Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Fiscal Year 2015 Rates; Quality Reporting Requirements for Specific Providers; Reasonable Compensation Equivalents for Physician Services in Excluded Hospitals and Certain Teaching Hospitals; Provider Administrative Appeals and Judicial Review; Enforcement Provisions for Organ Transplant Centers; and Electronic Health Record (EHR) Incentive Program

AGENCY:

Centers for Medicare and Medicaid Services (CMS), HHS.

ACTION:

Final rule.

SUMMARY:

We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems. Some of these changes implement certain statutory provisions contained in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively known as the Affordable Care Act), the Protecting Access to Medicare Act of 2014, and other legislation. These changes are applicable to discharges occurring on or after October 1, 2014, unless otherwise specified in this final rule. We also are updating the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The updated rate-of-increase limits are effective for cost reporting periods beginning on or after October 1, 2014.

We also are updating the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) and implementing certain statutory changes to the LTCH PPS under the Affordable Care Act and the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 and the Protecting Access to Medicare Act of 2014. In addition, we discuss our proposals on the interruption of stay policy for LTCHs and on retiring the “5 percent” payment adjustment for co-located LTCHs. While many of the statutory mandates of the Pathway for SGR Reform Act apply to discharges occurring on or after October 1, 2014, others will not begin to apply until 2016 and beyond.

In addition, we are making a number of changes relating to direct graduate medical education (GME) and indirect medical education (IME) payments. We are establishing new requirements or revising requirements for quality reporting by specific providers (acute care hospitals, PPS-exempt cancer hospitals, and LTCHs) that are participating in Medicare.

We are updating policies relating to the Hospital Value-Based Purchasing (VBP) Program, the Hospital Readmissions Reduction Program, and the Hospital-Acquired Condition (HAC) Reduction Program. In addition, we are making technical corrections to the regulations governing provider administrative appeals and judicial review; updating the reasonable compensation equivalent (RCE) limits, and revising the methodology for determining such limits, for services furnished by physicians to certain teaching hospitals and hospitals excluded from the IPPS; making regulatory revisions to broaden the specified uses of Medicare Advantage (MA) risk adjustment data and to specify the conditions for release of such risk adjustment data to entities outside of CMS; and making changes to the enforcement procedures for organ transplant centers.

We are aligning the reporting and submission timelines for clinical quality measures for the Medicare EHR Incentive Program for eligible hospitals and critical access hospitals (CAHs) with the reporting and submission timelines for the Hospital IQR Program. In addition, we provide guidance and clarification of certain policies for eligible hospitals and CAHs such as our policy for reporting zero denominators on clinical quality measures and our policy for case threshold exemptions.

In this document, we are finalizing two interim final rules with comment period relating to criteria for disproportionate share hospital uncompensated care payments and extensions of temporary changes to the payment adjustment for low-volume hospitals and of the Medicare-Dependent, Small Rural Hospital (MDH) Program.

DATES:

Effective Date: These final rules are effective on October 1, 2014.

Applicability Dates: The amendments to 42 CFR 405.1811 and 405.1835 are applicable to appeals based on untimely contractor determinations that are pending or were filed on or after August 21, 2008, subject to the rules of administrative finality and reopening at 42 CFR 405.1807 and 405.1885. The provisions discussed in section IV.I.4.c. of the preamble of this final rule are applicable on or after July 1, 2015; and the provisions discussed in section IV.I.5.a. of the preamble of this final rule are applicable on or after January 1, 2015.

FOR FURTHER INFORMATION, CONTACT:

Ing-Jye Cheng, (410) 786-4548 and Donald Thompson, (410) 786-4487, Operating Prospective Payment, MS-DRGs, Hospital-Acquired Conditions (HAC), Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, and Medicare Disproportionate Share Hospital (DSH) Issues.

Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative Weights Issues.

Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital Demonstration Program Issues.

James Poyer, (410) 786-2261, Hospital Inpatient Quality Reporting and Hospital Value-Based Purchasing—Program Administration, Validation, and Reconsideration Issues.

Pierre Yong, (410) 786-8896, Hospital Inpatient Quality Reporting—Measures Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems Issues; and Readmission Measures for Hospitals Issues.

Elizabeth Goldstein, (410) 786-6665, Hospital Inpatient Quality Reporting—Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues.

Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.

Kim Spalding Bush, (410) 786-3232, Hospital Value-Based Purchasing Efficiency Measures Issues.

James Poyer, (410) 786-2261, PPS-Exempt Cancer Hospital Quality Reporting Issues.

Kellie Shannon, (410) 786-0416, Administrative Appeals by Providers and Judicial Review Issues.

Amelia Citerone, (410) 786-3901, and Robert Kuhl (410) 786-4597, Reasonable Compensation Equivalent (RCE) Limits for Physician Services Provided in Providers.

Anne Calinger, (410) 786-3396, and Jennifer Harlow, (410) 786-4549, Medicare Advantage Risk Adjustment Data Issues.

Thomas Hamilton, (410) 786-6763, Organ Transplant Center Issues.

Jennifer Phillips, (410) 786-1023, 2-Midnight Rule Benchmark Issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

This Federal Register document is also available from the Federal Register online database through Federal Digital System (FDsys), a service of the U.S. Government Printing Office. This database can be accessed via the Internet at: http://www.gpo.gov/fdsys.

Tables Available Only Through the Internet on the CMS Web site

In the past, a majority of the tables referred to throughout this preamble and in the Addendum to the proposed rule and the final rule were published in the Federal Register as part of the annual proposed and final rules. However, beginning in FY 2012, some of the IPPS tables and LTCH PPS tables are no longer published in the Federal Register. Instead, these tables are available only through the Internet. The IPPS tables for this final rule are available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/Medicare/medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left side of the screen titled, “FY 2015 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download”. The LTCH PPS tables for this FY 2015 final rule are available only through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for Regulation Number CMS-1607-F. For complete details on the availability of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this final rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS Web sites identified above should contact Michael Treitel at (410) 786-4552.

Acronyms

3M 3M Health Information System

AAMC Association of American Medical Colleges

ACGME Accreditation Council for Graduate Medical Education

ACoS American College of Surgeons

AHA American Hospital Association

AHIC American Health Information Community

AHIMA American Health Information Management Association

AHRQ Agency for Healthcare Research and Quality

AJCC American Joint Committee on Cancer

ALOS Average length of stay

ALTHA Acute Long Term Hospital Association

AMA American Medical Association

AMGA American Medical Group Association

AMI Acute myocardial infarction

AOA American Osteopathic Association

APR DRG All Patient Refined Diagnosis Related Group System

APRN Advanced practice registered nurse

ARRA American Recovery and Reinvestment Act of 2009, Pub. L. 111-5

ASCA Administrative Simplification Compliance Act of 2002, Pub. L. 107-105

ASITN American Society of Interventional and Therapeutic Neuroradiology

ATRA American Taxpayer Relief Act of 2012, Pub. L. 112-240

BBA Balanced Budget Act of 1997, Pub. L. 105-33

BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113

BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Pub. L. 106-554

BLS Bureau of Labor Statistics

CABG Coronary artery bypass graft [surgery]

CAH Critical access hospital

CARE [Medicare] Continuity Assessment Record & Evaluation [Instrument]

CART CMS Abstraction & Reporting Tool

CAUTI Catheter-associated urinary tract infection

CBSAs Core-based statistical areas

CC Complication or comorbidity

CCN CMS Certification Number

CCR Cost-to-charge ratio

CDAC [Medicare] Clinical Data Abstraction Center

CDAD Clostridium difficile-associated disease

CDC Center for Disease Control and Prevention

CERT Comprehensive error rate testing

CDI Clostridium difficile (C. difficile)

CFR Code of Federal Regulations

CLABSI Central line-associated bloodstream infection

CIPI Capital input price index

CMI Case-mix index

CMS Centers for Medicare & Medicaid Services

CMSA Consolidated Metropolitan Statistical Area

COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-272

COLA Cost-of-living adjustment

CoP [Hospital] condition of participation

COPD Chronis obstructive pulmonary disease

CPI Consumer price index

CQM Clinical quality measure

CRNA Certified registered nurse anesthetist

CY Calendar year

DACA Data Accuracy and Completeness Acknowledgement

DPP Disproportionate patient percentage

DRA Deficit Reduction Act of 2005, Pub. L. 109-171

DRG Diagnosis-related group

DSH Disproportionate share hospital

EBRT External Bean Radiotherapy

ECI Employment cost index

eCQM Electronic clinical quality measure

EDB [Medicare] Enrollment Database

EHR Electronic health record

EMR Electronic medical record

EMTALA Emergency Medical Treatment and Labor Act of 1986, Pub. L. 99-272

EP Eligible professional

FAH Federation of American Hospitals

FDA Food and Drug Administration

FFY Federal fiscal year

FPL Federal poverty line

FQHC Federally qualified health center

FR Federal Register

FTE Full-time equivalent

FY Fiscal year

GAF Geographic Adjustment Factor

GME Graduate medical education

HAC Hospital-acquired condition

HAI Healthcare-associated infection

HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems

HCFA Health Care Financing Administration

HCO High-cost outlier

HCRIS Hospital Cost Report Information System

HHA Home health agency

HHS Department of Health and Human Services

HICAN Health Insurance Claims Account Number

HIPAA Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191

HIPC Health Information Policy Council

HIS Health information system

HIT Health information technology

HMO Health maintenance organization

HPMP Hospital Payment Monitoring Program

HSA Health savings account

HSCRC [Maryland] Health Services Cost Review Commission

HSRV Hospital-specific relative value

HSRVcc Hospital-specific relative value cost center

HQA Hospital Quality Alliance

HQI Hospital Quality Initiative

IBR Intern- and Resident-to-Bed Ratio

ICD-9-CM International Classification of Diseases, Ninth Revision, Clinical Modification

ICD-10-CM International Classification of Diseases, Tenth Revision, Clinical Modification

ICD-10-PCS International Classification of Diseases, Tenth Revision, Procedure Coding System

ICR Information collection requirement

IGI IHS Global Insight, Inc.

IHS Indian Health Service

IME Indirect medical education

I-O Input-Output

IOM Institute of Medicine

IPF Inpatient psychiatric facility

IPFQR Inpatient Psychiatric Facility Quality Reporting [Program]

IPPS [Acute care hospital] inpatient prospective payment system

IRF Inpatient rehabilitation facility

IQR Inpatient Quality Reporting

LAMCs Large area metropolitan counties

LOS Length of stay

LTC-DRG Long-term care diagnosis-related group

LTCH Long-term care hospital

LTCHQR Long-Term Care Hospital Quality Reporting

MA Medicare Advantage

MAC Medicare Administrative Contractor

MAP Measure Application Partnership

MCC Major complication or comorbidity

MCE Medicare Code Editor

MCO Managed care organization

MDC Major diagnostic category

MDH Medicare-dependent, small rural hospital

MedPAC Medicare Payment Advisory Commission

MedPAR Medicare Provider Analysis and Review File

MEI Medicare Economic Index

MGCRB Medicare Geographic Classification Review Board

MIEA-TRHCA Medicare Improvements and Extension Act, Division B of the Tax Relief and Health Care Act of 2006, Pub. L. 109-432

MIPPA Medicare Improvements for Patients and Providers Act of 2008, Pub. L. 110-275

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173

MMEA Medicare and Medicaid Extenders Act of 2010, Pub. L. 111-309

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 110-173

MRHFP Medicare Rural Hospital Flexibility Program

MRSA Methicillin-resistant Staphylococcus aureus

MSA Metropolitan Statistical Area

MS-DRG Medicare severity diagnosis-related group

MS-LTC-DRG Medicare severity long-term care diagnosis-related group

MU Meaningful Use [EHR Incentive Program]

NAICS North American Industrial Classification System

NALTH National Association of Long Term Hospitals

NCD National coverage determination

NCHS National Center for Health Statistics

NCQA National Committee for Quality Assurance

NCVHS National Committee on Vital and Health Statistics

NECMA New England County Metropolitan Areas

NHSN National Healthcare Safety Network

NOP Notice of Participation

NQF National Quality Forum

NQS National Quality Strategy

NTIS National Technical Information Service

NTTAA National Technology Transfer and Advancement Act of 1991, Pub. L. 104-113

NVHRI National Voluntary Hospital Reporting Initiative

OACT [CMS] Office of the Actuary

OBRA 86 Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509

OES Occupational employment statistics

OIG Office of the Inspector General

OMB [Executive] Office of Management and Budget

OPM [U.S.] Office of Personnel Management

OQR [Hospital] Outpatient Quality Reporting

O.R. Operating room

OSCAR Online Survey Certification and Reporting [System]

PAMA Protecting Access to Medicare Act of 2014, Pub. L. 113-93

PCH PPS-exempt cancer hospital

PCHQR PPS-exempt cancer hospital quality reporting

PMSAs Primary metropolitan statistical areas

POA Present on admission

PPI Producer price index

PPS Prospective payment system

PRM Provider Reimbursement Manual

ProPAC Prospective Payment Assessment Commission

PRRB Provider Reimbursement Review Board

PRTFs Psychiatric residential treatment facilities

PSF Provider-Specific File

PSI Patient safety indicator

PS&R Provider Statistical and Reimbursement [System]

PQRS Physician Quality Reporting System

QIG Quality Improvement Group [CMS]

QIO Quality Improvement Organization

QRDA Quality Reporting Data Architecture

RCE Reasonable compensation equivalent

RFA Regulatory Flexibility Act, Pub. L. 96-354

RHC Rural health clinic

RHQDAPU Reporting hospital quality data for annual payment update

RNHCI Religious nonmedical health care institution

RPL Rehabilitation psychiatric long-term care (hospital)

RRC Rural referral center

RSMR Risk-standardized mortality rate

RSRR Risk-standard readmission rate

RTI Research Triangle Institute, International

RUCAs Rural-urban commuting area codes

RY Rate year

SAF Standard Analytic File

SCH Sole community hospital

SCIP Surgical Care Improvement Project

SFY State fiscal year

SIC Standard Industrial Classification

SNF Skilled nursing facility

SOCs Standard occupational classifications

SOM State Operations Manual

SSI Surgical site infection

SSI Supplemental Security Income

SSO Short-stay outlier

SUD Substance use disorder

TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248

TEP Technical expert panel

THA/TKA Total hip arthroplasty/Total knee arthroplasty

TMA TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Pub. L. 110-90

TPS Total Performance Score

UHDDS Uniform hospital discharge data set

UMRA Unfunded Mandate Reform Act, Pub. L. 104-4

VBP [Hospital] Value Based Purchasing [Program]

VTE Venous thromboembolism

Table of Contents

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

2. Summary of the Major Provisions

3. Summary of Costs and Benefits

B. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)

2. Hospitals and Hospital Units Excluded From the IPPS

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)

4. Critical Access Hospitals (CAHs)

5. Payments for Graduate Medical Education (GME)

C. Summary of Provisions of Recent Legislation Discussed in This Final Rule

1. Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152)

2. American Taxpayer Relief Act of 2012 (Pub. L. 112-240)

3. Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67)

4. Protecting Access to Medicare Act of 2014 (Pub. L. 113-93)

D. Issuance of Notice of Proposed Rulemaking

E. Public Comments Received in Response to the FY 2015 IPPS/LTCH PPS Proposed Rule

F. Finalization of Interim Final Rule With Comment Period on Extension of Payment Adjustment for Low-Volume Hospitals and the MDH Program

G. Finalization of Interim Final Rule With Comment Period Related to Changes to Certain Cost Reporting Procedures for Disproportionate Share Hospital Uncompensated Care Payments

II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights

A. Background

B. MS-DRG Reclassifications

C. Adoption of the MS-DRGs in FY 2008

D. FY 2015 MS-DRG Documentation and Coding Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Pub. L. 110-90

2. Adjustment to the Average Standardized Amounts Required by Pub. L. 110-90

a. Prospective Adjustment Required by Section 7(b)(1)(A) of Pub. L. 110-90

b. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 Required by Section 7(b)(1)(B) Pub. L. 110-90

3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data

4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) of Pub. L. 110-90

5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) of Pub. L. 110-90

6. Recoupment or Repayment Adjustment Authorized by Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)

7. Prospective Adjustment for the MS-DRG Documentation and Coding Effect Through FY 2010

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Discussion for FY 2015

F. Adjustment to MS-DRGs for Preventable Hospital-Acquired Conditions (HACs), Including Infections for FY 2015

1. Background

2. HAC Selection

3. Present on Admission (POA) Indicator Reporting

4. HACs and POA Reporting in Preparation for Transition to ICD-10-CM and ICD-10-PCS

5. Current HACs and Previously Considered Candidate HACs

6. RTI Program Evaluation

7. Current and Previously Considered Candidate HACs—RTI Report on Evidence-Based Guidelines

G. Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for MS-DRG Updates

a. Conversion of MS-DRGs to the International Classification of Diseases, 10th Edition (ICD-10)

b. Basis for FY 2015 MS-DRG Updates

2. MDC 1 (Diseases and Disorders of the Nervous System)

a. Intracerebral Therapies: Gliadel® Wafer

b. Endovascular Embolization or Occlusion of Head and Neck

3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat): Avery Breathing Pacemaker System

4. MDC 5 (Diseases and Disorders of the Circulatory System)

a. Exclusion of Left Atrial Appendage

b. Transcatheter Mitral Valve Repair: MitraClip®

c. Endovascular Cardiac Valve Replacement Procedures

d. Abdominal Aorta Graft

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)

a. Shoulder Replacement Procedures

b. Ankle Replacement Procedures

c. Back and Neck Procedures

6. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders): Disorders of Porphyria Metabolism

7. MDC 15 (Newborns and Other Neonates With Conditions Originating in the Perinatal Period)

8. Medicare Code Editor (MCE) Changes

9. Changes to Surgical Hierarchies

10. Changes to the MS-DRG Diagnosis Codes for FY 2015

a. Major Complications or Comorbidities (MCCs) and Complications or Comorbidities (CCs) Severity Levels for FY 2015

b. Coronary Atherosclerosis Due to Calcified Coronary Lesion

11. Complications or Comorbidity (CC) Exclusions List

a. Background of the CC List and the CC Exclusions List

b. CC Exclusions List for FY 2015

12. Review of Procedure Codes in MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989

a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 Through 989 Into MDCs

b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989

c. Adding Diagnosis or Procedure Codes to MDCs

13. Changes to the ICD-9-CM Coding System

a. ICD-10 Coordination and Maintenance Committee

b. Code Freeze

14. Public Comments on Issues Not Addressed in the Proposed Rule

a. Request for Review and MS-DRG Assignment for ICD-9-CM Diagnosis Code 784.7 Reported with Procedure Code 39.75

b. Coding for Extracorporeal Membrane Oxygenation (ECMO) Procedures

c. Adding Severity Levels to MS-DRGs 245 Through 251

H. Recalibration of the FY 2015 MS-DRG Relative Weights

1. Data Sources for Developing the Relative Weights

2. Methodology for Calculation of the Relative Weights

3. Development of National Average CCRs

4. Bundled Payments for Care Improvement (BPCI) Initiative

I. Add-On Payments for New Services and Technologies

1. Background

2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments

3. FY 2015 Status of Technologies Approved for FY 2014 Add-On Payments

a. Glucarpidase (Trade Brand Voraxaze®)

b. DIFICID^TM (Fidaxomicin) Tablets

c. Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft

d. Kcentra^TM

e. Argus® II Retinal Prosthesis System

f. Zilver® PTX® Drug Eluting Stent

4. FY 2015 Applications for New Technology Add-On Payments

a. Dalbavancin (Durata Therapeutics, Inc.)

b. Heli-FX^TM EndoAnchor System (Aptus Endosystems, Inc.)

c. CardioMEMS^TM HF (Heart Failure) System

d. MitraClip® System

f. Responsive Neurostimulator (RNS®) System

III. Changes to the Hospital Wage Index for Acute Care Hospitals

A. Background

B. Core-Based Statistical Areas for the Hospital Wage Index

1. Background

2. Implementation of New Labor Market Area Delineations

a. Micropolitan Statistical Areas

b. Urban Counties That Became Rural Under the New OMB Delineations

c. Rural Counties That Became Urban Under the New OMB Delineations

d. Urban Counties That Moved to a Different Urban CBSA Under the New OMB Delineations

e. Transition Period

C. Worksheet S-3 Wage Data for the FY 2015 Wage Index

1. Included Categories of Costs

2. Excluded Categories of Costs

3. Use of Wage Index Data by Suppliers and Providers Other Than Acute Care Hospitals Under the IPPS

D. Verification of Worksheet S-3 Wage Data

E. Method for Computing the FY 2015 Unadjusted Wage Index

F. Occupational Mix Adjustment to the FY 2015 Wage Index

1. Development of Data for the FY 2015 Occupational Mix Adjustment Based on the 2010 Occupational Mix Survey

2. New 2013 Occupational Mix Survey for the FY 2016 Wage Index

3. Calculation of the Occupational Mix Adjustment for FY 2015

G. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2015 Occupational Mix Adjusted Wage Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix Adjusted Wage Index

2. Application of the Rural, Imputed, and Frontier Floors

a. Rural Floor

b. Imputed Floor and Alternative, Temporary Methodology for Computing the Rural Floor for FY 2015

c. Frontier Floor

3. FY 2015 Wage Index Tables

H. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications

1. General Policies and Effects of Reclassification and Redesignation

2. FY 2015 MGCRB Reclassifications

a. FY 2015 Reclassification Requirements and Approvals

b. Effects of Implementation of New OMB Labor Market Area Delineations on Reclassified Hospitals

c. Applications for Reclassifications for FY 2016

3. Hospitals Redesignated Under Section 1886(d)(8)(B) of the Act

a. New Lugar Areas for FY 2015

b. Hospitals Redesignated Under Section 1886(d)(8)(B) of the Act Seeking Reclassification by the MGCRB

c. Rural Counties No Longer Meeting the Criteria to be Redesignated as Lugar

4. Waiving Lugar Redesignation for the Out-Migration Adjustment

5. Update of Application of Urban to Rural Reclassification Criteria

I. FY 2015 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

J. Process for Requests for Wage Index Data Corrections

K. Notice of Change to Wage Index Development Timetable

L. Labor-Related Share for the FY 2015 Wage Index

IV. Other Decisions and Changes to the IPPS for Operating Costs and Graduate Medical Education (GME) Costs

A. Changes to MS-DRGs Subject to the Postacute Care Transfer Policy (§ 412.4)

B. Changes in the Inpatient Hospital Updates for FY 2015 (§§ 412.64(d) and 412.211(c))

1. FY 2015 Inpatient Hospital Update

2. FY 2015 Puerto Rico Hospital Update

C. Rural Referral Centers (RRCs): Annual Updates to Case-Mix Index (CMI) and Discharge Criteria (§ 412.96)

1. Case-Mix Index (CMI)

2. Discharges

D. Payment Adjustment for Low-Volume Hospitals (§ 412.101)

1. Background

2. Provisions of the Protecting Access to Medicare Act of 2014

3. Low-Volume Hospital Definition and Payment Adjustment for FY 2015

E. Indirect Medical Education (IME) Payment Adjustment (§ 412.105)

1. IME Adjustment Factor for FY 2015

2. IME Add-On Payments for Medicare Part C Discharges to Sole Community Hospitals (SCHs) That Are Paid According to Their Hospital-Specific Rates and Change in Methodology in Determining Payment to SCHs

