medicare discharges. In
the FY 1999 final rulemaking process, we used the FY 1997 MedPAR file
to recalibrate DRGs and evaluate possible changes to DRG
classifications; for this FY 2000 final rule, we used the FY 1998
MedPAR file. The Conference Report that accompanied the Balanced Budget
Act of 1997 stated that "in order to ensure that Medicare
beneficiaries have access to innovative new drug therapies, the
conferees believe that HCFA should consider, to the extent feasible,
reliable, validated data other than Medicare Provider Analysis and
Review (MedPAR) data in annually recalibrating and reclassifying the
DRGs" (H.R. Conf. Rep. No. 105-217 at 734 (1997)).
Consistent with that language, we considered non-MedPAR data in the
rulemaking process for FY 1999 and in developing the May 7, 1999
proposed rule for FY 2000. We received non-MedPAR data from entities on
behalf of the manufacturer of a specific drug, platelet inhibitors. The
manufacturer was seeking to obtain a new DRG assignment for cases
involving platelet inhibitors. The non-MedPAR data purported to show
cases involving platelet inhibitors. As discussed in the proposed rule,
we concluded it was not feasible to use the non-MedPAR data submitted
to us because, among other things, we did not have information to
verify that the cases actually involved the drug, nor did we have
information to verify that the cases reflected a representative sample
(and did not simply reflect high cost cases).
Effective October 1, 1998, we implemented a code for platelet
inhibitors, but until we receive bills for Medicare discharges
occurring during FY 1999, the MedPAR data do not enable us to
distinguish between cases with platelet inhibitors and cases without
platelet inhibitors (63 FR 40963). Representatives of the
pharmaceutical company first presented us with non-MedPAR data during
the rulemaking process for FY 1999. The data were compiled by a health
information company, and purported to show, for cases from a sample of
hospitals, the average standardized charges (as calculated by the
health information company) for different classes of patients.
In the FY 1999 final rule, we stated a number of reasons for
rejecting the non-MedPAR data we had received. Basically, the data were
unreliable and the data's use was not feasible--the data could not be
validated or verified.
After publication of the July 31, 1998 final rule, we met and
corresponded on several occasions with the manufacturers, vendors, and
legal representatives of the pharmaceutical company in an effort to
resolve data issues. We reiterated that, among other things, we needed
to know for each case the hospital that furnished the services. Before
the publication of the proposed rule, we had not received information
necessary to validate the data or the data's representativeness.
We remain open to considering non-MedPAR data in the DRG
reclassification and recalibration process, but, consistent with the
Conference Report, as well as our longstanding policies, the data must
be "reliable" and "validated." The July 31, 1998 final rule
reflected the major factors that we consider in evaluating whether data
are feasible, reliable, and validated; however, because we believed it
might be useful, we discussed these issues in much greater detail in
the May 7, 1999 proposed rule.
2. The DRG Reclassification and Recalibration Process
In order to understand whether it is feasible to use non-MedPAR
data, and whether the data are reliable and validated, it is critical
to understand the DRG recalibration and reclassification process. As
described earlier, one of the first steps in the annual DRG
recalibration is that the Medicare hospital inpatient claims (in the
MedPAR file) from the preceding Federal fiscal year are classified
using the DRG classification system (proposed or final) for the
upcoming year. Cases are classified into DRGs 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. Each case is classified into one and only one DRG.
As the term suggests, the relative weight for each DRG reflects
relative resource use. The recalibration process requires data that
enable us to compare resource use across DRGs. As explained earlier, as
part of the recalibration process, we standardize the charges reflected
on each Medicare claim to remove the effects of area wage differences,
the IME adjustment, and the DSH adjustment; in order to standardize
charges, we need to know which hospital furnished the service. For each
DRG, we calculate the average of the standardized charges for the cases
classified to the DRG. To calculate DRG relative weights, we compare
average standardized charges across DRGs.
In evaluating whether it is appropriate to reclassify cases from
one DRG to another, we examine the average standardized charges for
those cases. The recalibration process and the reclassification process
are integrally related; to evaluate whether cases involving a certain
procedure should be reclassified, we need to have information that (1)
enables us to identify cases that involve the procedure and cases that
do not involve the procedure, and (2) enables us to determine
appropriate DRG relative weights if certain cases are reclassified.
3. Feasible, Reliable, Validated Data
As indicated above, the Conference Report reflected the conferees'
belief that, "to the extent feasible," HCFA should consider
"reliable, validated data" in recalibrating and reclassifying DRGs.
The concepts of reliability and validation are closely related. In
order for us to use non-MedPAR data, the non-MedPAR data must be
independently validated. When an entity submits non-MedPAR data, we
[[Page 41500]]
must be able to independently review the medical records and verify
that a particular procedure was performed for each of the cases that
purportedly involved the procedure. This verification requires the
identification of a particular Medicare beneficiary and the hospital
where the beneficiary was treated, as well as the dates involved.
Although it is unlikely that we would review 100 percent of thousands
of cases submitted for review, at a minimum, we must be able to
validate data through a random sampling methodology. We must also be
able to verify the charges that are reflected in the data.
Independent validation is particularly critical in part because the
non-MedPAR data might be submitted by (or on behalf of) entities that
have a financial interest in obtaining a new DRG assignment and in
obtaining the highest possible DRG relative weight. If we receive non-
MedPAR data that purport to reflect cases involving a certain procedure
and a certain level of charges, we must have some way to verify the
data.
Even if non-MedPAR data are reliable and verifiable, that does not
mean it is necessarily "feasible" to use the data for purposes of
recalibration and reclassification. In order to be feasible for these
purposes, the non-MedPAR data must enable us to appropriately measure
relative resource use across DRGs. It is critical that cases are
classified into one and only one DRG in the recalibration process, and
that we have information that enables us to standardize charges for
each case and determine appropriate DRG relative weights. Moreover, the
data must reflect a complete set of cases or, at a minimum, a
representative sample of hospitals and claims.
If cases are classified into more than one DRG (or into the
incorrect DRG) in the recalibration process, or if the non-MedPAR data
reflect an unrepresentative sample of cases, the measure of relative
resources would be distorted. For example, cases of percutaneous
transluminal coronary angioplasty (PTCA) treated with GPIIb/IIIa
platelet inhibitors (procedure code 99.20) are currently classified to
DRG 112. Prior to the publication of the proposed rule, the same drug
manufacturer discussed above provided us with information on the
average charges for a sample of cases that purportedly involve PTCA,
for the purpose of evaluating whether these cases should be moved to
the higher-weighted DRG 116. However, without adequate identification
of the cases to allow us to specifically identify all of the cases
treated with platelet inhibitors, the relative weight for DRG 112 would
reflect the costs of platelet inhibitor cases. This distortion would
result in excessive payments under DRG 112, and thus undermine the
integrity of the recalibration process.
Therefore, in order for the use of non-MedPAR data to be feasible,
generally we must be able to accurately and completely identify all of
the cases to be reclassified from one DRG to another. At a minimum, we
must have some mechanism for ensuring that DRG weights are not
inappropriately inflated (or deflated) to the extent that a DRG weight
reflects cases that would be reclassified to a different DRG.
In short, then, for use of non-MedPAR data to be feasible for
purposes of DRG recalibration and reclassification, the data must,
among other things (1) be independently verifiable, (2) reflect a
complete set of cases (or a representative sample of cases), and (3)
enable us to calculate appropriate DRG relative weights and ensure that
cases are classified to the "correct" DRG, and to one DRG only, in
the recalibration process.
4. Submission of Data
Finally, in order for use of non-MEDPAR 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 the data's use.
Subsequently, a complete database should be submitted no later than
December 1 for consideration in conjunction with the next year's
proposed rule.
5. How the Prospective Payment System Ensures Access to New
Technologies
As noted at the outset of this discussion, the Conference Report
that accompanied the BBA indicated that we should consider non-MEDPAR
data, to the extent feasible, "in order to ensure that Medicare
beneficiaries have access to innovative new drug therapies" (H.R.
Conf. Rep. No. 105-217 at 734 (1997)). There seems to be a concern
that, if a new technology is introduced, and if the new technology is
costly, then Medicare would not make adequate payment if the new
technology is not immediately placed in a new DRG. This concern is
unfounded. As explained below, the Medicare hospital inpatient
prospective payment does ensure access to new drug therapies, and to
new technologies in general.
First, to the extent a case involving 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.
Second, Medicare promotes access to new technologies by making
payments under the prospective payment system that are designed to
ensure that Medicare payments for a hospital's cases as a whole are
adequate. We establish DRGs based on factors such as clinical coherence
and resource utilization. Each diagnosis-related group 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.
For some cases, the hospital's costs might be higher than the
payment under the prospective payment system; this does not mean that
the DRG classifications are "inappropriate." For other cases, the
hospital's costs will be lower than the payment under the prospective
payment system. We believe that Medicare makes appropriate payments for
a hospital's cases as a whole.
Each year we examine the best data available to assess whether DRG
changes are appropriate and to recalibrate DRG relative weights. As we
have indicated on numerous occasions, it usually takes 2 years from the
time a procedure is assigned a code to collect the appropriate MedPAR
data and then make an assessment as to whether a DRG change is
appropriate. This timetable applies to reclassifications that would
lead to decreased payment as well as those that would increase payment.
In fact, the introduction of new technologies itself might lead to
either higher than average costs or lower costs.
Our ability to evaluate and implement potential DRG changes depends
on the availability of validated, representative data. We believe that
our policies ensure access to new technologies and are critical to the
integrity of the recalibration process. We still remain open to using
non-MedPAR data if the data are reliable and validated and enable us to
appropriately measure relative resource use.
We received a number of comments regarding this issue, including
comments from MedPAC, pharmaceutical manufacturers (including two
manufacturers of platelet inhibitor drugs), an industry manufacturers'
association, and several
[[Page 41501]]
cardiologists. We received only one comment from a State hospital
association; otherwise, hospital associations were silent on this
issue.
Comment: MedPAC stated that HCFA's general criteria provide a valid
basis for assessing the feasibility and appropriateness of using
outside data to establish DRG assignments and relative weights for
specific technologies. MedPAC believes that it would be helpful to
entities that desire to submit useful data if HCFA would establish and
publish explicit data standards to guide their efforts. MedPAC
suggested the criteria might include the format and content of the
patient care records; the minimum sample size; required documentation
of sampling procedures; acceptable methods for ensuring that the
sampled providers were representative of the relevant provider
universe; and any other information that HCFA considered essential to
establish the validity and reliability of the submitted data. MedPAC
believes that the criteria would help to prevent misunderstandings and
ensure HCFA's ability to assess whether the submitted data were
adequate to serve as a basis for DRG assignment before actual MedPAR
claims become available.
Response: We appreciate the Commission's support of our general
criteria. We would prefer to gain further experience working with non-
MedPAR data before we develop any specific criteria regarding sample
sizes or methodologies. This will enable us to establish criteria that
realistically reflect the availability of such data and the general
suitability of the data for use in the DRG reclassification and
recalibration process. Our intent at this time is to address some
fundamental criteria that must be taken into consideration by outside
parties interested in submitting non-MedPAR data.
We note that the timetable we set forth in the proposed rule is
intended to provide adequate opportunity to permit outside parties to
conform their data to our needs through testing and resubmission. This
is the primary reason we believe it is generally necessary to have a
sample of the data 8 months prior to the publication of the proposed
rule. We are willing to meet with outside parties interested in
submitting non-MedPAR data for consideration, and would suggest that
those interested in submitting such data in the future should contact
us to discuss the specific data they wish to submit and whether the
data may be adequate.
Comment: One commenter, while supporting the idea that the data
must be reliable and verifiable, indicated that HCFA should consider
other means by which to accomplish this purpose. The commenter stated
that many of the sources for data are restricted from releasing
identifying elements of the data they collect. The commenter claimed,
for example, that they could validate the method by which the data were
assembled, thereby alleviating our concern that the cases may not
represent Medicare beneficiaries or that the reported charges are
inaccurate.
Response: We are open to considering any feasible method for
validating non-MedPAR data, and that is why at this time we are not
specifying explicit criteria for the types of data we will or will not
consider. Instead, we have outlined general guidelines and fundamental
objectives that must be met. One of those fundamental objectives is
that we must be able to validate the data and to accurately identify
cases to be reclassified during DRG recalibration.
In order to preserve the integrity of the DRG reclassification and
recalibration process, we generally believe it is imperative that we
are able to independently validate the data submitted. As noted
previously, if we receive non-MedPAR data that purport to reflect cases
involving a certain procedure and a certain level of charges, we must
have some way to verify that data. In addition, it is not enough to
simply decide that a particular diagnosis or procedure code should now
be classified to a higher-weighted DRG. Cases in the MedPAR data used
for recalibration with that diagnosis or procedure code should be
reclassified accordingly. Otherwise, these cases will affect the
calculation of the relative weights of other DRGs. Therefore, in order
to allow us to ensure the accuracy of DRG recalibration, we must have
some mechanism for ensuring that DRG weights are not inappropriately
inflated.
Comment: Some commenters stated that the criteria regarding the
feasibility of using the data are inconsistent with the intent of the
Conference Report language. The commenters contend that there is no
need to identify each case involving a new technology. Rather, the
agency can extrapolate the findings from a representative sample of
cases and estimate which cases must be moved from one DRG to another.
Two of the commenters stated that this approach was used in
reclassifying lithotripsy to an appropriate DRG, and that extrapolation
is used to some degree in setting the physician fee schedule and was
used in the proposed outpatient prospective payment system. One
commenter wanted us to clarify that we would accept a representative,
statistically valid sample of both non-HCFA and HCFA data that reflect
cases for a period of less than a full year, as well as requesting that
we specify the sources (for example, private payers, manufacturers of
medical technologies, or suppliers) from which we are willing to accept
such data.
Response: We did not rule out the use of extrapolation based on
non-MedPAR data in the proposed rule. In fact, we stated that the data
must reflect either a complete set of cases, or, at a minimum, a
representative sample of hospitals and claims. However, as stated
previously, the process of recalibrating the DRG weights requires that
cases be moved consistent with the reclassification of diagnosis or
procedure codes from one DRG to another. Failure to do so could lead to
inflated or deflated relative weights, which, in turn, result in over
or underpayments for cases in the affected DRGs.
We are attempting to accommodate the realities faced by outside
parties as they attempt to collect and present non-MedPAR data for
consideration. In addition, we will continue to explore our processes
for ways to incorporate such data while preserving the empirical and
clinical integrity of the recalibration process.
As noted by two commenters, in the September 3, 1986 final rule (51
FR 31486), we did, based on analysis by the Prospective Payment
Assessment Commission (ProPAC), assign all cases involving a principal
diagnosis of urinary stones treated by extracorporeal shock wave
lithotripsy (ESWL) to DRG 323 (Urinary stones, age >69 and/or CC).
Prior to this DRG change, ESWL cases were assigned to either DRG 323 or
DRG 324, depending on the presence of a CC or based on the patients age
(over 69). The Commission, an independent advisory body established by
Congress (and MedPAC's predecessor organization), obtained information
on ESWL procedure costs and other routine and ancillary hospital
service charges from the American Heart Association (AHA), the American
Urological Association, and seven hospitals that furnished ESWL. In
addition, ProPAC obtained a preliminary summary of a study conducted by
the Institute for Health Policy Analysis at Georgetown University
Medical Center. This study included cost data from 16 hospitals that
furnished lithotripsy. At the time of these studies, approximately 50
hospitals were furnishing ESWL. Because the ProPAC data were obtained
directly from hospitals and were verified by the Commission at the
[[Page 41502]]
hospital level, we believed the data were reliable and used the data as
a basis for reassigning ESWL cases to DRG 343 only. A full explanation
of the study and ProPAC's analysis and recommendations can be found in
the Technical Appendixes that accompanied ProPAC's April 1, 1986 Report
to Congress.
We have not precluded using either external or internal data that
represent less than a full year's worth of cases. For example, we could
examine a partial year's worth of cases from the current Federal fiscal
year rather than the preceding year's complete MedPAR. Once again,
however, a feasible approach must be developed to enable the
appropriate classification and recalibration of the DRG weights.
Finally, we do not believe it is necessary, or appropriate, to
identify in advance the sources from which we are willing to accept
data. At this time, we remain open to considering any data source that
is reliable, verifiable, and feasible. We would note, however, that
involving hospitals in any data collection would probably aid HCFA in
any validation effort. Generally, if we receive non-MedPAR data, we
will be contacting the hospitals that furnished the sources to verify
some or all of the data.
Comment: Two commenters stated the timeframe for submission of the
non-MedPAR data is unreasonable. They suggested that the submission of
data 7 months before the updated DRGs take effect (March 1) in the case
of internal HCFA data, and 8 months (February 1) in the case of
external data, would more appropriately ensure beneficiary access.
Response: The length of time necessary to validate non-MedPAR data
depends on the nature and quality of the data. In the proposed rule, we
stated that 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 verify and test the data and make a
preliminary assessment as to the feasibility of the data's use.
Subsequently, a complete database should be submitted no later than
December 1, approximately 4 months prior to the publication of the
proposed rule.
We do not believe that this timeframe is unreasonable. If we were
to adopt the commenter's suggestion, we would receive non-MedPAR data
only 2 months before the proposed rule is scheduled to be published
(April 1). This might not allow us sufficient time to ensure that the
data are reliable or valid prior to their use in preparing the proposed
rule.
We believe the timeframe we set forth is necessary to enable us to
independently validate any non-MedPAR data submitted. In order to
verify the data's reliability and validity, we believe we need to
review a sufficient number of the medical records associated with the
data. Expecting us to be able to accomplish this in a matter of weeks
after receiving the data (which is all the time that would be available
for data received in February due to the requirement to begin the
process of reclassifying and recalibrating the proposed DRGs by the end
of February in order for the proposed rule to be published by April 1)
is unrealistic.
Comment: Many of the commenters, including the manufacturer of the
platelet inhibitor drug, national associations representing device and
drug manufacturers, and individual cardiologists, argued that our
current process has inhibited the development of new medical
technologies, and that the criteria for the use of non-MedPAR data are
unworkable and would further slow the development of new technologies.
Several commenters asserted that certain new technologies (including
platelet inhibitors) are denied to Medicare beneficiaries due to
insufficient payment.
Response: After 15 years of administering the prospective payment
system, we do not have any independent evidence that Medicare
beneficiaries are being denied access to new technologies by hospitals
or physicians. Although we have always acknowledged that there is a
time-lag between the time new technologies are introduced and the point
at which we can begin to accurately identify their associated costs, we
believe this has not hampered Medicare beneficiaries' access to these
new technologies. The fact that under the prospective payment system a
hospital might lose money on some cases but will gain money on other
cases is well understood by hospitals. We received no comments from
hospitals or beneficiary advocates complaining about access to new
technologies in general or drug therapies in particular, and only a
brief comment from a State hospital association that indicated that the
use of non-MedPAR data should extend beyond drug therapies.
Furthermore, as provided in Sec. 489.53(a)(2), HCFA may terminate its
participation agreement with any hospital if HCFA finds that the
hospital places restrictions on the persons it will accept for
treatment and it fails either to exempt Medicare beneficiaries from
those restrictions or to apply them to Medicare beneficiaries the same
as to all people seeking care.
Comment: Several commenters, including the manufacturer of a
platelet inhibitor drug and individual cardiologists, specifically
commented on our discussion in the proposed rule of the attempts by the
manufacturer of the drug to introduce its data into the process, with
the objective that cases in which platelet inhibitor therapy is
administered should be reclassified from DRG 112 (Permanent
Cardiovascular Procedures) to DRG 116 (Other Permanent Cardiac
Pacemaker Implant or PTCA with Coronary Artery Stent Implant) for FY
2000. The commenters stated that HCFA has been unwilling to consider
the data. One commenter stated that HCFA refused to accept these data
when they were offered in December 1998.
Response: As discussed in great detail above, and also in the FY
1999 final rule, our review of the previous data submitted by the drug
manufacturer found the data to be insufficient. Despite our
consultation with the manufacturer's representatives in advance of
their submission of data during the rulemaking process for FY 1999
(that is during the first half of calendar year 1998), in which we
advised them that we must be able to identify individual hospitals and
patients in order to utilize the data, this information was not
included on over 90 percent of the cases submitted in May 1998. As
noted in the May 7, 1999 proposed rule, we continued to meet and
correspond with the manufacturers, contractors, and legal
representatives of the pharmaceutical company in an effort to resolve
data issues. At no time have we refused to consider any data offered by
the company or its agents.
However, our discussions with these parties led us to the
conclusion that it might be helpful to identify general criteria for
submission of non-MedPAR data in the proposed rule. In particular, we
were concerned that outside parties wishing to submit non-MedPAR data
were unfamiliar with our current process and the importance of
accurately reclassifying and recalibrating the DRGs. The DRG relative
weights are the principle factor in adjusting the prospective payments
for each of approximately 11 million Medicare discharges each year. In
addition to the potential financial implications to the Medicare Trust
Fund and to hospitals themselves if these weights are inaccurate,
inappropriately assigning cases to higher-weighted DRGs may create
incentives that are not in the best interest of Medicare beneficiaries.
We are hopeful that, by explaining the general criteria for
submitting non-
[[Page 41503]]
MedPAR data and receiving public comments on those criteria, we can
help to ensure that in the future those interested in submitting non-
MedPAR data will be better informed regarding how the process can work.
In particular, we believe the timeframe we set will enable us to work
effectively with those interested in submitting non-MedPAR data to help
them provide data that can be used.
Comment: A manufacturer of a platelet inhibitor drug expressed
concern that HCFA may assign a special DRG classification for patients
who receive coronary intervention with an angioplasty and treatment
with platelet inhibitor therapy, but not for acute coronary syndrome
patients who receive the same drugs without coronary intervention.
These latter cases are assigned to DRG 124 (Circulatory Disorders
Except Acute Myocardial Infarction, with Cardiac Catheterization and
Complex Diagnoses) or DRG 140 (Angina Pectoris). The commenter stated
that if we were to modify payment for one use and not the other, it
would potentially create a financial incentive for expensive, risky,
and invasive treatment. Making payment provisions for both indications
at the same time, on the other hand, will give neither use an advantage
over the other. We were asked by the commenter to evaluate platelet
inhibitor therapy cases assigned to DRG 124 or DRG 140.
Response: Because this is the first comment we have received
regarding the noncoronary intervention use of the therapy, an extensive
study of DRGs 124 and 140 before publication of this final rule was not
feasible. We will evaluate this issue as part of our annual update for
FY 2001, when we will have MedPAR data capturing injection or infusion
of platelet inhibitor (ICD-9-CM procedure code 99.20). This commenter's
concern that increasing payment for one application of platelet
inhibitors but not for others could actually create an inappropriate
incentive in favor of a more invasive treatment, illustrates the
importance of proceeding cautiously in the process of DRG
reclassification and recalibration. We have a responsibility not to
inadvertently create financial incentives that adversely affect
clinical decisionmaking.
Comment: During the comment period, we received a revised set of
data from the manufacturer seeking to have platelet inhibitor therapy
cases receiving angioplasty reclassified from DRG 112 to DRG 116. The
data contain 27,673 cases from 164 hospitals in which Medicare patients
underwent an angioplasty. The commenter describes the data as Athe
public MedPAR file with an additional field that identifies the MedPAR
case as involving an angioplasty with or without platelet inhibitor
therapy. Thus, HCFA can identify the patient and the hospital from
these data such that they are reliable and verifiable. It also is a
representative sample of claims and, therefore, it is feasible for the
agency (HCFA) to use the data set. In light of the significant number
of angioplasty cases contained in the data, HCFA should be able to
utilize accepted statistical methods to extrapolate the results of
these data and recalibrate the DRG weights.@ The manufacturer indicated
that HCFA should reclassify angioplasty cases with platelet inhibitor
therapy on the basis of these data.
Included with the comment are tables summarizing the results of the
commenter's analysis of the data, showing that angioplasty cases
receiving platelet inhibitor therapy are more expensive than those not
receiving platelet inhibitors. According to the commenter, the
approximate average standardized charges for the different classes of
patients are as follows:
<bullet> No drug, no stent: $19,877.
<bullet> No drug, with stent: $22,968.
<bullet> Drug, no stent: $26,389.
<bullet> Drug, stent: $30,139.
Response: The submission of these data illustrates the problems of
attempting to ensure that non-MedPAR data are reliable, validated, and
feasible to use. Our greatest concern with respect to the data
submitted by the commenter is that we must validate the data to assess
whether they are reliable, and (as explained further below) this
validation process would take significant time and resources because
the data are not readily verifiable.
The data file submitted by the commenter is a MedPAR file with an
additional field. The commenter has "marked" certain cases in the
MedPAR file. The file contains variables named REO-FLAG and STENT-FLAG,
which purportedly indicate the case received the platelet inhibitor or
a coronary stent, respectively. However, the variables were placed in
the file by the commenter, based on information that was not made
available to HCFA; we did not receive any information to verify that
the cases flagged by the commenter involved platelet inhibitors.
Although we can use the FY 1998 MedPAR data to validate whether a case
received a coronary stent (because the FY 1998 MedPAR data include the
corresponding procedure code (36.06)), we cannot use the FY 1998 MedPAR
file by itself to validate whether a case involved platelet inhibitors
because the procedure code for the use of platelet inhibitors
(procedure code 99.20) was not effective until October 1, 1998.
Therefore, we cannot validate the data submitted to us without further
investigation.
In order to do so, we believe it is necessary to review the medical
records associated with the cases. Unless the entity submitting the
non-MedPAR data includes medical records (or other information that
would enable us to validate the data), the only method HCFA has to
review medical records is through Peer Review Organization (PRO)
review. Thus, we would need to request assistance in the PRO in each of
the States represented in the submitted data. The PROs would then
contact the hospitals involved to request copies of the medical
records. Finally, based on reviewing those records, the PROs would
notify HCFA whether the data can be validated.
Conducting a PRO independent validation would require a minimum of
2 to 3 months, and possibly much longer. Thus, there is not sufficient
time available to conduct a review of the data submitted by the drug
manufacturer. Since we cannot validate the data, it would compromise
the integrity of the DRG recalibration process to use these data in the
DRG reclassification and recalibration for FY 2000.