3. Other Policy Changes Affecting IME

F. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) (§ 412.106)

1. Background

2. Impact on Medicare DSH Payment Adjustment of Implementation of New OMB Labor Market Area Delineations

3. Payment Adjustment Methodology for Medicare Disproportionate Share Hospitals (DSHs) under Section 3133 of the Affordable Care Act (§ 412.106)

a. General Discussion

b. Eligibility for Empirically Justified Medicare DSH Payments and Uncompensated Care Payments

c. Empirically Justified Medicare DSH Payments

d. Uncompensated Care Payments

e. Limitations on Review

G. Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108) and Sole Community Hospitals § 412.92)

1. Background for the MDH Program

2. PAMA of 2014 Provisions for FY 2015

3. Expiration of the MDH Program

4. Effects on MDHs of Adoption of New OMB Delineations

5. Effects on SCHs of Adoption of New OMB Delineations

H. Hospital Readmissions Reduction Program: Changes for FY 2015 Through FY 2017 (§§ 412.150 Through 412.154)

1. Statutory Basis for the Hospital Readmissions Reduction Program

2. Regulatory Background

3. Overview of Policies for the FY 2015 Hospital Readmissions Reduction Program

4. Refinement of the Readmissions Measures and Related Methodology for FY 2015 and Subsequent Years Payment Determinations

a. Refinement of Planned Readmission Algorithm for Acute Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia (PN), Chronic Obstructive Pulmonary Disease (COPD), and Total Hip Arthroplasty and Total Knee Arthroplasty (THA/TKA) 30-Day Readmission Measures

b. Refinement of Total Hip Arthroplasty and Total Knee Arthroplasty (THA/TKA) 30-Day Readmission Measure Cohort

c. Anticipated Effect of Refinements on Measures

5. No Expansion of the Applicable Conditions for FY 2016

6. Expansion of the Applicable Conditions for FY 2017 To Include Patients Readmitted Following Coronary Artery Bypass Graft (CABG) Surgery Measure

a. Background

b. Overview of the CABG Readmissions Measure: Hospital-Level, 30-Day, All-Cause, Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) Surgery

c. Methodology for the CABG Measure: Hospital-Level, 30-Day, All-Cause, Unplanned Readmission Following Coronary Artery Bypass Graft (CABG) Surgery

7. Maintenance of Technical Specifications for Quality Measures

8. Waiver From the Hospital Readmissions Reduction Program for Hospitals Formerly Paid under Section 1814(b)(3) of the Act (§ 412.152 and § 412.154(d))

9. Floor Adjustment Factor for FY 2015 (§ 412.154(c)(2))

10. Applicable Period for FY 2015

11. Inclusion of THA/TKA and COPD Readmissions Measures to Calculate Aggregate Payments for Excess Readmissions Beginning in FY 2015

12. Hospital Readmissions Reduction Program Extraordinary Circumstances Exceptions

I. Hospital Value-Based Purchasing (VBP) Program

1. Statutory Background

2. Overview of Previous Hospital VBP Program Rulemaking

3. FY 2015 Payment Details

a. Payment Adjustments

b. Base Operating DRG Payment Amount Definition for Medicare-Dependent, Small Rural Hospitals (MDHs)

4. Measures for the FY 2017 Hospital VBP Program

a. Measures Previously Adopted

b. Changes Affecting Topped-Out Measures

c. New Measures for the FY 2017 Hospital VBP Program

d. Adoption of the Current CLABSI Measure (NQF #0139) for the FY 2017 Hospital VBP Program

e. Summary of Previously Adopted and New Measures for the FY 2017 Hospital VBP Program

5. Additional Measures for the FY 2019 Hospital VBP Program

a. Hospital-level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA)

b. PSI-90 Measure

6. Possible Measure Topics for Future Program Years

a. Care Transition Measure (CTM-3) Items for HCAHPS Survey

b. Possible Future Efficiency and Cost Reduction Domain Measure Topics

7. Previously Adopted and Final Performance Periods and Baseline Periods for the FY 2017 Hospital VBP Program

a. Background

b. Previously Adopted Baseline and Performance Periods for the FY 2017 Hospital VBP Program

c. Clinical Care—Process Domain Performance Period and Baseline Period for the FY 2017 Hospital VBP Program

d. Patient and Caregiver-Centered Experience of Care/Care Coordination Domain Performance Period and Baseline Period for the FY 2017 Hospital VBP Program

e. Performance Period and Baseline Period for NHSN Measures in the Safwety Domain for the FY 2017 Hospital VBP Program

f. Efficiency and Cost Reduction Domain Performance Period and Baseline Period for the FY 2017 Hospital VBP Program

g. Summary of Previously Adopted and Finalized Performance Periods and Baseline Periods for the FY 2017 Hospital VBP Program

8. Previously Adopted and Finalized Performance Periods and Baseline Periods for Certain Measures for the FY 2019 Hospital VBP Program

a. Previously Adopted and Finalized Performance Period and Baseline Period for the FY 2019 Hospital VBP Program for Clinical Care—Outcomes Domain Measures

b. Performance Period and Baseline Period for the PSI-90 Safety Domain Measure for the FY 2019 Hospital VBP Program

c. Summary of Previously Adopted and Finalized Performance Periods and Baseline Periods for Certain Measures for the FY 2019 Hospital VBP Program

9. Performance Period and Baseline Period for the Clinical Care—Outcomes Domain for the FY 2020 Hospital VBP Program

10. Performance Standards for the Hospital VBP Program

a. Background

b. Performance Standards for the FY 2016 Hospital VBP Program

c. Previously Adopted Performance Standards for the FY 2017, FY 2018, and FY 2019 Hospital VBP Programs

d. Additional Performance Standards for the FY 2017 Hospital VBP Program

e. Performance Standards for the FY 2019 and FY 2020 Hospital VBP Programs

f. Technical Updates Policy for Performance Standards

g. Solicitation of Public Comments on ICD-10-CM/PCS Transition

11. FY 2017 Hospital VBP Program Scoring Methodology

a. General Hospital VBP Program Scoring Methodology

b. Domain Weighting for the FY 2017 Hospital VBP Program for Hospitals That Receive a Score on All Domains

c. Domain Weighting for the FY 2017 Hospital VBP Program for Hospitals Receiving Scores on Fewer Than Four Domains

12. Minimum Numbers of Cases and Measures for the FY 2016 and FY 2017 Hospital VBP Program's Quality Domains

a. Previously Adopted Minimum Numbers of Cases and FY 2016 Minimum Numbers of Cases

b. Minimum Number of Measures—Safety Domain

c. Minimum Number of Measures—Clinical Care Domain

d. Minimum Number of Measures—Efficiency and Cost Reduction Domain

e. Minimum Number of Measures—Patient and Caregiver Centered Experience of Care/Care Coordination (PEC/CC) Domain

13. Applicability of the Hospital VBP Program to Maryland Hospitals

14. Disaster/Extraordinary Circumstance Exception under the Hospital VBP Program

J. Hospital-Acquired Condition (HAC) Reduction Program

1. Background

2. Statutory Basis for the HAC Reduction Program

3. Implementation of the HAC Reduction Program for FY 2015

a. Overview

b. Payment Adjustment Under the HAC Reduction Program, Including Exemptions

c. Measure Selection and Conditions, Including Risk Adjustment Scoring Methodology

d. Criteria for Applicable Hospitals and Performance Scoring Policy

e. Reporting Hospital-Specific Information, Including the Review and Correction of Information

f. Limitation on Administrative and Judicial Review

4. Maintenance of Technical Specifications for Quality Measures

5. Extraordinary Circumstances Exceptions/Exemptions

6. Implementation of the HAC Reduction Program for FY 2016

a. Measure Selection and Conditions, including a Risk-Adjustment Scoring Methodology

b. Measure Risk Adjustment

c. Measure Calculation

d. Applicable Time Period

e. Criteria for Applicable Hospitals and Performance Scoring

f. Rules To calculate the Total HAC Score for FY 2016

7. Future Consideration for the Use of Electronically Specified Measures

K. Payments for Indirect and Direct Graduate Medical Education (GME) Costs (§§ 412.105 and 413.75 through 413.83)

1. Background

2. Changes in the Effective Date of the FTE Resident Cap, 3-Year Rolling Average, and Intern- and Resident-to-Bed (IRB) Ratio Cap for New Programs in Teaching Hospitals

3. Changes to IME and Direct GME Policies as a Result of New OMB Labor Market Area Delineations

a. New Program FTE Cap Adjustment for Rural Hospitals Redesignated as Urban

b. Participation of Redesignated Hospitals in Rural Training Track

4. Clarification of Policies on Counting Resident Time in Nonprovider Settings Under Section 5504 of the Affordable Care Act

5. Changes to the Review and Award Process for Resident Slots Under Section 5506 of the Affordable Care Act

a. Effective Date of Slots Awarded Under Section 5506 of the Affordable Care Act

b. Removal of Seamless Requirement

c. Revisions to Ranking Criteria One, Seven, and Eight for Applications Under Section 5506

d. Clarification to Ranking Criterion Two Regarding Emergency Medicare GME Affiliation Agreements

6. Regulatory Clarification Applicable To Direct GME Payments to Federally Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs) for Training Residents in Approved Programs

L. Rural Community Hospital Demonstration Program

1. Background

2. FY 2015 Budget Neutrality Offset Amount

M. Requirement for Transparency of Hospital Charges Under the Affordable Care Act

1. Overview

2. Transparency Requirement Under the Affordable Care Act

N. Medicare Payment for Short Inpatient Hospital Stays

O. Suggested Exceptions to the 2-Midnight Benchmark

P. Finalization of Interim Final Rule With Comment Period on Extension of Payment Adjustment for Low-Volume Hospitals and the Medicare-Dependent, Small Rural Hospital (MDH) Program for FY 2014 Discharges Through March 31, 2014

1. Background

2. Summary of the Provisions of the Interim Final Rule With Comment Period

Q. Finalization of Interim Final Rule With Comment Period on Changes to Certain Cost Reporting Procedures Related to Disproportionate Share Hospital Uncompensated Care Payments

V. Changes to the IPPS for Capital-Related Costs

A. Overview

B. Additional Provisions

1. Exception Payments

2. New Hospitals

3. Hospitals Located in Puerto Rico

C. Annual Update for FY 2015

VI. Changes for Hospitals Excluded From the IPPS

A. Rate-of-Increase in Payments to Excluded Hospitals for FY 2015

B. Report on Adjustment (Exception) Payments

C. Updates to the Reasonable Compensation Equivalent (RCE) Limits on Compensation for Physician Services Provided in Providers (§ 415.70)

1. Background

2. Overview of the Current RCE Limits

a. Application of the RCE Limits

b. Exceptions to the RCE Limits

c. Methodology for Establishing the RCE Limits

3. Changes to the RCE Limits

D. Critical Access Hospitals (CAHs

1. Background

2. Proposed and Final Policy Changes Related to Reclassifications as Rural for CAHs

3. Revision of the Requirements for Physician Certification of CAH Inpatient Services

VII. Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2015

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority

2. Criteria for Classification as an LTCH

a. Classification as an LTCH

b. Hospitals Excluded From the LTCH PPS

3. Limitation on Charges to Beneficiaries

4. Administrative Simplification Compliance Act (ASCA) and Health Insurance Portability and Accountability Act (HIPAA) Compliance

B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2015

1. Background

2. Patient Classifications into MS-LTC-DRGs

a. Background

b. Changes to the MS-LTC-DRGs for FY 2015

3. Development of the FY 2015 MS-LTC-DRG Relative Weights

a. General Overview of the Development of the MS-LTC-DRG Relative Weights

b. Development of the MS-LTC-DRG Relative Weights for FY 2015

c. Data

d. Hospital-Specific Relative Value (HSRV) Methodology

e. Treatment of Severity Levels in Developing the MS-LTC-DRG Relative Weights

f. Low-Volume MS-LTC-DRGs

g. Steps for Determining the FY 2015 MS-LTC-DRG Relative Weights

C. LTCH PPS Payment Rates for FY 2015

1. Overview of Development of the LTCH Payment Rates

2. FY 2015 LTCH PPS Annual Market Basket Update

a. Overview

b. Revision of Certain Market Basket Updates as Required by the Affordable Care Act

c. Adjustment to the Annual Update to the LTCH PPS Standard Federal Rate Under the Long-Term Care Hospital Quality Reporting (LTCHQR) Program

1. Background

2. Reduction to the Annual Update to the LTCH PPS Standard Federal Rate under the LTCHQR Program

d. Market Basket Under the LTCH PPS for FY 2015

e. Annual Market Basket Update for LTCHs for FY 2015

3. Adjustment for the Final Year of the Phase-In of the One-Time Prospective Adjustment to the Standard Federal Rate under § 412.523(d)(3)

D. Revision of LTCH PPS Geographic Classifications

1. Background

2. Use of New OMB Labor Market Area Delineations (“New OMB Delineations”)

a. Micropolitan Statistical Areas

b. Urban Counties That Became Rural Under the New OMB Labor Market Area Delineations

c. Rural Counties That Became Urban Under the New OMB Labor Market Area Delineations

d. Urban Counties That Moved to a Different Urban CBSA Under the New OMB Labor Market Area Delineations

e. Transition Period

E. Reinstatement and Extension of Certain Payment Rules for LTCH Services—The 25-Percent Threshold Payment Adjustment

1. Background

2. Implementation of Section 1206(b)(1) of Pub. L. 113-67

F. Discussion of the “Greater Than 3-Day Interruption of Stay” Policy and the Transfer to Onsite Providers Policies Under the LTCH PPS

G. Moratoria on the Establishment of LTCHs and LTCH Satellite Facilities and on the Increase in the Number of Beds in Existing LTCHs or LTCH Satellite Facilities

H. Evaluation and Treatment of LTCHs Classified Under Section 1886(d)(1)(B)(iv)(II) of the Act

I. Description of Statutory Framework for Patient-Level Criteria-Based Payment Adjustment Under the LTCH PPS Under Pub. L. 113-67

1. Overview

2. Additional LTCH PPS Issues

J. Technical Change

VIII. Administrative Appeals by Providers and Judicial Review

A. Proposed and Final Changes Regarding the Claims Required in Provider Cost Reports and for Provider Administrative Appeals

B. Proposed and Final Changes to Conform Terminology From “Intermediary” to “Contractor”

C. Technical Correction to § 405.1835 of the Regulations and Corresponding Amendment to § 405.1811 of the Regulations

1. Background and Technical Correction to §§ 405.1811 and 405.1835 of the Regulations

2. Waiver of Notice of Proposed Rulemaking

3. Effective Date and Applicability Date; Finality and Reopening

IX. Quality Data Reporting Requirements for Specific Providers and Suppliers

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background

a. History of the Hospital IQR Program

b. Maintenance of Technical Specifications for Quality Measures

c. Public Display of Quality Measures

2. Removal and Suspension of Hospital IQR Program Measures

a. Considerations in Removing Quality Measures From the Hospital IQR Program

b. Removal of Hospital IQR Program Measures for the FY 2017 Payment Determination and Subsequent Years

3. Process for Retaining Previously Adopted Hospital IQR Program Measures for Subsequent Payment Determinations

4. Additional Considerations in Expanding and Updating Quality Measures Under the Hospital IQR Program

5. Previously Adopted Hospital IQR Program Measures for the FY 2016 Payment Determination and Subsequent Years

6. Refinements and Clarification to Existing Measures in the Hospital IQR Program

a. Refinement of Planned Readmission Algorithm for 30-Day Readmission Measures

b. Refinement of Total Hip Arthroplasty and Total Knee Arthroplasty (THA/TKA) 30-Day Complication and Readmission Measures

c. Anticipated Effect of Refinements to Existing Measures

d. Clarification Regarding Influenza Vaccination for Healthcare Personnel

7. Additional Hospital IQR Program Measures for the FY 2017 Payment Determination and Subsequent Years

a. Hospital 30-day, All-Cause, Unplanned, Risk-Standardized Readmission Rate (RSRR) Following Coronary Artery Bypass Graft (CABG) Surgery

b. Hospital 30-day, All-Cause, Risk-standardized Mortality Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery

c. Hospital-Level, Risk-Standardized 30-Day Episode-of-Care Payment Measure for Pneumonia

d. Hospital-Level, Risk-Standardized 30-Day Episode-of-Care Payment Measure for Heart Failure

e. Severe Sepsis and Septic Shock: Management Bundle Measure (NQF #0500)

f. Electronic Health Record-Based Voluntary Measures

g. Readoption of Measures as Voluntarily Reported Electronic Clinical Quality Measures

h. Electronic Clinical Quality Measures

8. Possible New Quality Measures and Measure Topics for Future Years

a. Mandatory Electronic Clinical Quality Measure Reporting for FY 2018 Payment Determination

b. Possible Future Electronic Clinical Quality Measures

9. Form, Manner, and Timing of Quality Data Submission

a. Background

b. Procedural Requirements for the FY 2017 Payment Determination and Subsequent Years

c. Data Submission Requirements for Chart-Abstracted Measures

d. Alignment of the Medicare EHR Incentive Program Reporting and Submission Timelines for Clinical Quality Measures With Hospital IQR Program Reporting and Submission Timelines

e. Sampling and Case Thresholds for the FY 2017 Payment Determination and Subsequent Years

f. HCAHPS Requirements for the FY 2017 Payment Determination and Subsequent Years

g. Data Submission Requirements for Structural Measures for the FY 2017 Payment Determination and Subsequent Years

h. Data Submission and Reporting Requirements for Healthcare-Associated Infection (HAI) Measures Reported via NHSN

10. Submission and Access of HAI Measures Data Through the CDC's NHSN Web Site

11. Modifications to the Existing Processes for Validation of Chart-Abstracted Hospital IQR Program Data

a. Eligibility Criteria for Hospitals Selected for Validation

b. Number of Charts To Be Submitted per Hospital for Validation

c. Combining Scores for HAI and Clinical Process of Care Topic Areas

d. Processes To Submit Patient Medical Records for Chart-Abstracted Measures

e. Plans To Validate Electronic Clinical Quality Measure Data

f. Data Submission Requirements for Quality Measures That May Be Voluntarily Electronically Reported for the FY 2017 Payment Determination

12. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2017 Payment Determination and Subsequent Years

13. Public Display Requirements for the FY 2017 Payment Determination and Subsequent Years

14. Reconsideration and Appeal Procedures for the FY 2017 Payment Determination and Subsequent Years

15. Hospital IQR Program Extraordinary Circumstances Extensions or Exemptions

B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

1. Statutory Authority

2. Covered Entities

3. Previously Finalized PCHQR Program Quality Measures

4. Update to the Clinical Process/Oncology Care Measures Beginning With the 2016 Program

5. New Quality Measures Beginning With the FY 2017 Program

a. Considerations in the Selection of Quality Measures

b. New Quality Measure Beginning With the FY 2017 Program

6. Possible New Quality Measure Topics for Future Years

7. Maintenance of Technical Specifications for Quality Measures

8. Public Display Requirements Beginning With the FY 2014 Program

9. Form, Manner, and Timing of Data Submission Beginning With the FY 2017 Program

a. Background

b. Reporting Requirements for the Proposed New Measure: External Beam Radiotherapy for Bone Metastases (NQF #1822) Beginning With the FY 2017 Program

c. Reporting Options for the Clinical Process/Cancer Specific Treatment Measures Beginning With the FY 2015 Program and the SCIP and Clinical Process/Oncology Care Measures Beginning With the FY 2016 Program

d. New Sampling Methodology for the Clinical Process/Oncology Care Measures Beginning With the FY 2016 Program

10. Exceptions From Program Requirements

C. Long-Term Care Hospital Quality Reporting (LTCHQR) Program

1. Background

2. General Considerations Used for Selection of Quality Measures for the LTCHQR Program

3. Policy for Retention of LTCHQR Program Measures Adopted for Previous Payment Determinations

4. Policy for Adopting Changes to LTCHQR Program Measures

5. Previously Adopted Quality Measures

a. Previously Adopted Quality Measures for the FY 2015 and FY 2016 Payment Determinations and Subsequent Years

b. Previously Adopted Quality Measures for the FY 2017 and FY 2018 Payment Determinations and Subsequent Years

6. Revision to Data Collection Timelines and Submission Deadlines for Previously Adopted Quality Measures

a. Revisions to Data Collection Timelines and Submission Deadlines for Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF #0680)

b. Revisions to Data Collection Timelines and Submission Deadlines for the Application of Percent of Residents Experiencing One or More Falls With Major Injury (Long Stay) (NQF #0674)

7. New LTCHQR Program Quality Measures for the FY 2018 Payment Determination and Subsequent Years

a. New LTCHQR Program Functional Status Quality Measures for the FY 2018 Payment Determination and Subsequent Years

b. Quality Measure: National Healthcare Safety Network (NHSN) Ventilator-Associated Event (VAE) Outcome Measure

8. LTCHQR Program Quality Measures and Concepts Under Consideration for Future Years

9. Form, Manner, and Timing of Quality Data Submission for the FY 2016 Payment Determinations and Subsequent Years

a. Background

b. Finalized Timeline for Data Submission Under the LTCHQR Program for the FY 2016 and FY 2017 Payment Determinations (Except NQF #0680 and NQF #0431)

c. Revision to the Previously Adopted Data Collection Timelines and Submission Deadlines for Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #680) for the FY 2016 Payment Determination and Subsequent Years

d. Data Submission Mechanisms for the FY 2018 Payment Determination and Subsequent Years for New LTCHQR Program Quality Measures and for Revision to Previously Adopted Quality Measure

e. Data Collection Timelines and Submission Deadlines Under the LTCHQR Program for the FY 2018 Payment Determination

f. Data Collection Timelines and Submission Deadlines for the Application of Percent of Residents Experiencing One or More Falls With Major Injury (Long Stay) (NQF #0674) Measure for the FY 2018 Payment Determination and Subsequent Years

g. Data Collection Timelines and Submission Deadlines Under the LTCHQR Program for the FY 2019 Payment Determination

10. LTCHQR Program Data Completion Threshold for the FY 2016 Payment Adjustment and Subsequent Years

a. Overview

b. LTCHQR Program Data Completion Threshold for the Required LTCH CARE Data Set (LCDS) Data Items

c. LTCHQR Program Data Completion Threshold for Measures Submitted Using the Centers for Disease Control and Prevention (CDC) National Healthcare Safety Network (NHSN)

d. Application of the 2 Percentage Point Reduction for LTCHs That Fail To Meet the Data Completion Thresholds

11. Data Validation Process for the FY 2016 Payment Determination and Subsequent Years

a. Data Validation Process

b. Application of the 2 Percentage Point Reduction for LTCHs That Fail To Meet the Data Accuracy Threshold

12. Public Display of Quality Measure Data for the LTCHQR Program

13. LTCHQR Program Submission Exception and Extension Requirements for the FY 2017 Payment Determination and Subsequent Years

14. LTCHQR Program Reconsideration and Appeals Procedures for the FY 2016 Payment Determination and Subsequent Years

a. Previously Finalized LTCHQR Program Reconsideration and Appeals Procedures for the FY 2014 and FY 2015 Payment Determinations

b. LTCHQR Program Reconsideration and Appeals Procedures for the FY 2016 Payment Determination and Subsequent Years

15. Electronic Health Records (EHR) and Health Information Exchange (HIE)

D. Electronic Health Record (EHR) Incentive Program and Meaningful Use (MU)

1. Background

2. Alignment of the Medicare EHR Incentive Program Reporting and Submission Timelines for Clinical Quality Measures With Hospital IQR Program Reporting and Submission Timelines

3. Quality Reporting Data Architecture Category III (QRDA-III) Option in 2015

4. Electronically Specified Clinical Quality Measures (CQMs) Reporting for 2015

5. Clarification Regarding Reporting Zero Denominators

X. Revision of Regulations Governing Use and Release of Medicare Advantage Risk Adjustment Data

A. Background

B. Regulatory Changes

1. Expansion of Uses and Reasons for Disclosure of Risk Adjustment Data

2. Conditions for CMS Release of Data

3. Technical Change

XI. Changes to Enforcement Provisions for Organ Transplant Centers

A. Background

B. Basis for Changes

1. Expansion of Mitigating Factors Based on CMS' Experience

2. Coordination With Efforts of the Organ Procurement and Transplantation Network (OPTN) and Health Resources and Services Administration

C. Provisions of the Proposed and Final Regulations

1. Expansion of Mitigating Factors List, Content, and Timeframe

2. Content and Timeframe for Mitigating Factors Requests

3. System Improvement Agreements (SIAs)

a. Purpose and Intent of an SIA

b. Description and Contents of an SIA

c. Effective Period for an SIA

XII. MedPAC Recommendations

XIII. Other Required Information

A. Requests for Data from the Public

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments

2. ICRs for Add-On Payments for New Services and Technologies

3. ICRs for the Occupational Mix Adjustment to the FY 2015 Wage Index (Hospital Wage Index Occupational Mix Survey)

4. Hospital Applications for Geographic Reclassifications by the MGCRB

5. ICRs for Application for GME Resident Slots

6. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program

7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

8. ICRs for Hospital Value-Based Purchasing (VBP) Program

9. ICRs for the Long-Term Care Hospital Quality Reporting (LTCHQR) Program

10. ICR Regarding Electronic Health Record (EHR) Incentive Program and Meaningful Use (MU)

11. ICR Regarding Revision of Regulations Governing Use and Release of Medicare Advantage (MA) Risk Adjustment Data (§ 422.310(f))

Regulation Text

Addendum—Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective with Cost Reporting Periods Beginning on or After October 1, 2014 and Payment Rates for LTCHs Effective With Discharges Occurring on or After October 1, 2014

I. Summary and Background

II. Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2015

A. Calculation of the Adjusted Standardized Amount

B. Adjustments for Area Wage Levels and Cost-of-Living

C. Calculation of the Prospective Payment Rates

III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2015

A. Determination of Federal Hospital Inpatient Capital-Related Prospective Payment Rate Update

B. Calculation of the Inpatient Capital-Related Prospective Payments for FY 2015

C. Capital Input Price Index

IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase Percentages for FY 2015

V. Updates to the Payment Rates for the LTCH PPS for FY 2015

A. LTCH PPS Standard Federal Rate for FY 2015

1. Background

2. Development of the FY 2015 LTCH PPS Standard Federal Rate

B. Adjustment for Area Wage Levels under the LTCH PPS for FY 2015

1. Background

2. Geographic Classifications Based on the New OMB Delineations

3. LTCH PPS Labor-Related Share

4. LTCH PPS Wage Index for FY 2015

5. Budget Neutrality Adjustment for Changes to the Area Wage Level Adjustment

C. LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located in Alaska and Hawaii

D. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases

1. Background

2. Determining LTCH CCRs Under the LTCH PPS

3. Establishment of the LTCH PPS Fixed-Loss Amount for FY 2015

4. Application of the Outlier Policy to SSO Cases

E. Update to the IPPS Comparable/Equivalent Amounts To Reflect the Statutory Changes to the IPPS DSH Payment Adjustment Methodology

F. Computing the Adjusted LTCH PPS Federal Prospective Payments for FY 2015

VI. Tables Referenced in This Final Rule and Available Through the Internet on the CMS Web site

Appendix A—Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

B. Need

C. Objectives of the IPPS

D. Limitations of Our Analysis

E. Hospitals Included in and Excluded From the IPPS

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

G. Quantitative Effects of the Policy Changes Under the IPPS for Operating Costs

1. Basis and Methodology of Estimates

2. Analysis of Table I

3. Impact Analysis of Table II

H. Effects of Other Policy Changes

1. Effects of Policy on MS-DRGs for Preventable HACs, Including Infections

2. Effects of Policy Relating to New Medical Service and Technology Add-On Payments

3. Effects of Changes to List of MS-DRGs Subject to Postacute Care Transfer and DRG Special Pay Policy

4. Effects of Payment Adjustment for Low-Volume Hospitals for FY 2015

5. Effects of Policy Changes Related to IME Medicare Part C Add-On Payments to SCHs Paid According to Their Hospital-Specific Rates

6. Effects of the Extension of the MDH Program for the First Half of FY 2015

7. Effects of Changes Under the FY 2015 Hospital Value-Based Purchasing (VBP) Program

8. Effects of the Changes to the HAC Reduction Program for FY 2015

9. Effects of Policy Changes Relating to Payments for Direct GME and IME

10. Effects of Implementation of Rural Community Hospital Demonstration Program

11. Effects of Changes Related to Reclassifications as Rural for CAHs

12. Effects of Revision of the Requirements for Physician Certification of CAH Inpatient Services

13. Effects of Changes Relating to Administrative Appeals by Providers and Judicial Review for Appropriate Claims in Provider Cost Reports

I. Effects of Changes to Updates to the Reasonable Compensation Equivalent (RCE) Limits for Physician Services Provided to Providers

J. Effects of Changes in the Capital IPPS

1. General Considerations

2. Results

K. Effects of Payment Rate Changes and Policy Changes Under the LTCH PPS

1. Introduction and General Considerations

2. Impact on Rural Hospitals

3. Anticipated Effects of LTCH PPS Payment Rate Changes and Policy Changes

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

L. Effects of Requirements for Hospital Inpatient Quality Reporting (IQR) Program

M. Effects of Requirements for the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program for FY 2015

N. Effects of Requirements for the LTCH Quality Reporting (LTCHQR) Program for FY 2015 Through FY 2019

O. Effects of Policy Changes Regarding Electronic Health Record (EHR) Incentive Program and Hospital IQR Program

P. Effects of Revision of Regulations Governing Use and Release of Medicare Advantage Risk Adjustment Data

Q. Effects of Changes to Enforcement Provisions for Organ Transplant Centers

II. Alternatives Considered

III. Overall Conclusion

A. Acute Care Hospitals

B. LTCHs

IV. Accounting Statements and Tables

A. Acute Care Hospitals

B. LTCHs

V. Regulatory Flexibility Act (RFA) Analysis

VI. Impact on Small Rural Hospitals

VII. Unfunded Mandate Reform Act (UMRA) Analysis

VIII. Executive Order 12866

Appendix B: Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services

I. Background

II. Inpatient Hospital Update for FY 2015

A. FY 2015 Inpatient Hospital Update

B. Update for SCHs for FY 2015

C. FY 2015 Puerto Rico Hospital Update

D. Update for Hospitals Excluded From the IPPS for FY 2015

E. Update for LTCHs for FY 2015

III. Secretary's Recommendation

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating Payments in Traditional Medicare

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

This final rule makes payment and policy changes under the Medicare inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it makes payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). It also makes policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs.

Under various statutory authorities, we are making changes to the Medicare IPPS, to the LTCH PPS, and to other related payment methodologies and programs for FY 2015 and subsequent fiscal years. These statutory authorities include, but are not limited to, the following:

• Section 1886(d) of the Social Security Act (the Act), which 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 that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS).
• Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; cancer hospitals; and short-term acute care hospitals located in the Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS.
• Sections 123(a) and (c) of Pub. L. 106-113 and section 307(b)(1) of Public Law 106-554 (as codified under section 1886(m)(1) of the Act), which provide for the development and implementation of a prospective payment system for payment for inpatient hospital services of long-term care hospitals (LTCHs) described in section 1886(d)(1)(B)(iv) of the Act.
• Sections 1814(l), 1820, and 1834(g) of the Act, which specify that payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services and that these payments are generally based on 101 percent of reasonable cost.
• Section 1866(k) of the Act, as added by section 3005 of the Affordable Care Act, which establishes a quality reporting program for hospitals described in section 1886(d)(1)(B)(v) of the Act, referred to as “PPS-Exempt Cancer Hospitals.”
• Section 1886(d)(4)(D) of the Act, which addresses certain hospital-acquired conditions (HACs), including infections. Section 1886(d)(4)(D) of the Act specifies that, by October 1, 2007, the Secretary was required to select, in consultation with the Centers for Disease Control and Prevention (CDC), at least two conditions that: (a) are high cost, high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are complications or comorbidities (CCs) or major complications or comorbidities (MCCs); and (c) could reasonably have been prevented through the application of evidence-based guidelines. Section 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, again in consultation with CDC, from time to time as long as the list contains at least two conditions. Section 1886(d)(4)(D)(iii) of the Act requires that hospitals, effective with discharges occurring on or after October 1, 2007, submit information on Medicare claims specifying whether diagnoses were present on admission (POA). Section 1886(d)(4)(D)(i) of the Act specifies that effective for discharges occurring on or after October 1, 2008, Medicare no longer assigns an inpatient hospital discharge to a higher paying MS-DRG if a selected condition is not POA.
• Section 1886(a)(4) of the Act, which specifies that costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. A payment for indirect medical education (IME) is made under section 1886(d)(5)(B) of the Act.
• Section 1886(b)(3)(B)(viii) of the Act, which requires the Secretary to reduce the applicable percentage increase in payments to a subsection (d) hospital for a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary.
• Section 1886(o) of the Act, which requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program under which value-based incentive payments are made in a fiscal year to hospitals meeting performance standards established for a performance period for such fiscal year.
• Section 1886(p) of the Act, as added by section 3008 of the Affordable Care Act, which establishes an adjustment to hospital payments for hospital-acquired conditions (HACs), or a Hospital-Acquired Condition (HAC) Reduction Program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions.
• Section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act and amended by section 10309 of the Affordable Care Act, which establishes the “Hospital Readmissions Reduction Program” effective for discharges from an “applicable hospital” beginning on or after October 1, 2012, under which payments to those hospitals under section 1886(d) of the Act will be reduced to account for certain excess readmissions.
• Section 1886(r) of the Act, as added by section 3133 of the Affordable Care Act, which provides for a reduction to disproportionate share hospital payments under section 1886(d)(5)(F) of the Act and for a new uncompensated care payment to eligible hospitals. Specifically, section 1886(r) of the Act now requires that, for “fiscal year 2014 and each subsequent fiscal year,” “subsection (d) hospitals” that would otherwise receive a “disproportionate share hospital payment . . . made under subsection (d)(5)(F)” will receive two separate payments: (1) 25 percent of the amount they previously would have received under subsection (d)(5)(F) for DSH (“the empirically justified amount”), and (2) an additional payment for the DSH hospital's proportion of uncompensated care, determined as the product of three factors. These three factors are: (1) 75 percent of the payments that would otherwise be made under subsection (d)(5)(F); (2) 1 minus the percent change in the percent of individuals under the age of 65 who are uninsured (minus 0.1 percentage points for FY 2014, and minus 0.2 percentage points for FY 2015 through FY 2017); and (3) a hospital's uncompensated care amount relative to the uncompensated care amount of all DSH hospitals expressed as a percentage.
• Section 1886(m)(6) of the Act, as added by section 1206(a)(1) of the Pathway for SGR Reform Act of 2013, which provided for the establishment of patient criteria for payment under the LTCH PPS for implementation beginning in FY 2016.
• Section 1206(b)(1) of the Pathway for SGR Reform Act of 2013, which further amended section 114(c) of the MMSEA, as amended by section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the Affordable Care Act, by retroactively reestablishing and extending the statutory moratorium on the full implementation of the 25-percent threshold payment adjustment policy under the LTCH PPS so that the policy will be in effect for 9 years (except for “grandfathered” hospital-within-hospitals (HwHs), which are permanently exempt from this policy); and section 1206(b)(2) (as amended by section 112(b) of Pub. L. 113-93), which together further amended section 114(d) of the MMSEA, as amended by section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the Affordable Care Act to establish a new moratoria (subject to certain defined exceptions) on the development of new LTCHs and LTCH satellite facilities and a new moratorium on increases in the number of beds in existing LTCHs and LTCH satellite facilities beginning January 1, 2015 and ending on September 30, 2017; and section 1206(d), which instructs the Secretary to evaluate payments to LTCHs classified under section 1886(b)(1)(C)(iv)(II) of the Act and to adjust payment rates in FY 2015 or FY 2016 under the LTCH PPS, as appropriate, based upon the evaluation findings.
• Section 1886(m)(5)(D)(iv) of the Act, as added by section 1206 (c) of the Pathway for SGR Reform Act of 2013, which provides for the establishment, no later than October 1, 2015, of a functional status quality measure under the LTCHQR Program for change in mobility among inpatients requiring ventilator support.

In this final rule, we are making technical and conforming changes and nomenclature changes to the regulations regarding the claims required in provider cost reports and for provider administrative appeals to conform terminology from “intermediary” to “contractor”

We are aligning the reporting and submission timelines for clinical quality measures for the Medicare EHR Incentive Program for eligible hospitals and critical access hospitals (CAHs) with the reporting and submission timelines for the Hospital IQR Program. In addition, we provide guidance and clarification of certain policies for eligible hospitals and CAHs such as our policy for reporting zero denominators on clinical quality measures and our policy for case threshold exemptions.

In addition, this final rule contains several provisions that are not directly related to these Medicare payment systems, such as regulatory revisions to broaden the specified uses and reasons for disclosure of risk adjustment data and to specify the conditions for release of risk adjustment data to entities outside of CMS and changes to the enforcement procedures for organ transplant centers. The specific statutory authority for these other provisions is discussed in the relevant sections below.

2. Summary of the Major Provisions

a. MS-DRG Documentation and Coding Adjustment

Section 631 of the American Taxpayer Relief Act (ATRA, Pub. L. 112-240) amended section 7(b)(1)(B) of Public Law 110-90 to require the Secretary to make a recoupment adjustment to the standardized amount of Medicare payments to acute care hospitals to account for changes in MS-DRG documentation and coding that do not reflect real changes in case-mix, totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and 2017. This adjustment represents the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 until FY 2013. Prior to the ATRA, this amount could not have been recovered under Public Law 110-90.

While our actuaries estimated that a -9.3 percent adjustment to the standardized amount would be necessary if CMS were to fully recover the $11 billion recoupment required by section 631 of the ATRA in FY 2014, it is often our practice to delay or phase in rate adjustments over more than one year, in order to moderate the effects on rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, we made a -0.8 percent recoupment adjustment to the standardized amount in FY 2014. We are making an additional -0.8 percent recoupment adjustment to the standardized amount in FY 2015.

b. Reduction of Hospital Payments for Excess Readmissions

We are making changes in policies to the Hospital Readmissions Reduction Program, which is established under section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act. The Hospital Readmissions Reduction Program requires a reduction to a hospital's base operating DRG payment to account for excess readmissions of selected applicable conditions. For FYs 2013 and 2014, these conditions are acute myocardial infarction, heart failure, and pneumonia. For FY 2014, we established additional exclusions to the three existing readmission measures (that is, the excess readmission ratio) to account for additional planned readmissions. We also established additional readmissions measures, Chronic Obstructive Pulmonary Disease (COPD), and Total Hip Arthroplasty and Total Knee Arthroplasty (THA/TKA), to be used in the Hospital Readmissions Reduction Program for FY 2015 and future years. We are expanding the readmissions measures for FY 2017 and future years by adding a measure of patients readmitted following coronary artery bypass graft (CABG) surgery. We also are refining the readmission measures and related methodology for FY 2015 and subsequent years payment determinations. In addition, we are providing that the readmissions payment adjustment factors for FY 2015 can be no more than a 3-percent reduction in accordance with the statute. We also are revising the calculation of aggregate payments for excess readmissions to include THA/TKA and COPD readmissions measures beginning in FY 2015.

c. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o) of the Act requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program under which value-based incentive payments are made in a fiscal year to hospitals meeting performance standards established for a performance period for such fiscal year. Both the performance standards and the performance period for a fiscal year are to be established by the Secretary.

In this final rule, we are adopting quality measures for the FY 2017, FY 2019, and FY 2020 Hospital VBP Program years and establishing performance periods and performance standards for measures we are adopting for those fiscal years. We are also adopting additional policies related to performance standards and revising the domain weighting previously adopted for the FY 2017 Hospital VBP Program.

d. Hospital-Acquired Condition (HAC) Reduction Program

In this final rule, we are making a change in the scoring methodology with the addition of a previously finalized measure for the FY 2016 payment adjustment under the HAC Reduction Program. Section 1886(p) of the Act, as added under section 3008(a) of the Affordable Care Act, establishes an adjustment to hospital payments for HACs, or a HAC Reduction program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce HACs, effective for discharges beginning on October 1, 2014 and for subsequent program years. This 1-percent payment reduction applies to a hospital whose ranking is in the top quartile (25 percent) of all applicable hospitals, relative to the national average, of conditions acquired during the applicable period and on all of the hospital's discharges for the specified fiscal year. The amount of payment shall be equal to 99 percent of the amount of payment that would otherwise apply to such discharges under section 1886(d) or 1814(b)(3) of the Act, as applicable.

e. DSH Payment Adjustment and Additional Payment for Uncompensated Care

Section 3133 of the Affordable Care Act modified the Medicare disproportionate share hospital (DSH) payment methodology beginning in FY 2014. Under section 1886(r) of the Act, which was added by section 3133 of the Affordable Care Act, starting in FY 2014, DSHs will receive 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act. The remaining amount, equal to 75 percent of what otherwise would have been paid as Medicare DSH payments, will be paid as additional payments after the amount is reduced for changes in the percentage of individuals that are uninsured. Each Medicare DSH hospital will receive its additional amount based on its share of the total amount of uncompensated care for all Medicare DSH hospitals for a given time period. In this final rule, we are updating the uncompensated care amount to be distributed for FY 2015, and we are making changes to the methodology for calculating the uncompensated care payment amounts such that we will combine uncompensated care data for hospitals that have merged in order to calculate the relative share of uncompensated care for the surviving hospital.

f. Hospital Inpatient Quality Reporting (IQR) Program

Under section 1886(b)(3)(B)(viii) of the Act, hospitals are required to report data on measures selected by the Secretary for the Hospital IQR Program in order to receive the full annual percentage increase. In past rules, we have established measures for reporting and the process for submittal and validation of the data.

We are finalizing a total of 63 measures (47 required and 16 voluntary electronic clinical quality measures) in the Hospital IQR Program measure set for the FY 2017 payment determination and subsequent years. In this final rule, we are finalizing 11 new measures (1 chart-abstracted, 4 claims-based, and 6 voluntary electronic clinical quality measures). We proposed to remove 20 measures, but are only finalizing the removal of 19. The SCIP-INF-4 measure was proposed for removal, but will be retained as it was recently retooled for the 2014 collection period. Ten of these 19 measures are topped-out, chart-abstracted measures that are being retained as voluntary electronic clinical quality measures.

While we are finalizing our proposal to align the reporting and submission timelines of the Medicare EHR Incentive Program with those of the Hospital IQR Program on the calendar year for CQMs that are reported electronically for 2015, we are not finalizing the proposal to require quarterly submission of CQM data. Hospitals can voluntarily submit one calendar year (CY) quarter of data for Q 1, Q 2, or Q3 of 2015 by November 30, 2015, in order to partially fulfill requirements for both programs for CY 2015. In addition, we are finalizing a number of new policies related to the administration of the program, including access to specific NHSN data, updates to validation, and an electronic clinical quality measures validation pilot test.

g. Changes to the LTCH PPS

Section 1206(b) of the Pathway for SGR Reform Act provides for the retroactive reinstatement and extension, for an additional 4 years, of the moratorium on the full implementation of the 25-percent threshold payment adjustment under the LTCH PPS established under section 114(c) of the MMSEA, as further amended by subsequent legislation. In keeping with this mandate, we are reinstating this payment adjustment retroactively for LTCH cost reporting periods beginning on or after July 1, 2013, or October 1, 2013.

Section 1206(b)(2) of the Pathway for SGR Reform Act, as amended by section 112(b) of the Protecting Access to Medicare Act of 2014, provides for new statutory moratoria on the establishment of new LTCHs and LTCH satellite facilities (subject to certain defined exceptions) and a new statutory moratorium on bed increases in existing LTCHs effective for the period beginning April 1, 2014 and ending September 30, 2017.

In accordance with section 1206(d) of the Pathway for SGR Reform Act of 2013, we are applying a payment adjustment under the LTCH PPS to subclause (II) LTCHs beginning in FY 2015 that will result in payments to this type of LTCH resembling reasonable cost payments under the TEFRA payment system model.

We also discuss our proposed changes to the LTCH interruption of stay policy, which is a payment adjustment that is applied when, during the course of an LTCH hospitalization, a patient is discharged to an inpatient acute care hospital, an IRF, or a SNF for treatment or services not available at the LTCH for a specified period followed by readmittance to the same LTCH. In addition, we are finalizing our proposal to remove the 5-percent payment threshold policy for patient transfers between LTCHs and onsite providers.

3. Summary of Costs and Benefits

• Adjustment for MS-DRG Documentation and Coding Changes. We are making a −0.8 percent recoupment adjustment to the standardized amount for FY 2015 to implement, in part, the requirement of section 631 of the ATRA that the Secretary make an adjustment totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and 2017. This recoupment adjustment represents the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 until FY 2013. Prior to the ATRA, this amount could not have been recovered under Public Law 110-90.

While our actuaries estimated that a −9.3 percent recoupment adjustment to the standardized amount would be necessary if CMS were to fully recover the $11 billion recoupment required by section 631 of the ATRA in FY 2014, it is often our practice to delay or phase in rate adjustments over more than one year, in order to moderate the effects on rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases and the adjustment we made for FY 2014, we are making a −0.8 percent recoupment adjustment to the standardized amount in FY 2015. We estimated that this level of adjustment, combined with leaving the −0.8 percent adjustment made for FY 2014 in place, will recover up to $2 billion in FY 2015. Taking into account the approximately $1 billion recovered in FY 2014, this will leave approximately $8 billion remaining to be recovered by FY 2017.