We note that the process used by the manufacturer to collect these
data is not specified. Based upon our prior discussions with the
manufacturer and its contractor that prepared the data, we believe the
164 hospitals represented in the sample have a contract for data
analysis and review with the consultant. Although we would not rule out
the possibility that this sample is statistically sufficient, we note
that in general, random sampling is necessary for generalization beyond
the sample itself.
The analysis submitted by the commenter is similar to that
presented in last year's final rule. As we indicated at that time, our
general process of waiting until we have identifiable MedPAR data
applies to changes that would enhance payment as well as those that
would decrease payment. Absent alternative data meeting the criteria
otherwise described in the proposed rule and in this final rule, we
cannot reclassify the administration of platelet inhibitors with
angioplasty (procedure code 99.20) from DRG 112 to DRG 116.
Comment: Some commenters believed that the proposed weights for
DRGs 112 and 116 are dramatically lower than they should be and the
result will be a disincentive to use these technologies.
[[Page 41504]]
Another commenter stated that by not reclassifying cases receiving
platelet inhibitors with angioplasty to DRG 116, we actually promote
the inaccuracy of the DRG weights, by grouping these higher-cost cases
with other lower-cost cases in DRG 112.
Response: With regard to the comment concerning the weights of DRGs
112 and 116, we refer the commenters to the discussion above in section
II.C of this preamble concerning the steps we take in recalibrating the
weights. Every year when the relative weights are recalibrated, we use
charge information from the most recent Medicare data available. That
is, we use the charges reported by hospitals for the cases under each
DRG to establish the relative weights. 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. We
have not identified any problems or anomalies related to the cases in
DRGs 112 and 116 and are confident that the relative weights are
accurate.
With respect to the comment about our promoting the inaccuracy of
the DRG weights by failing to reclassify platelet inhibitor cases, the
commenter does not appear to understand the difference between
reclassification and recalibration. That is, the commenter argues that
the DRG relative weights are inaccurate because high-cost cases are not
reclassified to a higher-weighted DRG. However, our point regarding the
accuracy of the relative weights pertains to the necessity that, in the
process of recalibration, cases are grouped in the DRG to be used for
payment for similar cases during the upcoming year. Thus, the relative
weights are accurate in the sense that they are calculated by grouping
cases according to the DRG under which they would be paid.
Comment: One of the manufacturers of platelet inhibitor therapy
disagreed with our statement in the proposed rule that the prospective
payment system outlier policy would address the rationing of new
technology to Medicare beneficiaries. The commenter argues that cases
of platelet inhibitor therapy would not receive outlier payments
because the cost of the drug, while it is several thousand dollars over
the DRG payment, is not in excess of the fixed loss threshold ($14,575
over the DRG payment in the proposed rule for FY 2000).
Response: Section 1886(d)(5)(A) of the Act provides for payments in
addition to the basic prospective payments for outlier cases, cases
involving extraordinarily high costs. Our statement in the proposed
rule was meant to apply to all new technologies, and not specifically
to platelet inhibitor therapy. As stated previously, the prospective
payment system reflects "averaging principles," which means, among
other things, that a hospital might lose money on some cases but will
gain money on other cases; sometimes new technologies lead to lower
costs and we might Aoverpay@ hospitals for those cases. If a case does
not qualify for an outlier payment, then presumably the case falls
within the "typical" range of costs for cases in the DRG. We believe
that, as a whole, the prospective payment system does ensure access to
new technologies, including platelet inhibitor therapy.
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). OMB also designates Consolidated MSAs
(CMSAs). A CMSA is a metropolitan area with a population of one million
or more, comprised of 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.
We note that effective April 1, 1990, the term Metropolitan Area
(MA) replaced the term Metropolitan Statistical Area (MSA) (which had
been used since June 30, 1983) to describe the set of metropolitan
areas comprised 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 2000 Wage Index Update
The final FY 2000 wage index values in section VI of the Addendum
to this rule (effective for hospital discharges occurring on or after
October 1, 1999 and before October 1, 2000) are based on the data
collected from the Medicare cost reports submitted by hospitals for
cost reporting periods beginning in FY 1996 (the FY 1999 wage index was
based on FY 1995 wage data).
The final FY 2000 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 1999 wage index:
<bullet> Salaries and hours from short-term, acute care hospitals.
<bullet> Home office costs and hours.
<bullet> Certain contract labor costs and hours.
<bullet> Wage-related costs.
Consistent with the wage index methodology for FY 1999, the final
wage index for FY 2000 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. (As discussed in section
III.C of this preamble, we are refining the methodology for calculating
the wage index for FY 2000.)
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 the BBA provides that, for discharges on or after October 1,
1997, the area wage index
[[Page 41505]]
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: In a general comment on the wage index, MedPac noted that
new measures are needed to implement each new prospective payment
system as well as for Medicare+Choice plans and suggested that we
explore alternative strategies for obtaining labor prices that could be
applied to each type of provider affected. MedPAC offers to assist us
in examining this issue.
Response: We agree with MedPAC that this is an area warranting
further attention to determine whether it is appropriate to continue to
adjust payments for these other provider types based on the relative
average hourly wages of hospital employees, and whether the collection
of wage data for every type of Medicare provider is feasible or
necessary. Currently, the data used to calculate the hospital wage
index is used broadly in payment systems for other types of Medicare
providers. New prospective systems for skilled nursing facilities,
hospital outpatient services, and home health agencies will continue to
use the hospital wage index data for the foreseeable future. We have
collected data separately for skilled nursing facilities, but, pending
further development and auditing of these data, we continue to use the
hospital wage data (before reclassifications by the Medicare Geographic
Classification Review Board) for adjusting skilled nursing facility
payments at this time.
C. FY 2000 Wage Index Methodology Changes
In the July 31, 1998 final rule, we reiterated our position that,
to the greatest degree possible, the hospital wage index should reflect
the wage costs associated with the areas of the hospital included under
the hospital inpatient prospective payment system (63 FR 40970). That
final rule contained a detailed discussion concerning the costs related
to teaching physicians, residents, and CRNAs, all of which are paid by
Medicare separately from the prospective payment system. For reasons
outlined in detail in that final rule, we decided not to remove those
costs from the calculation of the FY 1999 wage index, but to review
updated data and consider removing them in developing the FY 2000 wage
index.
In response to concerns within the hospital industry related to the
removal of these costs from the wage index calculation, the American
Hospital Association (AHA) convened a workgroup to develop a consensus
recommendation. The workgroup, which consisted of representatives from
national and State hospital associations, recommended that costs
related to teaching physicians, residents, and CRNAs should 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 proposed to phase-out these costs from
the calculation of the wage index over a 5-year period. The proposed FY
2000 wage index was based on a blend of 80 percent of an average hourly
wage including these costs, and 20 percent of an average hourly wage
excluding these costs.
Comment: Commenters unanimously supported our proposal to remove
teaching-related and CRNA costs from the wage index. Further, two
commenters recommended that we emphasize that Medicare pays its share
of teaching-related wage costs through direct graduate medical
education (GME) payments and that these costs are being removed from
the wage index only insofar as Medicare continues to pay the costs
outside of the hospital prospective payment system. Additionally,
commenters favored the proposed 5-year phase-out of these costs to
reduce significant redistributive impacts.
MedPAC, however, recommended that, rather than reducing the weights
for the old calculation and increasing the weights for the new
calculation by the proposed 20 percent each year, we should apply
smaller weights to the new wage index calculation for the first 2
years. Its rationale for this is its concern that inaccurate reporting
of teaching physician data, and our methodology for removing costs for
hospitals that fail to report these data, may inappropriately lower the
wage index values for nonteaching hospitals in the same labor market
areas.
Response: We are pleased to receive strong support for our efforts
to remove from the hospital wage index, wage costs that are associated
with areas of the hospital not included under the hospital prospective
payment system. Therefore, beginning with the FY 2000 wage index, and
over a 5-year period, we are phasing-out costs related to teaching
physicians, residents, and CRNAs. As recommended, we emphasize that our
rationale for removing these costs from the wage index calculation is
that Medicare pays for these costs separately, and these costs will be
excluded from the wage index as long as they are paid separately from
the hospital prospective payment system.
With respect to MedPAC's recommendation that the weight given to
the average hourly wage calculated after removing CRNAs, teaching
physicians, and residents, should be less than 20 percent for FY 2000,
we disagree. If we applied a percentage less than 20 percent for FY
2000 (and FY 2001), we then would have to apply a higher percentage
phase-out in a later fiscal year (or years) and thus increase the
redistributive impact for that year. We believe that applying 20
percent increments each year promotes the smoothest transition to total
exclusion of the costs.
1. Teaching Physician Costs
As discussed in the FY 1999 final rule and the FY 2000 proposed
rule, before FY 1999, we included direct physician Part A costs and
excluded contract physician Part A costs from the wage index
calculation. Since some States prohibit hospitals from directly
employing physicians, hospitals in these States were unable to include
physician Part A costs because they were incurred under contract rather
than directly. Therefore, for cost reporting periods beginning in 1995,
we began separately collecting physician Part A costs (both direct and
contract) so we could evaluate how to best handle these costs in the
wage index calculation. Based on our analysis of the 1995 wage data, we
decided to include the contract physician salaries in the wage index
beginning with FY 1999.
In the July 31, 1998 final rule, in response to comments regarding
the inclusion in physician Part A costs of teaching physician costs for
which teaching hospitals are already compensated through the Medicare
GME payment, we stated that we would collect teaching physician data
"as expeditiously as possible in order to analyze whether it is
feasible to separate teaching physician costs from other physician Part
A costs" (63 FR 40968). Excluding teaching physician costs from the
wage index calculation is consistent with our general policy to exclude
from that calculation those costs that are paid separately from the
prospective payment system.
Because the FY 1996 cost reports did not identify teaching
physician salaries and hours separately from physician Part A costs, we
instructed our fiscal intermediaries to collect, through a survey,
teaching physician costs and hours from the teaching hospitals they
service. Specifically, we requested collection of data on the costs and
hours related to teaching physicians that were
[[Page 41506]]
included in Line 4 (salaried), Line 10 (contracted), Line 12 (home
office and related organizations), and Line 18 (wage-related costs) of
the Worksheet S-3, Part II. In our instructions accompanying the
survey, we indicated that these teaching-related costs are those
payable under the per resident amounts (Sec. 413.86) and reported on
Worksheet A, Line 23 of the hospital's cost report.
Survey data were received from approximately 59 percent of teaching
hospitals reporting physician Part A costs on their Worksheet S-3, Part
II (500 out of 845). Our fiscal intermediaries reviewed 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.
Hospitals were given until March 5, 1999 to request changes to the
initial survey data. Fiscal intermediaries had until April 5, 1999 to
submit the revised data to the Health Care Provider Cost Report
Information system (HCRIS) for inclusion in the May 1999 final wage
data file. Due to the extraordinary effort needed to collect these data
and the importance of accurately removing teaching physician costs, we
allowed hospitals to request revisions to their teaching survey data up
until June 5, 1999.
The hospital industry workgroup also recommended that if the
teaching data collected by the intermediaries are not accurate or
reliable, HCFA should include only 20 percent of reported physician
Part A costs in the calculation, based on the assumption that 80
percent of total physician Part A costs are related to teaching
physicians. In developing the final FY 2000 wage index (as in the
proposed), if we had complete survey data for a hospital, that amount
was subtracted from the amount reported on the Worksheet S-3 for
physician Part A costs. These data had been verified by the fiscal
intermediary before submission to us. If we did not have survey data
for a teaching hospital as of June 5, 1999, we removed 80 percent of
the hospital's reported total physician Part A costs and hours for the
wage index.
Although removing 80 percent from the amount reported on the
Worksheet S-3 for physician Part A costs allows an estimate of teaching
physician costs to be removed in the majority of cases in which survey
data are not available, there are instances in which a teaching
hospital did not report either survey data or any physician Part A
costs on its Worksheet S-3. We identified 19 of these teaching
hospitals in our final database (there were 72 of these hospitals
identified in the proposed rule). For purposes of calculating the FY
2000 wage index for these 19 hospitals, we subtracted the costs
reported on Line 23 of the Worksheet A, Column 1 (Resident and Other
Program Costs) from Line 1 of the Worksheet S-3. These costs (from Line
23, Column 1 of Worksheet A) are included in Line 1 of the Worksheet S-
3, which is the sum of Column 1, Worksheet A. They also represent costs
for which the hospital is paid through the per resident amount under
the direct GME payment.
We believe this approach is appropriate in situations in which
hospitals have failed to otherwise identify their teaching physician
costs. To determine the hours to be removed, we divided the costs
reported on Line 23 of Worksheet A, Column 1 by the national average
hourly wage for physician Part A costs based upon Line 4 of Worksheet
S-3 (the national average hourly wage is $54.48). We indicate these 19
hospitals by an asterisk in Table 3C of this final rule.
In the proposed rule, we invited comments as to whether the
proposed method to remove teaching-related costs based on the amount
included in Line 23, Column 1 of Worksheet A would be an appropriate
method for removing GME costs in the future (and perhaps other excluded
area costs as well). We were especially concerned that the earliest
cost report on which we would be able to make the necessary changes to
capture the separate reporting of teaching physician Part A costs would
be those submitted for cost reporting periods beginning during FY 1998.
Therefore, we were considering subtracting the costs in Lines 20, 22,
and 23 of Worksheet A from Line 1 of Worksheet S-3, Part II, in
calculating the FY 2001 wage index. The current Worksheet S-3 is not
designed to net out of Line 1 costs that are otherwise included in
Column 1 of Worksheet A, but it would be possible to use data from the
Worksheet A in a manner similar to that described above.
Comment: Two commenters disagreed with our decision to allow
changes to the teaching survey data but not to corresponding lines on
Worksheet S-3 during the final wage data correction period (June 5
deadline). They believed we should be willing to accept conforming wage
data corrections, even during the final correction period, to achieve
the goal of using the most accurate data available.
Response: If hospitals had miscategorized their teaching physician
costs on their cost report in such a way that accurately completing the
teaching survey would result in their teaching physician survey costs
being removed twice, we did authorize corresponding revisions to
Worksheet S-3. For example, some hospitals included teaching physician
costs in Line 6 of their Worksheet S-3 (which is intended for reporting
interns and residents' costs). Therefore, reporting these costs on
their teaching physician survey, which would be subtracted from Line 4
for the salaries of teaching physicians directly employed by the
hospital, would result in them being removed twice, once when the
teaching physician data are subtracted from Line 1 of Worksheet S-3,
and again when Line 6 of Worksheet S-3 is subtracted from Line 1.
Comment: We received several comments regarding our proposal to use
the teaching survey data for teaching hospitals that submitted surveys
but to remove 80 percent of the total physician Part A costs and hours
for nonresponsive teaching hospitals. Most commenters supported our
reliance on the teaching survey data for the FY 2000 wage index. One
commenter added that we should be assertive in insisting that teaching
survey data be reported accurately by hospitals and verified by fiscal
intermediaries, holding hospitals to a level of accountability that is
similar to the certification of a cost report at filing. Another
commenter urged us to incorporate the separate collection of teaching
physician Part A data into the cost report as soon as possible to
ensure that the data submitted by hospitals is consistent.
Although most commenters agreed that we should reduce reported
total physician Part A costs by 80 percent for teaching hospitals that
do not submit the teaching survey, some took issue with this approach.
One national and one State hospital association recommended we remove
100 percent of reported total physician Part A costs from nonresponsive
teaching hospitals' total costs as a penalty for not reporting their
data. The commenters believe that, for hospitals whose proportion of
teaching physician Part A costs relative to total physician Part A
costs is greater than 80 percent, there is no incentive to complete the
teaching survey. On the other hand, MedPAC recommended that, since
HCFA's preliminary teaching survey data indicate that teaching
physician Part A costs are 68 percent of total physician Part A costs,
we should have adjusted the hospital's data by that amount rather than
the higher 80
[[Page 41507]]
percent figure. MedPAC comments that, although using the 80 percent
figure may give hospitals the incentive to submit the requested survey
data if their ratio of teaching physician Part A costs to total
physician Part A costs is less than 80 percent, that amount could
inappropriately lower the wage index values for other hospitals located
in the same MSA as the nonresponsive teaching hospital. The comments do
acknowledge, however, the policy dilemma in terms of the incentives not
to report that may arise by setting the percentage too low.
Response: We appreciate the commenters' general support of using
the survey data, as well as the efforts of hospitals and the fiscal
intermediaries in this special data collection effort. We believe that,
although the response rate is less than we would have preferred, the
end result is a more accurate FY 2000 wage index.
Although Worksheet S-3 is being revised to provide for the separate
reporting of teaching physician Part A costs, this change will not be
incorporated until cost reporting periods beginning during FY 1998.
Therefore, we will have to conduct another teaching physician cost
survey corresponding with the FY 1997 wage data. We agree with the
commenter's suggestion that the accuracy and completeness of the survey
data should be certified by the hospital in the same manner as the
accuracy and completeness of the cost report data must be certified.
In our calculation of the FY 2000 wage index, we removed 80 percent
of physician Part A costs and hours for teaching hospitals that failed
to report their teaching physician costs. We will consider the comment
to remove 100 percent of these costs for nonresponsive hospitals in the
future, however. Although the 80 percent figure was taken from the
industry workgroup's recommendation, we believe it may be appropriate
to consider raising this percentage to address the problem of hospitals
failing to comply with Medicare instructions.
We appreciate MedPAC's concern that the estimation of teaching
physician costs for hospitals that did not report should not
disproportionately harm other hospitals in the same labor market area.
Similarly, however, these hospitals should not benefit from
noncompliance. Also, as noted previously, because the teaching
physician costs are being removed gradually, with 80 percent of the FY
2000 wage index based on an average hourly wage that includes all of
these costs, we do not believe it is necessary to reduce the 80 percent
estimate to an amount based on the percentage of teaching physician
Part A costs to all physician Part A costs for hospitals completing the
survey to protect other hospitals in the labor market area. Any impact
should be relatively minor for this first year.
Comment: Two commenters believed that hospitals that contract with
physicians for Part A services are disadvantaged because the cost
report and teaching survey instructions seem to be designed only for
hospitals that employ physicians.
Response: The cost report and teaching survey do account for the
costs of contract physicians. The first year contract physician Part A
costs were included in the wage index was FY 1999. Beginning with the
FY 1995 cost report, we revised Worksheet S-3 to allow a separate line
item for reporting these costs. To improve the reporting for all
physician-related wage costs, we made additional changes to the FY 1996
cost report. The teaching survey was patterned after the FY 1996
Worksheet S-3.
The salaries on the Worksheet S-3 for employed physicians derive
from column 1 of Worksheet A. Hospitals should report the labor costs
associated with contract physicians in column 2 of that same worksheet.
If hospitals report their costs properly according to the cost report
instructions, hospitals using contract physicians will not be
disadvantaged by the way the costs are reported. We encourage hospitals
to be diligent in working with their intermediaries if they have
questions about reporting costs on the cost report.
Comment: We received four comments regarding the use of Worksheet
A, Line 23, Column 1 as a proxy for teaching-related wage costs when a
teaching hospital did not report either survey data or any physician
Part A costs. One was favorable without qualifications. One commenter
recommended that, beginning with the FY 2001 wage index, we should
instruct hospitals to report on Worksheet S-3 the wage costs associated
with teaching physicians directly from Worksheet A, Line 23 and the
corresponding hours directly from hospitals' records. A national
hospital association recommended that if we use Worksheet A, Line 23
for teaching salaries and a national average hourly wage for physicians
to estimate the associated hours to be removed for nonreporting
hospitals, then we should apply this approach to all hospitals. If we
apply this method only to hospitals that do not respond to the teaching
survey, the commenter believed that we should penalize nonresponsive
hospitals by increasing the hourly rate by 25 percent to ensure they
are not advantaged by not reporting their costs.
Several hospitals contacted us to report that, although they were
listed as one of the 72 hospitals for whom we used Line 23 of Worksheet
A to remove teaching physician costs, these costs were actually
included in other lines of Worksheet S-3, such as Line 5, Physician
Part B services, or Line 6, Interns and Residents. Therefore, since
both of these lines are subtracted from Line 1 in our calculation,
subtracting Line 23 from Worksheet A would remove these costs twice.
In opposing the use of Line 23 as a proxy for teaching-related
costs, one commenter cautioned that, particularly for hospitals in
States that are prohibited from employing physicians, Line 23, Column 1
may not include any teaching physician costs. MedPAC also stated
concern with this approach, but did not cite any specific problems
associated with it.
Response: For FY 2000, we are removing the amount reported on
Worksheet A, Line 23, Column 1, only in the absence of teaching survey
or Worksheet S-3 data for a hospital but we will continue to explore
using this approach rather than the survey for identifying GME and CRNA
costs to be removed in the FY 2001 wage index. The approach we adopted
has the advantage of being straightforward and easy to apply. Line 1,
Column 1 of Worksheet S-3 is equal to Line 101 of Column 1 of the
Worksheet A. Line 23 of Column 1, which is for the reporting of
nonresidents' costs related to GME that are paid separately from the
prospective payment system, is included in Line 101. Therefore, one
could argue that the simplest way to remove GME costs from the wage
index calculation would be to subtract the costs from Line 1 of
Worksheet S-3 that are attributable to the GME cost centers on
Worksheet A (Lines 22 and 23).
In carving out an estimate of hours for the final 19 hospitals for
which we subtracted Line 23 of Worksheet A from total salaries on
Worksheet S-3, we removed an estimated amount of associated hours based
on the average hourly wage of all physician Part A salaries. We did not
increase this average hourly wage by 25 percent as a penalty for
hospitals that did not otherwise report teaching physician costs. We do
reserve the right to remove some or all of a hospital's wage data that
cannot be appropriately supported by the hospital's records. We also
reserve the right to pursue further action in the case of hospitals
that intentionally withhold, conceal, or otherwise attempt
[[Page 41508]]
to circumvent the cost reporting requirements of their participation
agreements.
If we were contacted timely by a hospital that reported its costs
from Line 23 of Worksheet A somewhere other than Line 4 of the
Worksheet S-3, we did accommodate the hospital's request to avoid
removing the teaching physician Part A costs twice. We note that the
majority of these situations involved hospitals that did not follow the
cost reporting instructions for these costs. Despite MedPAC's general
concerns about this approach to removing costs, we did not receive any
comments that would cause us to rule out this seemingly straightforward
approach for removing GME and CRNA costs from the FY 2001 wage index
for all teaching hospitals. The biggest difficulty seems to be related
to ensuring that the cost reporting instructions are uniformly
followed.
Comment: Two commenters suggested using Worksheet A-8-2 of the cost
report, "Provider-Based Physicians Adjustments," to determine
physician Part A costs, particularly for costs associated with teaching
and contract physicians. The commenters reasoned that, because
Worksheet A-8-2 is used to determine allowable cost and hours to be
included in the Medicare cost report, HCFA should use Worksheet A-8-2
to determine physician Part A labor costs for wage index purposes. Use
of the Worksheet A-8-2 would also ensure the wage index includes only
those physician costs paid under Part A. One of the commenters
commended us for requesting intermediaries to compare the teaching
survey and Worksheet A-8-2 data, but suggested that we should also
require intermediaries to use Worksheet A-8-2 data for determining
teaching physician wage costs when the survey data are unacceptable.
Response: We agree that, if properly completed, Worksheet A-8-2
should be an acceptable source for teaching physician Part A data. In
February, we instructed intermediaries to review hospitals' teaching
survey data for consistency with Worksheet A-8-2, and when necessary,
revise the data accordingly. One minor problem with relying solely on
Worksheet A-8-2 is that it may include some wage-related costs that are
excluded from the wage index calculation; however, these should be
insignificant. We believe that Worksheet A-8-2 is an appropriate source
for physician Part A costs. However, we need to examine Worksheet A-8-2
more closely before requiring that it be used to determine physician
part A costs for future wage indexes.
Comment: We received two comments recommending that we remove
overhead costs associated with the teaching physician, resident, and
CRNA direct costs that are excluded from the wage index. The commenter
compared this action to our current policy in which we remove the
overhead costs associated with excluded providers such as skilled
nursing facilities or rehabilitation units from the wage data. One
commenter offered technical assistance to HCFA in this effort.
Response: We agree, in principle, that overhead costs associated
with teaching-related and CRNA labor costs should be removed from the
wage index calculation in the same way that we remove overhead costs
associated with excluded areas of the hospital. However, we believe
that the methodology we apply for specific patient care cost centers
excluded from the wage data may not be appropriate for removing
overhead related to CRNA and GME costs. Therefore, we are grateful for
the commenter's offer of technical assistance to develop an appropriate
methodology for allocating overhead costs related to CRNAs and GME. We
anticipate that this issue will be discussed by HCFA's wage index
workgroup later this year, and in next year's proposed rule for FY
2001.
2. Resident and CRNA Part A Costs
The wage index presently includes salaries and wage-related costs
for residents in approved medical education programs and for CRNAs
employed by hospitals under the rural pass-through provision
(Sec. 412.113(c)). Because Medicare pays for these costs outside the
prospective payment system, removing these costs from the wage index
calculation would be consistent with our general policy to exclude
costs that are not paid through the prospective payment system.
However, because these costs were not separately identifiable on
Worksheet S-3 before the FY 1995 wage data, we could not remove them.
We began collecting the resident and CRNA wage data separately on
the FY 1995 cost report. However, there were data reporting problems
associated with these costs. For example, the original FY 1995 cost
report instructions for reporting resident costs on Line 6 of Worksheet
S-3, Part III, erroneously included teaching physician salaries and
other teaching program costs. Also, the FY 1995 Worksheet S-3 did not
provide for separate reporting of CRNA wage-related costs. These
problems were corrected in the reporting instructions for the FY 1996
cost report, and, therefore, we proposed and are now implementing the
removal of CRNA and resident costs over a 5-year period, beginning with
the FY 2000 wage index.
We received no comments related to this change.