• Reduction to Hospital Payments for Excess Readmissions. The provisions of section 1886(q) of the Act which establishes the Hospital Readmissions Reduction Program are not budget neutral. For FY 2015, a hospital's readmissions payment adjustment factor is the higher of a ratio of a hospital's aggregate payments for excess readmissions to its aggregate payments for all discharges, or 0.97 (that is, or a 3-percent reduction). In this final rule, we estimate that the reduction to a hospital's base operating DRG payment amount to account for excess readmissions of selected applicable conditions under the Hospital Readmissions Reduction Program will result in a 0.2 percent decrease in payments to hospitals for FY 2015 relative to FY 2014.
• Value-Based Incentive Payments under the Hospital Value-Based Purchasing (VBP) Program. We estimate that there will be no net financial impact to the Hospital VBP Program for FY 2015 in the aggregate because, by law, the amount available for value-based incentive payments under the program in a given fiscal year must be equal to the total amount of base operating DRG payment amount reductions for that year, as estimated by the Secretary. The estimated amount of base operating DRG payment amount reductions for FY 2015 and, therefore, the estimated amount available for value-based incentive payments for FY 2015 discharges is approximately $1.4 billion. We believe that the program's benefits will be seen in improved patient outcomes, safety, and in the patient's experience of care. However, we cannot estimate these benefits in actual dollar and patient terms.
• Payment Adjustment under the HAC Reduction Program for FY 2015. Under section 1886(p) of the Act, (as added by section 3008 of the Affordable Care Act), the incentive to reduce hospital-acquired conditions with a payment adjustment to applicable hospitals under the HAC Reduction Program is made beginning FY 2015. We estimate that, under this provision, overall payments will decrease approximately 0.3 percent or $369 million.
• Medicare DSH Payment Adjustment and Additional Payment for Uncompensated Care. Under section 1886(r) of the Act (as added by section 3313 of the Affordable Care Act), disproportionate share hospital payments to hospitals under section 1886(d)(5)(F) of the Act are reduced and an additional payment is made to eligible hospitals beginning in FY 2014. Hospitals that receive Medicare DSH payments will receive 25 percent of the amount they previously would have received under the current statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act. The remainder, equal to 75 percent of what otherwise would have been paid as Medicare DSH payments, will be the basis for determining the additional payments for uncompensated care after the amount is reduced for changes in the percentage of individuals that are uninsured and additional statutory adjustments. Each hospital that receives Medicare DSH payments will receive an additional payment based on its share of the total uncompensated care amount reported by Medicare DSHs. The reduction to Medicare DSH payments is not budget neutral.

For FY 2015, we are providing that the 75 percent of what otherwise would have been paid for Medicare DSH is adjusted to approximately 76.19 percent of the amount for changes in the percentage of individuals that are uninsured and additional statutory adjustments. In other words, our estimate of Medicare DSH payments prior to the application of section 3133 of the Affordable Care Act is adjusted to approximately 57.1 percent (the product of 75 percent and 76.19 percent) and the resulting payment amount is used to create an additional payment to hospitals for their relative share of the total amount of uncompensated care. We project that Medicare DSH payments and additional payments for uncompensated care made for FY 2015 will reduce payments overall by 1.3 percent as compared to the Medicare DSH payments and uncompensated care payments distributed in FY 2014. The additional payments have redistributive effects based on a hospital's uncompensated care amount relative to the uncompensated care amount for all hospitals that are estimated to receive Medicare DSH payments, and the final payment amount is not tied to a hospital's discharges.

• Hospital Inpatient Quality Reporting (IQR) Program. In this final rule, we are finalizing 11 new measures (1 chart-abstracted, 4 claims-based, and 6 voluntary electronic clinical quality measures). We proposed to remove 20 measures, but are only finalizing the removal of 19. The SCIP-INF-4 measure was proposed for removal, but will be retained as it was recently retooled for the 2014 collection period. 10 of these 19 measures are topped-out, chart-abstracted measures that are being retained as voluntary electronic clinical quality measures. We estimate that the adoption and removal of these measures will decrease hospital costs by $39.8 million.
• Update to the LTCH PPS Standard Federal Rate and Other Payment Factors. Based on the best available data for the 423 LTCHs in our database, we estimate that the changes to the payment rates and factors we are presenting in the preamble and Addendum of this final rule, including the update to the standard Federal rate for FY 2015, the changes to the area wage adjustment for FY 2015, and the expected changes to short-stay outliers and high-cost outliers, will result in an increase in estimated payments from FY 2014 of approximately $62 million (or 1.1 percent). In addition, we estimate that net effect of the projected impact of certain other LTCH PPS policy changes (that is, the reinstatement of the moratorium on the full implementation of the “25 percent threshold” payment adjustment; the reinstatement of the moratorium on the development of new LTCHs and LTCH satellite facilities and additional LTCH beds; the revocation of onsite discharges and readmissions policy; and the payment adjustment for “subclause (II)” LTCHs) is estimated to result in an increase in LTCH PPS payments of approximately $116 million.

The impact analysis of the payment rates and factors presented in this final rule under the LTCH PPS, in conjunction with the estimated payment impacts of certain other LTCH PPS policy changes will result in a net increase of $178 million to LTCH providers. Additionally, we estimate that the costs to LTCHs associated with the completion of the data for the LTCHQR Program to be approximately $4.7 million more than FY 2014.

B. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)

Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to use a prospective payment system (PPS) to pay for the capital-related costs of inpatient hospital services for these “subsection (d) hospitals.” Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs).

The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight.

If the hospital treats a high percentage of certain low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment varies based on the outcome of the statutory calculations. The Affordable Care Act revised the Medicare DSH payment methodology and provides for a new additional Medicare payment that considers the amount of uncompensated care beginning on October 1, 2013.

If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid under the IPPS, known as the indirect medical education (IME) adjustment. This percentage varies, depending on the ratio of residents to beds.

Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. To qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment.

The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments.

Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate, which is determined from their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. Through and including FY 2006, a Medicare-dependent, small rural hospital (MDH) received the higher of the Federal rate or the Federal rate plus 50 percent of the amount by which the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 hospital-specific rate. As discussed below, for discharges occurring on or after October 1, 2007, but before April 1, 2015, an MDH will receive the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. (We note that the statutory provision for payments to MDHs expires on March 31, 2015, under current law.) SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area, has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.

The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR Part 412, Subparts A through M.

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; certain cancer hospitals; and short-term acute care hospitals located in Guam, the U.S. Virgin Islands, the Northern Mariana Islands, and American Samoa. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are now included as part of the IPPS annual update document. Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, certain cancer hospitals, short-term acute care hospitals located in Guam, the U.S. Virgin Islands, the Northern Mariana Islands, and American Samoa, and RNHCIs continue to be paid solely under a reasonable cost-based system subject to a rate-of-increase ceiling on inpatient operating costs, as updated annually by the percentage increase in the IPPS operating market basket.

The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR Parts 412 and 413.

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)

The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) of the Act effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of section 123 of the BBRA and section 307(b) of the BIPA (as codified under section 1886(m)(1) of the Act). During the 5-year (optional) transition period, a LTCH's payment under the PPS was based on an increasing proportion of the LTCH Federal rate with a corresponding decreasing proportion based on reasonable cost principles. Effective for cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR Part 412, Subpart O. Beginning with FY 2009, annual updates to the LTCH PPS are published in the same documents that update the IPPS (73 FR 26797 through 26798).

4. Critical Access Hospitals (CAHs)

Under sections 1814(l), 1820, and 1834(g) of the Act, payments made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are generally based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR Part 413.

5. Payments for Graduate Medical Education (GME)

Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR Part 413.

C. Summary of Provisions of Recent Legislation Discussed in This Final Rule

The Patient Protection and Affordable Care Act (Pub. L. 111-148), enacted on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010, made a number of changes that affect the IPPS and the LTCH PPS. (Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as the “Affordable Care Act.”) A number of the provisions of the Affordable Care Act affect the updates to the IPPS and the LTCH PPS and providers and suppliers. The provisions of the Affordable Care Act that were applicable to the IPPS and the LTCH PPS for FYs 2010, 2011, and 2012 were implemented in the June 2, 2010 Federal Register notice (75 FR 31118), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50042) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51476).

The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), enacted on January 2, 2013, also made a number of changes that affect the IPPS. We announced changes related to certain IPPS provisions for FY 2013 in accordance with sections 605 and 606 of Public Law 112-240 in a document that appeared in the Federal Register on March 7, 2013 (78 FR 14689).

The Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), enacted on December 26, 2013, also made a number of changes that affect the IPPS and the LTCH PPS. We implemented changes related to the low-volume hospital payment adjustment and MDH provisions for FY 2014 in accordance with sections 1105 and 1106 of Public Law 113-67 in an interim final rule with comment period that appeared in the Federal Register on March 18, 2014 (79 FR 15022).

The Protecting Access to Medicare Act of 2014 (Pub. L. 113-93), enacted on April 1, 2014, also made a number of changes that affect the IPPS and LTCH PPS.

1. The Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152)

In this final rule, we are making policy changes to implement (or, as applicable, continue to implement in FY 2015) the following provisions (or portions of the following provisions) of the Affordable Care Act that are applicable to the IPPS, the LTCH PPS, and PPS-exempt cancer hospitals for FY 2015:

• Section 3001(a) of Public Law 111-148, which requires the establishment of a hospital inpatient value-based purchasing program under which value-based incentive payments are made in a fiscal year to hospitals that meet performance standards for the performance period for that fiscal year.
• Section 3004 of Public Law 111-148, which provides for the submission of quality data by LTCHs in order for them to receive the full annual update to the payment rates beginning with the FY 2014 rate year.
• Section 3005 of Public Law 111-148, which provides for the establishment of a quality reporting program for PPS-exempt cancer hospitals beginning with FY 2014, and for subsequent program years.
• Section 3008 of Public Law 111-148, which establishes the Hospital-Acquired Condition (HAC) Reduction Program and requires the Secretary to make an adjustment to hospital payments for applicable hospitals, effective for discharges beginning on October 1, 2014, and for subsequent program years.
• Section 3025 of Public Law 111-148, which establishes a hospital readmissions reduction program and requires the Secretary to reduce payments to applicable hospitals with excess readmissions effective for discharges beginning on or after October 1, 2012.
• Section 3133 of Public Law 111-148, as amended by section 10316 of Public Law 111-148 and section 1104 of Public Law 111-152, which modifies the methodologies for determining Medicare DSH payments and creates a new additional payment for uncompensated care effective for discharges beginning on or after October 1, 2013.
• Section 3401 of Public Law 111-148, which provides for the incorporation of productivity adjustments into the market basket updates for IPPS hospitals and LTCHs.
• Section 10324 of Public Law 111-148, which provides for a wage adjustment for hospitals located in frontier States.
• Sections 3401 and 10319 of Public Law 111-148 and section 1105 of Public Law 111-152, which revise certain market basket update percentages for IPPS and LTCH PPS payment rates for FY 2015.
• Section 5506 of Public Law 111-148, which added a provision to the Act that instructs the Secretary to establish a process by regulation under which, in the event a teaching hospital closes, the Secretary will permanently increase the FTE resident caps for hospitals that meet certain criteria up to the number of the closed hospital's FTE resident caps.

2. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)

In this final rule, we are making policy changes to implement section 631 of the American Taxpayer Relief Act of 2012, which amended section 7(b)(1)(B) of Public Law 110-90 and requires a recoupment adjustment to the standardized amounts under section 1886(d) of the Act based upon the Secretary's estimates for discharges occurring in FY 2014 through FY 2017 to fully offset $11 billion (which represents the amount of the increase in aggregate payments from FYs 2008 through 2013 for which an adjustment was not previously applied).

3. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)

In this final rule, we are making policy changes to implement, or discuss the need for future policy changes, to carry out provisions under section 1206 of the Pathway for SGR Reform Act of 2013. These include:

• Section 1206(a), which provides the establishment of patient criteria for “site neutral” payment rates under the LTCH PPS, portions of which will begin to be implemented in FY 2016.
• Section 1206(b)(1), which further amended section 114(c) of the MMSEA, as amended by section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the Affordable Care Act by retroactively reestablishing, and extending, the statutory moratorium on the full implementation of the 25-percent threshold payment adjustment policy under the LTCH PPS so that the policy will be in effect for 9 years (except for grandfathered hospitals-within-hospitals (HwHs), which are permanently exempt from this policy).
• Section 1206(b)(2), which amended section 114(d) of the MMSEA, as amended by section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the Affordable Care Act to establish new moratoria (subject to certain defined exceptions) on the development of new LTCHs and LTCH satellite facilities and a new moratorium on increases in the number of beds in existing LTCHs and LTCH satellite facilities.
• Section 1206(d), which instructs the Secretary to evaluate payments to LTCHs classified under section 1886(d)(1)(B)(iv)(II) of the Act and to adjust payment rates in FY 2015 or 2016 under the LTCH PPS, as appropriate, based upon the evaluation findings.

4. Protecting Access to Medicare Act of 2014 (Pub. L. 113-93)

In this final rule, we are making policy changes to implement, or making conforming changes to regulations in accordance with, the following provisions (or portions of the following provisions) of the Protecting Access to Medicare Act of 2014 that are applicable to the IPPS and the LTCH PPS for FY 2015:

• Section 105, which extends the temporary changes to the Medicare inpatient hospital payment adjustment for low-volume subsection (d) hospitals through March 31, 2015.
• Section 106, which extends the MDH program through March 31, 2015.
• Section 112, which makes certain changes to Medicare LTCH provisions, including modifications to the statutory moratoria on the establishment of new LTCHs and LTCH satellite facilities.
• Section 212, which prohibits the Secretary from requiring implementation of ICD-10 code sets before October 1, 2015.

D. Issuance of Notice of Proposed Rulemaking

Earlier this year, we published a proposed rule that set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals for FY 2015. The proposed rule appeared in the Federal Register on May 15, 2014 (79 FR 27978). In the proposed rule, we also set forth proposed changes relating to payments for IME and GME costs and payments to certain hospitals that continue to be excluded from the IPPS and paid on a reasonable cost basis. In addition, in the proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2015.

Below is a summary of the major changes that we proposed to make:

1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights

In section II. of the preamble of the proposed rule, we included—

• Proposed changes to MS-DRG classifications based on our yearly review, including a discussion of the conversion of MS-DRGs to ICD-10 and the status of the implementation of the ICD-10-CM and ICD-10-PCS systems.
• Proposed application of the documentation and coding adjustment for FY 2015 resulting from implementation of the MS-DRG system.
• Proposed recalibrations of the MS-DRG relative weights.
• Proposed changes to hospital-acquired conditions (HACs) and a listing and discussion of HACs, including infections, that would be subject to the statutorily required adjustment in MS-DRG payments for FY 2015.
• A discussion of the FY 2015 status of new technologies approved for add-on payments for FY 2014 and a presentation of our evaluation and analysis of the FY 2015 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).

2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals

In section III. of the preamble to the proposed rule, we proposed revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed included the following:

• Proposed changes in CBSAs as a result of new OMB labor market area delineations and proposed policies related to the proposed changes in CBSAs.
• The proposed FY 2015 wage index update using wage data from cost reporting periods beginning in FY 2011.
• Analysis and implementation of the proposed FY 2015 occupational mix adjustment to the wage index for acute care hospitals, including the proposed application of the rural floor, the proposed imputed rural floor, and the proposed frontier State floor.
• Proposed revisions to the wage index for acute care hospitals based on hospital redesignations and reclassifications.
• The proposed adjustment to the wage index for acute care hospitals for FY 2015 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
• The timetable for reviewing and verifying the wage data used to compute the proposed FY 2015 hospital wage index and proposed revisions to that timetable.
• Determination of the labor-related share for the proposed FY 2015 wage index.

3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs

In section IV. of the preamble of the proposed rule, we discussed proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR Parts 412 and 413, including the following:

• Proposed changes in postacute care transfer policies as a result of proposed new MS-DRGs.
• Proposed changes to the inpatient hospital updates for FY 2015, including incorporation of the adjustment for hospitals that are not meaningful EHR users under section 1886(b)(3)(B)(ix) of the Act.
• The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
• Proposed payment adjustment for low-volume hospitals for FY 2015.
• The statutorily required IME adjustment factor for FY 2015 and proposed IME add-on payments for Medicare Part C discharges to SCHs that are paid according to their hospital-specific rates.
• Effect of expiration of the MDH program on April 1, 2015.
• Proposed changes to the methodologies for determining Medicare DSH payments and the additional payments for uncompensated care.
• Proposed changes to the measures and payment adjustments under the Hospital Readmissions Reduction Program.
• Proposed changes to the requirements and provision of value-based incentive payments under the Hospital Value-Based Purchasing Program.
• Proposed requirements for payment adjustments to hospitals under the HAC Reduction Program for FY 2015.
• Proposed IME and direct GME policy changes regarding the effective date of the FTE resident cap, 3-year rolling average, and IRB ratio cap in new programs in teaching hospitals; effect of new OMB labor market area delineations on certain teaching hospitals training residents in rural areas; clarification of effective date of provisions on counting resident time in nonprovider settings; proposed changes to the process for reviewing applications for and awarding slots made available under section 5506 of the Affordable Care Act by teaching hospitals that close; and clarification regarding direct GME payment to FQHCs and RHCs that train residents in approved programs.
• Discussion of the Rural Community Hospital Demonstration Program and a proposal for making a budget neutrality adjustment for the demonstration program.
• Discussion of the requirements for transparency of hospital charges under the Affordable Care Act.
• Discussion of and solicitation of comments on an alternative payment methodology under the Medicare program for short inpatient hospital stays.
• Discussion of the process for submitting suggested exceptions to the 2-midnight benchmark.

4. Proposed FY 2015 Policy Governing the IPPS for Capital-Related Costs

In section V. of the preamble to the proposed rule, we discussed the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2015 and other related proposed policy changes.

5. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages

In section VI. of the preamble of the proposed rule, we discussed—

• Proposed changes to payments to certain excluded hospitals for FY 2015.
• Proposed updates to the RCE limits and proposed changes to the methodology for determining such limits for services furnished by physicians to IPPS-excluded hospitals and certain teaching hospitals.
• Proposed CAH related changes regarding reclassifications as rural.
• Proposed changes to the physician certification requirements for services furnished in CAHs.

6. Proposed Changes to the LTCH PPS

In section VII. of the preamble of the proposed rule, we set forth—

• Proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2015.
• Proposed revisions to the LTCH PPS geographic classifications based on the new OMB delineations.
• Proposals to implement section 1206(b)(1) of the Pathway for SGR Reform Act, which provides for the retroactive reinstatement and extension, for an additional 4 years, of the statutory moratorium on the full implementation of the 25-percent threshold payment adjustment established under section 114(c) of the MMSEA, as further amended by subsequent legislation.
• Proposals to implement section 1206(b)(2) of the Pathway for SGR Reform Act, as amended by section 112(b) of the Protecting Access to Medicare Act of 2014, which provides for moratoria (subject to certain defined exceptions) on the establishment of new LTCHs and LTCH satellite facilities and a moratorium on bed increases in LTCHs effective for the period beginning April 1, 2014, and ending September 30, 2017.
• Proposed changes to the LTCH interruption of stay policy by revising the fixed-day thresholds under the “greater than 3-day interruption of stay policy” to apply a uniform 30-day threshold as an “acceptable standard” for determining a linkage between an index discharge and a readmission.
• Proposal to remove the discharge and readmission requirement, “Special Payment Provisions for Patients Who are Transferred to Onsite Providers and Readmitted to an LTCH” (the “5 percent payment threshold”) beginning in FY 2015.
• Proposal to apply a payment adjustment under the LTCH PPS to subclause (II) LTCHs beginning in FY 2015 that would result in payments to this type of LTCH resembling reasonable cost payment under the TEFRA payment system model, consistent with the provisions of section 1206(d) of the Pathway for SGR Reform Act of 2013.

7. Proposed Changes to Regulations Governing Administrative Appeals by Providers and Judicial Review of Provider Claims

In section VIII. of the preamble of the proposed rule, we set forth proposals to revise the regulations governing administrative appeals and judicial review of provider claims in Medicare cost reports.

8. Proposed Changes Relating to Quality Data Reporting for Specific Providers and Suppliers

In section IX. of the preamble of the proposed rule, we addressed—

• Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) Program as a condition for receiving the full applicable percentage increase.
• Proposed changes to the requirements for the quality reporting program for PPS-exempt cancer hospitals (PCHQR Program).
• Proposed changes to the requirements under the LTCH Quality Reporting (LTCHQR) Program.

9. Proposed Uses and Release of Medicare Advantage Risk Adjustment Data

In section X. of the preamble of the proposed rule, we set forth proposed regulatory revisions to broaden the specified uses of Medicare Advantage (MA) risk adjustment data and to specify the conditions for release of such risk adjustment data to entities outside of CMS.

10. Proposed Changes to Enforcement Provisions for Organ Transplant Centers

In section XI. of the preamble of the proposed rule, we proposed to revise the regulations governing organ transplant centers that request approval, based on mitigating factors for initial approval and re-approval, for participation in Medicare when the centers have not met one or more of the conditions of participation.

11. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals

In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2015 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We also proposed to establish the threshold amounts for outlier cases. In addition, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2015 for certain hospitals excluded from the IPPS.

12. Determining Prospective Payment Rates for LTCHs

In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2015 LTCH PPS standard Federal rate. We proposed to establish the adjustments for wage levels (including proposed changes to the LTCH PPS labor market area delineations based on the new OMB delineations), the labor-related share, the cost-of-living adjustment, and high-cost outliers, including the fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.

13. Impact Analysis

In Appendix A of the proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected acute care hospitals, LTCHs, and PCHs.

14. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services

In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2015 for the following:

• A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs).
• Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS.
• The standard Federal rate for hospital inpatient services furnished by LTCHs.

15. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 15 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2014 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs for hospitals under the IPPS. We addressed these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2014 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: http://www.medpac.gov.

E. Public Comments Received in Response to the FY 2015 IPPS/LTCH PPS Proposed Rule

We received approximately 653 timely pieces of correspondence containing multiple comments on the FY 2015 IPPS/LTCH PPS proposed rule. We note that some of these public comments were outside of the scope of the proposed rule. These out-of-scope public comments are not addressed in the policy responses in this final rule. Summaries of the public comments that are within the scope of the proposed rule and our responses to those public comments are set forth in the various sections of this final rule under the appropriate headings.

F. Finalization of Interim Final Rule With Comment Period on Extension of Payment Adjustment for Low-Volume Hospitals and the Medicare-Dependent, Small Rural Hospital (MDH) Program for FY 2014 Discharges Through March 31, 2014

In an interim final rule with comment period (CMS-1599-IFC2) that appeared in the Federal Register on March 18, 2014, we implemented the extension of the temporary changes to the payment adjustment for low-volume hospitals and the MDH program under the IPPS for FY 2014 (through March 31, 2014) in accordance with sections 1105 and 1106, respectively, of the Pathway for SGR Reform Act of 2013 (79 FR 15022 through 15030). We received four timely pieces of correspondence on this interim final rule with comment period. In section IV.P. of the preamble of this final rule, we summarize the provisions of the interim final rule, summarize and respond to the public comments received, and finalize the provisions of the interim final rule with comment period.

G. Finalization of Interim Final Rule With Comment Period on Changes to Certain Cost Reporting Procedures Related to Disproportionate Share Hospital Uncompensated Care Payments

In an interim final rule with comment period (CMS-1599-IFC) that appeared in the Federal Register on October 13, 2013 (78 FR 61191), we revised certain operational considerations for hospitals with Medicare cost reporting periods that span more than one Federal fiscal year and also made chnges to the data that will be used in the uncompensated care payment calculation in order to ensure that data from Indian Health Service (IHS) hospitals are included in Factor 1 and Factor 3 of that calculation (78 FR 61191 through 61197). We received 12 timely pieces of correspondence in response to this interim final rule with comment period. In section IV.Q. of the preamble of this final rule, we summarize the provisions of the interim final rule with comment period, summarize and respond to the public comments received, and finalize the provisions of the interim final rule with comment period.