3. Transition Period
The FY 2000 wage index is based on a blend of 80 percent of
hospitals' average hourly wages without removing the costs and hours
associated with teaching physician Part A, residents, and CRNAs, and 20
percent of the average hourly wage after removing these costs and hours
from the wage index calculation. This methodology is consistent with
the recommendation of the industry workgroup for a 5-year phase-out of
these costs. The transition methodology is discussed in detail in
section III.E of this preamble.
Comment: One hospital believed that it has been disadvantaged by
HCFA's allowance of contract teaching physician Part A costs in the FY
1999 wage index, and that HCFA should disallow teaching physician costs
entirely, beginning with FY 2000. The hospital stated that it is
experiencing difficulty meeting the criteria for geographic
reclassification for purposes of the wage index to another MSA that
includes a teaching hospital that reports a large amount of contract
teaching physician Part A costs.
Response: Our reasons for including contract physician Part A costs
are discussed in detail in the July 31, 1998 Federal Register (63 FR
40967). In general, it was our belief that if contract physician Part A
costs were reliably reported by hospitals, they should be included in
the wage data along with the Part A costs of directly employed
physicians. In that final rule, we also discussed our position that, to
the greatest degree possible, the hospital wage index should reflect
the wage costs associated with the areas of the hospital included under
the hospital inpatient prospective payment system. Therefore, based on
data we have collected since that final rule was published, and as
discussed above, we are removing teaching physician costs (as well as
CRNA and resident costs) for the wage data, over a 5-year period.
As is generally true with changes in the wage index, hospitals that
may have once been eligible to reclassify to another MSA for purposes
of the wage index may find that they no longer qualify after changes
have been implemented. However, we believe that all our changes to the
wage index are designed to more accurately reflect the wage costs
incurred by hospitals. In the case of the teaching physician costs, we
[[Page 41509]]
believe that a 5-year phase out is appropriate to reduce significant
redistribution impacts. With regard to the accuracy of the teaching
hospital data, the intermediary verified the data and determined it is
consistent with audit findings.
D. Verification of Wage Data from Medicare Cost Reports
The data for the FY 2000 wage index were obtained from Worksheet S-
3, Parts II and III of the FY 1996 Medicare cost reports. The data file
used to construct the final wage index includes FY 1996 data submitted
to HCRIS as of early February 1999. As in past years, we performed an
intensive review of the wage data, mostly through the use of edits
designed to identify aberrant data. In the proposed rule, we discussed
our review and methodology for resolving questionable elements in the
hospital data (64 FR 24728). The revised data are reflected in this
final rule. Since the proposed rule, we deleted data for four hospitals
that reported aberrant and unverifiable wage data that would have
significantly distorted the wage index values, and added data for seven
hospitals that were not included in the proposed wage index but rather
whose data have now been corrected and verified. The final FY 2000 wage
index is calculated based on FY 1996 data for 5,038 hospitals.
Comment: One hospital association expressed concern that a number
of hospitals might have failed to comply with the new cost reporting
instructions for wage-related costs, causing an overreporting of these
costs in the FY 2000 wage index. Prior to the FY 1996 cost report, the
lines on Worksheet S-3 for core and other wage-related costs reflected
a hospital's total costs for those categories. However, beginning with
the FY 1996 cost report, core and other wage-related costs must be
reported net of costs associated with excluded areas. The commenter
stated that wage-related costs for a significant number of hospitals
increased at least 10 percent this year and it believed that the
increase is due to hospitals incorrectly reporting excluded area wage-
related costs on Line 13. The commenter recommended that we develop a
method to determine if a hospital misreports its wage-related costs,
and that we should require correction of the data.
Response: We believe the new cost reporting instructions for wage-
related costs, Lines 13 and 14 of Worksheet S-3, Part II, are clear
regarding the exclusion of costs associated with excluded areas.
Intermediaries were aware of the new cost reporting instructions and
instructed their auditors to closely examine the costs reported in
Lines 13 and 14 of Worksheet S-3, Part II for compliance. In addition,
the intermediaries' FY 1996 wage data review program included an edit
for hospitals having wage-related costs that increased 10 percent or
more between FY 1995 and FY 1996. Furthermore, we contacted
representatives of national hospital associations who agreed to alert
their members of the reporting change. We are aware of numerous
instances where intermediaries adjusted hospitals' wage-related costs
after review. As part of the FY 1997 wage data desk review program (for
the FY 2001 wage index), we will provide more specific instructions to
the intermediaries to review the data reported for core and other wage-
related costs to ensure no costs associated with excluded areas are
included.
Comment: One commenter disagreed with the approach we used in the
proposed rule to identify teaching hospitals to ensure that all of
these hospitals had reported teaching physician survey data. We based
our decision to remove either 80 percent of physician Part A costs and
hours or the amount on Line 23, Column 1 of Worksheet A, based on
whether the hospital had a resident-to-bed ratio greater than zero on
the latest Provider-Specific File. The commenter suggested it would be
more appropriate to base the identification of teaching hospitals on
whether the hospital reported residents on its cost report for the
period corresponding with the wage data.
Response: We agree with this comment. It is more appropriate to
base the identification of teaching hospitals on data from the same
year as the wage data we use. Therefore, we revised our method to
identify teaching hospitals based on whether they reported residents
during their cost reporting period beginning during FY 1996.
Comment: One State hospital association commented that the
underrepresentation of physician Part A costs for hospitals in its
State is due to the intermediary's exclusion of a majority of the costs
reported by hospitals. The commenter believes there are inconsistencies
between the two intermediaries that service hospitals in the State in
their treatment of contract physician Part A costs. The commenter
recommended that HCFA monitor intermediaries and enforce uniform
application of Medicare principles and standards, particularly with
regard to the determination of allowable physician costs on Worksheet
A-8-2.
Response: For wage index purposes, contract physician costs are to
be reported according to the instructions for Worksheet S-3 Part II,
Line 10. The physician Part A costs reported on Worksheet S-3 may
differ slightly from those reported on worksheet A-8-2 because there
are minor differences in the types of wage-related costs that are
allowed for each of the worksheets. The two forms serve different
purposes. The wage index worksheet (S-3) may include, to a reasonable
extent, the actual costs a hospital incurs. However, Worksheet A-8-2 is
used to determine allowable costs for Medicare cost report purposes and
includes cost limits. The commenter did not indicate exactly what
inconsistencies it had found. If there are inconsistencies, we would
like to address them as soon as possible for the FY 2001 wage index.
We note that, intermediaries have informed us that hours associated
with contract physicians are often difficult to verify because
hospitals have not developed reporting systems that accurately account
for contract physician hours. Consistent with Medicare policy,
intermediaries must exclude costs and other data that are
insufficiently supported by a hospital's documentation.
Comment: One commenter noted several errors in the proposed rule
and final wage data public use file. The commenter stated that Table 3C
of the proposed rule included some hospitals with extremely low average
hourly wages, and that the average hourly wages reported for some
hospitals marked with an asterisk do not seem to incorporate the
Worksheet A, Line 23 data as described in the footnote. Additionally,
the commenter stated that the final wage data on the Internet includes
two different date formats for fiscal year begin and end dates, an
eight digit format and a seven digit format. The commenter asked that
HCFA make the appropriate corrections in the final wage index
calculation.
Response: We were informed shortly after publication of the
proposed rule that there were several errors in Table 3C, including
those noted by the commenter. As a result, we issued a revised Table 3C
in a correction notice published in the Federal Register on June 15,
1999 (64 FR 31995). Although the extremely low average hourly wages
still appear in Table 3C of the correction notice just as they were
reported by the hospitals, the aberrant data were either corrected or
deleted in the final wage index calculation. All other errors
identified in Table 3C were corrected through the June 15 notice. Also,
fiscal year beginning and ending dates that appear in a 7-digit date
format in the final wage data public use file were
[[Page 41510]]
corrected to an 8-digit date format in the final calculation.
E. Computation of the Wage Index
The method used to compute the FY 2000 wage index is as follows:
Step 1--As noted above, we based the FY 2000 wage index on wage
data reported on the FY 1996 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, 1995 and before October 1, 1996. In addition, we
included data from a few hospitals that had cost reporting periods
beginning in September 1995 and reported a cost reporting period
exceeding 52 weeks. These data were included because no other data from
these hospitals would be available for the cost reporting period
described above, and because particular labor market areas might be
affected due to the omission of these hospitals. However, we generally
describe these wage data as FY 1996 data.
Step 2--Salaries--The method used to compute a hospital's average
hourly wage is a blend of 80 percent of the hospital's average hourly
wage including all teaching physician Part A, resident, and CRNA costs,
and 20 percent of the hospital's average hourly wage after eliminating
all teaching physician, resident, and CRNA costs.
In calculating a hospital's average salaries plus wage-related
costs, including all teaching physician Part A, resident, 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 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.
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 (see section III.C.1 of this preamble for a
detailed discussion of this policy), 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 Lines 3, 5, and 7 of Worksheet S-3, Part II). 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, 1995 through
April 15, 1997 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 ensures 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
------------------------------------------------------------------------
10/14/95...................................... 11/15/95 1.023163
11/14/95...................................... 12/15/95 1.021153
12/14/95...................................... 01/15/96 1.019151
01/14/96...................................... 02/15/96 1.017157
02/14/96...................................... 03/15/96 1.015246
03/14/96...................................... 04/15/96 1.013489
04/14/96...................................... 05/15/96 1.011888
05/14/96...................................... 06/15/96 1.010428
06/14/96...................................... 07/15/96 1.009099
07/14/96...................................... 08/15/96 1.007900
08/14/96...................................... 09/15/96 1.006788
09/14/96...................................... 10/15/96 1.005719
10/14/96...................................... 11/15/96 1.004695
11/14/96...................................... 12/15/96 1.003653
12/14/96...................................... 01/15/97 1.002529
01/14/97...................................... 02/15/97 1.001325
02/14/97...................................... 03/15/97 1.000000
03/14/97...................................... 04/15/97 0.998514
------------------------------------------------------------------------
For example, the midpoint of a cost reporting period beginning
January 1, 1996 and ending December 31, 1996 is June 30, 1996. An
adjustment factor of 1.009099 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 1996 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 costs and hours 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 sections
1886(d)(8)(B) or 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 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 2000 wage index is based on a blend of average
hourly wages, we then added 80 percent of the average hourly wage
calculated without removing teaching physician Part A, residents, and
CRNA costs, and 20 percent of the average hourly wage calculated with
these costs removed.
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
[[Page 41511]]
wage (using the same blending methodology described in Step 7). Using
the data as described above, the national average hourly wage is
$21.1800.
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. We note that on July 6, 1999, OMB announced the designations of two
new MSAs: Auburn-Opelika, Alabama, comprising Lee County, and
Corvallis, Oregon comprising Benton County.
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
$9.86756 for Puerto Rico. For each labor market area in Puerto Rico, we
calculated the hospital 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 the BBA 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. Furthermore, this wage index floor is to be implemented in such
a manner as to ensure 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 2000, this change
affects 226 hospitals in 36 MSAs. The MSAs affected by this provision
are identified in Table 4A by a footnote.
Comment: Two commenters suggested that, given the complexity of the
FY 2000 wage index calculation, we should make our detailed calculation
procedures and edits publicly available. This would enable hospitals
and researchers to more easily replicate the wage index values. One of
the commenters recommended that the detailed calculations and methods
should be included in future proposed and final rules. In addition,
they requested that we release the actual computer program used to
calculate the wage index.
Response: We have fully explained the steps we take to calculate
each hospital's average hourly wage and the wage index. In addition, we
have worked with hospitals that contacted us after attempting to
replicate our calculations, by reviewing their results and identifying
discrepancies. In doing so, we have been able to identify certain
anomalies in some of the proposed wage index values, which have been
corrected in the final wage index. Therefore, we agree that it might be
useful to provide more information to make it easier for the public to
replicate our calculations, and we are exploring our options. However,
we do not generally provide our computer programs that are used to
perform the wage index calculations, or for that matter, the programs
we use for all other calculations we perform.
Comment: One commenter recommended that, for leap years HCFA should
use 366 days, rather than 365 days, when annualizing cost report data
(see step 5 of the wage index calculation).
Response: We agree that the commenter's recommended method of
annualization, which recognizes an additional day for leap years, is
theoretically more accurate than our simple, across-the-board approach.
However, due to the intense effort required to incorporate all of the
wage data changes processed in conjunction with hospitals' final
opportunity to request revisions, we were unable to evaluate and
incorporate this change into our computer program in time to be
reflected in the final FY 2000 wage index. Therefore, we are not
adopting this recommendation for the FY 2000 wage index calculation. We
would note that, as described in step 5 above, we annualize any cost
reporting period that covers a period of fewer than 360 days or more
than 370 days. The majority of cost reporting periods are not
annualized. In those instances where annualization is done, we would
further point out that it does not affect the hospital's average hourly
wage calculation, since both the costs and hours are annualized by 365.
The impact, therefore, of this commenter's suggestion is limited to the
calculation of the labor market area average hourly wage. Furthermore,
if we were to account for the additional day of a leap year in our
annualization, the impact on any particular area's average hourly wage
could be either positive or negative.
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.
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, as
provided in section 1886(d)(8)(C) of the Act, the wage index values
were determined by considering the following:
<bullet> 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.
<bullet> 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 hospitals that are
redesignated are subject to that combined wage index value.
<bullet> 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.
<bullet> 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.
<bullet> 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.
<bullet> Rural areas whose wage index values increase as a result
of excluding
[[Page 41512]]
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.
<bullet> 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 revised wage index values for FY 2000 are shown in Tables
4A, 4B, 4C, and 4F in the Addendum to this final rule. Hospitals that
are redesignated 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 areas 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 areas 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 areas 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 1996 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 1996
data (as calculated under Steps 4 and 5 above). The MGCRB will use the
average hourly wage published in the final rule to evaluate a
hospital's application for reclassification for FY 2001, unless that
average hourly wage is later revised in accordance with the wage data
correction policy described in Sec. 412.63(w)(2). In these cases, the
MGCRB will use the most recent revised data used for purposes of the
hospital wage index. We note that, in adjudicating these wage index
reclassification requests during FY 2000, the MGCRB will use the
average hourly wages for each hospital and labor market area that are
reflected in the final FY 2000 wage index.
At the time the proposed wage index was constructed, the MGCRB had
completed its review of FY 2000 reclassification requests. Therefore,
the proposed FY 2000 wage index values incorporated all 441 hospitals
redesignated for purposes of the wage index (hospitals redesignated
under section 1886(d)(8)(B) or 1886(d)(10) of the Act) for FY 2000. In
this final rule, we have incorporated changes to the wage index that
occurred after the proposed wage index was calculated and that resulted
from withdrawals of requests for reclassification, wage index
corrections, appeals, and the Administrator's review process. The
changes may 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 may be affected.
Under Sec. 412.273, hospitals that have been reclassified by the
MGCRB are permitted to withdraw their applications within 45 days of
the publication of the proposed rule. To be effective in FY 2000, the
request for withdrawal of an application for reclassification had to be
received by the MGCRB by June 21. A hospital that requests to withdraw
its application may not later request that the MGCRB decision be
reinstated.
G. 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 2000 hospital
wage index, we would make available in May 1999 a final public data
file containing the FY 1996 hospital wage data.
The final wage data file was released on May 7, 1999 (amended on
May 14). 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 1999, we made the final
wage data file released in May 1999 available to hospital associations
and the public (on the Internet). However, with the exception of the
teaching survey data, this file was made available only for the limited
purpose of identifying any potential errors made by HCFA or the
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, not for the initiation of new wage data correction
requests.
If, after reviewing the May 1999 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 7, 1999.
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. (As noted above, however, we also allowed hospitals to
request changes to their teaching survey data. These requests had to
comply with all of the documentation and deadline requirements
specified in the May 7, 1999 proposed rule.) Specifically, neither the
intermediary nor HCFA accepted the following types of requests at this
stage of the process:
<bullet> Requests for wage data corrections that were submitted
too late to be included in the data transmitted to HCRIS on or before
April 5, 1999.
<bullet> Requests for correction of errors that were not, but
could have been, identified during the hospital's review of the
February 1999 wage data file.
<bullet> 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 7, 1999) are incorporated into the final wage index in this final
rule, to be effective October 1, 1999.
We believe the wage data correction process provides hospitals with
sufficient opportunity to bring errors in their wage data to the
intermediary's attention. Moreover, because hospitals had access to the
final wage data by early May 1999, 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 2000 wage index and
its
[[Page 41513]]
implementation on October 1, 1999. If hospitals avail themselves of
this opportunity, the FY 2000 wage index implemented on October 1
should be free of these errors. Nevertheless, in the unlikely event
that errors should occur after that date, 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 2000 (that is, by the
June 7, 1999 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.
In the September 1, 1994 Federal Register, we stated that we did
not believe that a "formal appeals process" regarding intermediary
decisions denying hospital requests for wage data revisions was
necessary, given the numerous opportunities provided to hospitals to
verify and revise their data (59 FR 45351). We continue to believe that
the process described above provides hospitals more than adequate
opportunity to ensure that their data are correct. Nevertheless, we
wish to clarify that, while there is no formal appeals process that
culminates before the publication of the final rule and that is
described above, hospitals may later seek formal review of denials of
requests for wage data revisions made as a result of that process.
Once the final wage index values are calculated and published in
the Federal Register, the last opportunity for a hospital to seek to
have its wage data revised is under the limited circumstances described
in Sec. 412.63(w)(2). As we noted in the September 1, 1995 Federal
Register, however, hospitals are entitled to appeal any denial of a
request for a wage data revision made as a result of HCFA's wage data
correction process to the Provider Reimbursement Review Board (PRRB),
consistent with the rules for PRRB appeals found at 42 CFR Part 405,
Subpart R (60 FR 45795). As we also stated in the September 1, 1995
Federal Register, and as the regulation at Sec. 412.63(w)(5) provides,
any subsequent reversal of a denial of a wage revision request that
results from a hospital's appeal to the PRRB or beyond will be given
effect by paying the hospital under a revised wage index that reflects
the revised wage data at issue. The revised wage data will not,
however, be used for purposes of revisiting past adjudications of
requests for geographic reclassification.
Comment: One commenter suggested that our notices of the wage index
review process should be more explicit regarding dates, titles, and
addresses, and should be presented in a format similar to the request
for hearing language contained in most Notices of Program
Reimbursements. The commenter believes this would avoid confusion and
misunderstandings throughout the process.
Response: Although we believe that our notices of wage index file
availability are already quite detailed, we agree they might be
improved to minimize misunderstandings. For example, we intend to
continue to work with our intermediaries to ensure that, in their
correspondence with hospitals regarding the resolution of revision
requests submitted by the hospitals, the intermediaries state more
explicitly the criteria, procedures, and deadlines for requesting our
intervention when a hospital disagrees with an intermediary's policy
determination. We welcome any other specific recommendations.
Comment: One commenter requested that we consider providing a mid-
year correction, as in the FY 1999 wage index, for those areas that are
affected by a major change in the FY 2000 wage index. The commenter
stated that further opportunity to review and adjust its wage data
would provide a more meaningful wage index.
Response: As we stated in the February 25, 1999 final rule
implementing changes resulting from the limited window of opportunity
for hospitals to request revisions to their FY 1995 data used to
calculate the FY 1999 wage index, we believe our usual procedures
provide ample opportunity for diligent hospitals to ensure the accuracy
of their wage data (64 FR 93781). The limited opportunity to request
revisions to the data used to calculate the FY 1999 wage index was
based on a combination of circumstances unique to that year, and
hospitals should assume in the future that all requests to change their
wage data must conform to the well-established guidelines discussed
above. Therefore, we do not intend to again provide such a special
opportunity for further revision requests.
IV. Other Decisions and Changes to the Prospective Payment System for Inpatient Operating Costs and Graduate Medical Education Costs
A. Sole Community Hospitals (SCHs) (Sec. 412.92)
If a hospital is classified as an SCH because, by reason of certain
factors, it is the sole source of inpatient hospital services
reasonably available to Medicare beneficiaries in a geographic area,
the hospital is paid based on the highest of the following: the
applicable adjusted Federal rate; the updated hospital-specific rate
based on a 1982 base period; or the updated hospital-specific rate
based on a 1987 base period. Under our existing rules, urban hospitals
within 35 miles of another hospital cannot qualify as SCHs. Since 1983,
we have consistently defined an "urban" area for purposes of
determining if a hospital qualifies for SCH status as an MSA or NECMA
as defined by OMB.
In the past, we have considered and rejected two alternatives to
the MSA definitions of an urban area for SCH purposes. These
alternatives were the urbanized areas as defined by the Census Bureau
and the health facility planning areas (HFPAs) as used by the Health
Resource Services Administration. We have concluded that the MSA
definition continues to be the most appropriate geographic delimiter
available at this time. Therefore, in the May 7, 1999 proposed rule, we
proposed to continue to apply the MSA definition of an urban area for
SCH status purposes.
We proposed to continue our current policy for several reasons.
First, as we have previously noted, since OMB considers local commuting
patterns in establishing urban definitions, we believe that residents
in urban areas have access to hospital services either by living in
close proximity to a hospital or by establishing a heavy commuting
pattern to an area in which a hospital is located (48 FR 39780,
September 1, 1983). We do not believe that either Census Bureau
urbanized areas or HFPAs take commuting patterns into account in the
way that OMB's MSAs do. We believe commuting patterns serve as an
important indicator of whether a hospital is the sole hospital
reasonably accessible by Medicare beneficiaries in an area.
In addition, we note that our use of MSAs to define urban areas for
SCH status purposes has direct statutory support. Section 1886(d)(2)(D)
of the
[[Page 41514]]
Act specifically authorizes us to use OMB's MSA definition of urban
areas for purposes of calculating the prospective payment system
standardized amounts. SCH status represents an adjustment to the usual
prospective payment that a hospital would receive, and since that
prospective payment is based on the standardized amount, among other
factors, we believe it would be anomalous to employ one definition of
urban area for purposes of calculating the standardized amount and
another for purposes of determining if the hospital qualified as an
SCH. To do so would be to use one set of geographic delimiters in
applying the general rule (payment under the prospective payment system
based on the standardized amount) but a different set in determining
exceptions to the rule (payment under the prospective payment system
adjusted to take into account SCH status). We do not think this would
be appropriate. For this reason, also, we propose to continue to define
"urban" for SCH purposes as meaning MSAs as defined by OMB, not as
meaning either Census Bureau urbanized areas or HFPAs.
We received one comment on our proposed retention of this
definition.
Comment: One commenter, which had been communicating with us before
the issuance of the proposed rule, continued to express concern about
our policy of defining urban areas for SCH purposes based on MSAs. The
commenter raised several points. First, the commenter stated that our
discussion in the proposed rule is "misleading" because it did not
mention recent litigation on this issue. Second, the commenter argued
that our proposal is flawed because it results in inequitable treatment
of hospitals; that is, it renders a hospital's ability to qualify as an
SCH dependent on OMB's reconfiguration of MSA boundaries, and patients'
ability to access inpatient hospital services is not affected by those
boundaries. Third, the commenter questioned two aspects of our
rationale for retaining an MSA-based definition of the urban areas in
the SCH context--that OMB considers commuting patterns when defining
MSAs and that use of MSAs is consistent with the methodology we use for
computing the standardized amounts. Finally, the commenter suggested
that, if we decided to adopt our proposal to base the definition of
urban areas for SCH purposes on MSAs, we should at least adopt an
exception to that rule under which a hospital that is the only hospital
in an MSA could still qualify as an SCH.
Response: We do not agree with the commenter that we should either
abandon our longstanding policy of defining urban areas for SCH
purposes based on MSAs or adopt the exception to that policy that the
commenter suggests. Although the commenter is correct in pointing out
that there has been recent litigation involving our definition of
"urban area" for SCH purposes, we do not believe that our proposal
was in any way misleading. Partly as a result of the litigation, we
decided to reiterate and clarify our policy. Thus, we clearly stated in
the proposed rule that we proposed to retain our longstanding
definition in favor of other definitions based on the Census Bureau's
urbanized areas or on HFPAs and explained the reasons for our proposal.
We believe the proposed rule, therefore, gave interested parties more
than adequate notice of the issue and afforded them the opportunity to
comment.
We continue to believe that it is appropriate to adopt an MSA-based
definition of urban areas for SCH purposes for the reasons stated in
the proposed rule and in our earlier discussions of the MSA-based
definition. The commenter gave an example of a situation in which an
urban hospital is the nearest like hospital to a rural hospital, and
the rural hospital is likewise the nearest hospital to the urban
hospital. The commenter stated that the rural hospital could obtain SCH
status, but the urban hospital could not, which, the commenter
concluded, results in inequitable treatment of similarly situated
hospitals.
We do not agree with this conclusion for several reasons. First, if
the urban hospital was located more than 35 miles from the rural
hospital, it could in fact qualify for SCH status under our rules.
Moreover, the hospitals in this example are not similarly situated; one
is urban and one is rural. As we have stated previously, urban areas
generally have better roads, faster snow clearing, and more available
hospitals, factors that affect access to inpatient hospital services.
(See 56 FR 25483 (June 4, 1991).) Thus, even if the rural hospital in
the commenter's example qualified as an SCH and the urban hospital did
not, the difference in result is justified by the hospitals' different
geographic circumstances.
The commenter's example does nothing to demonstrate that any other
definition of an urban area for SCH purposes is preferable to an MSA-
based definition. The somewhat unique situation the commenter
described--an urban hospital that is closest to a rural hospital and
vice versa--could arise no matter what definition of urban area we
adopt.
Similarly, while the commenter objected to hospitals' ability to
qualify for SCH status depending on possible shifting OMB definitions
of MSAs, the same objection could be made of any definition of urban
area that adopts geographic delimiters promulgated by another entity--
including Census Bureau urbanized areas or HFPAs. In addition, we
consider the fact that OMB occasionally revises the MSA boundaries to
be a strength of that scheme. We think it is appropriate that any
definition of urban areas for SCH purposes be reviewed periodically to
take into account changes that have occurred in various areas'
characteristics. Urban and rural areas do not remain static forever.
Shifts in population and other changes can transform previously rural
areas into urban ones, and vice versa. Because we believe the nature of
an area as urban or rural is an important part of determining whether a
hospital should qualify as an SCH, the mechanism for making those
determinations should be able to account for changes in that nature.
As noted above and in our previous discussions of this issue, we
believe that several factors make urban hospitals more accessible to
patients than rural ones. Contrary to the commenter's statement that
access is not affected by MSA boundaries, we proposed to adopt MSAs as
the definition of urban areas for SCH purposes precisely because MSAs
provided a good gauge of the presence of factors affecting access. The
commenter's contentions fail to convince us that we should not adopt
this proposal.
The commenter also argued that we have not properly considered
reasonable alternatives to our proposed MSA-based definition of urban
areas for SCH purposes. To the contrary, we specifically considered and
proposed to reject two alternative definitions based on urbanized areas
and HFPAs. The commenter offered no additional alternatives. Rather,
the commenter questioned our reliance on OMB's use of commuting
patterns in establishing MSAs, and stated that both urbanized areas and
HFPAs also consider commuting patterns in the form of such factors as
availability of roads and travel time and distance. Even if true,
however, that means only that all three potential definitions consider
commuting patterns in some form, and thus does not provide a basis for
preferring a definition of urban areas other than one based on MSAs.
The commenter pointed out that the
[[Page 41515]]
commuting patterns OMB analyzes pertain to commutes to workplaces,
which, the commenter claimed, do not relate to access to hospital
services. However, we have indicated that we deem commuting patterns
important because they indicate access to areas in which hospitals are
located. (See 48 FR 39780 (Sept. 1, 1983).) As such, they are a good
indicator of access to hospital services.
The commenter questioned our reliance on the fact that MSAs are
used as the basis for determining the standardized amounts that form
the basis of prospective payment system payments. The MSAs also supply
the definition of urban areas used for virtually every other purpose
under the hospital inpatient prospective payment system, including
other special status determinations, geographic reclassification, and
calculation of the wage index. We continue to believe that it is
appropriate to use a definition of urban areas for SCH purposes that is
consistent with the definition used for almost all other components of
the prospective payment rates.
In regard to the commenter's suggestion that, if we retain the MSA-
based definition of urban areas for SCH purposes, we adopt an exception
to that definition under which an urban hospital that is the only
hospital in its MSA would qualify as an SCH if it would otherwise
qualify absent its urban location. We note that, to a large extent, we
already apply this rule. As noted above, an urban hospital that is more
than 35 miles from the nearest like hospital may qualify as an SCH
notwithstanding its urban location. Thus, urban hospitals, including
those in a sole-hospital MSA, can in fact qualify as SCHs, provided
they are not in close proximity to another like hospital.
We acknowledge that a small number of MSAs may contain only one
hospital; however, we have stated that urban areas generally have more
available hospitals (56 FR 25483 (June 4, 1991)). Again, urbanized
areas, HFPAs, or an urban area defined under any other methodology
might also contain only one hospital. As a result, there is nothing
inherent in our adoption of an MSA-based definition that compels
adoption of the exception the commenter has proposed. It continues to
be our judgment that an urban hospital within 35 miles of another like
hospital is not the "sole" source of inpatient hospital services in
its community, given the close proximity of the other hospital and the
other factors affecting increased access to inpatient hospital services
that location in an urban area denotes. Thus, we have not adopted the
commenter's proposed exception to the rule defining urban areas based
on MSAs for SCH purposes.
B. Rural Referral Centers (Sec. 412.96)
Under the authority of section 1886(d)(5)(C)(i) of the Act,
Sec. 412.96 sets forth the criteria a hospital must meet in order to
receive special treatment under the prospective payment system as a
rural referral center. For discharges occurring before October 1, 1994,
rural referral centers received the benefit of payment based on the
other urban rather than the rural standardized amount. As of that date,
the other urban and rural standardized amounts were the same. However,
rural referral centers continue to receive special treatment under both
the disproportionate share hospital (DSH) payment adjustment and the
criteria for geographic reclassification.
One of the criteria under which a rural hospital may qualify as a
rural referral center is to have 275 or more beds available for use. A
rural hospital that does not meet the bed size criterion can qualify as
a rural referral center if the hospital meets two mandatory criteria
(specifying a minimum case-mix index and a minimum number of
discharges) and at least one of the three optional criteria (relating
to specialty composition of medical staff, source of inpatients, or
volume of referrals). With respect to the two mandatory criteria, a
hospital may be classified as a rural referral center if its--
<bullet> 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
<bullet> Number of discharges is at least 5,000 discharges 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 rural
referral center 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 in
the May 7, 1999 proposed rule included all urban hospitals nationwide,
and the proposed regional values were 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 1998
(October 1, 1997 through September 30, 1998) and include bills posted
to HCFA's records through December 1998. Therefore, we proposed that,
in addition to meeting other criteria, hospitals with fewer than 275
beds, if they are to qualify for initial rural referral center status
for cost reporting periods beginning on or after October 1, 1999, must
have a case-mix index value for FY 1998 that is at least--
<bullet> 1.3438; or
<bullet> 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 7, 1999
proposed rule at 64 FR 24732-24733.)
Based on the updated FY 1998 MedPAR file, which contains data from
additional bills received through March 31, 1999, the final national
case-mix value is 1.3438 and the median case-mix values by region are
set forth in the following table:
------------------------------------------------------------------------
Case-mix
Region index value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................... 1.2498
2. Middle Atlantic (PA, NJ, NY)............................ 1.2499
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..... 1.3306
4. East North Central (IL, IN, MI, OH, WI)................. 1.2577
5. East South Central (AL, KY, MS, TN)..................... 1.2795
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......... 1.1877
7. West South Central (AR, LA, OK, TX)..................... 1.2994
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............... 1.3438
9. Pacific (AK, CA, HI, OR, WA)............................ 1.3231
------------------------------------------------------------------------
For the benefit of hospitals seeking to qualify as referral centers
or those wishing to know how their case-mix index value compares to the
criteria, we are publishing each hospital's FY 1998 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.
[[Page 41516]]
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
referral center status. As specified in section 1886(d)(5)(C)(ii) of
the Act, the national standard is set at 5,000 discharges. In the May
7, 1999 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 1997 (that is,
October 1, 1996 through September 30, 1997). 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 rural referral center
status for cost reporting periods beginning on or after October 1,
1999, must have as the number of discharges for its cost reporting
period that began during FY 1998 a figure that is at least--
<bullet> 5,000; or
<bullet> The median number of discharges for urban hospitals in the
census region in which the hospital is located, as indicated in the
following table. (See the table set forth in the May 7, 1999 proposed
rule at 64 FR 24733.)
Based on the latest discharge data available for FY 1997, the final
median number of discharges for urban hospitals by census region areas
is as follows:
------------------------------------------------------------------------
Number of
Region discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................... 6733
2. Middle Atlantic (PA, NJ, NY)............................ 8655
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..... 7845
4. East North Central (IL, IN, MI, OH, WI)................. 7499
5. East South Central (AL, KY, MS, TN)..................... 6832
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......... 5346
7. West South Central (AR, LA, OK, TX)..................... 5380
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............... 8026
9. Pacific (AK, CA, HI, OR, WA)............................ 6151
------------------------------------------------------------------------
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
rural referral center status for cost reporting periods beginning on or
after October 1, 1999, must have at least 3,000 discharges for its cost
reporting period that began during FY 1997.
Comment: One commenter urged HCFA to reconsider its decision not to
restore RRC status to those hospitals located in areas that have been
redesignated as urban by the OMB. The commenter argued that the statute
established only one qualification for having a hospital's RRC status
restored; that is, a hospital must have been designated as an RRC in FY
1991. According to the commenter, the statute provides no other
conditions, nor does it provide HCFA with the discretion to create
other conditions. The commenter believes that our decision not to
restore the RRC status of hospitals located in areas redesignated as
urban by OMB effectively requires affected hospitals to satisfy an
additional condition that they be located in a rural area.
Response: We responded to a comment raising the same issue in the
May 12, 1998 final rule (63 FR 26326). We addressed our interpretation
of section 4202(b)(1) of the BBA in the August 29, 1997 final rule with
comment period (62 FR 45999 and 46000) as well as the May 12, 1998
final rule, and we refer the reader to those documents.
C. Changes to the Indirect Medical Education 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.
In the August 29, 1997 final rule (62 FR 46029), we redesignated
the previous Sec. 412.105(g) as Sec. 412.105(f), and added a new
paragraph (g) to implement section 1886(d)(5)(B) of the Act as revised
by section 4621 of the BBA of 1997. However, when we redesignated
paragraph (g) as paragraph (f), we inadvertently did not revise all of
the relevant cross-references to reflect this redesignation.
Specifically, at Sec. 412.105(f)(1)(iii), there are three cross-
references to paragraph (g)(1)(ii). These cross-references are
incorrect in light of the redesignation of previous paragraph (g) as
paragraph (f). We proposed to revise Sec. 412.105(f)(1)(iii) to correct
these cross-references.
We did not receive any comments on this proposal and are adopting
it as final.
D. Medicare Geographic Classification Review Board: Conforming Changes
Secs. 412.256 and 412.276
In the May 12, 1998 final rule (63 FR 26321), we revised the
regulations governing the timeframes for submittal of applications by
hospitals to the MGCRB for geographic reclassifications and for MGCRB
decisions to take into consideration the revised statutory publication
schedule for the annual prospective payment policies and rates (that
is, August 1 instead of September 1) implemented by the BBA. In making
those changes, we inadvertently omitted conforming changes to two other
sections of the regulations that also specify timeframes that are
affected by the change to an August 1 publication date--Secs. 412.256
and 412.276. We proposed to revise Sec. 412.256(c)(2) to specify that
at the request of the hospital, the MGCRB may, for good cause, grant a
hospital that has submitted an application by September 1 (instead of
October 1) an extension beyond September 1 (instead of October 1) to
complete its application. In addition, we proposed to revise
Sec. 412.276(a) to specify that the MGCRB notifies the parties in
writing, with a copy to HCFA, and issues a decision within 180 days
after the "first day of the 13-month period preceding the Federal
fiscal year for which the hospital had filed a completed application"
for reclassification, to make the language consistent with the statute
and the May 1998 changes made to the application deadline in
Sec. 412.256(a)(2).
We did not receive any comments on this proposal and are adopting
it as final.
We note that the instructions for preparing applications for FY
2001 individual and group reclassifications, which are due to the MGCRB
by September 1, 1999, are now available for downloading from the
Internet at www.hcfa.gov/regs/appeals.
Comment: One commenter requested clarification about submitting an
application for reclassification for the standardized amount when the
payment rates had changed during the year for which the applicable cost
report would be used. Specifically, the commenter was concerned that
the revised average hourly wage data, wage index, and standardized
amounts applicable for FY 1999 beginning on or after March 1, 1999 (see
the final rule published on February 25, 1999 (64 FR 9378)) will
require the MGCRB to determine which
[[Page 41517]]
wage index and standardized amount value to use when evaluating
applications seeking standardized amount geographic reclassification.
The commenter asserted that because the MGCRB must use historical
national adjusted operating standardized amounts and wage indices, a
problem potentially arises when HCFA calculates more than one
standardized amount and wage index for an area in a year, as it did in
FY 1999. The commenter suggested the MGCRB use prorated standardized
amount and wage index values in evaluating applications.
Response: When the MGCRB evaluates an application for
reclassification for the standardized amounts, it uses actual payment
rates for actual periods. Therefore, if the payment rate changed during
the year that applies to a hospital's application, those figures are
incorporated into the calculation for the months during which they
applied. The same policy holds true for wage data.
E. Payment for Direct Costs of Graduate Medical Education (Sec. 413.86)
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. The BBA
revised section 1886(h) of the Act to cap the number of residents that
hospitals may count for direct GME. We have issued rules to implement
the caps for GME (62 FR 46002, August 29, 1997; 63 FR 26327, May 12,
1998; and 63 FR 40986, July 31, 1998). Since the publication of these
rules we have received a number of questions relating to GME. In
addition, we have received information related to other aspects of our
GME policies. In response to these questions and information, in the
proposed rule, we proposed to clarify certain GME policies and also
make some technical changes to the regulations text. In addition, we
proposed certain changes in GME policy.
1. Approved Geriatric Programs
Under sections 1886(h)(5)(F) and (G) of the Act and Sec. 413.86(g),
Medicare counts each resident within an initial residency period as a
1.0 full-time equivalent (FTE) for purposes of determining GME
payments. Each resident beyond the initial residency period is counted
as 0.5 full-time equivalent. Section 1886(h)(5)(F) of the Act extends
the initial residency period by up to 2 years if an individual is in a
geriatric or preventive medicine residency or fellowship. At
Sec. 413.86(b), we specify that an "approved geriatric program" is
"a fellowship program of one or more years in length that is approved
by the Accreditation Council for Graduate Medical Education (ACGME)
under the ACGME's criteria for geriatric fellowship programs." In
recent years, geriatric programs have been approved by other national
organizations. Consistent with the statute, we proposed to clarify the
definition of approved geriatric programs at Sec. 413.86(b) to include
fellowship programs approved by the American Osteopathic Association,
the Commission on Dental Accreditation, and the Council on Podiatric
Medical Education. These organizations, in addition to ACGME, are
recognized by HCFA as the accrediting bodies for determining approved
educational activities. We also proposed to make a conforming change to
Sec. 413.86(g)(1)(iii) to recognize approved geriatric programs
accredited by all national approving organizations.
We received one comment in support of our proposed revision to
Sec. 413.86(b). We are adopting the revision as final.
2. Hospital Payment For Resident Training in Nonhospital Settings
Under sections 1886(d)(5)(B)(iv) and 1886(h)(4)(E) of the Act,
hospitals may count residents working in nonhospital sites for indirect
and direct medical education respectively if the hospital incurs "all
or substantially all" of these education costs. The requirements for
counting the time residents spend training in nonhospital settings are
addressed at Sec. 413.86(f)(4). Currently, the requirements for
hospital payment under this provision are that the resident spend his
or her time in patient care activities and that a written agreement
exist between the hospital and the nonhospital site. This written
agreement must indicate that the hospital will incur the cost of the
residents' salaries and fringe benefits while the residents are
training in the nonhospital site and that the hospital is providing
reasonable compensation to the nonhospital site for supervisory
teaching activities. In addition, the written agreement must indicate
the compensation the hospital is providing to the nonhospital site for
supervisory teaching activities.
Under the statute, the time residents spend at nonhospital sites
may be counted "if the hospital incurs all, or substantially all, of
the costs of the training program in that setting." The existing
regulations text, however, is framed in terms of the hospital having an
agreement that it "will incur" the costs in the nonhospital setting.
We proposed to make a technical change to the regulations text by
adding a new Sec. 413.86(f)(4)(iii), to clarify that in order to count
residents at a nonhospital site, the hospital must actually incur all
or substantially all of the costs for the training program, as defined
in Sec. 413.86(b), in the nonhospital site. This definition of all or
substantially all requires the hospital to incur the expenses of the
residents' salaries and fringe benefits (including travel and lodging
where applicable) and the portion of the cost of teaching physicians'
salaries and fringe benefits attributable to direct GME.
Comment: Many commenters supported our technical change under the
proposed Sec. 413.86(f)(4)(iii), which provides that, in order to count
residents training at a nonhospital site for purposes of direct and
indirect GME payment, the hospital must actually incur all or
substantially all of the costs for the training programs. However, we
believe several commenters misunderstood our technical change. The
commenters believed that the change was unnecessary because the
existing regulations, which were issued in the July 31, 1998 final
rule, provide adequate guidance for purposes of the hospital claiming
direct and indirect GME for resident training in the nonhospital site.
Response: We proposed to make the technical change in
Sec. 413.86(f)(4)(iii) for two reasons. First, we stated in the
preamble to the July 31, 1998 final rule that we are requiring the
hospital to actually incur all or substantially all of the cost, but
the regulation text only indicated that the hospital must have an
agreement to incur the cost; that is, the regulation text did not
include specific language requiring that the hospital actually incur
the cost. Second, we defined the phrase "all or substantially all" in
Sec. 413.86(b) but inadvertently omitted using the phrase in the policy
specified in Sec. 413.86(f)(4).
Comment: In regard to our proposed technical change to the
nonhospital payment policy as specified in Sec. 413.86(f)(4)(iii), one
commenter asked us to define the difference, if any, in our use of
"nonprovider" entity and "nonhospital" entity. In addition, the
commenter asked whether a skilled nursing facility or a unit excluded
from the prospective payment system is considered to be a nonhospital
setting.
Also, similar to the public comments addressed in the in July 31,
1998 final rule, several commenters asked us to clarify whether
hospitals would still be eligible to receive payments in situations
where the teaching faculty volunteers their services and neither the
hospital nor the nonhospital entity
[[Page 41518]]
incurs costs for supervisory teaching physicians. The commenters asked
us to continue to support the following statement that we included in
the July 31, 1998 final rule (63 FR 40996) allowing hospitals to remain
eligible for payment in such situations where supervisory physicians in
the nonhospital site are volunteering their time: "for the purposes of
satisfying the requirement of a written agreement, the written
agreement between a hospital and a nonhospital site may specify that
there is no payment to the clinic for supervisory activities because
the clinic does not have these costs."
Response: For purposes of our nonhospital payment policy for GME in
Sec. 413.86(f)(4), we use the terms "nonhospital" and "nonprovider"
interchangeably. A free-standing SNF (that is, a SNF that is not part
of a hospital) is a nonhospital site. An excluded unit of a hospital is
not a nonhospital site because an excluded unit is still part of a
hospital.
We will continue a volunteer supervisory physician policy
consistent with the policy stated in the July 31, 1998 final rule, as
requested by the commenter. Hospitals may receive payment for the costs
of training residents in the nonhospital site even though the hospital
might not be incurring any costs for supervisory physician activities.
3. New Residency Programs
In the regulations we published on August 29, 1997 and May 12,
1998, we established special rules for adjusting the full-time
equivalent (FTE) resident caps for indirect and direct GME for new
medical residency programs. In general, the special rules allow for
adjustments to the caps based on the number of residents participating
in the program in its third year of existence. In Secs. 413.86(g)(6)(i)
and 413.86(g)(6)(ii), we set forth a methodology for adjusting hospital
FTE caps for new medical residency training programs established on or
after January 1, 1995. In the May 7, 1999 proposed rule, we proposed
the following clarifications, technical changes, and policy changes:
a. In Sec. 413.86(g)(6)(i), we specify that, if a hospital had no
residents before January 1, 1995, the adjustments for new programs are
based on the highest number of residents in any program year during the
third year of the newly established program. However,
Sec. 413.86(g)(6)(ii) does not explicitly state the methodology for
adjusting caps for hospitals that did have residents in the most recent
cost reporting period ending before January 1, 1995. The adjustments of
the caps for programs established on or after January 1, 1995 and on or
before August 5, 1997, also are made based on the number of residents
in the third year of the new program. We proposed to revise
Sec. 413.86(g)(6)(ii) to clarify that, for a hospital that did have
residents in the most recent cost reporting period ending on or before
December 31, 1996, the adjustment is based on the highest number of
residents in any program year in the third year of the new program.
b. Sections 413.86(g)(6)(i) and 413.86(g)(6)(ii) specify that the
adjustment to the cap is also based on the number of years in which
residents are expected to complete each program based on the minimum
accredited length for the type of program. We proposed to add language
to clarify how to account for situations in which the residents spend
an entire program year (or years) at one hospital and the remaining
year (or years) of the program at another hospital. In this situation,
the adjustment to the FTE cap is based on the number of years the
residents are training at each hospital, not the minimum accredited
length for the type of program. If we were to use the minimum
accredited length for the program in this case, the total adjustment to
the cap for both hospitals might exceed the total accredited slots
available to the hospitals participating in the program. In the May 12,
1998 final rule (63 FR 26334), we specified that the adjustment to the
FTE cap may not exceed the number of accredited resident slots
available.
c. It was brought to our attention that the regulations do not
explicitly address how to apply the cap during the first 3 years of a
new program before the adjustments to the cap are established. In the
May 7, 1999 proposed rule, we proposed to clarify our policy on new
residency programs by adding language in Secs. 413.86(g)(6)(i) and
413.86(g)(6)(ii) to specify how to determine the hospital's cap in the
first 3 years of a new residency program, before the implementation of
the hospital's permanent adjustment to its FTE cap effective beginning
with the fourth year of the program. We proposed to specify that the
cap may be adjusted during each year of the first 3 years of the
hospital's new residency program, using the actual number of residents
participating in the new program. The adjustment may not exceed the
number of accredited slots available to the hospital for each program
year.
d. As discussed above, on August 29, 1997, we implemented the
hospital-specific caps on the number of residents that a hospital can
count for purposes of GME payments in a final rule with comment period
(62 FR 46002). In both the May 12, 1998 and July 31, 1998 final rules
(63 FR 26327 and 63 FR 40954), we responded to comments we received on
this provision. We did not receive any comments about hospitals that
participated in residency training in the past, had terminated their
participation before the hospitals' cost reporting period ending in
calendar year 1996, and have now again begun a new residency program.
After publication of the July 31, 1998 final rule, we were contacted by
representatives of some hospitals that had a resident cap of zero
because they had temporarily terminated their GME programs in the past
and had no residents training during the cost reporting period ending
in 1996. Based on the existing regulations, these hospitals have FTE
caps of zero. There is no provision in the existing regulations for
making adjustments to the cap to allow these hospitals to receive
payment for indirect and direct GME for allopathic and osteopathic
residents.
To address this issue, we proposed to revise Sec. 413.86(g)(6)(i)
to allow for an adjustment to a hospital's FTE cap if the hospital had
no allopathic and osteopathic residents in its cost reporting period
ending during calendar year 1996. This change would allow all hospitals
that did not participate in allopathic and osteopathic resident
training in the cost reporting period ending in calendar year 1996 to
receive adjustments to the indirect and direct GME FTE caps for new
residency programs. We believe it is appropriate to revise the
regulations to allow for payment during the first 3 years of the new
program and for an adjustment to the FTE cap 3 years after these
hospitals restart participation in residency training, similar to the
existing adjustment for hospitals that never participated in residency
training. We proposed to revise Sec. 413.86(g)(6)(i) to allow a
hospital that has zero residents for the cost reporting period ending
during the calendar year 1996 to receive an adjustment. This change
would be effective for discharges occurring on or after October 1,
1999, for purposes of the IME adjustment and for cost reporting periods
beginning on or after October 1, 1999, for purposes of direct GME.
In addition, we proposed to make a change in Sec. 413.86(g)(6)(ii)
to make the language similar to that in Sec. 413.86(g)(6)(i) to specify
that hospitals that did have residents in the cost reporting period
ending on or before December 31, 1996, are allowed adjustments to the
cap for new programs begun on or after January 1, 1995, and
[[Page 41519]]
on or before August 5, 1997. Existing Sec. 413.86(g)(6)(ii) refers to a
hospital that did have residents in its most recent cost reporting
period ending on or before January 1, 1995. The regulation states that
these hospitals also may qualify for an adjustment to the caps, but
only for medical residency programs created on or after January 1,
1995, and on or before August 5, 1997. Since we proposed to revise
Sec. 413.86(g)(6)(i) to indicate that a hospital may qualify for an
adjustment to the cap under that paragraph if it did not have residents
in the cost reporting period ending during calendar year 1996, we
proposed to make a similar change in Sec. 413.86(g)(6)(ii) to indicate
that this paragraph provides for an adjustment to the cap for hospitals
that did have residents in its most recent reporting period ending on
or before December 31, 1996. We proposed this revision to make the
language of these two paragraphs consistent. Hospitals may qualify
either under Sec. 413.86(g)(6)(i) or Sec. 413.86(g)(6)(ii). For
hospitals that qualify under Sec. 413.86(g)(6)(i), the FTE caps are
established 3 years after the hospital either begins or restarts
participation in residency training for programs that began on or after
January 1, 1995. However, for hospitals that qualify under
Sec. 413.86(g)(6)(ii), adjustments to the cap are limited to those
programs that began on or after January 1, 1995 and on or before August
5, 1997.
e. We proposed to make technical changes to Secs. 413.86(g)(6)(i)
and 413.86(g)(6)(ii), which refer to whether a hospital had residents
in its most recent cost reporting period on or before December 31,
1996. Instead of simply specifying "residents," we proposed to
reference "allopathic and osteopathic residents," because the FTE cap
applies only to allopathic and osteopathy residents. There is no FTE
cap on the number of podiatry and dentistry residents. Therefore, we
proposed to add the words "allopathic and osteopathic" in
Secs. 413.86(g)(6)(i) and 413.86(g)(6)(ii) before the word
"resident."
We received a number of comments on our proposals.
Comment: One commenter supported our technical changes to the new
residency program adjustments under proposed Secs. 413.86(g)(6)(i) and
413.86(g)(6)(ii). The commenter agreed with our technical change of
referencing "allopathic and osteopathic residents" instead of simply
"residents."
The proposed rule specified that the method for calculating the
adjustment to the cap is based on the product of the highest number of
residents in any program year during the third year of the newly
established program and the number of years in which residents are
expected to complete each year program based on the minimum accredited
length for the type of program. One commenter requested an example of a
calculation of this adjustment.
Response: In response to the commenter's request, we are providing
the following example of how to calculate the new residency program
adjustment under Sec. 413.86(g)(6)(ii). This example was included in a
Program Memorandum (Transmittal No. A-97-13 (p. 16), September 1997)
that transmitted billing instructions to our fiscal intermediaries.
Example: Assume a hospital had an unweighted direct GME count of
100 FTE residents for its cost reporting period ending June 30, 1996
and the hospital, although it had 6 first year slots, began an internal
medicine program on July 1, 1995 with 4 first year residents (who were
included as part of the 100 FTE cap). On July 1, 1996, the program
expands to 10 residents (6 first year and 4 second year residents.) On
July 1, 1997, the program has 16 residents (6 first year residents, 6
second year residents, and 4 third year residents). Since the minimum
accredited length for internal medicine program listed is 3 years, the
hospital's unweighted FTE cap can be adjusted based on 18 residents in
the internal medicine program (6 first year residents * 3 years). In
the hospital's cost reporting period ending June 30, 1996, the hospital
had a total of 100 FTE residents including 4 in internal medicine. The
hospital's cap can be adjusted up to 14 residents (18 internal medicine
residents less 4 already included in the fiscal year ending June 30,
1996 FTE count).
Comment: Several commenters expressed concern about our definition
of "new medical residency training program" for purposes of
determining the FTE cap adjustment under Sec. 413.86(g). One commenter
raised questions regarding the situation where the original sponsor of
a residency program has been notified that it has lost its
accreditation and a new sponsor assumes the training of all or most of
the residents of an existing program. The commenter believed that the
program under the new sponsor should be treated as "new" as well.