II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as diagnosis-related groups (DRGs)) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.

Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

B. MS-DRG Reclassifications

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50053 through 50055), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485 through 51487), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53273), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50512).

C. Adoption of the MS-DRGs in FY 2008

For information on the adoption of the MS-DRGs in FY 2008, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189).

D. FY 2015 MS-DRG Documentation and Coding Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Pub. L. 110-90

In the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189), we adopted the MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates for acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. (In FY 2014, there are 751 MS-DRGs.) By increasing the number of MS-DRGs and more fully taking into account patient severity of illness in Medicare payment rates for acute care hospitals, MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses.

In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for additional documentation and coding. In that final rule with comment period, we exercised our authority under section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality by adjusting the national standardized amount, to eliminate the estimated effect of changes in coding or classification that do not reflect real changes in case-mix. Our actuaries estimated that maintaining budget neutrality required an adjustment of −4.8 percent to the national standardized amount. We provided for phasing in this −4.8 percent adjustment over 3 years. Specifically, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010.

On September 29, 2007, Congress enacted the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 110-90). Section 7(a) of Public Law 110-90 reduced the documentation and coding adjustment made as a result of the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009, and we finalized the FY 2008 adjustment through rulemaking, effective October 1, 2007 (72 FR 66886).

For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of −0.9 percent, and we finalized that adjustment through rulemaking effective October 1, 2008 (73 FR 48447). The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, which reflected the amendments made by section 7(a) of Public Law 110-90, are cumulative. As a result, the −0.9 percent documentation and coding adjustment for FY 2009 was in addition to the −0.6 percent adjustment for FY 2008, yielding a combined effect of −1.5 percent.

2. Adjustment to the Average Standardized Amounts Required by Pub. L. 110-90

a. Prospective Adjustment Required by Section 7(b)(1)(A) of Pub. L. 110-90

Section 7(b)(1)(A) of Public Law 110-90 requires that, if the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, the Secretary shall make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized amounts for subsequent fiscal years in order to eliminate the effect of such coding or classification changes. These adjustments are intended to ensure that future annual aggregate IPPS payments are the same as the payments that otherwise would have been made had the prospective adjustments for documentation and coding applied in FY 2008 and FY 2009 reflected the change that occurred in those years.

b. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 Required by Section 7(b)(1)(B) Pub. L. 110-90

If, based on a retroactive evaluation of claims data, the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different from the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional adjustment to the standardized amounts under section 1886(d) of the Act. This adjustment must offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustment applied under section 7(a) of Public Law 110-90. This adjustment is in addition to making an appropriate adjustment to the standardized amounts under section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) of Public Law 110-90. That is, these adjustments are intended to recoup (or repay, in the case of underpayments) spending in excess of (or less than) spending that would have occurred had the prospective adjustments for changes in documentation and coding applied in FY 2008 and FY 2009 matched the changes that occurred in those years. Public Law 110-90 requires that the Secretary only make these recoupment or repayment adjustments for discharges occurring during FYs 2010, 2011, and 2012.

3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data

In order to implement the requirements of section 7 of Public Law 110-90, we performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008 using the methodology first described in the FY 2009 IPPS/LTCH PPS final rule (73 FR 43768 and 43775) and later discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 through 43772). We performed the same analysis for FY 2009 claims data using the same methodology as we did for FY 2008 claims (75 FR 50057 through 50068). The results of the analysis for the FY 2011 IPPS/LTCH PPS proposed and final rules, and subsequent evaluations in FY 2012, supported that the 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system. We were persuaded by both MedPAC's analysis (as discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50064 through 50065)) and our own review of the methodologies recommended by various commenters that the methodology we employed to determine the required documentation and coding adjustments was sound.

As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files are available to the public to allow independent analysis of the FY 2008 and FY 2009 documentation and coding effects. Interested individuals may still order these files through the CMS Web site at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/ by clicking on MedPAR Limited Data Set (LDS)-Hospital (National). This CMS Web page describes the file and provides directions and further detailed instructions for how to order.

Persons placing an order must send the following: A Letter of Request, the LDS Data Use Agreement and Research Protocol (refer to the Web site for further instructions), the LDS Form, and a check (refer to the Web site for the required payment amount) to:

Mailing address if using the U.S. Postal Service: Centers for Medicare & Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520, Baltimore, MD 21207-0520.

Mailing address if using express mail: Centers for Medicare & Medicaid Services, OFM/Division of Accounting—RDDC, 7500 Security Boulevard, C3-07-11, Baltimore, MD 21244-1850.

4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) of Pub. L. 110-90

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 through 43777), we opted to delay the implementation of any documentation and coding adjustment until a full analysis of case-mix changes based on FY 2009 claims data could be completed. We refer readers to the FY 2010 IPPS/RY LTCH PPS final rule for a detailed description of our proposal, responses to comments, and finalized policy. After analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50073), we found a total prospective documentation and coding effect of 5.4 percent. After accounting for the −0.6 percent and the −0.9 percent documentation and coding adjustments in FYs 2008 and 2009, we found a remaining documentation and coding effect of 3.9 percent. As we have discussed, an additional cumulative adjustment of −3.9 percent would be necessary to meet the requirements of section 7(b)(1)(A) of Public Law 110-90 to make an adjustment to the average standardized amounts in order to eliminate the full effect of the documentation and coding changes that do not reflect real changes in case-mix on future payments. Unlike section 7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not specify when we must apply the prospective adjustment, but merely requires us to make an “appropriate” adjustment. Therefore, as we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50061), we believed the law provided some discretion as to the manner in which we applied the prospective adjustment of −3.9 percent. As we discussed extensively in the FY 2011 IPPS/LTCH PPS final rule, it has been our practice to moderate payment adjustments when necessary to mitigate the effects of significant downward adjustments on hospitals, to avoid what could be widespread, disruptive effects of such adjustments on hospitals. Therefore, we stated that we believed it was appropriate to not implement the −3.9 percent prospective adjustment in FY 2011 because we finalized a −2.9 percent recoupment adjustment for that fiscal year. Accordingly, we did not propose a prospective adjustment under section 7(b)(1)(A) of Public Law 110-90 for FY 2011 (75 FR 23868 through 23870). We noted that, as a result, payments in FY 2011 (and in each future fiscal year until we implemented the requisite adjustment) would be higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51489 and 51497), we indicated that, because further delay of this prospective adjustment would result in a continued accrual of unrecoverable overpayments, it was imperative that we implement a prospective adjustment for FY 2012, while recognizing CMS' continued desire to mitigate the effects of any significant downward adjustments to hospitals. Therefore, we implemented a −2.0 percent prospective adjustment to the standardized amount instead of the full −3.9 percent.

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274 through 53276), we completed the prospective portion of the adjustment required under section 7(b)(1)(A) of Public Law 110-90 by finalizing a −1.9 percent adjustment to the standardized amount for FY 2013. We stated that this adjustment would remove the remaining effect of the documentation and coding changes that do not reflect real changes in case-mix that occurred in FY 2008 and FY 2009. We believed that it was imperative to implement the full remaining adjustment, as any further delay would result in an overstated standardized amount in FY 2013 and any future fiscal years until a full adjustment was made.

We noted again that delaying full implementation of the prospective portion of the adjustment required under section 7(b)(1)(A) of Public Law 110-90 until FY 2013 resulted in payments in FY 2010 through FY 2012 being overstated. These overpayments could not be recovered by CMS as section 7(b)(1)(B) of Public Law 110-90 limited recoupments to overpayments made in FY 2008 and FY 2009.

5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) of Pub. L. 110-90

Section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an adjustment to the standardized amounts under section 1886(d) of the Act to offset the estimated increase or decrease in aggregate payments for FY 2008 and FY 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustments applied under section 7(a) of Public Law 110-90. This determination must be based on a retrospective evaluation of claims data. Our actuaries estimated that there was a 5.8 percentage point difference resulting in an increase in aggregate payments of approximately $6.9 billion. Therefore, as discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 50067), we determined that an aggregate adjustment of −5.8 percent in FYs 2011 and 2012 would be necessary in order to meet the requirements of section 7(b)(1)(B) of Public Law 110-90 to adjust the standardized amounts for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of the increase in aggregate payments (including interest) in FYs 2008 and 2009.

It is often our practice to phase in payment rate adjustments over more than one year in order to moderate the effect on payment rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, in the FY 2011 IPPS/LTCH PPS final rule, we made an adjustment to the standardized amount of −2.9 percent, representing approximately half of the aggregate adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. An adjustment of this magnitude allowed us to moderate the effects on hospitals in one year while simultaneously making it possible to implement the entire adjustment within the timeframe required under section 7(b)(1)(B) of Public Law 110-90 (that is, no later than FY 2012). For FY 2012, in accordance with the timeframes set forth by section 7(b)(1)(B) of Public Law 110-90, and consistent with the discussion in the FY 2011 IPPS/LTCH PPS final rule, we completed the recoupment adjustment by implementing the remaining −2.9 percent adjustment, in addition to removing the effect of the −2.9 percent adjustment to the standardized amount finalized for FY 2011 (76 FR 51489 and 51498). Because these adjustments, in effect, balanced out, there was no year-to-year change in the standardized amount due to this recoupment adjustment for FY 2012. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53276), we made a final +2.9 percent adjustment to the standardized amount, completing the recoupment portion of section 7(b)(1)(B) of Public Law 110-90. We note that with this positive adjustment, according to our estimates, all overpayments made in FY 2008 and FY 2009 have been fully recaptured with appropriate interest, and the standardized amount has been returned to the appropriate baseline.

6. Recoupment or Repayment Adjustment Authorized by Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)

Section 631 of the ATRA amended section 7(b)(1)(B) of Public Law 110-90 to require the Secretary to make a recoupment adjustment or adjustments totaling $11 billion by FY 2017. This adjustment represents the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 until FY 2013. As discussed earlier, this delay in implementation resulted in overstated payment rates in FYs 2010, 2011, and 2012. The resulting overpayments could not have been recovered under Public Law 110-90.

Similar to the adjustments authorized under section 7(b)(1)(B) of Public Law 110-90, the adjustment required under section 631 of the ATRA is a one-time recoupment of a prior overpayment, not a permanent reduction to payment rates. Therefore, any adjustment made to reduce payment rates in one year would eventually be offset by a positive adjustment, once the necessary amount of overpayment is recovered.

As we stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517), our actuaries estimate that a −9.3 percent adjustment to the standardized amount would be necessary if CMS were to fully recover the $11 billion recoupment required by section 631 of the ATRA in FY 2014. It is often our practice to phase in payment rate adjustments over more than one year, in order to moderate the effect on payment rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, and after consideration of the public comments we received, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517), we implemented a −0.8 percent recoupment adjustment to the standardized amount in FY 2014. We stated that if adjustments of approximately −0.8 percent are implemented in FYs 2014, 2015, 2016, and 2017, using standard inflation factors, we estimate that the entire $11 billion will be accounted for by the end of the statutory 4-year timeline. As estimates of any future adjustments are subject to slight variations in total savings, we did not provide for specific adjustments for FYs 2015, 2016, or 2017 at that time. We stated that we believed that this level of adjustment for FY 2014 was a reasonable and fair approach that satisfies the requirements of the statute while mitigating extreme annual fluctuations in payment rates. In addition, we again noted that this −0.8 percent recoupment adjustment, and future adjustments under this authority, will be eventually offset by an equivalent positive adjustment once the full $11 billion recoupment requirement has been realized.

Consistent with the approach discussed in the FY 2014 rulemaking for recouping the $11 billion required by section 631 of the ATRA, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 27997 through 27998), we proposed an additional −0.8 percent recoupment adjustment to the standardized amount for FY 2015. We estimated that this level of adjustment, combined with leaving the −0.8 percent adjustment made for FY 2014 in place, would recover up to $2 billion in FY 2015. Taking into account the approximately $1 billion recovered in FY 2014, this would leave approximately $8 billion remaining to be recovered by FY 2017.

Comment: Several commenters restated their previous position, as set forth in comments submitted in response to the FY 2014 IPPS/LTCH PPS proposed rule and summarized in the FY 2014 IPPS/LTCH PPS final rule, that CMS overstated the impact of documentation and coding effects for prior years. Commenters cited potential deficiencies in the CMS methodology and disagreed that the congressionally mandated adjustment is warranted. However, the majority of these commenters conceded that CMS is required by section 631 of the ATRA to recover $11 billion by FY 2017, and supported CMS' policy to phase in the adjustments over a 4-year period.

Response: We appreciate the commenters' support. We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517) for our response to the commenters' position that CMS overstated the impact of documentation and coding effects.

After consideration of the public comments we received, we are finalizing the proposal to make an additional −0.8 percent adjustment to the standardized amount for FY 2015. Considering the −0.8 percent adjustment made in FY 2014, we expect the combined impact of these adjustments will be to recover $2 billion dollars in overpayments in FY 2015. Combined with the estimated $1 billion adjustment made in FY 2014, we estimate that $3 billion of the $11 billion in overpayments required to be recovered by section 631 of the ATRA will be accounted for.

We continue to believe that if adjustments of approximately −0.8 percent are implemented in FYs 2014, 2015, 2016, and 2017, using standard inflation factors, the entire $11 billion will be accounted for by the end of the statutory 4-year timeline. As we explained in the FY 2014 IPPS/LTCH PPS final rule, estimates of any future adjustments are subject to slight variations in total savings. Therefore, we have not yet addressed specific adjustments for FY 2016 and FY 2017. We continue to believe that the −0.8 percent adjustment for FY 2015 is a reasonable and fair approach that will help satisfy the requirements of the statute while mitigating extreme annual fluctuations in payment rates. In addition, we again note that this −0.8 percent recoupment adjustment, and future adjustments under this authority, will be eventually offset by an equivalent positive adjustment once the full $11 billion recoupment requirement has been realized.

7. Prospective Adjustment for the MS-DRG Documentation and Coding Effect Through FY 2010

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517), we discussed the possibility of applying an additional prospective adjustment to account for the cumulative MS-DRG documentation and coding effect through FY 2010. In that final rule, we stated that if we were to apply such an adjustment, we believed the most appropriate additional adjustment was −0.55 percent. However, we decided not to apply such an adjustment in FY 2014, in light of the need to make the retrospective adjustments required by the ATRA. We continue to believe that if we were to apply an additional prospective adjustment for the cumulative MS-DRG documentation and coding effect through FY 2010, the most appropriate additional adjustment is −0.55 percent. However, we did not propose such an adjustment for FY 2015, in light of the ongoing recoupment required by the ATRA. We will consider whether such an additional adjustment is appropriate in future years' rulemaking.

Comment: Commenters reiterated their concern, as set forth in comments submitted in response to the FY 2014 IPPS/LTCH PPS proposed rule and summarized in the FY 2014 IPPS/LTCH PPS final rule, that CMS overstated the adjustment factor for documentation and coding, including the revised −0.55 percent factor to adjust for documentation and coding that occurred in FY 2010. Commenters believed that adjustments related to FY 2010 documentation and coding are not required under section 631 of the ATRA. Commenters urged CMS to not consider additional adjustments, other than those required by section 631 of the ATRA.

Response: We appreciate the commenters' concerns. We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517) for our response to the commenters' position that CMS overstated the impact of documentation and coding effects. We did not propose to make any additional prospective adjustment to address the cumulative documentation and coding effect through FY 2010 for FY 2015. We will consider these comments in future years' rulemaking.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

Beginning in FY 2007, we implemented relative weights for DRGs based on cost report data instead of charge information. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for a detailed discussion of our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS DRGs and MS-DRGs.

As we implemented cost-based relative weights, some public commenters raised concerns about potential bias in the weights due to “charge compression,” which is the practice of applying a higher percentage charge markup over costs to lower cost items and services, and a lower percentage charge markup over costs to higher cost items and services. As a result, the cost-based weights would undervalue high-cost items and overvalue low-cost items if a single cost-to-charge ratio (CCR) is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to the Research Triangle Institute, International (RTI) to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the CCRs across services within cost centers. For a detailed summary of RTI's findings, recommendations, and public comments that we received on the report, we refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48452 through 48453). In addition, we refer readers to RTI's July 2008 final report titled “Refining Cost to Charge Ratios for Calculating APC and MS-DRG Relative Payment Weights” (http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf).

In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in response to the RTI's recommendations concerning cost report refinements, we discussed our decision to pursue changes to the cost report to split the cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients.” We acknowledged, as RTI had found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the FY 2009 IPPS final rule, we focused on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the MS-DRG relative weights could result from correcting charge compression for devices and implants. In determining the items that should be reported in these respective cost centers, we adopted the commenters' recommendations that hospitals should use revenue codes established by the AHA's National Uniform Billing Committee to determine the items that should be reported in the “Medical Supplies Charged to Patients” and the “Implantable Devices Charged to Patients” cost centers. Accordingly, a new subscripted line for “Implantable Devices Charged to Patients” was created in July 2009. This new subscripted cost center has been available for use for cost reporting periods beginning on or after May 1, 2009.

As we discussed in the FY 2009 IPPS final rule (73 FR 48458) and in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68519 through 68527), in addition to the findings regarding implantable devices, RTI also found that the costs and charges of computed tomography (CT) scans, magnetic resonance imaging (MRI), and cardiac catheterization differ significantly from the costs and charges of other services included in the standard associated cost center. RTI also concluded that both the IPPS and the OPPS relative weights would better estimate the costs of those services if CMS were to add standard cost centers for CT scans, MRIs, and cardiac catheterization in order for hospitals to report separately the costs and charges for those services and in order for CMS to calculate unique CCRs to estimate the costs from charges on claims data. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we finalized our proposal to create standard cost centers for CT scans, MRIs, and cardiac catheterization, and to require that hospitals report the costs and charges for these services under new cost centers on the revised Medicare cost report Form CMS-2552-10. (We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a detailed discussion of the reasons for the creation of standard cost centers for CT scans, MRIs, and cardiac catheterization.) The new standard cost centers for CT scans, MRIs, and cardiac catheterization are effective for cost reporting periods beginning on or after May 1, 2010, on the revised cost report Form CMS-2552-10.

In the FY 2009 IPPS final rule (73 FR 48468), we stated that, due to what is typically a 3-year lag between the reporting of cost report data and the availability for use in ratesetting, we anticipated that we might be able to use data from the new “Implantable Devices Charged to Patients” cost center to develop a CCR for “Implantable Devices Charged to Patients” in the FY 2012 or FY 2013 IPPS rulemaking cycle. However, as noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782), due to delays in the issuance of the revised cost report Form CMS 2552-10, we determined that a new CCR for “Implantable Devices Charged to Patients” might not be available before FY 2013. Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS final rule to add new cost centers for CT scans, MRIs, and cardiac catheterization, we explained that data from any new cost centers that may be created will not be available until at least 3 years after they are first used (75 FR 50077). In preparation for the FY 2012 IPPS/LTCH PPS rulemaking, we checked the availability of data in the “Implantable Devices Charged to Patients” cost center on the FY 2009 cost reports, but we did not believe that there was a sufficient amount of data from which to generate a meaningful analysis in this particular situation. Therefore, we did not propose to use data from the “Implantable Devices Charged to Patients” cost center to create a distinct CCR for “Implantable Devices Charged to Patients” for use in calculating the MS-DRG relative weights for FY 2012. We indicated that we would reassess the availability of data for the “Implantable Devices Charged to Patients” cost center for the FY 2013 IPPS/LTCH PPS rulemaking cycle and, if appropriate, we would propose to create a distinct CCR at that time.

During the development of the FY 2013 IPPS/LTCH PPS proposed and final rules, hospitals were still in the process of transitioning from the previous cost report Form CMS-2552-96 to the new cost report Form CMS-2552-10. Therefore, we were able to access only those cost reports in the FY 2010 HCRIS with fiscal year begin dates on or after October 1, 2009, and before May 1, 2010; that is, those cost reports on Form CMS-2552-96. Data from the Form CMS-2552-10 cost reports were not available because cost reports filed on the Form CMS-2552-10 were not accessible in the HCRIS. Further complicating matters was that, due to additional unforeseen technical difficulties, the corresponding information regarding charges for implantable devices on hospital claims was not yet available to us in the MedPAR file. Without the breakout in the MedPAR file of charges associated with implantable devices to correspond to the costs of implantable devices on the cost report, we believed that we had no choice but to continue computing the relative weights with the current CCR that combines the costs and charges for supplies and implantable devices. We stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53281 through 53283) that when we do have the necessary data for supplies and implantable devices on the claims in the MedPAR file to create distinct CCRs for the respective cost centers for supplies and implantable devices, we hoped that we would also have data for an analysis of creating distinct CCRs for CT scans, MRIs, and cardiac catheterization, which could then be finalized through rulemaking. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53281), we stated that, prior to proposing to create these CCRs, we would first thoroughly analyze and determine the impacts of the data, and that distinct CCRs for these new cost centers would be used in the calculation of the relative weights only if they were first finalized through rulemaking.

At the time of the development of the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27506 through 27507), we had a substantial number of hospitals completing all, or some, of these new cost centers on the FY 2011 Medicare cost reports, compared to prior years. We stated that we believed that the analytic findings described using the FY 2011 cost report data and FY 2012 claims data supported our original decision to break out and create new cost centers for implantable devices, MRIs, CT scans, and cardiac catheterization, and we saw no reason to further delay proposing to implement the CCRs of each of these cost centers. Therefore, beginning in FY 2014, we proposed to calculate the MS-DRG relative weights using 19 CCRs, creating distinct CCRs from cost report data for implantable devices, MRIs, CT scans, and cardiac catheterization (78 FR 27509).

We refer readers to the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27507 through 27509) and final rule (78 FR 50518 through 50523) in which we presented data analyses using distinct CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization. The FY 2014 IPPS/LTCH PPS final rule also set forth our responses to public comments we received on our proposal to implement these CCRs. As explained in more detail in the FY 2014 IPPS/LTCH PPS final rule, we finalized our proposal to use 19 CCRs to calculate MS-DRG relative weights beginning in FY 2014—the then existing 15 cost centers and the 4 new CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization. Therefore, beginning in FY 2014, we calculated the IPPS MS-DRG relative weights using 19 CCRs, creating distinct CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization.

2. Discussion of Policy for FY 2015

As we stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 27999), to calculate the MS-DRG relative weights for FY 2015, we used two data sources: the MedPAR file as the claims data source and the HCRIS as the cost report data source. We adjusted the charges from the claims to costs by applying the 19 national average CCRs developed from the cost reports. The description of the calculation of the 19 CCRs and the MS-DRG relative weights for FY 2015 is included in section II.H. of the preamble of this final rule.

Comment: One commenter supported CMS' plans to continue to use data from the implantable devices cost center to create a distinct CCR for implantable devices in the calculation of the FY 2015 relative weights. The commenter also urged CMS to promote transparency by making detailed data from the implantable device cost center available to the public so that hospitals could evaluate these costs in the context of overall hospital charges.