Another commenter suggested we have interpreted "new residency
program" to be simply a new site for a residency program that may have
been in existence at other clinical sites in the past.
Response: Under the existing Sec. 413.86(g)(7) (proposed to be
redesignated as Sec. 413.86(g)(9)), we define "new medical residency
training program" to be a program "that receives initial
accreditation by the appropriate accrediting body or begins training
residents on or after January 1, 1995." The language "begins training
residents on or after January 1, 1995" means that the program may have
been accredited by the appropriate accrediting body prior to January 1,
1995, but did not begin training in the program until on or after
January 1, 1995. The language does not mean that it is the first time a
particular hospital began training residents in a program on or after
January 1, 1995, but the program was in existence at another hospital
prior to January 1, 1995, as the commenter suggests.
We believe there may be some confusion on the part of the
commenters as to how to determine when a hospital may receive an
adjustment to its FTE cap for a new residency program. The definition
can be more easily understood if we explain the application in two
steps. First, determine if the hospital's residency program qualifies
to be "new" under Sec. 413.86(g)(9). Second, once the residency
program is determined to meet the definition of "new," apply the
criteria under Secs. 413.86(g)(6)(i) and 413.86(g)(6)(ii) to determine
whether a hospital's new program qualifies for an adjustment to its FTE
cap. A hospital's sponsorship of the program plays no role in
determining whether a hospital qualifies to receive an adjustment under
either Sec. 413.86(g)(6)(i) or Sec. 413.86(g)(6)(ii).
If two hospitals "merge" separate residency programs, the single
residency program resulting from the merger would not be considered
"new" for purposes of either hospital receiving an adjustment to its
FTE cap. The programs have already been in existence and, presumably,
the hospitals have been able to count the residents training in each
individual program as part of the hospitals' respective FTE caps. If
the hospital that is training the residents in the merged program would
like to receive an adjustment to its FTE cap for the added residents it
presumably now trains, that hospital may wish to affiliate for purposes
of establishing an aggregate FTE cap.
Comment: We received several comments on our clarification on how
to account for situations when residents spend an entire program year
(or years) at one hospital and the remaining year (or years) of the
program at another hospital (or hospitals) during the first 3
[[Page 41520]]
years of the new residency program. We stated that, in this situation,
the adjustment to the FTE cap is based on the number of years the
residents are training at each hospital, not the minimum accredited
length of the program. One commenter asked us to clarify the adjustment
to the cap in situations where the residents rotate to multiple sites
in a single program year during the first 3 years of a new residency
program--that is, the residents rotate to other hospitals for partial
years. Another commenter requested that we give examples of how to
calculate the FTE cap adjustment in these situations.
Response: In situations where residents spend an entire program
year (or years) at one hospital and the remaining year (or years) of
the program at another hospital during the first 3 years of the new
residency program, each hospital that trains the residents receives an
adjustment to its cap based on the product of the highest number of
residents in any program years during the third year of the first
program's existence and the number of years that the residents are
training at each respective hospital. In situations where the residents
spend partial years at different hospitals during the first 3 years of
the new residency program, each hospital that trains the residents
receives an adjustment to its cap based on product of the highest
number of residents in any program year during the third year of the
first program's existence and the minimum accredited length of the
program.
In response to the second commenter's request, the following are
some examples as to how to calculate the adjustment to the FTE cap for
a new residency program in situations where residents spend an entire
program year (or years) at one hospital and the remaining year (or
years) at another hospital during the first 3 years of the program. In
addition, we are including an example where residents spend partial
years at different hospitals during the first 3 years of the new
residency program:
Example 1
Assume Hospital A has 10 residents in a new internal medicine
residency program. These 10 residents are trained at Hospital A for 2
years of the program. In the third year of the program, 5 of the 10
residents are rotated to Hospital B for training.
Hospital A would receive an adjustment to its cap of 10 FTE (5
residents * 2 years).
Hospital B would receive an adjustment to its cap of 5 FTE (5
residents * 1 year).
Example 2
Assume Hospital A has the following residents training in its new
internal medicine residency program:
Year 1-10 new program year (PGY \1\ 1) residents
Year 2--Hospital A rotates the 10 (now PGY 2) residents from Year 1 to
Hospital B for training for 1 year and Hospital A also accepts 8 (PGY
1) new residents.
Year 3--The 10 (now PGY 3) residents who rotated to Hospital B in Year
2 return to Hospital A. Hospital A accepts 9 new (PGY 2) residents and
also rotates the 8 (PGY 2) residents from Year 2 to Hospital B for
training for 1 year. Thus, in the third year of the program, Hospital A
has 10 (PGY 3) residents and 9 (PGY 1) residents and Hospital B has 8
(PGY 2) residents.
Hospital A would receive an FTE cap adjustment of 20 FTE (10
residents * 2 years).
Hospital B would receive an FTE cap adjustment of 8 FTE (8
residents * 1 year).
\1\ PGY = Program Year
Example 3
Assume Hospital A has 10 residents in a new internal medicine
program for one half of each of the three residency program years.
Hospital B trains the 10 residents for the other half of each of the
three residency years.
Hospital A would receive an FTE cap adjustment of 15 FTEs (10
residents * .5 FTE * 3 years).
Hospital B would receive an FTE cap adjustment of 15 FTEs (10
residents * .5 FTE * 3 years).
Both Hospital A and Hospital B train a total of 5 FTE residents
each residency program year (.5 of 10 residents each year) and this
number is multiplied by the minimum accredited length of the residency
program (3 years for internal medicine).
Comment: One commenter suggested that only the hospital or
hospitals that have received the accreditation for the new residency
program should receive the adjustment to the FTE cap or caps.
Response: While Medicare will provide GME payment to a hospital for
training a resident only if that resident is participating in an
accredited program, it is irrelevant whether the accreditation for the
program belongs to the hospital currently training the residents or
some other entity. Thus, we disagree with the commenter's suggestion to
allow only hospitals that received the new residency program
accreditation to receive a new residency program adjustment.
Comment: Several commenters were concerned about our provision on
the adjustment to the FTE cap during the first 3 years of a new
residency program, as specified in proposed Sec. 413.86(g)(6)(i)(B).
One commenter stated that it seemed inconsistent to refer to
"adjusting the cap" during these years when the cap is not actually
adjusted until the third year. Another commenter suggested that, when
looking at the number of residents training at the hospital during the
first 3 years for purposes of deciding the cap adjustment in those 3
years, the FTE count for cost reporting purposes should be based on the
number of residents for which the hospital has oversight and the time
worked in locations within or outside the hospital complex to which
they rotate.
Response: Section 413.86(g)(6)(i)(B) contains the provision that
explains how a hospital is to adjust its FTE cap during the first 3
years of establishing a new residency program--the hospital's cap may
be adjusted during each of the first 3 years using the actual number of
residents participating in the new program. The "number of residents
participating in the new program" means the number of residents
actually training at that hospital. It does not mean the number of
residents within the "oversight" of the hospital, which could include
the time residents spend at other types of facilities during their
training; it only includes the time the residents spend training at the
actual hospital site.
When a hospital establishes a new residency program, the hospital's
1996 FTE cap for the first 3 years is adjusted. Thus, the 1996 FTE cap
is also receiving an adjustment during those 3 years.
Comment: One commenter noted that while we made clarifications in
our new residency program adjustment policy under Secs. 413.86(g)(6)(i)
and 413.86(g)(6)(ii), we failed to make consistent changes to
Sec. 413.86(g)(6)(iii).
Response: We agree that we inadvertently omitted the third change.
We are revising Sec. 413.86(g)(6)(iii) in this final rule.
Comment: One commenter suggested that our meaning is unclear
concerning our provision in proposed redesignated
Sec. 413.86(g)(6)(i)(D) that allows a rural hospital that receives an
adjustment to its FTE cap for establishing new residency programs to
affiliate with other hospitals for the purpose of establishing an
aggregate cap.
[[Page 41521]]
Response: We are revising the language in this section to state
more clearly that, in the case of hospitals in urban areas, we limit
the use of affiliations to provide for aggregate caps only to urban
hospitals that did not receive a new residency program adjustment for a
program begun on or after August 6, 1997 (the date after enactment of
the BBA). Urban hospitals that had no program or programs reported for
their most recent cost reporting period ending on or before December
31, 1996 and have received an FTE cap adjustment for a new program may
not affiliate with other hospitals for purposes of establishing an
aggregate FTE cap. However, rural hospitals that had no program or
programs reported for the most recent cost reporting period ending on
or before December 31, 1996 and have received an FTE cap adjustment for
establishing a new program may affiliate with other hospitals for
purposes of establishing an aggregate FTE cap.
4. Adjustment to GME Caps for Certain Hospitals to Account for
Residents in New Medical Residency Training Programs
Section 4623 of the BBA amended section 1886(h) of the Act to
provide for "special rules" in applying FTE caps for medical
residency training programs established on or after January 1, 1995. In
the August 29, 1997 and May 12, 1998 final rules (62 FR 46002 and 63 FR
26327), we implemented special rules to account for residents in new
medical residency training programs. We proposed to implement another
special rule to permit an adjustment to the FTE cap for a hospital if
the entire facility was under construction prior to August 5, 1997 (the
date of enactment of the BBA) and if the hospital sponsored a new
medical residency training program but the residents were temporarily
trained at another hospital.
Under current policies, if a new medical residency training program
was established on or after January 1, 1995, a hospital may receive an
adjustment to its FTE cap to account for residents in the new program.
If the residents in the new program begin training in one hospital and
are subsequently "transferred" to another hospital, the second
hospital would not receive an adjustment to its FTE cap; if we made an
adjustment for the second hospital, then two hospitals would receive an
adjustment for the same resident.
We believe, however, that an adjustment for the second hospital
might be appropriate in certain limited circumstances. If the second
hospital sponsored a new medical residency training program but the
residents in the new program temporarily trained at the first hospital
because the second hospital was still being built, then we believe it
would be appropriate to permit an adjustment for the second hospital.
Otherwise, the second hospital's FTE cap would be zero, and the
hospital would not receive any GME or IME payments.
We proposed to permit an adjustment under this policy only if the
second hospital (the sponsor of the new program) began construction of
its entire facility prior to the date of enactment of the BBA. Prior to
August 5, 1997, a hospital would not have had knowledge of the
provisions of the BBA and thus would not have known that a decision to
temporarily train residents at another hospital might have resulted in
the hospital being unable to receive GME and IME payments in the
future. In contrast, a hospital that began construction of an entirely
new facility after August 5, 1997, would have had notice of changes in
the law prior to making a decision to temporarily train residents at
another hospital.
Thus, we proposed to add a new Sec. 413.86(g)(7) (existing
Sec. 413.86(g)(7) would be redesignated as Sec. 413.86(g)(9)) to
address application of the FTE caps with regard to a hospital that
began construction of an entire facility prior to August 5, 1997,
sponsored medical residency training programs, and temporarily trained
those residents at another hospital(s) until the new facility was
completed. For hospitals that meet these criteria, we proposed that the
FTE caps will be determined in a manner similar to those hospitals that
qualify for an adjustment to the FTE cap under Sec. 413.86(g)(6)(i).
That is, the hospital's cap would equal the lesser of (a) the product
of the highest number of residents in any program year during the third
year of the first program's existence for all new residency training
programs at either the newly constructed facility or the temporary
training site but sponsored by the newly constructed hospital and the
number of years in which residents are expected to complete the
programs based on the minimum accredited length for each type of
program; or (b) the number of accredited slots available for each year
of the program. If the medical residency training programs sponsored by
the newly constructed hospital have been in existence for 3 years or
more by the time the residents begin training at the newly constructed
hospital, the newly constructed hospital's cap would be based on the
number of residents training in the third year of the first of those
programs begun at the temporary training site. If the medical residency
training programs sponsored by the newly constructed hospital have been
in existence for less than 3 years when the residents begin training at
the newly constructed hospital, the hospital's cap would be based on
the number of residents training at the newly constructed hospital in
the third year of the first of those programs (including the years at
the temporary training site). This provision would be effective for
portions of cost reporting periods occurring on or after October 1,
1999.
Comment: With regard to our proposed change concerning our
adjustment to the GME caps for newly constructed hospitals, one
commenter suggested that while Secs. 413.86(g)(7)(i)(A) and (B) appear
to be clear and straightforward, Secs. 413.86(g)(7)(ii) and (iii) are
unclear and add confusion to the calculation of the newly constructed
hospital's FTE cap. The commenter suggested that Secs. 413.86(g)(7)(ii)
and (iii) be removed.
Another commenter suggested that a newly constructed hospital under
Sec. 413.86(g)(7) should be able to affiliate with other hospitals for
purposes of establishing an aggregate FTE cap.
Response: The purpose of both Secs. 413.86(g)(7)(i)(B) and
413.86(g)(7)(ii)(B) is to clarify how to establish the newly
constructed hospital's FTE cap in all possible situations. The
regulation at ' 413.86(g)(7)(i)(B) addresses the calculation of the
newly constructed hospital's FTE cap if the new program has been in
existence for 3 or more years at the temporary training site by the
time the residents begin training at the newly constructed hospital.
The regulation at Sec. 413.86(g)(7)(ii)(B) addresses the calculation of
the cap if the new program has been in existence for 3 or fewer years
at the temporary training site by the time the residents begin training
at the newly constructed hospital.
We agree with the commenter's suggestion to allow a newly
constructed hospital under Sec. 413.86(g)(7) to affiliate for purposes
of establishing an aggregate FTE cap. We currently allow teaching
hospitals that receive a new residency program adjustment under
Sec. 413.86(g)(6)(ii) to affiliate with other hospitals if the teaching
hospitals had established new programs prior to the enactment of the
BBA. Teaching hospitals could not have known what policies would be
enacted in the BBA. Therefore, they would not have had the opportunity
to establish programs for purposes of affiliation in order to
circumvent the FTE cap established by the BBA. The commenter notes that
we used the same rationale when espousing
[[Page 41522]]
the policy on newly constructed hospitals in the proposed rule--we are
allowing hospitals that began construction prior to August 5, 1997 to
establish an FTE cap because the hospitals would not have had knowledge
of the provisions of the BBA. For the same reason, we agree that the
newly constructed hospital should be able to affiliate for purposes of
establishing an aggregate cap because the hospital under construction
would not have known the BBA restrictions. Therefore, we are revising
the text of Sec. 413.86(g)(7) to include this new policy.
In addition, consistent with this reasoning, we are allowing newly
constructed hospitals under Sec. 413.86(g)(7) to calculate their FTE
cap using the same methodology as articulated in Sec. 413.86(g)(6)(ii),
the provision for teaching hospitals that establish new residency
programs on or after January 1, 1995 and on or before August 5, 1997.
We allow those teaching hospitals to receive a new residency program
adjustment during that "window" because these hospitals could not
have known what requirements would be enacted in the BBA if the
teaching hospitals established new programs during that time. As stated
above, we used the same rationale for allowing newly constructed
hospitals to establish a cap--these hospitals could not have known
about the BBA when the hospitals established residency programs.
Therefore, we are adding language to Sec. 413.86(g)(7) as follows: " *
* * a hospital that began construction of its facility on or before
August 5, 1997, sponsored new medical residency training programs that
were established on or after January 1, 1995 and on or before August 5,
1997, and either received initial accreditation by the appropriate
accrediting body or temporarily trained those residents at another
hospital(s) until the facility was completed, may receive an adjustment
to its FTE cap." We note that we are clarifying the phrase "prior to
August 5, 1997" to mean "on or before August 5, 1997" to make it
consistent with this policy. We also are making conforming changes to
Secs. 413.86(g)(7)(i)(A) and (B) and 413.86(g)(7)(ii)(B) to allow the
cap to be adjusted for each new program established within the
"window." Under the previous language, the adjustment was tied to the
third year of the first new program. Under the new language, the
adjustment is tied to each new program's establishment during the
"window." Therefore, for example, in a situation where a newly
constructed hospital establishes a new residency program and the first
new program began on July 1, 1995, and a second program began on July
1, 1997, the adjustment for the second program under the previous
language would have been tied to the third year of the first new
program (1997). However, under the new language, the adjustment for the
second program is not established until the third year (1999) of the
second program's existence.
Comment: Another commenter suggested that we include the word
"new" when referring to medical residency training programs in
Sec. 413.86(g)(7)(ii) and (iii).
Response: We are making the revision as the commenter suggests.
This revision will clarify that the provisions allowing an adjustment
to the FTE cap for a facility constructed on or before August 5, 1997
applies to new residency programs.
5. Temporary Adjustments to FTE Cap to Reflect Residents Affected by
Hospital Closure
In the May 12, 1998 prospective payment system final rule (63 FR
26330), we indicated that we would allow a temporary adjustment to a
hospital's resident cap under limited circumstances and if certain
criteria are met when a hospital assumes the training of additional
residents because of another hospital's closure. The temporary
adjustment to the FTE cap is available to the hospital only for the
period of time necessary to train those displaced residents. Once the
residents leave the hospital or complete their programs, the hospital
cap would be based solely on the statutory base year (with any
applicable adjustments for new medical residency training programs or
affiliated group arrangements).
Under current policies, we permit a temporary adjustment to the FTE
cap for a hospital only if it assumed additional medical residents from
a hospital that closed in the July 1996-June 1997 residency training
year. In the May 7, 1999 proposed rule, we proposed to allow
adjustments to address hospital closures after this period. Thus, we
would allow an adjustment for a hospital if it trains additional
residents from a hospital that closes at any time, on or after July 1,
1996. This adjustment is intended to account for residents who may have
partially completed a medical residency training program and would be
unable to complete their training without a residency position at
another hospital.
We proposed this change because hospitals have indicated a
reluctance to accept additional residents from a closed hospital
without a temporary adjustment to their caps. We proposed to add a new
Sec. 413.86(g)(8) to allow a temporary adjustment to a hospital's FTE
cap to reflect residents added because of a hospital's closure at any
time on or after July 1, 1996. We would allow an adjustment to a
hospital's FTE cap if the hospital meets the following criteria: (a)
the hospital is training additional residents from a hospital that
closed on or after July 1, 1996; and (b) the hospital that is training
the additional residents from the closed hospital submits a request to
its fiscal intermediary at least 60 days before the beginning of
training of the residents for a temporary adjustment to its FTE cap.
The hospital must also document that it is eligible for this temporary
adjustment to its FTE cap by identifying the residents who have come
from the closed hospital and have caused the hospital to exceed its
cap, and specify the length of time that the adjustment is needed.
After the displaced residents leave the hospital's training program or
complete their residency program, the hospital's cap would be based
solely on the statutory base year (with any applicable adjustments for
new medical residency training programs or affiliated group
arrangements).
Comment: Many commenters were generally pleased with our proposed
policy concerning the temporary adjustment to FTE caps to reflect
residents affected by hospital closures specified under proposed
Sec. 413.86(g)(8). However, various commenters asked us to define what
we meant by a "closed" hospital.
Response: Section 413.86(g)(8) provides that a hospital may receive
a temporary adjustment to its FTE cap to reflect residents added
because of another hospital's closure which occurs on or after July 1,
1996. By hospital "closure," we mean the hospital terminates its
Medicare participation agreement with HCFA under the provisions
specified in Sec. 489.52. To "close," a hospital would have to comply
with the requirements as specified in this section to terminate its
agreement. We are making conforming changes in Sec. 413.86(g)(8) on the
temporary adjustment to reference Sec. 489.52.
Comment: Many of the commenters suggested that we include
bankruptcy of a hospital and lost accreditation of a program, both acts
that displace residents, as applicable to the temporary adjustment
policy.
Response: We do not agree with the commenters. We do not believe it
is appropriate to expand our policy to cover any acts other than
hospital
[[Page 41523]]
closure because, unless the hospital actually terminates its Medicare
agreement, it will retain its statutory FTE cap. For example, in the
case where a hospital files for bankruptcy, it continues to retain its
FTE cap. While the bankruptcy action may displace the hospital's
residents, the hospital continues to be subject to the statutorily
mandated cap on FTEs. Therefore, it can still decide to train residents
at the hospital or affiliate with other hospitals for purposes of
establishing an aggregate cap. The hospital may, in fact, use its
ability to affiliate in order to place its residents at a new hospital.
Comment: One commenter explained that there were hospitals that had
plans to close their doors earlier this year and deliberately remained
open for various reasons until the start of the July 1, 1999 residency
year. This commenter suggested that because hospitals are training
these displaced residents beginning on July 1, 1999, we should change
the effective date of the temporary adjustment provision to coincide
with the July 1, 1999 date. Similarly, another commenter was concerned
about affiliated groups, suggesting that because final regulations on
affiliated groups were not published until May 12, 1998, some hospitals
that would have liked to have participated in affiliations prior to the
FY 1998 were not able to because there were no implementing regulations
before the May 12, 1998 date.
Response: The effective date of the temporary adjustment policy,
like the effective date for all changes in this final rule, is October
1, 1999.
Similarly, hospitals that choose to affiliate cannot do so before
the effective date of the May 12, 1998 regulation.
Comment: Under the temporary adjustment provision,
Sec. 413.86(g)(8)(ii) requires a hospital to submit a request for the
temporary adjustment to its fiscal intermediary at least 60 days before
the hospital begins to train the residents. One commenter suggested
that it was not appropriate for the fiscal intermediary to be in the
position of granting requests for adjustments. In addition, several
commenters suggested that submitting a request at least 60 days before
the hospital begins to train the residents is "problematic," since it
is not always easy to estimate exactly when a hospital will close and
other hospitals can then continue training the residents.
Response: The fiscal intermediaries have been delegated the
authority to calculate Medicare program payments for hospitals,
including GME payments. HCFA is not in a position to be able to respond
to every request for a temporary FTE cap adjustment. As long as
hospitals that request the adjustments meet each condition in our
regulations, the hospitals will receive the adjustments.
We agree with the commenters who suggested that requiring a
hospital to submit a request for a temporary adjustment to an
intermediary at least 60 days before the hospital begins to train the
residents might be problematic for hospitals. Therefore, we are
revising our regulations to require a hospital to submit a request for
a temporary adjustment to an intermediary no later than 60 days after
the hospital first begins training the displaced residents.
Comment: One commenter requested that we clarify the provision at '
413.86(g)(8)(ii) that hospitals must identify residents that come from
closed programs in order to receive a temporary adjustment to their FTE
caps.
Response: In order to receive a temporary adjustment to their FTE
caps, hospitals must provide the social security numbers of the
residents coming from the closed hospital and documentation that proves
that the residents were training at the hospital that closed.
6. Determining the Weighted Number of FTE Residents
Section 413.86(g)(1)(ii) states that for residency programs in
osteopathy, dentistry, and podiatry, the minimum requirement for
certification in a specialty or subspecialty is the minimum number of
years of formal training necessary to satisfy the requirements of the
appropriate approving body listed in Sec. 415.200(a). This reference is
incorrect. The correct section in which approving bodies for residency
programs are listed is Sec. 415.152. We proposed to make this
correction.
Section 413.86(g)(1)(i) specifies that the initial residency period
is the minimum number of years of formal training necessary to satisfy
board eligibility in the particular specialty for which the resident is
training, as specified in the 1985-1986 Directory of Residency Training
Programs. Section 1886(h)(5)(G)(iii) of the Act allows the Secretary to
increase or decrease the initial residency period if the minimum number
of years of formal training specified in a later edition of the
directory is different from the period specified in the 1985-1986
Directory of Residency Training Programs. We proposed to revise the
regulations text to state that the initial residency period is
determined using the most recently published edition of the Graduate
Medical Education Directory, not the 1985-1986 Directory.
Comment: At Sec. 413.86(g)(1), we proposed to update the provisions
concerning what source to use when calculating the initial residency
period for residencies. One commenter stated that one of the provisions
that we updated, changing "1985-1986 Directory of Residency Training"
to "the most recently published edition of the Graduate Medical
Education Directory," applies only when calculating the initial
residency periods for allopathic residencies. The commenter suggests
that initial residency periods for all residencies be published in the
Federal Register. The commenter further suggested that, for determining
the updates of initial residency periods for dental residencies, the
most recent accreditation standards of the Commission on Dental
Accreditation for advanced dental programs be used. Another commenter
asked whether the most recently published edition of the Graduate
Medical Education Directory or the initial residency periods is
published in the Federal Register should be the guiding source when
calculating the initial residency periods for residencies in the case
where there is a discrepancy between the two.
Response: Generally, proposed redesignated Sec. 413.86(g)(1)(i)
defines the initial residency period as "the minimum number of years
of formal training necessary to satisfy the requirements for initial
board eligibility in the particular specialty for which the resident is
training, as specified in the most recently published edition of the
Graduate Medical Education Directory." Proposed Sec. 413.86(g)(1)(ii)
provided that for residency programs in osteopathy, dentistry, and
podiatry, "the minimum number of years of formal training necessary to
satisfy the requirements of the appropriate approving body listed in
Sec. 412.152 of this chapter." Section 412.152 lists all of the
accreditation organizations for allopathy, osteopathy, podiatry, and
dentistry, including the Commission on Dental Accreditation of the
American Dental Association. In other words, while the Graduate Medical
Education Directory only applies to allopathic residencies, as the
first commenter suggests, the organization that the commenter
encourages us to use as the accrediting organization for purposes of
determining the initial residency period for dental residencies--the
Commission on Dental Accreditation of the American Dental Association--
is already used to determine the initial residency periods for dental
residencies.
[[Page 41524]]
The first commenter also suggests that we publish the initial
residency periods in the Federal Register. While we have already done
so in the August 30, 1996 Federal Register (61 FR 46208), we plan to
update the list of initial residency periods in upcoming regulations.
The second commenter asked for guidance in the case where the initial
residency periods listed in the August 30, 1996 (and in future
regulations) differ from the information listed in the most recent
edition of the Graduate Medical Directory. The information that we used
to publish the initial residency periods in the August 30, 1996 Federal
Register is based on the most recent edition of the Graduate Medical
Directory. The Graduate Medical Directory is the most current and
updated source of information on allopathic residencies. We agree that
in some cases our latest listing in the Federal Register may not
reflect the most recent update of the applicable directory. Thus, in
the case where there is a discrepancy in the length of an initial
residency period listed in what we publish in the Federal Register and
what is published in the most recent edition of the Graduate Medical
Education Directory (or other applicable publications for the other
specialty areas), the Directory should be the guiding source.
7. Clarification of a Statement in the Preamble of the May 12, 1998
Final Rule Relating to Affiliated Groups
In the May 12, 1998 final rule (63 FR 26341), in the third column
of page 26341, in the sentence prior to section "O. Payment to Managed
Care Plans for Graduate Medical Education," we stated, "If the
combined FTE counts for the individual hospitals that are members of
the same affiliated group do not exceed the aggregate cap, we will pay
each hospital based on its FTE cap as adjusted per agreements." The
phrase "do not exceed" should have read "exceed." Thus, the
sentence should have read, "If the combined FTE counts for individual
hospitals that are members of the same affiliated group exceed the
aggregate cap, we will pay each hospital based on its FTE cap as
adjusted per agreements." We regret any confusion that resulted from
this misstatement.
Comment: Several commenters requested that we clarify that a
nonteaching hospital that participates in an affiliated group agreement
as specified under Sec. 413.86(g)(4) is not precluded from later
seeking an adjustment to its FTE cap for establishing a new residency
program.
Response: We agree with the commenters' request. Consistent with
our regulations at Sec. 413.86(g)(6)(i), a nonteaching hospital that
participated (or participates) in an affiliated group for purposes of
establishing an aggregate FTE cap does not forego its opportunities to
later establish new residency programs and accordingly receive an
adjustment to its individual FTE cap. The requirements under
Sec. 413.86(g)(6)(i) specify that a hospital may receive an adjustment
to its FTE cap for establishing a new residency program if the hospital
had no allopathic or osteopathic residents in its most recent cost
reporting period ending on or before December 31, 1996. In other words,
the hospital must have a zero FTE cap based on its number of residents
in its most recent cost reporting period ending on or before December
31, 1996 in order to qualify to receive an adjustment under this
provision. The fact that a nonteaching hospital has affiliated with
other hospitals does not change the fact that in determining the
aggregate cap for the affiliated group the nonteaching hospital still
has an FTE cap of zero. Accordingly, consistent with our regulations, a
nonteaching hospital that affiliates is not precluded from later
seeking a new residency program adjustment.
Comment: The BBA specifically required the Secretary to give
special consideration to facilities that meet the needs of underserved
rural areas. With this mandate in mind, several commenters requested
that we consider recognizing new family practice programs that are
classified as rural by the Residency Review Committee for the purpose
of establishing a cap and receiving GME payment under Medicare.
Response: We will consider the suggestion to apply our rules for
rural hospitals to all hospitals with the new family practice programs
for purposes of GME in developing future regulations.
Comment: We received several other comments suggesting GME policy
changes concerning rural hospitals. One commenter suggested that we
allow rural hospitals that received a new residency program adjustment
under Sec. 413.86(g)(6)(ii) to affiliate with other hospitals for
purposes of establishing an aggregate FTE cap. Another commenter
suggested that we allow rural hospitals a new residency program
adjustment for expansions of already established residency programs at
the rural hospitals.
Response: Any hospital, rural or urban, that receives a new
residency program adjustment under Sec. 413.86(g)(6)(ii) is permitted
to affiliate for purposes of establishing an aggregate cap. As for
allowing an FTE cap adjustment for expansions of already established
residency programs at rural hospitals, we will take this policy
suggestion into consideration in future regulations.
Comment: We received many comments on various other GME issues. One
commenter asked what level of documentation is needed to demonstrate
for purposes of our nonhospital payment policy that a particular
hospital and nonhospital site are a single legal entity. Another
commenter asked for a cost report change to account for situations when
a hospital could have one FTE cap for one-half of the year and a
different cap for the second half of the year. One commenter suggested
that, in a situation when two hospitals affiliate for purposes of
establishing an aggregate cap, the hospital that is the sponsor of the
residency program should be given the ability to better control the
limited number of training slots as established under the aggregate
cap. Another commenter suggested that we consider allowing a new
residency program adjustment for family practice programs beginning on
or after July 1, 1994. Finally, one commenter made two suggestions: (1)
that we increase a particular hospital's FTE count because when the cap
was set, some of the hospital's residents were rotated out to other
hospitals to meet a Residency Review Committee (RRC) program
requirement, and are now brought back into the hospital after the BBA
because the hospital can now meet the RRC requirement, and (2) that we
allow payment to a hospital that had established an ambulatory care
rotation prior to the BBA.
Response: We will consider all of these suggestions made by the
commenters in future regulations.
Comment: One commenter suggested that we discuss what happens to
hospitals' FTE caps in situations where there is a merger of two or
more hospitals.
Response: We discussed the merger of hospitals and FTE caps in the
May 12, 1998 Federal Register (63 FR 26329). Where two or more
hospitals merge after each hospital's cost reporting period ending
during FY 1996, the merged hospital's FTE cap will be an aggregation of
the FTE cap for each hospital participating in the merger.
V. Changes to the Prospective Payment System for Capital-Related Costs: Special Exceptions Process
Section 1886(g) of the Act requires the Secretary to pay for
hospital capital-related costs "in accordance with a
[[Page 41525]]
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 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).
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.
In the August 30, 1991 final rule, we also established a capital
exceptions policy, which provides for exceptions payments during the
transition period (' 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 2000 are:
<bullet> For sole community hospitals, 90 percent;
<bullet> 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;
<bullet> For all other hospitals, 70 percent of the hospital's
reasonable inpatient capital-related costs.
We indicated that we would carefully monitor the impact of the
capital prospective payment system in order to determine whether some
type of permanent exceptions process was necessary and the
circumstances under which additional payments would be made.
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 that meet (1) a project need requirement as described at
Sec. 412.348(g)(2), which, in the case of certain urban hospitals,
includes an excess capacity test; and (2) a project size requirement as
described at Sec. 412.348(g)(5). Eligible hospitals include sole
community hospitals, urban hospitals with at least 100 beds that have a
disproportionate share percentage of at least 20.2 percent, and
hospitals with a combined Medicare and Medicaid inpatient utilization
of at least 70 percent. In the September 1, 1994 final rule, we
described the special exceptions process as " * * * narrowly defined,
focusing on a small group of hospitals who found themselves in a
disadvantaged position. The target hospitals were those who had an
immediate and imperative need to begin major renovations or
replacements just after the beginning of the capital prospective
payment system. These hospitals would not be eligible for protection
under the old capital and obligated capital provisions, and would not
have been allowed any time to accrue excess capital prospective
payments to fund these projects" (59 FR 45385).
For hospitals in States with certificate of need (CON)
requirements, the project need requirement is satisfied by obtaining a
CON approval. For other hospitals, the project need requirement is
satisfied by meeting an age of assets test. The project size
requirement is satisfied if the hospital completes the qualifying
project between the period beginning on or after its first cost
reporting period beginning on or after October 1, 1991, and the end of
its last cost reporting period beginning before October 1, 2001, and
the project costs are (1) at least $200 million or (2) at least 100
percent of the hospital's operating cost during the first 12-month cost
reporting period beginning on or after October 1, 1991. The minimum
payment level under special exceptions for all qualifying hospitals is
70 percent of allowable capital-related costs. Special exception
payments are offset against positive Medicare capital and operating
margins.
When we established the special exceptions process, we selected the
hospital's cost reporting period beginning before October 1, 2001 as
the project completion date in order to limit cost-based exceptions
payments to a period of not more than 10 years beyond the end of the
transition to the fully Federal capital prospective payment system.
Because hospitals are eligible to receive special exceptions payments
for up to 10 years from the year in which they complete their project
(but for not more than 10 years after September 30, 2001, the end of
the capital prospective payment transition), generally, if a project is
completed by September 30, 2001, exceptions payments could continue up
to September 30, 2011. In addition, we believe that for projects
completed after the September 30, 2001 deadline, hospitals would have
had the opportunity to reserve their prior years' capital prospective
payment system payments for financing projects.
In the July 31, 1998 final rule (63 FR 40999), we stated that a few
hospitals had expressed concern with the required completion date of
October 1, 2001, and other qualifying criteria for the special
exceptions payment. Therefore, we solicited certain information from
hospitals on major capital construction projects that might qualify for
the capital special exceptions
[[Page 41526]]
payments so we could determine if any changes in the special exceptions
criteria or process were necessary.
In the May 7, 1999 proposed rule (64 FR 24736), we reported that
four hospitals had responded timely to our solicitation with
information on their major capital construction projects. The hospitals
submitted information about their location, the cost of the project,
the date that the CON approval was received, the start date of the
project, and the anticipated completion date.
The hospitals suggested changing a number of the requirements of
the special exception provision, including (1) changing the project
completion date requirement; (2) revising the project size requirement;
(3) lowering the DSH qualifying percentage from 20.2 percent to 15
percent; (4) changing the minimum payment level from 70 percent to 85
percent; and (5) revising the qualifying criteria so that only capital
payment margins are considered instead of both capital payment margins
and operating margins (as is now the case). In addition, hospitals
suggested capping special exceptions payments that result from changes
to the special exceptions process at $40 million annually.
When we issued the May 7, 1999 proposed rule, we had no specific
proposal to revise the special exceptions process. However, we invited
comments from hospitals and other interested parties on the suggestions
and recommendations discussed above. We noted that, since the capital
special exceptions process is budget neutral, any liberalization of the
policy would require a commensurate reduction in the capital rate paid
to all hospitals. 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 through September 30, 2011. We also noted that,
based on the comments we received, we may make changes to the special
exceptions criteria in the final regulation or propose changes in the
FY 2001 proposed rule.
In the May 7, 1999 proposed rule, we indicated that we had little
information about the impact of any of the suggested changes discussed
in the proposed rule, since no hospitals are currently being paid under
the special exceptions process. Until FY 2001, the special exceptions
provision currently pays either the same as the regular exceptions
process or less for high DSH and sole community hospitals. We indicated
that we would attempt to obtain information on projects that might
qualify for special exceptions payments through our fiscal
intermediaries during the comment period. However, we noted that we
were reluctant to impose a burden on the fiscal intermediaries at this
time, since it could interfere with our major efforts to make the
Medicare computer systems Y2K compliant prior to January 1, 2000.
We received six comments on potential changes to the special
exceptions process. Three were in favor of changing the process in
various ways, and two were opposed to making any changes. In addition,
MedPAC opposed expanding the process until we have a better estimate of
the impact of any expansion.
Comments: Three commenters that supported changing the special
exception process made various suggestions as to what those changes
should be.
Two of the commenters believe that the way HCFA formulated the
special exceptions process is inconsistent with Congressional intent
because the Conference Report that accompanied the Omnibus Budget
Reconciliation Act (OBRA) of 1993 (Public Law 103-66) indicated the
conferees' expectation that HCFA would assess information and make
appropriate changes to ". . . address the problems of hospitals
subject to lengthy CON review processes or subject to other
circumstances which are not fully addressed in the current rules"
(H.R. Rep. No. 103-213, at 744 (1993)). The commenters noted that
Congress used a separate sentence to state a belief that the Secretary
should ". . . evaluate whether current policies provide adequate
protection to sole community hospitals and hospitals that serve a
disproportionate share of low income patients." Thus, the commenters
believe that Congress did not intend to limit the special exceptions
process to any particular type of hospital and that Congress intended
HCFA to deal separately with the problems of high DSH hospitals and to
make the special exceptions process available to all hospitals.
One commenter stated that eligibility for special exceptions
payments should be based solely on when a hospital had to begin a
capital project and the size of the project, rather than "noncapital-
related" tests such as the operating offset and the DSH requirement.
The commenter argued that, if the purpose of the special exceptions
process was to help hospitals that could not benefit from old and
obligated capital provisions, then HCFA did not act consistently with
that premise when it adopted criteria that limited qualifying
hospitals. The commenter believes that HCFA may have adopted some
criteria, such as the requirement that urban hospitals must have a DSH
percentage of at least 20.2 and the offset of positive operating
margins, to limit the cost of the special exceptions program. If that
is the case, then the commenter suggested that a cap on total payments
made under the special exceptions authority would accomplish the same
result more fairly.
One commenter requested that the DSH percentage requirement for
urban hospitals (20.2 percent) be lowered. The commenter believes that
the current requirement is not a natural result of the rationale we
used for limiting the special exceptions process, and that, if a
hospital builds a project during the transition, it is disadvantaged
relative to other hospitals regardless of its DSH percentage. This
commenter suggested that, if we do decide to retain the DSH
requirement, the requirement be lowered to 15 percent, and that we
adopt a sliding scale payment floor of between 15 and 20.2 DSH
percentages in which the minimum payment level at the 15 DSH percentage
would be 70 percent and the maximum payment level at 20.2 DSH
percentage would be 85 percent.
One commenter supported lowering the project size requirement from
100 percent of the hospital's FY 1992 operating costs to 45 percent of
those costs.
All three commenters who advocated changes to the special
exceptions process supported changing the offset provision so that
eligibility for special exceptions does not take into account positive
operating margins. They argued that the operating and capital payment
methodologies were separately developed and that payments are
separately calculated. If the offset against operating payments is not
eliminated, they believe it should be modified to include outpatient
margins as well. One of these commenters noted that a similar offset
was not required for "old capital."
Two of the commenters recommended that, if a hospital had received
CON approval by September 1, 1995 and expended $750,000 or 10 percent
of total project cost, then the project completion date should be
extended to December 31, 2003. They believe that a hospital could have
started planning a major capital project early in the transition, but,
because of events beyond the hospital's control, the completion date
might extend beyond the end of the transition.
[[Page 41527]]
Two commenters suggested that we should establish a cap on special
exceptions payments, and indicated that HCFA has the authority to set
and implement such a cap because of the authority given the Secretary
under section 1886(g) of the Act to implement the capital prospective
payment system. The legislation provided for an exceptions process, as
the Secretary determined to be appropriate. The commenter asserted that
the "regular" capital exceptions process already includes a "cap"
of 10 percent. The commenters recommended a cap of 1 percent of total
capital prospective payments in a given fiscal year, and that, if
aggregate eligibility for payments exceeds the cap, the payments would
be reduced on a pro rata basis.
The commenters also recommended that any exception payments a
hospital qualifies for but does not receive because of the cap should
be rolled over into future years so that those payments could be made
in later years. Without a rollover provision, the commenters advocate
setting the cap at 1.5 percent. They believe that with the expiration
of hold harmless provisions and the exceptions floors in FY 2001, the
suggested cap would result in lower budget neutrality adjustments than
is currently the case.
Using 1992 through 1996 cost report data, one of the commenters
prepared an estimate of the number of hospitals it believes will be
eligible for special exception payments if the criteria were changed as
suggested by the commenter. Based on the commenter's estimate,
aggregate eligibility for special exceptions payments would exceed the
recommended 1 percent cap for approximately 5 years (FY 2002 through FY
2006). The commenter also suggested that hospitals that believe they
are eligible for special exceptions be required to submit an
application to their fiscal intermediary in January of each year, and
to update their application by June of each year, so that an estimate
could be prepared of the number of hospitals that will qualify for
special exceptions. The data could also be used to estimate the amount
of reductions that will be required to stay within the cap. The
commenter suggests that hospitals that did not submit the information
could be precluded from receiving special exceptions payments in the
following fiscal year.
All three commenters who advocated changes to the special
exceptions process supported raising the 70 percent minimum payment
level to 85 percent. One commenter objected to the 70 percent minimum
payment level, arguing that it offers little improvement over the
Federal rate and guarantees that hospitals will take a 30-percent loss
on their actual capital costs for each Medicare discharge. This
commenter believes that special exceptions should be paid at the rate
of 85 percent, which is what hospitals eligible for old capital hold
harmless payment received.
In addition, two of the commenters supported finalizing changes to
the special exceptions process in the FY 2000 final rule so that
affected hospitals can plan more effectively.
Two national hospital associations were opposed to changing the
special exceptions policy. They believe that the special exceptions
process was intended to be limited in scope, and although some
hospitals may be disadvantaged by some aspects of the fully Federal
capital prospective payment system, they have had a number of years to
plan for it. All other hospitals will be receiving payments based on
the Federal rate beginning in FY 2002 and the commenters do not believe
that the majority of hospitals should have their payments further
reduced to expand the special exceptions process to a few hospitals.
One of the commenters noted that Congress considered a similar proposal
to expand the special exceptions process as part of the BBA
deliberations and, ultimately, did not include the proposal. The
commenter believes this failure to act was an indication of
Congressional intent, and that HCFA has no authority to disregard it
and adopt these changes by regulation. The other commenter stated that
since HCFA has no reliable estimate of the number of hospitals that
would be affected by changes to the special exceptions process, it
would be capricious to make a change absent an impact analysis.
Response: When we proposed the special exceptions process in 1994
(May 27, 1994, Federal Register (59 FR 27746)), we stated "* * * we
are therefore proposing at Sec. 412.348 to provide special protection
for some hospitals that are undertaking major projects to renovate or
replace aging plant during the transition period. This special
protection, which will provide a 70 percent minimum payment level for
up to 10 years beyond the transition period, will be available only to
* * * [s]ole community hospitals * * *; [u]rban hospitals with at least
100 beds that either have a DSH percentage of 20.2 percent or receive
at least 30 percent of their revenue from State or local funds for
indigent care * * *; [h]ospitals with a combined inpatient Medicare and
Medicaid utilization of at least 70 percent. * * *" We believe this
strict set of qualifying criteria makes it clear that we intended to
make the special exception process limited in scope.
Since publication of the proposed rule, we have attempted to obtain
information on hospital projects that might qualify for special
exceptions payments in order to assess the impact of the recommended
changes to the existing policy. Because of the impracticality of
obtaining data timely from every State in the country, we focused our
efforts on certain States. Using information obtained from the
Department of Housing and Urban Development (HUD) and the Health
Resources and Services Administration (HRSA), we developed a list of
States in which a large concentration of hospital construction occurred
during the capital transition period. For several States, we contacted
the State Department of Health's Facility and Planning Staff, who
provided us with information on the hospital construction projects in
their State, including the name and location of the hospital, the cost
of the construction project, the date of CON approval (if required),
the start date of the project, and the completion or anticipated
completion date of the project. In conjunction with the most recent
cost report data readily available (FY 1996), we attempted to estimate
which of the hospital construction projects might qualify for special
exception payments under the existing policy and how that universe of
hospitals might change as a result of the recommended revisions to the
special exceptions criteria.
Because exception payments to a hospital for a given cost reporting
period are based on a percentage of the hospital's capital costs
incurred during the cost reporting period, we were unable to determine
a precise estimate of the amount of payments to hospitals that might be
eligible for special exceptions. In addition, hospitals are not
eligible for special exception payments until the assets are put into
use for patient care. Once eligibility for special exceptions payment
has been demonstrated, it is some time before completed and settled
cost reports are available to determine these payments. It is also
difficult to predict whether particular hospitals will be able to meet
all of the special exceptions eligibility criteria (DSH percentage,
inpatient margins, completion date, project size, and project need
requirements) in future years based on the earlier cost report data.
Based on our research, we were able to identify a universe of 266
possible hospital construction projects from two States (New York and
Illinois) that
[[Page 41528]]
might possibly qualify for special exception payments. Our data largely
understate the total number of eligible projects that may qualify for
special exception payments nationally since our estimate is based on
data from only 2 of the 50 States in the country. Our estimate includes
all inpatient hospital construction projects in those two States, of
which only a subset of projects will qualify for special exception
payments. Extrapolating our estimate to the large numbers of hospital
construction projects nationally, we believe that any changes to the
special exceptions policy may affect a significant number of hospitals.
Based on our belief that these changes may have an impact on a
significant number of hospitals and our evaluation of the comments and
after careful consideration of all the issues, we have concluded, as
suggested by one commenter, that the more appropriate forum for
addressing the capital special exception is the legislative process in
Congress rather than the regulation process.
Based on this conclusion, we are generally not addressing the
specific changes recommended for the special exceptions process or
eligibility criteria. However, there are some comments on the general
policies of the special exception process that we would like to address
individually. These include our efforts to address the OBRA 1993
Conference Report language concerning the obligated capital provisions
of the capital prospective payment system, the rationale for the 70
percent minimum payment level for the special exceptions process, and
the administrative feasibility of capping special exception payments
and rolling over unfunded special exceptions to future years.
First, in the Conference Report that accompanied OBRA 1993,
Congress addressed obligated capital criteria for hospitals in States
with a lengthy CON process. The language states, "The conferees note
that in the proposed rule for fiscal year 1994, changes to the hospital
inpatient prospective payment system, that was published in the Federal
Register on May 26, 1993, the Secretary indicated that insufficient
information was available to complete a systematic evaluation of the
obligated capital criteria for hospitals in states with a lengthy
Certificate-of-Need process in time to consider appropriate changes
during the fiscal year 1994 rulemaking process. The conferees expect
the Secretary to complete the assessment in time for consideration in
the fiscal year 1995 rulemaking process and that appropriate changes in
payment policy will be made to address the problems of hospitals
subject to a lengthy Certificate-of-Need review process or subject to
other circumstances which are not fully addressed in the current rules.
In addition, the conferees believe the Secretary should evaluate
whether current policies provide adequate protection to sole community
hospitals and hospitals that serve a disproportionate share of low
income patients" (H.R. Conf. Rep. No. 103-66, at 744 (1993)).
In the May 27, 1994 proposed rule (59 FR 27744), we described our
analysis of provisions related to obligated capital for hospitals
subject to lengthy CON processes. We also proposed a change to the
deadline for putting an asset into use for patient care
(Sec. 412.302(c)(2)(i)(D)) and addressed recommendations that we had
received from hospitals to change the capital exceptions policy, which
would provide exceptions payments after the conclusion of the capital
prospective payment transition period. These hospitals had asked that
the minimum payment level for urban hospitals with at least 100 beds
and a DSH percentage of at least 20.2 percent be guaranteed through the
rest of the transition and extended for at least 10 years after the
transition.
In the September 1, 1994 final rule (59 FR 45376), we adopted the
proposed change to the deadline for putting an asset into use in the
obligated capital regulations (Sec. 412.348) from "the earlier of"
September 30, 1996, or 4 years from the date of CON approval to "the
later of" September 30, 1996, or 4 years from the date of CON
approval. We also implemented the capital special exceptions process
and expanded the qualifying criteria for the classes of eligible
hospitals to include sole community hospitals; urban hospitals with at
least 100 beds that have a DSH percentage of at least 20.2 percent or
that receive at least 30 percent of their revenue from State or local
funds for indigent care; and hospitals with a combined inpatient
Medicare and Medicaid utilization of at least 70 percent.
Because we adopted changes to both the obligated capital criteria
and finalized the special exceptions process, we believe that we have
appropriately addressed the issues raised in the Conference Report
language concerning hospitals in States with a lengthy CON process as
well as SCHs and hospitals that serve a disproportionate share of low-
income patients.
Second, in response to the commenters' suggestion that the 70
percent minimum payment level for special exceptions be raised to 85
percent, we believe that this change would expand the special
exceptions process beyond its original narrow focus. The commenters'
comparison of the special exceptions process to hold harmless payments
for old capital is not appropriate. Paying hospitals for 85 percent of
the cost of old capital was reasonable to account for the change from a
cost-based system to a prospective payment system for capital. Since
hospitals had committed to these costs years prior to the
implementation of the capital prospective payment system, it was
reasonable to allow relief to hospitals for these costs. In addition,
during the prospective payment system transition, all hospitals, based
on their costs, were eligible for exception payments to account for
high costs that exceed the prospective payment rate. Except for sole
community hospitals and hospitals with a DSH percentage of at least
20.2, hospitals received exceptions payments at the 70-percent minimum
payment level. A 70-percent minimum payment level for special
exceptions continues exceptions payments for qualifying hospitals with
high costs after the transition at the same level most hospitals
received under the regular exceptions process during the transition.
Third, it would be extremely difficult administratively to
implement a cap and roll-over provision such as the one advocated by
the commenters. Hospitals are not eligible for special exception
payments until assets are put into use for patient care. A lag time
exists before completed and settled cost reports are available to
determine special exception payments once eligibility has been
demonstrated. Information taken from cost reports cannot be used to
accurately determine whether a hospital meets all of the special
exceptions eligibility criteria. Specifically, date of CON approval (if
applicable) and DSH percent are not determined based on cost report
information. Other criteria, such as project size and age of asset (if
applicable) requirements, and their accuracy will need to be reported
by the hospital and verified by the fiscal intermediaries.
Even when we have a more accurate assessment of qualifying special
exception projects, we do not believe a cap and roll-over process such
as the commenter suggests would be administratively feasible. We intend
to administer the existing special exception process in the post-
transition period in a manner similar to the regular exception process.
Based on data received, we will make an estimate of special exception
payments in the
[[Page 41529]]
coming year. If our model shows that special exception payments are
projected to be more than 10 percent of total capital payments under
the existing 70 percent payment level, we would reduce the minimum
payment level to ensure that projected payments do not exceed the 10
percent threshold. If, however, when cost reports were settled for that
fiscal year, payments for eligible projects were determined to be more
or less than the amount estimated, they would still be eligible for
special exception payments, even if actual payments exceeded the amount
we initially estimated. Each year's exception payments are determined
separately. It would be extremely difficult to maintain an estimate of
actual qualifying projects, given varied dates on which hospitals'
fiscal years end, and increase or decrease the exception payment amount
each hospital was eligible to receive. We would not know whether the
amount budgeted for a project was more or less than the amount the
project actually qualified for until the cost report was settled. Since
hospitals have different cost report ending dates, it would be some
time before all the cost reports for a given fiscal year would be
finalized. At that time, it would be necessary for each fiscal
intermediary to determine how much was actually paid for special
exception, and any carryover amount for each project to a future fiscal
year. We believe that this process would be very cumbersome, if not
impossible, to administer.