Response: We did not propose any changes to the methodology or data sources for the FY 2015 CCRs and relative weights. Regarding the commenter's request to make data from the implantable devices cost center available to the public, we note that hospital cost report data, via HCRIS, are available to the public. For more information, we refer to readers to the CMS Web site at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/CostReports/index.html?redirect=/costReports.

F. Adjustment to MS-DRGs for Preventable Hospital-Acquired Conditions (HACs), Including Infections for FY 2015

1. Background

Section 1886(d)(4)(D) of the Act addresses certain hospital-acquired conditions (HACs), including infections. This provision is part of an array of Medicare tools that we are using to promote increased quality and efficiency of care. Under the IPPS, hospitals are encouraged to treat patients efficiently because they receive the same DRG payment for stays that vary in length and in the services provided, which gives hospitals an incentive to avoid unnecessary costs in the delivery of care. In some cases, conditions acquired in the hospital do not generate higher payments than the hospital would otherwise receive for cases without these conditions. To this extent, the IPPS encourages hospitals to avoid complications.

However, the treatment of these conditions can generate higher Medicare payments in two ways. First, if a hospital incurs exceptionally high costs treating a patient, the hospital stay may generate an outlier payment. Because the outlier payment methodology requires that hospitals experience large losses on outlier cases before outlier payments are made, hospitals have an incentive to prevent outliers. Second, under the MS-DRG system that took effect in FY 2008 and that has been refined through rulemaking in subsequent years, certain conditions can generate higher payments even if the outlier payment requirements are not met. Under the MS-DRG system, there are currently 261 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a complication or comorbidity (CC) or a major complication or comorbidity (MCC). The presence of a CC or an MCC generally results in a higher payment.

Section 1886(d)(4)(D) of the Act specifies that, by October 1, 2007, the Secretary was required to select, in consultation with the Centers for Disease Control and Prevention (CDC), at least two conditions that: (a) Are high cost, high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or MCCs); and (c) could reasonably have been prevented through the application of evidence-based guidelines. Section 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, again in consultation with the CDC, from time to time as long as the list contains at least two conditions.

Effective for discharges occurring on or after October 1, 2008, under the authority of section 1886(d)(4)(D) of the Act, Medicare no longer assigns an inpatient hospital discharge to a higher paying MS-DRG if a selected condition is not present on admission (POA). Thus, if a selected condition that was not POA manifests during the hospital stay, it is considered a HAC and the case is paid as though the secondary diagnosis was not present. However, even if a HAC manifests during the hospital stay, if any nonselected CC or MCC appears on the claim, the claim will be paid at the higher MS-DRG rate. In addition, Medicare continues to assign a discharge to a higher paying MS-DRG if a selected condition is POA. When a HAC is not POA, payment can be affected in a manner shown in the diagram below

2. HAC Selection

Beginning in FY 2007, we have set forth proposals, and solicited and responded to public comments, to implement section 1886(d)(4)(D) of the Act through the IPPS annual rulemaking process. For specific policies addressed in each rulemaking cycle, including a detailed discussion of the collaborative interdepartmental process and public input regarding selected and potential candidate HACs, we refer readers to the following rules: The FY 2007 IPPS proposed rule (71 FR 24100) and final rule (71 FR 48051 through 48053); the FY 2008 IPPS proposed rule (72 FR 24716 through 24726) and final rule with comment period (72 FR 47200 through 47218); the FY 2009 IPPS proposed rule (73 FR 23547) and final rule (73 FR 48471); the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule (74 FR 43782); the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880) and final rule (75 FR 50080); the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25810 through 25816) and final rule (76 FR 51504 through 51522); the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898) and final rule (77 FR 53283 through 53303); and the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27509 through 27512) and final rule (78 FR 50523 through 50527). A complete list of the 11 current categories of HACs is included on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.

3. Present on Admission (POA) Indicator Reporting

Collection of POA indicator data is necessary to identify which conditions were acquired during hospitalization for the HAC payment provision as well as for broader public health uses of Medicare data. In previous rulemaking, we provided both CMS and CDC Web site resources that are available to hospitals for assistance in this reporting effort. For detailed information regarding these sites and materials, including the application and use of POA indicators, we refer the reader to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 through 51507).

Currently, as we have discussed in the prior rulemaking cited under section II.I.2. of the preamble of this final rule, the POA indicator reporting requirement only applies to IPPS hospitals because they are subject to this HAC provision. Non-IPPS hospitals, including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals, RNHCIs, and the Department of Veterans Affairs/Department of Defense hospitals, are exempt from POA reporting.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50524 through 50525), we noted that hospitals in Maryland operating under a statutory waiver were not paid under the IPPS, but rather were paid under the provisions of section 1814(b)(3) of the Act, and therefore prior to FY 2014 these hospitals were exempt from reporting POA indicators. However, we believed it was appropriate to require them to use POA indicator reporting on their claims so that we could include their data and have as complete a dataset as possible when we analyze trends and make further payment policy determinations, such as those authorized under section 1886(p) of the Act. Therefore, in the FY 2014 IPPS/LTCH PPS final rule, we finalized our policy that hospitals in Maryland that formerly operated under section 1814(b)(3) of the Act were no longer exempted from the POA indicator reporting requirement beginning with claims submitted on or after October 1, 2013, including all claims for discharges on or after October 1, 2013. We noted that, while this requirement was not effective until October 1, 2013, hospitals in Maryland could submit data with POA indicators before that date with the expectation that these data would be accepted by Medicare's claims processing systems. (We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50712) for a discussion of our FY 2014 final policies to implement section 1886(p) of the Act that are applicable to Maryland hospitals.)

Subsequent to our FY 2014 rulemaking, the State of Maryland entered into an agreement with CMS, effective January 1, 2014, to participate in CMS' new Maryland All-Payer Model, a 5-year hospital payment model. This model is being implemented under section 1115A of the Act, as added by section 3021 of the Affordable Care Act, which authorizes the testing of innovative payment and service delivery models, including models that allow States to “test and evaluate systems of all-payer payment reform for the medical care of residents of the State, including dual eligible individuals.” Section 1115A of the Act authorizes the Secretary to waive such requirements of titles XI and XVIII of the Act as may be necessary solely for purposes of carrying out section 1115A of the Act with respect to testing models.

Under the agreement with CMS, Maryland will limit per capita total hospital cost growth for all payers, including Medicare. In order to implement the new model, effective January 1, 2014, Maryland elected to no longer have Medicare make payments to Maryland hospitals in accordance with section 1814(b)(3) of the Act. Maryland also represented that it is no longer in continuous operation of a demonstration project reimbursement system since July 1, 1977, as specified under section 1814(b)(3) of the Act. Because Maryland hospitals are no longer paid under section 1814(b)(3) of the Act, they are no longer subject to those provisions of the Act and related implementing regulations that are specific to section 1814(b)(3) hospitals. Although CMS has waived certain provisions of the Act for Maryland hospitals, as set forth in the agreement between CMS and Maryland and subject to Maryland's compliance with the terms of the agreement, CMS has not waived the POA indicator reporting requirement. In other words, the changes to the status of Maryland hospitals under section 1814(b)(3) of the Act as described above do not in any way change the POA indicator reporting requirement for Maryland hospitals.

There are currently four POA indicator reporting options, “Y”, “W”, “N”, and “U”, as defined by the ICD-9-CM Official Guidelines for Coding and Reporting. We note that prior to January 1, 2011, we also used a POA indicator reporting option “1”. However, beginning on or after January 1, 2011, hospitals were required to begin reporting POA indicators using the 5010 electronic transmittal standards format. The 5010 format removes the need to report a POA indicator of “1” for codes that are exempt from POA reporting. We issued CMS instructions on this reporting change as a One-Time Notification, Pub. No. 100-20, Transmittal No. 756, Change Request 7024, effective on August 13, 2010, which can be located at the following link on the CMS Web site: http://www.cms.gov/manuals/downloads/Pub100_20.pdf.) The current POA indicators and their descriptors are shown in the chart below:

Under the HAC payment policy, we treat HACs coded with “Y” and “W” indicators as POA and allow the condition on its own to cause an increased payment at the CC and MCC level. We treat HACs coded with “N” and “U” indicators as Not Present on Admission (NPOA) and do not allow the condition on its own to cause an increased payment at the CC and MCC level. We refer readers to the following rules for a detailed discussion of POA indicator reporting: the FY 2009 IPPS proposed rule (73 FR 23559) and final rule (73 FR 48486 through 48487); the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule (74 FR 43784 through 43785); the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23881 through 23882) and final rule (75 FR 50081 through 50082); the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25812 through 25813) and final rule (76 FR 51506 through 51507); the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27893 through 27894) and final rule (77 FR 53284 through 53285); and the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27510 through 27511) and final rule (78 FR 50524 through 50525).

In addition, as discussed previously in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53324), the 5010 format allows the reporting and, effective January 1, 2011, the processing of up to 25 diagnoses and 25 procedure codes. As such, it is necessary to report a valid POA indicator for each diagnosis code, including the principal diagnosis and all secondary diagnoses up to 25.

4. HACs and POA Reporting in Preparation for Transition to ICD-10-CM and ICD-10-PCS

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 and 51507), in preparation for the transition to the ICD-10-CM and ICD-10-PCS code sets, we indicated that further information regarding the use of the POA indicator with the ICD-10-CM/ICD-10-PCS classifications as they pertain to the HAC policy would be discussed in future rulemaking.

At the March 5, 2012 and the September 19, 2012 meetings of the ICD-9-CM Coordination and Maintenance Committee, an announcement was made with regard to the availability of the ICD-9-CM HAC list translation to ICD-10-CM and ICD-10-PCS code sets. Participants were informed that the list of the ICD-9-CM selected HACs has been translated into codes using the ICD-10-CM and ICD-10-PCS classification system. It was recommended that the public review this list of ICD-10-CM/ICD-10-PCS code translations of the selected HACs available on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. The translations can be found under the link titled “ICD-10-CM/PCS MS-DRG v30 Definitions Manual Table of Contents—Full Titles—HTML Version in Appendix I—Hospital-Acquired Conditions (HACs).” This CMS Web site regarding the ICD-10-MS-DRG Conversion Project is also available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/icd10_hacs.html. We encouraged the public to submit comments on these translations through the HACs Web page using the CMS ICD-10-CM/PCS HAC Translation Feedback Mailbox that was set up for this purpose under the Related Links section titled “CMS HAC Feedback.”

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50525), we stated that the final HAC list translation from ICD-9-CM to ICD-10-CM/ICD-10-PCS would be subject to formal rulemaking. We encouraged readers to review the educational materials and draft code sets available for ICD-10-CM/ICD-10-PCS on the CMS Web site at: http://www.cms.gov/ICD10/. In addition, we stated that the draft ICD-10-CM/ICD-10-PCS Coding Guidelines could be viewed on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm.

The HACs code translation list from ICM-9-CM to ICD-10-CM/ICD-10-PCS is available to the public on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We note that Appendix I of the ICD-10-CM/PCS MS-DRG V31R Definitions Manual Table of Contents—Full Titles files (available in both text and HTML formats) are posted on the Web site and contain the DRA HACs translated to ICD-10.

We note that section 212 of the Protecting Access to Medicare Act of 2014 (Pub. L. 113-93), enacted on April 1, 2014, provides that the Secretary may not adopt ICD-10 prior to October 1, 2015. This effectively delayed the transition from ICD-9-CM to ICD-10. The Secretary expects to release a final rule in the near future that will include a new compliance date for use of ICD-10.

5. Current HACs and Previously Considered Candidate HACs

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28002), we did not propose to add or remove categories of the HACs. However, we indicated that we continue to encourage public dialogue about refinements to the HAC list by written stakeholder comments about both previously selected and potential candidate HACs. We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) and to section II.F.7. of the FY 2009 IPPS final rule (73 FR 48774 through 48491) for detailed discussion supporting our determination regarding each of these conditions. We also refer readers to section II.F.5. of the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53285 through 53292) for the HAC policy for FY 2013, and the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27509 through 27512) and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50523 through 50527) for the HAC policy for FY 2014.

Comment: Some commenters stated they were pleased the CMS did not propose to expand the list of categories or conditions subject to the Deficit Reduction Act of 2005 provisions that would reduce payment for HACs not present on admission. However, one commenter suggested that CMS remove “falls and trauma” from the categories of conditions to which the HAC policy applies. Another believed that iatrogenic pneumothorax with thoracentesis and accidental puncture/bleeding with paracentesis are two conditions that meet the HAC criteria for inclusion and urged CMS to expand the HAC program in FY 2015 to include them.

Response: We value and appreciate these public comments, and we will take the comments and suggestions into consideration in future rulemaking.

Comment: One commenter recognized the importance of targeting HACs, but stated that the DRA HAC program does not recognize that certain conditions are not 100 percent preventable, despite adherence to evidence-based practices. The commenter noted that facilities that treat patients with greater comorbidities and complex conditions are at a greater risk for penalties. Specifically, the commenter reiterates concerns about the inclusion of Surgical Site Infections (SSI) Following Cardiac Implantable Electronic Device (CIED) as a HAC category. The commenter stated that there are many variables that may contribute to the risk of CIED-related infections and that the implanting physician may not be able to control all circumstances (for example, pre-operative white blood cell count, fever within 24 hours, and timing of perioperative antibiotic administration).

Response: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51510 through 51511), we addressed commenters' concerns regarding the preventability of DRA HACs and noted that the statute does not require that a condition be “always preventable” in order to qualify as an HAC. We stated that the statute indicated that the condition be “reasonably preventable,” which necessarily implies something less than 100 percent.

Comment: One commenter recommended that CMS address the question that its hospital customers have posed regarding the effect of the DRA HAC policy when a patient is discharged from a hospital and then returns to a hospital to have a foreign object removed. Specifically, the commenter stated that hospitals need to be better informed about how Medicare payment changes if the hospital removing the foreign object is the same hospital at which the foreign object was left or is a different hospital, and if the foreign object is removed during an outpatient procedure or during an inpatient procedure.

Response: Questions related to payment for HACs are dependent upon how the conditions are coded and reported with ICD-9-CM and the corresponding POA indicator. The American Hospital Association (AHA) Central Office^TM is the national clearinghouse for medical coding advice. Coding inquiries can be directed to the following AHA Web site: http://www.CodingClinicAdvisor.com. Instructions for how to assign the correct POA indicator can be found in the ICD-9-CM Official Guidelines for Coding and Reporting located at the CDC Web site: http://www.cdc.gov/nchs/icd/icd9cm_addenda_guidelines.htm. Also, illustrations of how to assign POA indicators are included in the Present on Admission (POA) Indicator Reporting by Acute Inpatient Prospective Payment System (IPPS) Hospitals Fact Sheet located on the CMS Hospital-Acquired Conditions Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/EducationalResources.html in the “Downloads” section. Table 1: CMS POA Indicator Reporting Options, Description, and Payment contains an explanation of when payment for a condition is made or not made, based on the POA indicator assigned, as shown below.

6. RTI Program Evaluation

On September 30, 2009, a contract was awarded to RTI to evaluate the impact of the Hospital-Acquired Condition-Present on Admission (HAC-POA) provisions on the changes in the incidence of selected conditions, effects on Medicare payments, impacts on coding accuracy, unintended consequences, and infection and event rates. This was an intra-agency project with funding and technical support from CMS, OPHS, AHRQ, and CDC. The evaluation also examined the implementation of the program and evaluated additional conditions for future selection. The contract with RTI ended on November 30, 2012. Summary reports of RTI's analysis of the FYs 2009, 2010, and 2011 MedPAR data files for the HAC-POA program evaluation were included in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50085 through 50101), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51512 through 51522), and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53292 through 53302). Summary and detailed data also were made publicly available on the CMS Web site at: http://www.cms.gov/HospitalAcqCond/01_Overview.asp and the RTI Web site at: http://www.rti.org/reports/cms/.

In addition to the evaluation of HAC and POA MedPAR claims data, RTI also conducted analyses on readmissions due to HACs, the incremental costs of HACs to the health care system, a study of spillover effects and unintended consequences, as well as an updated analysis of the evidence-based guidelines for selected and previously considered HACs. Reports on these analyses have been made publicly available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/index.html.

7. Current and Previously Considered Candidate HACs—RTI Report on Evidence-Based Guidelines

The RTI program evaluation includes a report that provides references for all evidence-based guidelines available for each of the selected and previously considered candidate HACs that provide recommendations for the prevention of the corresponding conditions. Guidelines were primarily identified using the AHRQ National Guidelines Clearing House (NGCH) and the CDC, along with relevant professional societies. Guidelines published in the United States were used, if available. In the absence of U.S. guidelines for a specific condition, international guidelines were included.

Evidence-based guidelines that included specific recommendations for the prevention of the condition were identified for each of the selected conditions. In addition, evidence-based guidelines also were found for the previously considered candidate conditions. RTI prepared a final report to summarize its findings regarding evidence-based guidelines. This report can be found on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Downloads/Evidence-Based-Guidelines.pdf.

Subsequent to this final report, RTI was awarded an FY 2014 Evidence-Based Guidelines Monitoring contract. Under the contract, RTI was to provide a summary report of all evidence-based guidelines available for each of the selected and previously considered candidate HACs that provide recommendations for the prevention of the corresponding conditions. This report is usually delivered to CMS annually in a May/June timeframe. We received the updated 2014 report and have made it available to the public on the CMS Hospital-Acquired Conditions Web page in the “Downloads” section at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/index.html?redirect=/HospitalAcqCond/.

G. Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for MS-DRG Updates

a. Conversion of MS-DRGs to the International Classification of Diseases, 10th Revision (ICD-10)

Providers use the code sets under the ICD-9-CM coding system to report diagnoses and procedures for Medicare hospital inpatient services under the MS-DRG system. A later coding edition, the ICD-10 coding system, includes the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as well as the Official ICD-10-CM and ICD-10-PCS Guidelines for Coding and Reporting. The ICD-10 coding system was initially adopted for transactions conducted on or after October 1, 2013, as described in the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Administrative Simplification: Modifications to Medical Data Code Set Standards to Adopt ICD-10-CM and ICD-10-PCS Final Rule published in the Federal Register on January 16, 2009 (74 FR 3328 through 3362) (hereinafter referred to as the “ICD-10-CM and ICD-10-PCS final rule”). However, the Secretary of Health and Human Services issued a final rule that delayed the compliance date for ICD-10 from October 1, 2013, to October 1, 2014. That final rule, entitled “Administrative Simplification: Adoption of a Standard for a Unique Health Plan Identifier; Addition to the National Provider Identifier Requirements; and a Change to the Compliance Date for ICD-10-CM and ICD-10-PCS Medical Data Code Sets,” CMS-0040-F, was published in the Federal Register on September 5, 2012 (77 FR 54664) and is available for viewing on the Internet at: http://www.gpo.gov/fdsys/pkg/FR-2012-09-05/pdf/2012-21238.pdf. On April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93) was enacted, which specified that the Secretary may not adopt ICD-10 prior to October 1, 2015. Section 212 of Public Law 113-93, titled “Delay in Transition from ICD-9 to ICD-10 Code Sets,” provides that “[t]he Secretary of Health and Human Services may not, prior to October 1, 2015, adopt ICD-10 code sets as the standard for code sets under section 1173(c) of Act. On May 1, 2014, the Secretary announced plans to release an interim final rule in the near future that will include a new compliance date to require the use of ICD-10 beginning October 1, 2015. The rule will also require HIPAA covered entities to continue to use ICD-9-CM through September 30, 2015.

The anticipated move to ICD-10 necessitated the development of an ICD-10-CM/ICD-10-PCS version of the MS-DRGs. CMS began a project to convert the ICD-9-CM-based MS-DRGs to ICD-10 MS-DRGs. In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received public comments on the creation of the ICD-10 version of the MS-DRGs, which will be implemented at the same time as ICD-10 (75 FR 50127 and 50128). While we did not propose an ICD-10 version of the MS-DRGs in the FY 2011 IPPS/LTCH PPS proposed rule, we noted that we have been actively involved in converting current MS-DRGs from ICD-9-CM codes to ICD-10 codes and sharing this information through the ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee. We undertook this early conversion project to assist other payers and providers in understanding how to implement their own conversion projects. We posted ICD-10 MS-DRGs based on Version 26.0 (FY 2009) of the MS-DRGs. We also posted a paper that describes how CMS went about completing this project and suggestions for other payers and providers to follow. Information on the ICD-10 MS-DRG conversion project can be found on the ICD-10 MS-DRG Conversion Project Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We have continued to keep the public updated on our maintenance efforts for ICD-10-CM and ICD-10-PCS coding systems, as well as the General Equivalence Mappings that assist in conversion through the ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee. Information on these committee meetings can be found on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.

During FY 2011, we developed and posted Version 28.0 of the ICD-10 MS-DRGs based on the FY 2011 MS-DRGs (Version 28.0) that we finalized in the FY 2011 IPPS/LTCH PPS final rule on the CMS Web site. This ICD-10 MS-DRGs Version 28.0 also included the CC Exclusion List and the ICD-10 version of the hospital-acquired conditions (HACs), which was not posted with Version 26.0. We also discussed this update at the September 15-16, 2010 and the March 9-10, 2011 meetings of the ICD-9-CM Coordination and Maintenance Committee. The minutes of these two meetings are posted on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.

We reviewed comments on the ICD-10 MS-DRGs Version 28.0 and made updates as a result of these comments. We called the updated version the ICD-10 MS-DRGs Version 28-R1. We posted a Definitions Manual of ICD-10 MS-DRGs Version 28-R1 on our ICD-10 MS-DRG Conversion Project Web site. To make the review of Version 28-R1 updates easier for the public, we also made available pilot software on a CD ROM that could be ordered through the National Technical Information Service (NTIS). A link to the NTIS ordering page was provided on the CMS ICD-10 MS-DRGs Web page. We stated that we believed that, by providing the ICD-10 MS-DRGs Version 28-R1 Pilot Software (distributed on CD ROM), the public would be able to more easily review and provide feedback on updates to the ICD-10 MS-DRGs. We discussed the updated ICD-10 MS-DRGs Version 28-R1 at the September 14, 2011 ICD-9-CM Coordination and Maintenance Committee meeting. We encouraged the public to continue to review and provide comments on the ICD-10 MS-DRGs so that CMS could continue to update the system.

In FY 2012, we prepared the ICD-10 MS-DRGs Version 29.0, based on the FY 2012 MS-DRGs (Version 29.0) that we finalized in the FY 2012 IPPS/LTCH PPS final rule. We posted a Definitions Manual of ICD-10 MS-DRGs Version 29.0 on our ICD-10 MS-DRG Conversion Project Web site. We also prepared a document that describes changes made from Version 28.0 to Version 29.0 to facilitate a review. The ICD-10 MS-DRGs Version 29.0 was discussed at the ICD-9-CM Coordination and Maintenance Committee meeting on March 5, 2012. Information was provided on the types of updates made. Once again the public was encouraged to review and comment on the most recent update to the ICD-10 MS-DRGs.