It is our intention in the FY 2001 proposed and final rules to
discuss a data collection effort to assist us in modeling special
exception payments for the FY 2002 proposed rule.
Comment: MedPAC commented that they share HCFA's desire to keep
special exceptions narrowly targeted. The Commission stated that many
of the suggestions for changing the special exception process and
criteria would unnecessarily expand payments beyond clearly
disadvantaged hospitals whose financial health is important to
maintaining access to care for Medicare beneficiaries. MedPAC
recommends that, since so few hospitals responded to our request for
information on potentially qualifying projects, we should not change
the current special exceptions policy until we receive more information
about the extent of financial problems hospitals are having. However,
MedPAC does believe that we should consider increasing the special
exceptions payment for SCHs and urban hospitals with a DSH percentage
of at least 20.2 percent to equal the amount they receive under the
regular exceptions policy (that is, 90 and 80 percent, respectively).
MedPAC suggests that these increases are necessary to continue to
provide financial protection to institutions that safeguard access to
care for Medicare beneficiaries.
MedPAC supports offsetting special exceptions payments against both
capital and operating margins, because it is consistent with their
belief that at the end of the transition the two payment systems should
be combined.
Response: We agree with MedPAC that, in determining eligibility for
special exception payments, it is appropriate to examine a hospital's
operating margins as well as its capital margins. We believe it is
reasonable to provide an additional limit on exceptions payments for
the period 10 to 20 years after the beginning of capital prospective
payments. In addition, we agree that since inpatient operating and
capital costs are so inherently intertwined in providing inpatient
care, it is appropriate to have an operating payment offset for the
capital special exception. It is not appropriate to consider any
outpatient services when determining eligibility for the inpatient
special exception payment. Any outpatient capital-related costs are
paid to hospitals under Medicare Part B.
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), (c), (f), and (g))
1. Updated Caps
Section 1886(b)(3) of the Act (as amended by section 4414 of the
BBA) establishes caps on the target amounts for certain 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 categories 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); and the July 31,
1998 final rule (64 FR 41000). For purposes of calculating the caps on
existing facilities, the statute requires us to calculate the 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
increase applicable to the fiscal year.
In the May 7, 1999 proposed rule, we proposed the following caps on
target amounts for cost reporting periods beginning in FY 2000:
<bullet> Psychiatric hospitals and units: $11,067
<bullet> Rehabilitation hospitals and units: $20,071
<bullet> Long-term care hospitals: $39,596
These proposed caps reflected an update of 2.6 percent, the projected
market basket increase for excluded hospitals and units.
The final projection of the market basket percentage increase for
excluded hospitals and units for FY 2000, based on the most recent data
available, is 2.9 percent. Accordingly, the final caps on the target
amounts for existing hospitals and units for cost reporting periods
beginning during FY 2000 are as follows:
<bullet> Psychiatric hospitals and units: $11,100
<bullet> Rehabilitation hospitals and units: $20,129
<bullet> Long-term care hospitals: $39,712
2. New Excluded Hospitals and Units (Sec. 413.40(f))
a. Updated Caps for New Hospitals and Units
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 payments 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 2000. These figures are based on the final FY 1999
figures updated by the projected market basket increase of 2.9
[[Page 41530]]
percent. (The proposed amounts were based on an estimated market basket
increase of 2.6 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................................... $ 6,394 $ 2,544
Rehabilitation................................ 12,574 4,999
Long-term Care................................ 16,206 6,443
------------------------------------------------------------------------
As specified at Sec. 413.40(c)(4), for purposes of determining the
hospital's target amount for the hospital's third 12-month cost
reporting period, the target amount for the preceding cost reporting
period is equal to the payment amount in the second 12-month cost
reporting period as determined in accordance with
Sec. 413.40(f)(2)(ii)(A). The payment amount 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. It has come to our attention that
Sec. 413.40(c)(4)(v) does not specify how to apply the update factors
to the amount of payment for the second 12-month cost reporting period
in order to calculate the target amount in subsequent cost reporting
periods. Therefore, we are revising Secs. 413.40(c)(4)(v) and
413.40(f)(2)(ii)(A) to clarify the application of the update factors
and the base period for new psychiatric hospitals and units,
rehabilitation hospitals and units, and long-term care hospitals.
b. Multicampus Excluded Hospitals
Section 1886(b) of the Act, as amended by the BBA, provides for
caps on target amounts for certain classes of excluded hospitals, and
also provides a statutory payment methodology for new excluded
hospitals. A question has arisen regarding the appropriate target
amount to be used for an excluded hospital or unit that was part of a
multicampus hospital but alters its organizational structure so that it
is no longer part of that multicampus hospital. The question was raised
by long-term care hospitals that are seeking alternate structures due
to the application of the cap on hospital-specific target amounts
specified in Sec. 413.40(c)(4)(iii).
In these cases, to determine the appropriate target amount, we must
determine whether the excluded hospital or unit established under the
organizational restructure is a new provider. Under Sec. 413.40(f)(1),
a new excluded hospital or unit is a provider of hospital inpatient
services that (1) has operated as the type of hospital or unit for
which HCFA granted it approval to participate in the Medicare program,
under present or previous ownership (or both), for less than 1 full
year; and (2) has provided the type of hospital inpatient services for
which HCFA granted it approval to participate for less than 2 full
years. If the new hospital is a children's hospital, a 2-year exemption
from the application of the target amount is permitted
(Sec. 413.40(f)(2)(i)). A new psychiatric or rehabilitation hospital or
unit or a long-term care hospital receives, for the first two 12-month
cost reporting periods, the lower of its new inpatient operating cost
per case or 110 percent of a national median of target amounts for the
class of hospital, updated and adjusted for area wages
(Sec. 413.40(f)(2)(ii)).
If the entity that separated itself from the multicampus hospital
provides inpatient services of a different type than it had when it was
part of the multicampus hospital so that it qualifies as a different
class of excluded hospital or unit (for example, from long-term care to
rehabilitation), we would calculate a new target amount per discharge
for the newly created hospital or unit. However, if the entity does not
operate as a different class of hospital or unit, it does not meet the
criteria at Sec. 413.40(f)(1) to qualify as a new provider. Instead, if
the entity replaces a hospital or unit that had been excluded from the
prospective payment system (for example, the entity had previously been
a long-term care hospital before becoming part of the multicampus
hospital), the previously established hospital-specific target amount
for the hospital, prior to its becoming part of the multicampus
hospital, would again be applicable. This is consistent with our
current policy for a hospital or unit that is excluded from the
prospective payment system and that has periods in which the hospital
or unit is not subject to the target amount, as specified at
Sec. 413.40(b)(1)(i). The target amount established earlier for the
hospital or unit is again applicable despite intervening cost reporting
periods during which the hospital or unit was not subject to that
target amount due to other provisions of the law or regulations that
applied while it was part of the multicampus hospital. We proposed to
revise Sec. 413.40(b)(1)(iii) to specify that if the entity continues
to operate as the same class of hospital that is excluded from the
prospective payment system, but does not replace a hospital or unit
that existed prior to being part of a multicampus hospital (for
example, a newly created long-term care hospital became part of a
multicampus hospital and subsequently separates from the multicampus
hospital to operate separately), the base period for calculating a
hospital-specific target amount for the newly separated hospital is the
first cost reporting period of at least 12 months effective with the
revised Medicare certification.
We did not receive any comments on this proposed revision.
Therefore, we are adopting the proposed change to
Sec. 413.40(b)(1)(iii) as final.
3. Exceptions
The August 29, 1997 final rule with comment period (62 FR 46018)
specified that a hospital that has a hospital-specific target amount
that is capped at the 75th percentile of target amounts for hospitals
in the same class (psychiatric, rehabilitation, or long-term care)
would not be granted an adjustment payment (also referred to as an
exception payment) based solely on a comparison of its costs or patient
mix in its base year to its costs or patient mix in the payment year.
Since the hospital's target amount would not be determined based on its
own experience in a base year, any comparison of costs or patient mix
in its base year to costs or patient mix in the payment year would be
irrelevant.
In addition, the July 31, 1998 final rule (63 FR 41001) revised
Sec. 413.40(g)(1) to specify, under paragraph (g)(1)(iv), that in the
case of a psychiatric hospital or unit, rehabilitation hospital or
unit, or long-term care hospital, the amount of the adjustment payment
may not exceed the applicable limit amounts for hospitals of the same
class.
Similarly, for hospitals and units with a FY 1998 hospital-specific
revised target amount established under the rebasing provision at
Sec. 413.40(b)(1)(iv), in determining whether the hospital qualifies
for an adjustment and the amount of the adjustment, we compare the
hospital's operating costs to the average costs and statistics for the
cost reporting periods used to determine the FY 1998 revised target
amount. Since the rebased FY 1998 target amount is an average of three
cost reporting periods, as described in Sec. 413.40(b)(1)(iv),
comparisons of costs from the cost year
[[Page 41531]]
to the FY 1998 cost period would be inaccurate. Therefore, as specified
in the August 29, 1997 final rule with comment period (62 FR 46018), a
determination of whether the hospital qualifies for an adjustment, and
the amount of an adjustment, are based on a comparison of the
hospital's operating costs and its costs used to calculate the FY 1998
rebased target amount. For hospitals that have been rebased under the
provisions of Sec. 413.40(b)(1)(iv) and qualify for an adjustment under
the provisions of Sec. 413.40(g), the base year figures used for such
items as costs, utilization, and length-of-stay should be determined
based on the average of the costs and utilization statistics from the
same 3 cost reporting years used in calculating the FY 1998 rebased
target amount.
In the proposed rule, we proposed to revise Sec. 413.40(g)(1) to
clarify these limitations on the adjustment payments.
We received no comments on this clarification and, therefore, are
adopting it in this final rule.
4. Report on Adjustment Payments to the Ceiling (Sec. 413.40(g))
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 the BBA of 1997
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. 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 1998. 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 1998 are $95,676,720.
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 Adjustment
Class of hospital Number over ceiling Payment
------------------------------------------------------------------------
Psychiatric.................... 235 $112,437,640 $55,784,497
Rehabilitation................. 93 67,353,452 26,487,095
Long-term care................. 7 10,326,069 6,085,941
Children's..................... 7 6,893,393 2,898,679
Cancer......................... 3 10,463,245 4,420,508
------------------------------------------------------------------------
5. Development of Case-Mix Adjusted Prospective Payment System for
Rehabilitation Hospitals and Units
Section 4421 of the BBA added a new section 1886(j) to the Act that
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.
As provided in section 1886(j)(3)(A) of the Act, the prospective
payment rates will be based on the inpatient operating and capital
costs of rehabilitation facilities. Payments will be adjusted for case-
mix using patient classification groups, area wages, inflation, and
outlier and any other factors the Secretary determines necessary. We
will set prospective payment amounts so that total payments under the
system during FY 2001 and FY 2002 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.
B. Changes in Bed Size or Status of Hospital Units Excluded under the
Prospective Payment System
Existing regulations (Sec. 412.25(b) and (c)) specify that, for
purposes of payment to a psychiatric or rehabilitation unit that is
excluded from the prospective payment system, changes in the bed size
or the status of excluded hospital units will be recognized only at the
beginning of a cost reporting period. These regulations have been in
effect since the inception of the hospital inpatient prospective
payment system and were intended to simplify administration of the
exclusion provisions of the prospective payment system by establishing
clear rules for the timing of changes in these excluded units. The
statutory basis and rationale for these rules are explained more fully
in the preamble to the proposed rule (64 FR 24740).
To provide more flexibility to hospitals while not recognizing
changes that undermine statutory requirements and principles, we
proposed to revise Sec. 412.25(b) and (c) to provide that, for purposes
of exclusion from the prospective payment system, the number of beds
and square footage of an excluded unit may be decreased, or an excluded
unit may be closed in its entirety, at any time during a cost reporting
period under certain conditions. The hospital would be
[[Page 41532]]
required to give the fiscal intermediary and the HCFA Regional Office a
30-day advance written notice of the intended change and to maintain
all information needed to accurately determine costs attributable to
the excluded unit and proper payments. However, any unit that is closed
during a cost reporting period could not be paid again as a unit
excluded from the prospective payment system until the start of the
next cost reporting period. If the number of beds or square footage of
a unit excluded from the prospective payment system is decreased during
a cost reporting period, that decrease would remain in effect for the
remainder of that period.
We noted that the number of beds and square footage of the part of
the hospital paid under the prospective payment system may also be
affected by a change in the size or status of a unit that is excluded
from the prospective payment system. If the bed capacity and square
footage were previously part of the excluded unit and are then included
in the part of the hospital paid under the prospective payment system
and are used to treat acute patients rather than excluded unit
patients, the additional bed capacity and square footage would,
starting with the effective date of the change, be counted as part of
the hospital paid under the prospective payment system. We would count
the bed capacity and square footage for purposes of calculating
available bed days and the number of beds under Secs. 412.105 and
412.106, relating to payments for the indirect costs of medical
education and hospitals that serve a disproportionate share of low-
income patients. On the other hand, if the bed capacity and square
footage are taken out of service or added to another hospital-based
provider, such as a distinct-part skilled nursing facility, they would
not be counted as part of the hospital paid under the prospective
payment system.
We received six comments on our proposal.
Comment: Several commenters expressed support for the proposed
change and indicated that it would increase hospital flexibility. No
commenters opposed the change. However, one commenter noted that some
California hospitals may need to temporarily vacate certain facilities
to allow renovation and construction necessary to comply with new State
seismic code requirements, and stated that such a relocation of a
facility may necessitate a change in its number of beds or square
footage. The commenter recommended that our regulations be revised to
account for this possibility or for relocations that are necessary due
to catastrophic occurrences such as earthquakes, floods, tornadoes, or
other natural disasters.
Response: We appreciate the commenters' support of our proposal and
are adopting it as final with one change. To address the types of
compliance or catastrophic situations described by one of the
commenters, we are revising Sec. 412.25(b) to allow reductions in the
number of beds in an excluded unit, or increases or decreases in the
square footage of the excluded unit, if these changes result from
relocation of the unit made necessary because of construction or
renovation needed to bring a facility into compliance with changes in
Federal, State, or local law affecting the physical facility, or
because of catastrophic events such as fires, floods, earthquakes, or
tornadoes. We understand that these relocations may necessitate a
change in the square footage of a unit, although it is not clear that
any increase in bed size would be required. We also are allowing
corresponding exceptions to the requirements that a grandfathered
satellite facility be operated under the same terms and conditions in
effect on September 30, 1999 under Secs. 412.23(h)(3) and
412.25(e)(3)).
C. Payment for Services Furnished at Satellite Hospital Locations
Under Medicare, each hospital is treated, for purposes of
certification, coverage, and payment, as a single institution. That is,
each entity that is approved to participate in Medicare as a
"hospital" must separately comply with applicable health and safety
requirements as a condition of participation under regulations at part
482, with provider agreement requirements specified in regulations at
part 489, and with requirements relating to the scope of benefits under
Medicare Parts A and B specified in parts 409 and 410. Our policies
that involve the movement of patients from one hospital to another, or
from outpatient to inpatient status at the same hospital, are premised
on the assumption that each hospital is organized and operated as a
separate institution.
Section 412.22(e) of the regulations permits an entity that is
located in the same building or in separate buildings on the same
campus as another hospital to be treated, for purposes of exclusion
under the prospective payment systems, as a "hospital." This status
is available, however, only when the entity meets specific, stringent
criteria designed to ensure that the hospital-within-a-hospital is
organized as a separate entity and operates as a separate entity.
We have received several requests for approval of "satellite"
arrangements, under which an existing hospital that is excluded under
the prospective payment system, and that is either a freestanding
hospital or a hospital-within-a-hospital under Sec. 412.22(e), wishes
to lease space in a building or on a campus occupied by another
hospital, and, in some cases, to have most or all services to patients
furnished by the other hospital under contractual agreements, including
arrangements permitted under section 1861(w)(1) of the Act. In most
cases, a hospital intends to have several of these satellite locations
so that the hospital would not exist at any single location, but only
as an aggregation of beds located at several sites. Generally, the
excluded hospital seeks to have the satellite facility treated as if
the satellite facility were "part of" the excluded hospital.
In the preamble to the proposed rule, we explained in detail our
reason for concern that satellite arrangements could lead to
circumvention of several Medicare payment provisions. To prevent
inappropriate Medicare payment for services furnished in satellite
facilities, we proposed to revise Secs. 412.22 and 412.25 to provide
for payment to satellite facilities of hospitals and units that are
excluded from the prospective payment system under specific rules. With
respect to both hospitals and units, we proposed to define a
"satellite facility" as a part of a hospital that provides inpatient
services in a building also used by another hospital, or in one or more
buildings on the same campus as buildings also used by another hospital
but is not a "hospital-within-a-hospital," since it is also part of
another hospital. We proposed that, if the satellite facility is
located in a hospital that is paid under the prospective payment
system, Medicare would pay for services furnished at the satellite
facility by using the same rates that apply to the prospective payment
hospital within which the satellite is located. As explained in the
proposed rule, we reasoned that, if the satellite facility is
effectively "part of" the prospective payment system hospital, then
it should be paid under the prospective payment system.
We proposed that if the satellite facility is located in a hospital
excluded from the prospective payment system, then Medicare would pay
for the services furnished in the satellite facility as follows: we
proposed to examine the discharges of the satellite facility and to
apply the target amount for the excluded hospital in which the hospital
is located, subject to the
[[Page 41533]]
applicable cap for the hospital of which the satellite is a part. Also,
when the satellite facility is established, we proposed to treat it as
a new hospital for payment purposes. That is, for the satellite's first
two 12-month cost reporting periods, the satellite would be subject to
the cap that applies to new hospitals of the same class as the hospital
of which the satellite is a part. We believed that the proposed
application of the cap for new hospitals was appropriate because we
believe that a number of hospitals are attempting to avoid the hospital
caps by characterizing entities as satellites rather than new
hospitals.
Under the proposed rule, satellite facilities excluded from the
prospective payment system prior to the effective date of the revised
regulations (October 1, 1999) would not be subject to those new
regulations as long as they operate under the same terms and conditions
in effect on September 30, 1999. We proposed to make this exception
available only to those facilities that could document to the HCFA
regional offices that they are operating as satellite facilities
excluded from the prospective payment system as of that date. The
exception would not be available to hospitals that might be excluded
from the prospective payment system as of that date and at some later
time enter into satellite arrangements. In addition, we proposed not to
apply the rules for payments to satellite facilities to multicampus
arrangements, that is, those in which a hospital has a facility at two
or more locations but does not share a building or a campus with any
other hospital at those locations.
We also solicited comments on a possible further exception. In
section 4417 of the BBA, Congress extended the long-term care hospital
exclusion to a hospital "that first received payment under this
subsection [subsection 1886(d)(1)(B)(iv) of the Act] in 1986 which has
an average inpatient length of stay (as determined by the Secretary) of
greater than 20 days and that has 80 percent or more of its annual
Medicare inpatient discharges with a principal diagnosis of neoplastic
disease in the 12-month cost reporting period ending in fiscal year
1997." In view of the specific provision made for a hospital meeting
these requirements, we indicated that we were considering whether a
satellite facility opened by such a hospital should be exempt from the
proposed rules on satellites. We requested comment on this issue and on
whether this exclusion could be implemented without compromising the
effectiveness of the proposed changes.
We noted that there may be some operational difficulties
differentiating services, costs, and discharges of the satellite
facilities from those of the existing hospital that is excluded from
the prospective payment system. We indicated that, if these operational
problems cannot be overcome, we would consider revising the regulations
to prohibit exclusion of any hospital or hospital unit from the
prospective payment system that is structured, entirely or in part, as
a satellite facility in a hospital paid under the prospective payment
system.
We received 18 comments on this proposal.
Comment: Several commenters objected to the proposal to pay
satellite facilities of excluded hospitals or units under a different
methodology than that used for the excluded hospital or unit itself.
These commenters argued that the potential abuses described in the
preamble to the proposed rule are likely to occur rarely, if at all,
and that differential payment for satellite facilities would interfere
with hospitals' flexibility to use their facilities efficiently and to
take advantage of economies of scale. Other commenters suggested that
the proposal, if adopted, could lead to a shortage of crucial
rehabilitation or long-term hospital services.
Most of the commenters suggested that the proposed changes be
withdrawn and that no limitations be placed on the ability of excluded
hospitals or units to establish satellite facilities and claim payment
for their services on the same basis as services in the rest of the
excluded hospital or unit. Other commenters suggested that we permit
services in satellite facilities to be paid on the same basis as
services in the remainder of the excluded hospital or unit only if
satellite facilities were created and operated under certain rules.
Some commenters, including a national health care association,
suggested that our concerns could be addressed if we limit the number
of satellite beds that an excluded hospital or unit could establish or
require that the satellite independently meet exclusion criteria.
Response: We have reviewed these comments and concluded that we can
address the concerns raised in the proposed rule, especially our
concerns with the application of the appropriate BBA cap on the
hospital target amount, without resorting to making payments for the
services provided in the satellite under a different methodology than
used for the original hospital or unit.
We have decided that, for purposes of payment, the satellite
facility of an excluded hospital or unit may be treated as a part of
the excluded hospital or unit and may receive payment on the same basis
as the excluded hospital or unit, but only if the following specific
criteria are met:
<bullet> In the case of a hospital (other than a children's
hospital) or unit that was excluded from the prospective payment system
before the effective date of section 4414 of the BBA (cost reporting
periods beginning on or after October 1, 1997), the number of beds in
the hospital or unit (including both the base hospital or unit and the
satellite location) does not exceed the number of State-licensed and
Medicare-certified beds in the hospital or unit on the last day of the
hospital's or unit's last cost reporting period beginning before
October 1, 1997. Thus, while an excluded hospital or unit can
"transfer" bed capacity from a base facility to a satellite, it
cannot, through the establishment of a satellite, increase total bed
capacity beyond the level it had in the most recent cost reporting
period prior to the effective date of section 4414.
<bullet> The satellite facility independently complies with
selected prospective payment system exclusion requirements applicable
to the type of hospital unit. Specifically, a satellite of a children's
hospital must meet the requirement with respect to treatment of
inpatients who are predominantly individuals under age 18, as stated in
Sec. 412.23(d)(2); a satellite of a long-term care hospital must meet
the average length of stay requirement of Sec. 412.23(e)(1) through
(3)(i); a satellite of a rehabilitation hospital or unit must treat an
inpatient population meeting the requirement in Sec. 412.23(b)(2); and
a satellite of a psychiatric unit must meet the requirement regarding
admission of only psychiatric patients in Sec. 412.27(a).
<bullet> The satellite facility complies with certain requirements
designed to ensure that costs are reported accurately for both the
hospital in which the satellite is located and the hospital of which
the satellite is a part. Specifically, a satellite of an excluded
hospital or unit must (1) have admission and discharge records that are
separately identified from those of the hospital in which it is located
and are readily available; (2) have beds that are physically separate
from (that is, not commingled with) the beds of the hospital in which
it is located; (3) be serviced by the same fiscal intermediary as the
hospital of which it is a part; (4) be treated as a separate cost
center of the hospital of which it is a part, for cost reporting and
apportionment purposes; (5) use an accounting system that properly
allocates costs; (6) maintain
[[Page 41534]]
adequate statistical data to support the basis of allocation; and (7)
report its costs in the cost report of the hospital of which it is a
part, covering the same fiscal period and using the same method of
apportionment as the hospital of which it is a part.
If an excluded hospital or unit has a satellite location and fails
to meet these requirements, the entire hospital or unit would lose its
exclusion from the prospective payment system. Under Secs. 412.22(d)
and 412.25(c), the change in status from excluded to included in the
prospective payment system would be effective at the start of the first
cost reporting period after the cost reporting period in which the
hospital or unit failed to meet the requirements. Loss of exclusion
status means that payment to the entire hospital or unit would then be
made under the prospective payment system.
Thus, under our policy, we permit a satellite facility to be
excluded (and treated as part of an excluded hospital) if certain
criteria are met, but deny excluded status to the entire hospital if
the criteria are not met. We are adopting this policy primarily because
of concerns about preventing inappropriate Medicare payments. As
explained above and in the proposed rule, we believe that hospitals
might be seeking satellite arrangements so that the services furnished
in the satellite facility are paid on an excluded basis when they
should be paid on a prospective payment basis. We also believe that
hospitals are seeking satellite arrangements in order to avoid the
effects of the payment caps that apply to new excluded hospitals under
the BBA. Therefore, we believe it is necessary and appropriate to
establish criteria for determining when a satellite facility may be
treated as part of the excluded hospital and paid on an excluded basis,
and to deny exclusion to the satellite facility if the satellite fails
to meet those criteria.
Another significant concern underlying our policy is
administratively feasibility. We believe it would be administrative
cumbersome, if not infeasible, to pay a satellite facility on a
different basis than the rest of the excluded hospital or unit.
Therefore, we believe that, if the satellite does not qualify for
exclusion, then it is necessary and appropriate to deny exclusion to
the entire hospital. If a hospital is considering whether to establish
a satellite facility, it should keep these payment rules in mind.
We note that these exclusion criteria would be administered in the
same manner as the general rules for excluded hospitals and hospital
units at Sec. 412.22 and the common requirements for excluded hospital
units at Sec. 412.25. Specifically, the HCFA Regional Office will
assess a hospital's or unit's compliance with the requirements before
the start of a cost reporting period and will implement the decision at
the start of the cost reporting period, effective for all of that
period.
One of the major concerns we had with payments for services at
satellites was the ability of a hospital to circumvent the intent of
the BBA by applying the higher cap for existing hospitals and units to
the beds in the new satellite. By requiring that the number of beds in
the expanded hospital or unit (including both the base hospital or unit
and the satellite location) cannot exceed the number of State-licensed
and Medicare-certified beds in the excluded hospital or unit at the
time the BBA was enacted, we ensure that the excluded hospital or unit
does not inappropriately circumvent the payment caps for new hospitals
enacted by the BBA. For hospitals and units first excluded from the
prospective payment system after the enactment date of the BBA, we
would not limit the number of beds in the hospital or unit, including
all satellites, since all beds in the hospital or unit necessarily will
be subject to the lower cap for new excluded hospitals and units. We
are not applying this requirement to children's hospitals since those
hospitals are not subject to caps established by the BBA.