CMS prepared the ICD-10 MS-DRGs Version 30.0 based on the FY 2013 MS-DRGs (Version 30.0) that we finalized in the FY 2013 IPPS/LTCH PPS final rule. We posted a Definitions Manual of the ICD-10 MS-DRGs Version 30.0 on our ICD-10 MS-DRG Conversion Project Web site. We also prepared a document that describes changes made from Version 29.0 to Version 30.0 to facilitate a review. We produced mainframe and computer software for Version 30.0, which was made available to the public in February 2013. Information on ordering the mainframe and computer software through NTIS was posted on the ICD-10 MS-DRG Conversion Project Web site. The ICD-10 MS-DRGs Version 30.0 computer software facilitated additional review of the ICD-10 MS-DRGs conversion.

We provided information on a study conducted on the impact of converting MS-DRGs to ICD-10. Information on this study is summarized in a paper entitled “Impact of the Transition to ICD-10 on Medicare Inpatient Hospital Payments.” This paper was posted on the CMS ICD-10 MS-DRGs Conversion Project Web site and was distributed and discussed at the September 15, 2010 ICD-9-CM Coordination and Maintenance Committee meeting. The paper described CMS' approach to the conversion of the MS-DRGs from ICD-9-CM codes to ICD-10 codes. The study was undertaken using the ICD-9-CM MS-DRGs Version 27.0 (FY 2010) which was converted to the ICD-10 MS-DRGs Version 27.0. The study estimated the impact on aggregate payment to hospitals and the distribution of payments across hospitals. The impact of the conversion from ICD-9-CM to ICD-10 on Medicare MS-DRG hospital payments was estimated using FY 2009 Medicare claims data. The study found a hospital payment increase of 0.05 percent using the ICD-10 MS-DRGs Version 27.0.

CMS provided an overview of this hospital payment impact study at the March 5, 2012 ICD-9-CM Coordination and Maintenance Committee meeting. This presentation followed presentations on the creation of ICD-10 MS-DRGs Version 29.0. A summary report of this meeting can be found on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. At this March 2012 meeting, CMS announced that it would produce an update on this impact study based on an updated version of the ICD-10 MS-DRGs. This update of the impact study was presented at the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee meeting. The study found that moving from an ICD-9-CM-based system to an ICD-10 MS-DRG replicated system would lead to DRG reassignments on only 1 percent of the 10 million MedPAR sample records used in the study. Ninety-nine percent of the records did not shift to another MS-DRG when using an ICD-10 MS-DRG system. For the 1 percent of the records that shifted, 45 percent of the shifts were to a higher weighted MS-DRG, while 55 percent of the shifts were to lower weighted MS-DRGs. The net impact across all MS-DRGs was a reduction by 4/10000 or minus 4 pennies per $100. The updated paper is posted on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the “Downloads” section. Information on the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee meeting can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html. This update of the impact paper and the ICD-10 MS-DRG Version 30.0 software provided additional information to the public who were evaluating the conversion of the MS-DRGs to ICD-10 MS-DRGs.

CMS prepared the ICD-10 MS-DRGs Version 31.0 based on the FY 2014 MS-DRGs (Version 31.0) that we finalized in the FY 2014 IPPS/LTCH PPS final rule. In November 2013, we posted a Definitions Manual of the ICD-10 MS-DRGs Version 31.0 on the ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We also prepared a document that described changes made from Version 30.0 to Version 31.0 to facilitate a review. We produced mainframe and computer software for Version 31.0, which was made available to the public in December 2013. Information on ordering the mainframe and computer software through NTIS was posted on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the “Related Links” section. This ICD-10 MS-DRGs Version 31.0 computer software facilitated additional review of the ICD-10 MS-DRGs conversion. We encouraged the public to submit to CMS any comments on areas where they believed the ICD-10 MS-DRGs did not accurately reflect grouping logic found in the ICD-9-CM MS-DRGs Version 31.0.

We reviewed comments received and developed an update of ICD-10 MS-DRGs Version 31.0, which we called ICD-10 MS-DRGs Version 31.0-R. We have posted a Definitions Manual of the ICD-10 MS-DRGs Version 31.0-R on the ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We also prepared a document that describes changes made from Version 31.0 to Version 31.0-R to facilitate a review. We will continue to share ICD-10-MS-DRG conversion activities with the public through this Web site.

b. Basis for FY 2015 MS-DRG Updates

CMS encourages input from our stakeholders concerning the annual IPPS updates when that input is made available to us by December 7 of the year prior to the next annual proposed rule update. For example, to be considered for any updates or changes in FY 2016, comments and suggestions should be submitted by December 7, 2014. The comments that were submitted in a timely manner for FY 2015 are discussed below in this section.

Following are the changes we proposed to the MS-DRGs for FY 2015. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28004), we invited public comment on each of the MS-DRG classification proposed changes described below, as well as our proposals to maintain certain existing MS-DRG classifications, which also are discussed below. In some cases, we proposed changes to the MS-DRG classifications based on our analysis of claims data. In other cases, we proposed to maintain the existing MS-DRG classification based on our analysis of claims data. For the FY 2015 proposed rule, our MS-DRG analysis was based on claims data from the December 2013 update of the FY 2013 MedPAR file, which contains hospital bills received through September 30, 2013, for discharges occurring through September 30, 2013. In our discussion of the proposed MS-DRG reclassification changes that follows, we refer to our analysis of claims data from the “December 2013 update of the FY 2013 MedPAR file.”

As explained in previous rulemaking (76 FR 51487), in deciding whether to propose to make further modification to the MS-DRGs for particular circumstances brought to our attention, we considered whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients in the MS-DRG. We evaluated patient care costs using average costs and lengths of stay and relied on the judgment of our clinical advisors to decide whether patients are clinically distinct or similar to other patients in the MS-DRG. In evaluating resource costs, we considered both the absolute and percentage differences in average costs between the cases we selected for review and the remainder of cases in the MS-DRG. We also considered variation in costs within these groups; that is, whether observed average differences were consistent across patients or attributable to cases that were extreme in terms of costs or length of stay, or both. Further, we considered the number of patients who will have a given set of characteristics and generally preferred not to create a new MS-DRG unless it would include a substantial number of cases.

2. MDC 1 (Diseases and Disorders of the Nervous System)

a. Intracerebral Therapies: Gliadel® Wafer

During the comment period for the FY 2014 IPPS/LTCH PPS proposed rule, we received a public comment that we considered to be outside the scope of that proposed rule. We stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50550) that we would consider this issue in future rulemaking as part of our annual review process. The commenter requested that a new MS-DRG be created for intracerebral therapies, including implantation of chemotherapeutic agents. Specifically, the commenter referred to the Gliadel® Wafer for the treatment of High-Grade Malignant Gliomas (HGGs) defined as aggressive tumors originating in the brain.

The Gliadel® Wafer has been discussed in prior rulemaking, including the FY 2004 IPPS proposed rule (68 FR 27187) and final rule (68 FR 45354 through 45355 and 68 FR 45391 through 45392); the FY 2005 IPPS proposed rule (69 FR 28221 through 28222) and final rule (69 FR 48957 through 48971); and the FY 2008 IPPS/LTCH PPS final rule (72 FR 47252 through 47253). We refer readers to these prior discussions for further background information regarding the Gliadel® Wafer.

Effective October 1, 2002, ICD-9-CM procedure code 00.10 (Implantation of chemotherapeutic agent) was created to identify and describe insertion of the Gliadel® Wafer. This procedure code is assigned to MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex Central Nervous System (CNS) PDX with MCC or Chemo Implant) in MDC 1. According to the commenter, this current MS-DRG assignment does not compensate providers adequately for the expenses incurred to perform the surgery and implantation of the wafer device. The commenter noted that MS-DRG 023 has a national average payment rate of approximately $28,016. However, the commenter stated, “the acquisition cost for 1 box of the Gliadel® Wafer alone (typical utilization per procedure is 8 wafers or 1 box) is $29,035.”

We conducted an analysis using claims data from the December 2013 update of the FY 2013 MedPAR file. Our findings are shown in the table below.

As shown in the table above, there were a total of 5,383 cases in MS-DRG 023 with an average length of stay of 10.98 days and average costs of $36,982. The number of cases reporting procedure code 00.10 in MS-DRG 023 totaled 158, with an average length of stay of 7.0 days and average costs of $34,027.

The data clearly demonstrate that the volume of cases reporting procedure code 00.10 within MS-DRG 023 have a shorter average length of stay and are lower in average costs in comparison to all the cases in the MS-DRG. As we stated in the proposed rule, given the low volume of cases, shorter average length of stay, and lower average costs, the data do not support the creation of a new MS-DRG for cases utilizing the Gliadel® Wafer. In addition, our clinical advisors determined that cases reporting procedure code 00.10 are appropriately assigned within MS-DRG 023.

As discussed in the FY 2005 IPPS final rule (69 FR 48959), Gliadel® Wafer cases were assigned to a new DRG that was clinically coherent and reflected the resources used to treat those cases, which appropriately addressed the concerns of commenters who raised questions regarding DRG assignment for those cases at that time. Subsequently, with the adoption of the MS-DRGs, in the FY 2008 IPPS/LTCH PPS final rule (72 FR 47252 through 47253), we assigned all cases utilizing the Gliadel® Wafer technology to MS-DRG 023, the higher severity level, and revised the title of this MS-DRG in recognition of the complexity and costs associated with the implantation. Our clinical advisors continue to support this assignment for these same reasons. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not propose to create a new MS-DRG for FY 2015 for cases where ICD-9-CM procedure code 00.10 is reported. We invited public comments on our proposal to maintain the current MS-DRG structure.

Comment: Several commenters supported CMS' proposal to maintain cases reporting procedure code 00.10 in MS-DRG 23, stating it was reasonable given the data and information provided.

Response: We appreciate the commenters' support.

Comment: Some commenters believed that MS-DRG 23 does not provide adequate payment to hospitals that perform craniotomies with insertion of the Gliadel® Wafer. These commenters suggested the MedPAR data are flawed for a number of reasons. The commenters indicated that, upon conducting their own analysis of FY 2012 MedPAR data, there appears to be confusion among providers on how to accurately report procedure code 00.10. The commenters reported that, during their analysis, they encountered claims where procedure code 00.10 was reported for diagnoses of several other types of cancers (small and large bowel, pancreatic, and liver) that were completely unrelated to the brain. One commenter suggested that several providers who have reported procedure code 00.10 did not ever purchase the Gliadel® Wafer product. This commenter noted that it is unclear if the product should be classified as an implant or a drug within the revenue codes and that this uncertainty results in additional confusion. The same commenter urged CMS to consider more input from the professional community and Medicare beneficiaries, as well as data sources other than the MedPAR file when evaluating MS-DRG assignments for low volume procedures so as not to restrict access to care for patients in need of this intracerebral therapy.

Response: We acknowledge the commenters' concerns. With regard to confusion on how to accurately report procedure code 00.10 and concern that the code is being reported for other types of cancers besides brain cancer, we point out that the AHA's Coding Clinic for ICD-9-CM has provided coding instruction and examples for how to appropriately assign and report this code. Specifically, Coding Clinic Fourth Quarter, 2002, explains how the chemotherapy wafer is utilized in brain cancer and that chemotherapy wafers also have been used to treat the liver and bladder as well as other sites. We also note that the terms associated with procedure code 00.10 within ICD-9-CM are not restricted solely for use of the Gliadel® Wafer product. The ICD-9-CM coding classification system is not device specific.

With respect to the comment that providers are confused as to assigning an implant or drug revenue code to the Gliadel® Wafer product, we note that where explicit instructions are not provided, providers should report their charges under the revenue code that will result in the charges being assigned to the same cost center to which the cost of those services are assigned in the cost report. We appreciate the commenter's suggestion to obtain additional input from the professional community.

Comment: One commenter recommended that a new MS-DRG be created specifically for the Gliadel® Wafer product. The commenter stated that it is unacceptable for CMS to state there are too few cases to do so.

Response: As explained in the FY 2015 IPPS/LTCH PPS proposed rule, our analysis of the claims data and our clinical advisors did not support creation of a new MS-DRG. Furthermore, the MS-DRGs are a classification system intended to group together those diagnoses and procedures with similar clinical characteristics and utilization of resources. Basing a new MS-DRG on such a small number of cases could lead to distortions in the relative payment weights for the MS-DRG because several expensive cases could impact the overall relative payment weight. Having larger clinical cohesive groups within an MS-DRG provides greater stability for annual updates to the relative payment weights. Moreover, our clinical advisors have examined this issue and continue to advise us that the procedure code 00.10 cases are appropriately classified within MS-DRG 23 because they are clinically similar based on both the craniotomy and the insertion of the device, among other reasons. Our advisors reaffirmed their assessment that the groupings were not overly broad or heterogeneous, reiterating that the clinical flexibility of both physicians and hospitals is maximized when larger cohorts of clinically similar patients are grouped and the costs averaged. They note that many factors are considered when comparing groups of patients, including such factors as length of stay, cost of specific devices, type of device, type of procedure, and anatomical location, among others, and stated that the commenter did not identify any factors that would necessitate an atypical small, separate grouping when these cases are categorized. Our clinical advisors do not support creating a new MS DRG for such a small number of cases but would not support creating a separate DRG even if the volume of cases was large.

After consideration of the public comments we received, we are finalizing our proposal to maintain the current structure for MS-DRG 23 for FY 2015.

b. Endovascular Embolization or Occlusion of Head and Neck

We received a request to change the MS-DRG assignment for the following three ICD-9-CM procedure codes representing endovascular embolization or occlusion procedures of the head and neck:

• 39.72 (Endovascular (total) embolization or occlusion of head and neck vessels);
• 39.75 (Endovascular embolization or occlusion of vessel(s) of head or neck using bare coils); and
• 39.76 (Endovascular embolization or occlusion of vessel(s) of head or neck using bioactive coils).

These three procedure codes are currently assigned to the following eight MS-DRGs under MDC 1. Cases assigned to MS-DRGs 020, 021, and 022 require a principal diagnosis of hemorrhage. Cases assigned to MS-DRGs 023 and 024 require the insertion of a major implant or an acute complex central nervous system (CNS) principal diagnosis. Cases assigned to MS-DRGs 025, 026, and 027 do not have a principal diagnosis of hemorrhage, an acute complex CNS principal diagnosis, or a major device implant.

• MS-DRG 020 (Intracranial Vascular Procedures with Principal Diagnosis of Hemorrhage with MCC)
• MS-DRG 021 (Intracranial Vascular Procedures with Principal Diagnosis of Hemorrhage with CC)
• MS-DRG 022 (Intracranial Vascular Procedures with Principal Diagnosis of Hemorrhage without CC/MCC)
• MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex CNS Principal Diagnosis with MCC or Chemo Implant)
• MS-DRG 024 (Craniotomy with Major Device Implant/Acute Complex CNS Principal Diagnosis without MCC)
• MS-DRG 025 (Craniotomy & Endovascular Intracranial Procedures with MCC)
• MS-DRG 026 (Craniotomy & Endovascular Intracranial Procedures with CC)
• MS-DRG 027 (Craniotomy & Endovascular Intracranial Procedures without CC/MCC)

The requestor recommended that cases with procedure codes 39.72, 39.75, and 39.76 be moved from MS-DRGs 025, 026, and 027 to MS-DRGs 023 and 024, even when there is no reported acute complex CNS principal diagnosis or a major device implant. The requestor stated that unruptured aneurysms can be treated by a minimally invasive technique utilizing endovascular coiling. The requester noted that a microcatheter is inserted into a groin artery and navigated through the vascular system to the location of the aneurysm. The coils are inserted through the microcatheter into the aneurysm in order to occlude (fill) the aneurysm from inside the blood vessel. Once the coils are implanted, the blood flow pattern within the aneurysm is altered. The requestor stated that these cases do not have a principal diagnosis of hemorrhage because the treatment is for an unruptured aneurysm which has not hemorrhaged. Furthermore, the requestor stated that only a few of these cases without hemorrhage have a complex CNS principal diagnosis. Therefore, the requester believed that most of the cases should be assigned to MS-DRGs 025, 026, and 027.

The requestor stated that the average costs of coil cases captured by procedure codes 39.72, 39.75, and 39.76 are significantly higher than other cases within MS-DRGs 025, 026, and 027 where most of the coil cases are assigned. As stated earlier, the requester recommended that cases with procedure codes 39.72, 39.75, and 39.76 be moved to MS-DRGs 023 and 024, even when there is not an acute complex CNS principal diagnosis or a major device implant reported.

We examined claims data from the December 2013 update of the FY 2013 MedPAR file for cases of endovascular embolization or occlusion of head and neck. The table below shows our findings. For MS-DRGs 025, 026, and 027, the cases identified by procedure code 39.72, 39.75, or 39.76 (endovascular embolization or occlusion of head and neck) have higher average costs and shorter lengths of stay in comparison to all the cases within each of those respective MS-DRGs. The average costs of cases in MS-DRG 024 are $4,049 higher than the average costs of the 1,731 endovascular embolization or occlusion of head and neck procedures cases in MS-DRG 027 ($26,250 versus $22,201). The findings also show that the 524 cases with procedure code 39.72, 39.75, or 39.76 with average costs of $41,030 in MS-DRG 025 are closer to the average costs of $36,982 for cases in MS-DRG 023. Lastly, we found that the 721 endovascular embolization or occlusion of head and neck procedure cases in MS-DRG 026 have average costs of $27,998 compared to average costs of $26,250 for cases in MS-DRG 024.

Our clinical advisors reviewed the results of our examination and determined that the endovascular embolization or occlusion of head and neck procedures are appropriately classified within MS-DRGs 025, 026, and 027 because they do not have an acute complex CNS principal diagnosis or a major device implant which would add to their clinical complexity. Cases in MS-DRG 024 have average costs that are $4,049 higher than cases in MS-DRG 027 with procedure code 39.72, 39.75, or 39.76. We acknowledge that the 1,245 cases with procedure code 39.72, 39.75, or 39.76 in MS-DRGs 025 and 026 have average costs that are closer to those in MS-DRGs 023 and 024. However, these cases are 1,245 of the total 2,976 cases that would be involved if we moved all MS-DRGs 025, 026, and 027 cases with procedure code 39.72, 39.75, or 39.76 to MS-DRGs 023 and 024, even if they did not have an acute complex CNS principal diagnosis or a major device implant. Based on these findings and the recommendations from our clinical advisors, we determined that proposing to move endovascular embolization or occlusion of head and neck procedures from MS-DRGs 025, 026, and 027 to MS-DRGs 023 and 024 was not warranted. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule, we proposed to maintain the current MS-DRG assignments for endovascular embolization or occlusion of head and neck procedures. We invited public comments on our proposal.

Comment: A number of commenters supported CMS' proposal to maintain the current MS-DRG assignment for codes 39.72, 39.75, or 39.76 in MS-DRGs 025, 026, and 027. The commenters stated this was reasonable, given the data and information provided.

A number of commenters objected to the proposal to maintain the current MS-DRG assignments for endovascular embolizations captured in codes 39.72, 39.75 and 39.76. The commenters recommended that CMS move the three codes to MS-DRGs 023 and 024. The commenters stated that the coils used in the endovascular embolizations are expensive and the endovascular procedures require substantial additional resources. The commenters stated that their hospitals are significantly underpaid for these cases. The commenters recommended that endovascular embolization codes 39.72, 39.75 and 39.76 be classified a “Major Device Implants” and therefore assigned to MS-DRGs 023 and 024.

Several commenters recommended that CMS create new severity subgroups within MS-DRG 024 to indicate cases with CC and cases without CC/MCC. The commenters recommended a three-level severity split as follows:

• MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex CNS Principal Diagnosis with MCC or Chemo Implant);
• MS-DRG 024 (Craniotomy with Major Device Implant/Acute Complex CNS Principal Diagnosis with CC); and
• MS-DRG XXX (Craniotomy with Major Device Implant/Acute Complex CNS Principal Diagnosis without CC/MCC)

The commenters recommended that endovascular embolizations captured in codes 39.72, 39.75 and 39.76 be added to these three recommended MS-DRGs as part of the Major Device Implant group.

One of the commenters recommended the creation of a new set of MS-DRGs to capture intracranial endovascular embolization procedures if CMS decided not to modify the current MS-DRGs by moving codes 39.72, 39.75, and 39.76 to MS-DRGs 023 and 024. The commenter suggested the following titles for the recommended new MS-DRGs:

• Recommended new MS-DRG 043 (Intracranial Endovascular Embolization Procedures with MCC)
• Recommended new MS-DRG 044 (Intracranial Endovascular Embolization Procedures with CC)
• Recommended new MS-DRG 045 (Intracranial Endovascular Embolization Procedures with Device Implant without CC/MCC).

The commenter acknowledged that there were a limited number of other intracranial endovascular procedures that could also be considered for inclusion in the new base MS-DRG with this new option. The commenter supported including any additional intracranial endovascular embolization procedures that CMS deemed to be clinically appropriate.

Response: We appreciate the commenters' support of our proposal to maintain the current MS-DRG assignment. We examined the commenters' recommendation of subdividing MS-DRG 024 by adding an additional severity level (with CC and without CC/MCC). The findings from the examination of the claims data in the December 2013 update of the FY 2013 MedPAR file on endovascular embolization or occlusion of head and neck procedures are shown in the first table below. We applied the following criteria established in FY 2008 (72 FR 47169) to determine if the creation of a new CC or MCC subgroup within a base MS-DRG was warranted:

• A reduction in variance of costs of at least 3 percent.
• At least 5 percent of the patients in the MS-DRG fall within the CC or MCC subgroup.
• At least 500 cases are in the CC or MCC subgroup.
• There is at least a 20 percent different in average costs between subgroups.
• There is a $2,000 difference in average costs between subgroups.

In order to warrant creation of a CC or MCC subgroup within a base MS-DRG, the subgroup must meet all five of the criteria.

The following table shows the number of cases that would be within each of the new requested three MS-DRGs, including the two proposed severity levels.

We determined that the requested new severity subdivision of with CC and without CC/MCC would meet only four of the five criteria. The requested new with CC and without CC/MCC severity levels do not meet the criterion that there is at least a 20 percent difference in average costs between subgroups.

Because the requested new severity level does not meet all five criteria, we are not modifying MS-DRG 024 to create severity levels for cases with CC and cases without CC/MCC.

We also evaluated the request to add endovascular embolizations captured by codes 39.72, 39.75 and 39.76 to the group labeled “Major Device Implants” within MS-DRGs 023 and 024. Major Device Implants within MS-DRGs 023 and 024 include the following three sets of intracranial neurostimulator procedures. Each of the three is composed of the implantation of an intracranial neurostimulator pulse generator which is implanted in the patient, as well as the insertion of a neurostimulator lead which is inserted through a burr hole in the skull into the patient's brain.