Furthermore, by requiring that the satellite meet the prospective
payment system exclusion requirements applicable to the type of
hospital or unit, we are applying a policy to satellites that is
similar to that currently applicable to a hospital-within-a-hospital.
This policy, which is consistent with the suggestion of a national
health care association, will ensure that the satellite retains the
identity of the type of excluded hospital of which it is a part. For
example, if we allowed the 25-day length of stay for long-term care
hospital designation to be determined based on an examination of the
base long-term care hospital including the satellite, the satellite
could be excluded from the prospective payment system even if its
patients all had short lengths of stay. By calculating the length of
stay for patients exclusively at the satellite, we are ensuring that it
is, in fact, a long-term care facility that warrants being excluded
from the prospective payment system and receiving payment on a
reasonable cost basis. Under this approach, if the satellite facility
and the rest of the hospital or unit independently meet the applicable
exclusion criteria, then the entire entity will be treated as one
facility in making payments.
We also believe it is essential to be able to identify the costs of
satellite facilities separately from the costs of the host hospitals in
which they are located, so that services in both facilities are paid
for accurately and Medicare does not pay two facilities for the same
costs. To accomplish this, we will require the satellite to meet a
number of requirements relating to separate identification of the beds,
patients, and costs of the satellite. We note that these requirements
closely parallel similar requirements applicable to all excluded units
under Sec. 412.25(a)(3) and (a)(7) through (12).
We are revising Secs. 412.22(h) and 412.25(e) to implement this
policy.
Comment: Some commenters argued that paying satellite facilities of
excluded hospitals or units under a different methodology than that
used for the excluded hospital or unit itself would be inconsistent
with the Medicare law, in particular, sections 1886(b)(1) and (d)(1)(A)
and (D) of the Act.
Response: We believe that our policies are consistent with the
statutory scheme and the considerations underlying exclusions under the
prospective payment system, as well as our rulemaking authority under
section 1871 of the Act. Our policies addressing payments to satellite
facilities are designed to prevent inappropriate payments to hospitals
and to address potential fraud and abuse, and, at the same time, to
permit exclusion from the prospective payment system when the
circumstances warrant exclusion. As we discussed in the proposed rule,
we believe that a number of excluded hospitals are seeking satellite
arrangements so that the services furnished in the satellite facility
are inappropriately paid on an excluded basis when they should be paid
on a prospective payment basis; we also believe that a number of
excluded hospitals are seeking satellite arrangements in order to avoid
the effect of the payment caps that apply to new excluded hospitals.
Even if hospitals are not intentionally trying to "game" the system,
treating a satellite facility as "part of" the excluded hospital for
payment purposes might lead to inappropriate payments in a number of
ways.
We believe that Congress did not contemplate satellite arrangements
when it enacted section 1886(d) of the Act. Section 1886(d) does not
specifically address satellite
[[Page 41535]]
arrangements; also, section 1886(d) does not mandate that certification
status equate to payment status. The statute does, however, establish a
scheme under which entities may be excluded from the prospective
payment system. The purpose of exclusions is to recognize situations in
which the principles of the prospective payment system do not apply. As
we explained in the proposed rule, the considerations underlying
exclusions from the prospective payment system might not apply to
satellite facilities, which might be "part of" excluded hospitals
only "on paper." Thus, we believe it is necessary and appropriate to
address Medicare payment for services furnished in satellite
facilities.
Comment: Several commenters approved of our proposal to grandfather
excluded hospitals or units structured as satellite facilities on
September 30, 1999, to the extent that they operate under the same
terms and conditions in effect on that date.
Response: We agree that grandfathering these facilities is
appropriate and are adopting this part of the proposed rule without
change. However, we wish to emphasize that this policy does not extend
to satellites established after September 30, 1999, even if they are
established by an excluded hospital or unit that has another satellite
that was grandfathered.
Comment: Two commenters expressed support for our proposal to not
apply the new satellite rules to any hospital excluded from the
prospective payment system by section 4417 of the BBA, as implemented
under Sec. 412.23(e)(2) (that is, a hospital that was first excluded in
1986, that had an average inpatient length of stay of greater than 20
days, and that demonstrated that at least 80 percent of its annual
Medicare inpatient discharges in the 12-month cost reporting period
ending in FY 1997 had a principal diagnosis that reflected a finding of
neoplastic disease).
Response: We agree with the commenters that this is appropriate and
are revising Sec. 412.22(h)(3) to reflect this policy.
In addition, as discussed earlier under section VI.B of this
preamble, we are including in Secs. 412.22(h)(4) and 412.25(e) a
corresponding exception to the requirement that a grandfathered
satellite facility be operated under the terms and conditions in effect
on September 30, 1999. The corresponding change would allow for
increases or decreases in square footage, or decreases in the number of
beds, of the satellite facility necessitated by changes for compliance
with Federal, State, and local law affecting the physical facility or
because of catastrophic events such as fires, floods, earthquakes, or
tornadoes.
D. Responsibility for Care of Patients in Hospitals-within-Hospitals
Generally, hospitals that admit patients, including hospitals
subject to the prospective payment system and "hospitals-within-
hospitals" that are excluded from the prospective payment system,
accept overall responsibility for the patients' care and furnish all
services they require. In accordance with section 1886(d)(5)(I) of the
Act and implementing regulations at Sec. 412.4, for payment purposes,
the prospective payment system distinguishes between "discharges"
(situations in which a patient leaves an acute care hospital paid under
the prospective payment system after receiving complete acute care
treatment) and "transfers" (situations in which acute care treatment
is not completed at the first hospital and the patient is transferred
to another acute care hospital for continued, related care). The
payment rules at Sec. 413.30, which apply to hospitals excluded from
the prospective payment system, also are premised on the assumption
that discharges occur only when the excluded hospital's care of the
patient is complete.
It has come to our attention that, given the co-location of
prospective payment system facilities and facilities excluded from the
prospective payment system in a hospital-within-a-hospital, and the
absence of clinical constraints on the movement of patients, there may
be situations in which, in these settings, patients appear to have been
moved from one facility to another for financial rather than clinical
reasons. The excluded hospital-within-a-hospital might have incentives
to inappropriately discharge patients early (to the prospective payment
system hospital within which it is located) in order to minimize its
overall costs and, in turn, to minimize its cost per discharge. If the
excluded hospital-within-a-hospital inappropriately discharges patients
to the prospective payment system hospital without providing a complete
episode of the type of care furnished by the excluded hospital, then
Medicare would make inappropriate payments to the hospital-within-a-
hospital. This is the case because payments made to an excluded
hospital are made on a per-stay basis, up to the hospital's per
discharge target amount, and any artificial decrease in the hospital's
cost per stay could lead to the hospital inappropriately circumventing,
through decreased length of stay, its target amount cap and receiving
inappropriate bonus and relief payments under section 4415 of the BBA.
We believe it is important to address possible financial incentives
for inappropriate early discharges from excluded hospitals-within-
hospitals to prospective payment system hospitals. Therefore, in the
proposed rule, we discussed several approaches for preventing
inappropriate Medicare payments to an excluded hospital-within-a-
hospital for inappropriate discharges to the prospective payment system
hospital in which it is located. One approach was to provide that, if
an excluded hospital-within-a-hospital transfers patients from its beds
to beds of the prospective payment system hospital in which it is
located, the hospital-within-a-hospital would not qualify for exclusion
in the next cost reporting period. A second possible approach was to
provide that the hospital-within-a-hospital would qualify for exclusion
if it transfers patients to the prospective payment system hospital
only when the services the patients require cannot be furnished by the
hospital-within-a-hospital.
After considering these options, we decided to propose a third
approach. We proposed to deny exclusion to a hospital-within-a-hospital
for a cost reporting period if, during the most recent cost reporting
period for which information is available, the excluded hospital-
within-a-hospital transferred more than 5 percent of its inpatients to
the prospective payment system hospital in which it is located. We
stated that we believe that a 5-percent allowance of transfers under
this approach would (1) avoid the need for administratively burdensome
case review, (2) provide adequate flexibility for transfers in those
cases in which the hospital-within-a-hospital is not equipped or
staffed to provide the services required by the patient, and (3) limit
the extent to which patients may be transferred inappropriately.
We solicited comments on our proposed approach as well as
suggestions on other ways to address the possible incentives for
inappropriate transfers in a manner that is administratively feasible.
We received 30 comments in response to our proposal and
solicitation.
Comment: Several commenters argued that the choice of a 5-percent
limit on discharges to the host prospective payment system hospital was
arbitrary, and that we did not cite any study or other empirical
evidence in support of it. Other commenters stated that the proposal
could discourage excluded
[[Page 41536]]
hospitals-within-hospitals from admitting medically complex cases, thus
contributing to a shortage of certain types of care. Other commenters,
including a number of physicians, respiratory therapists, and other
clinical personnel, expressed concern that the proposed rule could
discourage medically appropriate transfers and thus limit patients'
ability to receive needed care. One commenter indicated that the
proposed rule was stated only in terms of transfers from the excluded
hospital-within-a-hospital to the host prospective payment system
hospital, while the problems described in the preamble involve
transfers of patients from the excluded hospital-within-a-hospital to
the host prospective payment system hospital, followed by readmission
of the patient to the excluded hospital-within-a-hospital. Other
commenters suggested that while these transfers might be abusive, the
sanction identified in the proposed rule--loss of the exclusion from
the prospective payment system of the hospital-within-a-hospital--is
disproportionate to the problem.
Response: After review of all comments on this issue, we have
decided to modify our approach. First, we agree with those commenters
who stated that the primary focus of concern should not be discharges
from the excluded hospital-within-a-hospital to the host prospective
payment system hospital, but rather should include situations in which
the discharges are then followed by readmissions to the excluded
hospital-within-a-hospital, without any intervening movement of the
patient from the host hospital to a skilled nursing facility, his or
her home, or another hospital. Thus, we are revising the regulations to
address only the latter situations.
We also agree that there is a better way to address inappropriate
transfers and readmissions. When the level of inappropriate transfers
exceeds the threshold level described below, we will, instead of
terminating a hospital's exclusion, simply not consider the earlier
discharge in these cases to have occurred, for purposes of calculating
the payment to the hospital or unit. That is, if a patient is
discharged from an excluded hospital-within-a-hospital to the host
prospective payment system hospital and is then readmitted to the
excluded hospital-within-a-hospital directly from the host hospital,
the readmission would mean that the earlier discharge(s) from the
excluded hospital will not be taken into account in calculating
payments to the hospital-within-a-hospital under the excluded hospital
payment provisions and their implementing regulations in Sec. 413.40.
We also considered whether this policy should be applied in all
cases or only if a specific threshold is exceeded. We continue to
believe that the types of cases described (discharge of the patient to
the host prospective payment system hospital, followed by readmission
directly to the excluded hospital-within-a-hospital) are potentially
vulnerable to abuse and that, in principle, we should adopt a policy of
"zero tolerance" for these cases. At the same time, we are aware that
this stringent approach might be difficult and controversial to
implement and could have the unintended effect of discouraging some
medically necessary or appropriate discharges to the host hospital.
Therefore, we will allow a 5-percent margin to hospitals for these
cases, in that we would not count the first discharge for purposes of
payment as an excluded hospital only when the excluded hospital's
number of these cases in a particular cost reporting year exceeded 5
percent of the total number of its discharges. If a hospital exceeds
this 5-percent threshold, we would, with respect to these cases, not
include any previous discharges to the host prospective payment system
hospital in calculating the excluded hospital's cost per discharge.
That is, the entire stay would be considered one "discharge" for
purposes of payments to the hospital.
For example, assume that a patient was discharged from the excluded
hospital-within-a-hospital to the prospective payment system hospital
in which it is located and then was readmitted to the excluded
hospital-within-a-hospital from the prospective payment system hospital
(the "host"). If the total number of discharges (to all locations) of
the hospital-within-a-hospital in the cost reporting period is 100 and
the number readmitted from the host after having been previously
discharged to it is 3, the percentage would be 3 percent (3 divided by
100), and all of the discharges, including the previous discharge to
the host, would be taken into account. However, if the total number of
discharges had been only 50, and of those, 3 patients had been
readmitted from the host after a previous discharge to it, the
percentage would be 6 percent (3 divided by 50) and the first discharge
of the patients readmitted to the host would not be counted. Therefore,
payment would be based on 47 discharges. In determining whether a
patient had previously been discharged and then readmitted, we would
consider all prior discharges, even if the discharge occurred late in
one cost reporting period and the readmission occurred in the next cost
reporting period.
Thus, in the May 7, 1999 proposed rule, we proposed to deny
exclusion to a hospital-within-a-hospital if, during the most recent
cost reporting period for which information is available, the excluded
hospital-within-a-hospital transferred more than 5 percent of its
inpatients to the prospective payment system hospital in which it is
located. After considering the public comments, in this final rule we
are implementing a policy that differs from the proposed policy in two
significant ways. First, rather than focusing solely on discharges to
the host hospital, we are examining situations involving a discharge to
the host hospital followed by a readmission to the excluded hospital.
Second, if the 5-percent threshold is triggered, we would not deny
exclusion to the hospital-within-a-hospital; instead, the hospital-
within-a-hospital could continue to receive payment as an excluded
hospital-within-a-hospital, but, for purposes of determining the amount
of payment, we would not count the first discharge for those cases
involving a discharge followed by readmission. (If the 5-percent
threshold is not triggered, then all discharges would be counted.)
We continue to believe that the 5-percent threshold is appropriate
to trigger special payment rules. We are trying to prevent
inappropriate payments to hospitals for inappropriate transfers, and a
5-percent threshold reflects a balance of a number of considerations.
As indicated in the proposed rule, a 5-percent threshold would (1)
avoid the need for administratively burdensome case review (to
determine whether discharges or readmissions were inappropriate), (2)
provide adequate flexibility for transfers in those cases in which the
hospital-within-a-hospital is not equipped or staffed to provide the
services required by the patient, and (3) address possible incentives
for hospitals to transfer patients inappropriately.
The rationale for this policy is largely conceptual in nature, and
the 5-percent threshold is not based solely on any one source of
statistics or data available to us. If we tried to set a threshold
based solely on such statistics, it might be extremely difficult and
time-consuming to distinguish between appropriate transfers and
inappropriate transfers. Given the importance of preventing
inappropriate payments, we believe it would not be prudent to delay
implementing this policy. At this time, we believe that a 5-percent
"allowance" reflects an appropriate balance of the considerations
discussed above and is
[[Page 41537]]
consistent with information available to us. However, we will continue
to monitor this issue and review data, and we might revise the
threshold in a future rulemaking if information indicates that a
revision is appropriate.
We are revising the definition of "ceiling" in Sec. 413.40(a)(3)
to implement our revised policy.
Comment: Some commenters asked whether the intent of the proposed
rule was to exclude hospitals-within-hospitals described under
Sec. 412.22(f) from the provision on responsibility for care of
patients, since the proposed rule would have added a new paragraph
(e)(6), and existing Sec. 412.22(f) states that the rules in paragraph
(e) do not apply to hospitals described in paragraph (f).
Response: As discussed above, we are not proceeding with the
proposed changes at Sec. 412.22(e)(6) and are instead implementing our
revised policy by amending the definition of "ceiling" in
Sec. 413.40(a)(3). The hospitals described in Sec. 412.22(f) will be
subject to the new policy on the same basis as other hospitals-within-
hospitals.
E. Critical Access Hospitals (CAHs)
1. Emergency Response Time Requirements for CAHs in Frontier and Remote
Areas
Because of the high cost of staffing rural hospital emergency rooms
and the low volume of services in those facilities, we do not require
CAHs to have emergency personnel on site at all times. Thus, for CAHs,
the regulations at Sec. 485.618(d) require a doctor of medicine or a
doctor of osteopathy, a physician assistant, or a nurse practitioner
with training and experience in emergency care to be on call and
immediately available by telephone or radio contact, and available on
site within 30 minutes, on a 24-hour basis. We included this
requirement because we recognize the need of rural residents to have
reasonable access to emergency care in their local communities.
Section 1820(h) of the Act, as added by section 4201 of the BBA,
states that any medical assistance facility (MAF) in Montana shall be
deemed to have been certified by the Secretary as a CAH if that
facility is otherwise eligible to be designated by the State as a CAH.
However, under the current requirements, following the initial
transition of a MAF to CAH status, the former MAF would be subject to
the CAH requirements during any subsequent review, one of which is the
30-minute emergency response time for emergency services currently
required under Sec. 485.518(d).
Some facilities have suggested that in many "frontier" areas
(that is, those having fewer than six residents per square mile), the
requirement of a 30-minute response might be too restrictive for CAHs,
especially those MAFs transitioning to CAH status.
In order to recognize the special needs of sparsely populated rural
areas in meeting beneficiaries' health needs, and at the same time to
protect patients' health and safety, in the May 7, 1999 proposed rule,
we proposed to revise Sec. 485.618(d) to allow a response time of up to
60 minutes for a CAH if (1) it is located in an area of the State that
is defined as a frontier area (that is, having fewer than six residents
per square mile based on the latest population data published by the
Bureau of the Census) or meets other criteria for a remote location
adopted by the State and approved by HCFA under criteria specified in
its rural health care plan under section 1820(b) of the Act; (2) the
State determines that, under its rural health care plan, allowing the
longer emergency response time is the only feasible method of providing
emergency care to residents of the area; and (3) the State maintains
documentation showing that a response time of up to 60 minutes at a
particular CAH it designates is justified because other available
alternatives would increase the time required to stabilize the patient
in an emergency. The criteria for remote location would, like other
parts of the rural health care plan, be subject to review and approval
by the HCFA Regional Office, as would the State's documentation
regarding the emergency response time.
We noted that, under the terms of the Montana State Code applicable
to MAFs, at times when no emergency response person is available to
come to the facility, a MAF's director of nursing is permitted to come
to the facility and authorize the transfer of a patient seeking
emergency services to another facility. Under one possible reading of
the State requirement, this activity could be seen as an alternative
way of complying with the emergency services requirement and the MAF's
(and CAH's) responsibilities under section 1867 of the Act (the
Emergency Medical Treatment and Active Labor Amendments Provision) to
provide emergency medical screening and stabilization services to
patients who come to the hospital seeking emergency treatment. We
requested comments on whether the Medicare regulations in
Secs. 485.618(d) and 489.24 should be further revised to explicitly
permit this practice to continue following the transition of a MAF to
CAH status. We were particularly interested in obtaining comments from
practitioners on the risks and benefits involved in adoption of this
practice.
We received three comments on our proposal.
Comment: Two commenters supported our proposal to allow a 60-minute
emergency response time for frontier areas.
Response: We appreciate the commenters' support and are adopting
this proposal as final without change.
Comment: One commenter believed that the 60-minute response
timeframe in the proposed rule is too long considering the importance
of timely provision of emergency care even in remote areas. The
commenter believes that if a facility wants to function as a CAH, it
should have appropriate personnel onsite within 30 minutes to provide
care.
Response: As we have indicated above, we believe that we must
recognize the special needs of sparsely populated rural areas in
meeting beneficiaries' health needs and at the same time protect
patients' health and safety. We believe our proposed change
accomplishes this goal.
2. Compliance with Minimum Data Set (MDS) Requirements by CAHs with
Swing-Bed Approval
Existing regulations allow CAHs to obtain approval from HCFA to use
their inpatient beds to provide posthospital SNF care (Sec. 485.645).
To obtain this approval, however, the CAH must agree to meet specific
requirements that also apply to SNFs, including the comprehensive
assessment requirements at Sec. 483.20(b) of the SNF conditions of
participation.
Section 483.20(b)(1) specifies that a SNF must make a comprehensive
assessment of a resident's needs, using the resident assessment
instrument specified by the State. Section 483.20(b)(2) further
specifies that, subject to the timeframes in Sec. 413.343(b), the
assessments must be conducted within 14 calendar days after the patient
is admitted; within 14 days after the facility determines, or should
have determined, that there is a significant change in the patient's
physical or mental condition; and at least once every 12 months.
Section 413.343(b) specifies that in accordance with the methodology in
Sec. 413.337(c) related to the adjustment of the Federal rates for
case-mix (the SNF prospective payment system), patient assessments must
be performed on the 5th, 14th, 30th, 60th, and 90th days following
admission.
[[Page 41538]]
It is clear that the timeframes for patient assessments required
under Sec. 413.343(b) are linked to the prospective payment system for
SNFs. The methodology specifically referenced in Sec. 413.337(c) refers
to the SNF prospective payment system. Therefore, it is apparent that
the patient assessments and concomitant timeframes for performing such
assessments are inextricably intertwined with the case-mix adjustment
under the SNF prospective payment system. CAHs with swing-bed approval
are not paid for their services to SNF-level patients under that SNF
prospective payment system but are paid under the payment method
described in Sec. 413.114, which does not include a case-mix
adjustment. Therefore, the timeframes for patient assessments as
dictated by Sec. 413.343(b) are not applicable to CAHs and are not
required to be met by CAHs. Nevertheless, to make it explicit that the
patient assessment timeframes required under Sec. 413.343(b) do not
apply, we proposed to revise Sec. 485.645 to state that the
requirements in Sec. 413.343(b), and the timeframes specified in
Sec. 483.20, do not apply to CAHs.
Comments: We received three comments on this proposal. One
commenter supported our proposal and stated that the clarification
would help eliminate the confusion that has existed in the industry.
Another commenter noted that we do not have a comparable requirement
for screening patients in swing beds located in all other rural
hospitals and therefore believes it is inappropriate to implement a
standard for CAHs that exceed normal practice. Another commenter
objected to the proposed clarification as inflexible and biased and
urged us to defer implementing the screening policy for swing beds for
CAHs until we have established overall policy for swing beds.
Response: We believe that the changes we have proposed have revised
the rules to allow for flexibility for CAHs. As stated above, CAHs with
swing-bed approval are not paid for their services to SNF-level
patients under the SNF prospective payment system but are paid under
the payment method described in Sec. 413.114, which does not include a
case-mix adjustment. However, swing beds in rural hospitals are paid
under the SNF prospective payment system. As explained above, the
changes proposed to the reporting requirements for CAHs are intended to
allow the policy to be consistent with the payment policy for swing
beds in CAHs. With the change, we are making it explicit that the
patient assessment timeframes required under Secs. 413.343(b) and
483.20 do not apply to CAHs.
3. Additional Comments Received on CAH Issues
We received comments on two separate issues regarding CAHs on which
we did not propose policy changes.
Comment: One commenter believes that the definition of CAH is
prohibitive in one State and recommended that we change the criteria
for CAHs to allow a hospital that meets all the criteria except for
being located in an urban (versus a rural) area to be considered a CAH.
Response: We would need a change in the statute to authorize a
change in the requirements for CAH designation, as the commenter
recommended. Section 1820(c)(2)(B)(i) of the Act provides that a State
may designate a facility as a CAH only if the hospital is located in a
rural area as defined in section 1886(d)(2)(D) of the Act. Thus, we did
not revise our regulations to address this comment.
Comment: One commenter suggested that the reasonable cost payment
methodology for CAHs should extend to ambulance services and requested
that HCFA address this in the final rule.
Response: The provision of law governing payment for outpatient CAH
services, section 1834(g) of the Act, states that reasonable cost
payment is to be made for outpatient CAH services. These services are
defined, at section 1861(mm)(3) of the Act, as medical and other health
services furnished by a CAH on an outpatient basis. Consistent with our
policy on ambulance services, these services are treated under a
separate benefit and are covered and paid for under separate statutory
authority and a separate payment method. Therefore, we have no basis on
which to authorize reasonable cost payment for ambulance services .
VII. MedPAC Recommendations
As required by law, we reviewed the March 1, 1999 report submitted
by MedPAC to the Congress and gave its recommendations careful
consideration in conjunction with the proposals set forth in the May 7,
1999 proposed rule. We also responded to the individual recommendations
in the proposed rule. The comments we received on the treatment of the
MedPAC recommendations are set forth below, along with our responses to
those comments. However, if we received no comments from the public
concerning a MedPAC recommendation or our response to that
recommendation, we have not repeated the recommendation.
Recommendations concerning the update factors for inpatient operating
cost and for hospitals and hospital distinct part units excluded from
the prospective payment system are discussed in Appendix C of this
final rule.
A. Excluded Hospitals and Hospital Units (Recommendations 4B and 4C)
Recommendation: The Congress should adjust the wage-related portion
of the excluded hospital target amount caps (the 75th percentile of
target amounts for hospitals in the same class (psychiatric hospital or
unit, rehabilitation hospital or unit, or long-term care hospitals)) to
account for geographic differences in labor costs. The Commission
presumes legislation would be necessary to adjust the caps for wages.
Response in the Proposed Rule: We previously addressed this issue
in the May 12, 1998 final rule (63 FR 26345). In that discussion, we
explain why we believe the statutory language, the statutory scheme,
and the legislative history, viewed together, strongly argue against
making a wage adjustment in applying the target amount caps under the
current statute.
Comment: We received two comments on our response to the MedPAC
recommendation regarding the wage related portion of the excluded
hospital target amount cap. Specifically, MedPAC commented that it
would encourage HCFA to seek legislative authority to adjust the target
amount caps for area wages. The other commenter asserted that such
adjustments should be made since they are used for new facilities and
because the exclusion of an adjustment is unfair to regions with higher
labor costs.
Response: In the May 12, 1998 final rule, we explained our decision
not to wage adjust the caps on the target amounts. The decision was
based on our analysis of the statutory language, the statutory scheme,
the legislative history, and policy considerations. First, we noted
that section 4414 of the BBA, which provides that "* * * in the case
of a hospital or unit that is within a class of hospital described in
clause (iv), the Secretary shall estimate the 75th percentile of the
target amounts for such hospitals within such class for cost reporting
periods ending during fiscal year 1996," directs the Secretary to
examine target amounts and calculate a single number for each of three
classes of hospitals. In addition, we stated that while the statutory
language directs the Secretary to calculate the 75th percentile of
target amounts, it does not explicitly direct or even authorize the
Secretary to make adjustments to that
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