• 01.20 (Cranial implantation or replacement of neurostimulator pulse generator) and 02.93 (Implantation or replacement of intracranial neurostimulator lead(s))
• 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)) and 86.95 (Insertion or replacement of multiple array neurostimulator pulse generator, not specified as rechargeable)
• 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)) and 86.98 (Insertion or replacement of multiple array (two or more) rechargeable neurostimulator pulse generator)

Our clinical advisors reviewed this issue and advised us not to classify endovascular embolization procedures in the same manner as patients who receive intracranial neurostimulators. They advised against classifying endovascular embolizations as Major Device Implants for several reasons. First, the endovascular embolization device itself is a simple mechanical device, such as a wire, not a complex electronic device. The work involved in configuring the neurostimulator device to the patient, both before and after insertion, is significantly different from that of the endovascular embolizations. Second, endovascular embolizations are not devices implanted through an open procedure as are intracranial neurostimulator pulse generators and neurostimulator leads. Our clinical advisors stated that open procedures, including open procedures to implant the generator but especially including open skull procedures, from a clinical standpoint are significantly different than endovascular procedures, both in terms of the work, the facilities, the risks, and recovery rates (length of stay). Our clinical advisors specifically stated that the insertion of coils through an endovascular approach is not similar to the insertion of a complex electronic device. Endovascular embolizations do not match the clinical complexity and severity of the intracranial neurostimulators which have greater lengths of stay. Our clinical advisors stated that care of patients who receive endovascular embolizations is not at the same severity level as for those patients who have a major device implant such as an intracranial neurostimulator or those patients with an acute complex central nervous system principal diagnosis. Therefore, our clinical advisors recommended not moving endovascular embolizations to MS-DRGs 023 or 024. They recommended maintaining their current assignments in MS-DRGs 025, 026, and 027.

We evaluated the request to create a new set of MS-DRGs to capture intracranial endovascular embolization procedures. The requestor recommended including codes 39.72, 39.75, and 39.76 and any other procedures which CMS deemed appropriate. Our clinical advisors stated that codes 39.72, 39.75, and 39.76 were appropriately assigned to MS-DRGs 025, 026, and 027 because they are clinically similar to other cases in MS-DRGs 025, 026, and 027. In addition, as stated earlier, these cases do not match the clinical complexity and severity of the intracranial neurostimulators within MS-DRGs 023 and 024. For these reasons, our clinical advisors did not support creating a new set of MS-DRG for these codes and any additional intracranial endovascular embolization procedures.

After consideration of public comments we received, we are finalizing our proposal to maintain the current MS-DRG assignments for codes 39.72, 39.75 and 39.76 in MS-DRGs 025, 026, and 027.

3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat): Avery Breathing Pacemaker System

We received a request to create a new MS-DRG for the Avery Breathing Pacemaker System. This system is also called a diaphragmatic pacemaker and is captured by ICD-9-CM procedure code 34.85 (Implantation of diaphragmatic pacemaker). The requestor stated that the diaphragmatic pacemaker is indicated for adult and pediatric patients with chronic respiratory insufficiency that would otherwise be dependent on ventilator support. The procedure consists of surgically implanted receivers and electrodes mated to an external transmitter by antennas worn over the implanted receivers. The external transmitter and antennas send radiofrequency energy to the implanted receivers under the skin. The receivers then convert the radio waves into stimulating pulses sent down the electrodes to the phrenic nerves, causing the diaphragm to contract. The requestor stated that this normal pattern is superior to mechanical ventilators that force air into the chest. The requestor also stated that the system is expensive; the device cost is approximately $57,000. According to the requestor, given the cost of the device, hospitals are reluctant to use it. The requestor did not make a specific MS-DRG reassignment request.

When used for a respiratory failure patient, procedure code 34.85 is assigned to MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively).

We examined claims data from the December 2013 update of the FY 2013 MedPAR file for diaphragmatic pacemaker cases. The following table shows our findings.

There were only 48 cases of diaphragmatic pacemakers within MS-DRGs 163, 164, and 165. The average costs of these diaphragmatic pacemaker cases ranged from $22,977 for the single case in MS-DRG 165 to $29,406 for the cases in MS-DRG 163, compared to the average costs for all cases in MS-DRGs 163, 164, and 165, which range from $13,081 to $34,308. The average cost for diaphragmatic pacemaker cases in MS-DRG 163 was lower than that for all cases in MS-DRG 163, $29,406 compared to $34,308 for all cases. The average cost for diaphragmatic pacemaker cases was higher for MS-DRG 164, $23,406 compared to $18,352 for all cases. While the average cost for the single diaphragmatic pacemaker case was significantly higher for MS-DRG 165, $22,977 compared to $13,081, we were unable to determine if additional factors might have impacted the higher cost for this single case.

We stated in the FY 2015 IPPS/LTCH PPS proposed rule that, given the small number of diaphragmatic pacemaker cases that we found, we did not believe that there was justification for creating a new MS-DRG. Basing a new MS-DRG on such a small number of cases could lead to distortions in the relative payment weights for the MS-DRG because several expensive cases could impact the overall relative payment weight. Having larger clinical cohesive groups within an MS-DRG provides greater stability for annual updates to the relative payment weights. We noted that, as discussed in section II.G.4.c. of the preamble of the proposed rule, one of the criteria we apply in evaluating whether to create new severity subgroups within an MS-DRG is whether there are at least 500 cases in the CC or MCC subgroup. While this criterion is used to evaluate whether to create a severity subgroup within an MS-DRG, applying it here suggests that creating a new MS-DRG for only 48 cases would not be appropriate. Although the average costs of these diaphragmatic pacemaker cases are higher than the average costs of all cases in MS-DRG 164, the average costs are lower than all cases in MS-DRG 163. We believe the current MS-DRG assignment is appropriate and that the data do not support creating an MS-DRG because there are so few cases.

Our clinical advisors reviewed this issue and determined that the diaphragmatic pacemaker cases are appropriately classified within MS-DRGs 163, 164, and 165 because they are clinically similar to other cases of patients with major chest procedures within MS-DRGs 163, 164, and 165. Our clinical advisors did not support creating a new MS-DRG for such a small number of cases.

Based on the results of the examination of the claims data, the recommendations from our clinical advisors, and the small number of diaphragmatic pacemaker cases, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not propose to create a new MS-DRG for diaphragmatic pacemaker cases for FY 2015. We proposed to maintain the current MS-DRG assignments for diaphragmatic pacemaker cases. We invited public comments on our proposal.

Comment: A number of commenters supported CMS' proposal to maintain the current MS-DRG assignment for diaphragmatic pacemakers. The commenters stated that the proposal was reasonable given the data and information presented.

Another commenter expressed appreciation for the analysis performed on this issue, but disagreed with the conclusion to leave diaphragmatic pacemakers in MS-DRGs 163, 164, and 165. The commenter stated that, although the number of cases identified (48) is small, they are unique in both their costs and their length of stay. The commenter stated that these cases do not represent the full universe of Medicare beneficiaries who would be good candidates for the diaphragmatic pacemaker. The commenter expressed surprise at the average cost data presented in the table in the proposed rule. The commenter stated that it sells this system directly to hospitals and does not know what insurance plan covers the procedure. However, in investigating systems hospitals reported with code 34.85, the commenter stated that it discovered that this code covers systems provided by other manufacturers and that the cost of devices by other manufacturers is lower than the Avery system and is closer to the costs in CMS' claims data. The commenter stated that the Avery system is fully implantable, whereas other systems are not. The commenter asserted that one other system has percutaneous lead wires that leave the patients; therefore, the other system is not totally implantable. The commenter made inquiries of hospitals and found that a majority of those hospitals contacted were using a lower priced system. The commenter stated that by grouping multiple manufacturers' devices into the same MS-DRG, with the same payment rate, CMS was limiting physician and patient choice of a device. The commenter recommended that MS-DRG payments be made based on the equipment provided and allow hospitals to recoup the costs of each system used.

The commenter stated that inadequate payment discourages hospitals from offering the service to patients. The commenter also stated that these cases are anomalies in the current MS-DRGs to which they are assigned and should be classified into a single, unique MS-DRG that would be clinically and financially coherent. The commenter believed that such a correction could increase the number of eligible Medicare beneficiaries who would benefit from use of the device, allowing them to stop using mechanical ventilation, which would greatly improve their overall health and quality of life.

The commenter also stated that the average costs for 35 of the cases with procedure code 34.85 exceed the average costs of the other cases in the MS-DRG to which they are assigned. The commenter stated that it found the average length of stay for all 48 cases to be substantially less than the average length of stay for all of the other cases. Therefore, the commenter stated that the costs for the hospital are related primarily to the device and not to the direct hospital care provided to the patients. The commenter stated that the small number of diaphragmatic pacemaker cases compared to the large volume of other cases in each MS-DRG means that the unique cost factors of most of the pacemaker cases will never be reflected in the payment for these MS-DRGs. The commenter stated that hospitals have no incentive to make the service available to patients who could use the system. The commenter stated that the number of individuals who can use the pacemaker is small because of the comparatively small volume of individuals who suffer from the conditions that make the pacemaker necessary, but there are more than 48 Medicare beneficiaries who could benefit from the device.

The commenter further questioned the rationale for not basing a new MS-DRG on such a small number of cases. The commenter questioned the reference to the use of 500 cases, which is one of the criteria for a severity level, when the requestor did not want a severity level, but instead was requesting a new MS-DRG for these Avery Diaphragmatic Pacemaker cases.

In conclusion, the commenter urged CMS to create a new MS-DRG for procedure code 34.85.

Response: We appreciate the commenters' support for our proposal not to change the MS-DRG for diaphragmatic pacemakers. As noted by one commenter, the ICD-9-CM procedure codes capture the procedure performed, in this case the implantation of a diaphragmatic pacemaker. The codes are not manufacturer specific. This is the case for all types of implanted devices such as cardiac pacemakers, defibrillators, and orthopedic devices. The procedure codes are grouped into clinically appropriate MS-DRGs. MS-DRGs were not created to capture a device by a single manufacturer. It is assumed that hospitals and their physician staff will select the appropriate devices. CMS makes Medicare payments to hospitals for groups of similar patients within each MS-DRG. The average costs provided in the tables above were based on Medicare patients reported to have received a diaphragmatic pacemaker. Hospitals have been receiving payments by diagnosis-related groups for several decades and are aware that average payments will exceed the costs of some cases and be less than the costs of other cases. They are aware that the selection of a particular manufacturer, or a particular device made by one manufacturer, should be consistent with the needs of the patient. Our data do not identify which manufacturer's devices the hospitals and physicians chose to utilize.

As stated earlier, given the small number of diaphragmatic pacemaker cases, we do not believe there is justification for creating a new MS-DRG. Basing a new MS-DRG on such a small number of cases could lead to distortions in the relative payment weights for the MS-DRG because several expensive cases could impact the overall relative payment weight. Having larger clinical cohesive groups within an MS DRG provides greater stability for annual updates to the relative payment weights.

Our clinical advisors reviewed this issue and the public comments received and continue to advise that that the diaphragmatic pacemaker cases are appropriately classified within MS-DRGs 163, 164, and 165 because they are clinically similar to other cases of patients with major chest procedures within MS-DRGs 163, 164, and 165. They stated that the clinical flexibility of both physicians and hospitals is maximized when larger cohorts of clinically similar patients are grouped and the costs averaged. Our clinical advisors note that many factors are considered when comparing groups of patients, including such factors as length of stay, cost of specific devices, type of device, type of procedure, and anatomical location, among others. They stated that the commenter did not identify any factors that they had failed to consider when categorizing these cases. Our clinical advisors do not support creating a new MS DRG for such a small number of cases.

After consideration of the public comments we received, we are finalizing our proposal to maintain the current MS-DRG assignments for diaphragmatic pacemaker cases within MS-DRGs 163, 164, and 165.

4. MDC 5 (Diseases and Disorders of the Circulatory System)

a. Exclusion of Left Atrial Appendage

We received a request to move the exclusion of the left atrial appendage procedure, which is a non-O.R. procedure and captured by ICD-9-CM procedure code 37.36 (Excision, destruction or exclusion of left atrial appendage (LAA)), from MS-DRGs 250 (Percutaneous Cardiovascular without Coronary Artery Stent with MCC) and 251 (Percutaneous Cardiovascular without Coronary Artery Stent without MCC) to MS-DRGs 237 (Major Cardiovascular Procedures with MCC) and 238 (Major Cardiovascular Procedures without MCC). The requestor stated that the exclusion of the left atrial appendage procedure code 37.36 is not clinically coherent with the other procedures in MS-DRGs 250 and 251 and that this current assignment to MS-DRGs 250 and 251 does not compensate providers adequately for the expenses incurred to perform this procedure and placement of the device.

The exclusion of the left atrial appendage procedure involves a percutaneous placement of a snare/suture around the left atrial appendage to close it off. The exclusion of the left atrial appendage procedure takes place in the cardiac catheterization laboratory under general anesthesia and is a catheter based closed-chest procedure instead of an open heart surgical technique to treat the same clinical condition, with the same intended results. The procedure can be performed by either an interventional cardiologist or an electrophysiologist.

We analyzed claims data from the December 2013 update of the FY 2013 MedPAR file for cases assigned to MS-DRGs 250 and 251 and MS-DRGs 237 and 238. Our findings are shown in the table below.

The data in the table above show that, while the average costs of the atrial appendage exclusion procedures are higher ($29,637) than those for all cases ($21,319) within MS-DRG 250 and are higher ($18,298) than for all cases ($14,614) within MS-DRG 251, they are lower than those in MS-DRGs 237 ($35,642) and 238 ($24,511). Our clinical advisors reviewed this issue and recommended not moving these stand-alone percutaneous cases to MS-DRGs 237 and 238 because they do not consider them to be major cardiovascular procedures. Our clinical advisors stated that cases reporting ICD-9-CM procedure code 37.36 are appropriately assigned within MS-DRG 250 and 251 because they are percutaneous cardiovascular procedures and are clinically similar to other procedures within the MS-DRG. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not propose to reassign exclusion of atrial appendage procedure cases from MS-DRGs 250 and 251 to MS-DRGs 237 and 238 for FY 2015. We invited public comments on our proposal to maintain the current MS-DRG structure for the exclusion of the left atrial appendage.

Comment: Several commenters supported CMS' proposal to maintain the current MS-DRGs 250 and 251 assignment for exclusion of the left atrial appendage. Several commenters disagreed with the proposal and recommended that CMS assign exclusion of the left atrial appendage to MS-DRG 237 and 238 because the procedure can be performed as a standalone percutaneous procedure or in combination with an open chest procedure such as cardiac bypass surgery. The commenters stated that when the procedure is performed in conjunction with an open chest procedure, the procedure is performed in a surgical suite. Therefore, the commenters recommended that exclusion of the left atrial appendage be assigned to MS-DRGs 237 and 238 when it is a standalone procedure.

Response: We appreciate the commenters' support for our proposal to maintain the current MS-DRG assignment for the exclusion of atrial appendage procedures. We are not accepting the commenters' recommendation to move the cases to MS-DRGs 237 and 238. Our clinical advisors reviewed these public comments and continue to maintain that cases reporting ICD-9-CM procedure code 37.36 are appropriately assigned within MS-DRG 250 and 251 because they are percutaneous cardiovascular procedures and are clinically similar to other procedures within the MS-DRGs. They also stated that when performed with an open chest procedure, these procedures would map to a clinically appropriate open chest MS-DRG under the current MS-DRG logic. Our clinical advisors confirmed that although these are not insignificant procedures, the procedures are not considered to be major cardiovascular procedures on the same scale and with similar characteristics as cases grouped together in MS-DRGs 237 and 238.

After consideration of the public comments we received, we are finalizing our proposal to maintain the current MS-DRG assignment for exclusion of atrial appendage in MS-DRGs 250 and 251 for FY 2015.

b. Transcatheter Mitral Valve Repair: MitraClip®

The MitraClip® System (hereafter referred to as MitraClip®) for transcatheter mitral valve repair has been discussed in extensive detail in previous rulemaking, including the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25822) and final rule (76 FR 51528 through 51529) and the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27902 through 27903) and final rule (77 FR 53308 through 53310), in response to requests for MS-DRG reclassification, as well as, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27547 through 27552) under the new technology add-on payment policy. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50575), the application for a new technology add-on payment for MitraClip® was unable to be considered further due to lack of FDA approval by the July 1, 2013 deadline.

Subsequently, on October 24, 2013, MitraClip® received FDA approval. As a result, the manufacturer has submitted new requests for both an MS-DRG reclassification and new technology add-on payment for FY 2015. We refer readers to section II.I. of the preamble of the proposed rule and this final rule for a discussion regarding the application for MitraClip® under the new technology add-on payment policy. Below we discuss the MS-DRG reclassification request.

The manufacturer's request for MS-DRG reclassification involves two components. The first component consists of reassigning cases reporting a transcatheter mitral valve repair using the MitraClip® from MS-DRGs 250 and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent with MCC and without MCC, respectively) to MS-DRGs 216 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC), 217 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization with CC), 218 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization without CC/MCC), 219 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC), 220 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization with CC), and 221 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization without CC/MCC). The second component of the manufacturer's request was for CMS to examine the creation of a new base MS-DRG for transcatheter valve therapies.

Effective October 1, 2010, ICD-9-CM procedure code 35.97 (Percutaneous mitral valve repair with implant) was created to identify and describe the MitraClip® technology.

To address the first component of the manufacturer's request, we conducted an analysis of claims data from the December 2013 update of the FY 2013 MedPAR file for cases reporting procedure code 35.97 in MS-DRGs 250 and 251. The table below shows our findings.

As displayed in the table above, the data demonstrate that, for MS-DRG 250, there were a total of 9,174 cases with an average length of stay of 6.90 days and average costs of $21,319. The number of cases reporting the ICD-9-CM procedure code 35.97 in MS-DRG 250 totaled 67 with an average length of stay of 8.48 days and average costs of $39,103. For MS-DRG 251, there were a total of 26,331 cases with an average length of stay of 3.01 days and average costs of $14,614. There were 127 cases found in MS-DRG 251 reporting the procedure code 35.97 with an average length of stay of 3.94 days and average costs of $25,635. We recognize that the cases reporting procedure code 35.97 have a longer length of stay and higher average costs in comparison to all the cases within MS-DRGs 250 and 251. However, as stated in prior rulemaking (77 FR 53309), it is a fundamental principle of an averaged payment system that half of the procedures in a group will have above average costs. It is expected that there will be higher cost and lower cost subsets, especially when a subset has low numbers.

We also evaluated the claims data from the December 2013 update of the FY 2013 MedPAR file for MS-DRGs 216 through 221. Our findings are shown in the table below.

The data in our findings did not warrant reassignment of cases reporting use of the MitraClip®. We stated in the proposed rule that if we were to propose reassignment of cases reporting procedure code 35.97 to MS-DRGs 216 through 221, they would be significantly overpaid, as the average costs range from $34,310 to $65,478 for those MS-DRGs. In addition, our clinical advisors did not support reassigning these cases. They noted that the current MS-DRG assignment is appropriate for the reasons stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53309). To reiterate, our clinical advisors noted that the current MS-DRG assignment is reasonable because the operating room resource utilizations of percutaneous procedures, such as those found in MS-DRGs 250 and 251, tend to group together, and are generally less costly than open procedures, such as those found in MS-DRGs 216 through 221. Percutaneous procedures by organ system represent groups that are reasonably clinically coherent. More significantly, our clinical advisors stated that postoperative resource utilization is significantly higher for open procedures with much greater morbidity and consequent recovery needs. Because the equipment, technique, staff, patient populations, and physician specialty all tend to group by type of procedure (percutaneous or open), separately grouping percutaneous procedures and open procedures is more clinically consistent. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not propose to modify the current MS-DRG assignment for cases reporting procedure code 35.97 from MS-DRGs 250 and 251 to MS-DRGs 216 through 221 for FY 2015. We invited public comments on our proposal to not make any modifications to the current MS-DRG logic for these cases.

Comment: Several commenters supported the proposal to maintain cases reporting procedure code 35.97 in MS-DRGs 250 and 251, stating it was reasonable given the data and information provided.

Response: We acknowledge and appreciate the commenters' support.

Comment: Some commenters suggested that cases utilizing the MitraClip® should be compensated similarly to mitral valve procedures that are performed with an open approach due to the time, staff and resources involved. Commenters reported that this novel technology has improved the quality of life for patients suffering from congestive heart failure. However, the commenters indicated that due to inadequate payment, their respective facilities are not able to offer the MitraClip® to the entire population that is eligible for it. The commenters also indicated that patients do not have access to this life-saving technology not only due to the lack of adequate payment to providers but also due to the cost of the device. Another commenter reported that “the price of the device should be reduced to a level that is feasible for both sponsor and hospital.” Commenters also suggested that congestive heart failure readmissions would be reduced if patients could be treated with the MitraClip®.

Response: As explained in the FY 2015 IPPS/LTCH PPS proposed rule, our clinical advisors believe that the current MS-DRG assignment for the MitraClip® is reasonable because the operating room resource utilizations of percutaneous procedures, such as those found in MS-DRGs 250 and 251, tend to group together, and are generally less costly than open procedures. In addition, the data do not support reassignment. We stated in the proposed rule that if we were to propose reassignment of cases reporting procedure code 35.97 to MS-DRGs 216 through 221, they would be significantly overpaid, as the average costs range from $34,310 to $65,478 for those MS-DRGs and the average costs for cases reporting procedure code 35.97 are $30,286 for MS-DRGs 250 and 251.

Comment: One commenter suggested an alternative option regarding MS-DRG reassignment for the MitraClip® and requested that CMS reassign cases reporting procedure code 35.97 from MS-DRGs 250 and 251 to MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and without MCC, respectively) with concurrent approval of the new technology add-on payment application. The commenter stated that this would allow the MitraClip® to be recognized in MS-DRGs involving a major cardiovascular procedure with an implantable device.

Response: We did not propose to reassign cases reporting procedure code 35.97 from MS-DRGs 250 and 251 to MS-DRGs 237 and 238. Therefore, we consider this comment to be outside of the scope of the FY 2015 IPPS/LTCH PPS proposed rule. We note that, as referenced in section II.G.1.b. of the preamble of this final rule, we encourage input from our stakeholders concerning the annual IPPS updates when that input is made available to us by December 7 of the year prior to the next annual proposed rule update. For example, to be considered for any updates or changes in FY 2016, comments and suggestions should be submitted by December 7, 2014.

We note that the MitraClip® technology is discussed in section II.I. of the preamble of this final rule under the new technology add-on payment policy.

After consideration of the public comments we received, we are finalizing our proposal to not modify the current MS-DRG assignment for cases reporting procedure code 35.97 from MS-DRGs 250 and 251 to MS-DRGs 216 through 221 for FY 2015.

As indicated above, the second component of the manufacturer's request involved the creation of a new base MS-DRG for transcatheter valve therapies. We also received a similar request from another manufacturer recommending that CMS create a new MS-DRG for procedures referred to as endovascular cardiac valve replacement procedures. We reviewed each of these requests using the same data analysis, as set forth below. The discussion for endovascular cardiac valve replacement procedures is included in section II.G.4.c. of the preamble of this final rule and includes findings from the analysis and our proposals and final policies for each of these similar, but distinct requests.

c. Endovascular Cardiac Valve Replacement Procedures

As noted in the previous section related to the MitraClip® technology, we received two requests to create a new base MS-DRG for what was referred to as “transcatheter valve therapies” by one manufacturer and “endovascular cardiac valve replacement” procedures by another manufacturer. Below we summarize the details of each request and review results of the data analysis that was performed.

Transcatheter Valve Therapies

The request related to transcatheter valve therapies consisted of creating a new MS-DRG that would include the MitraClip® technology (ICD-9-CM procedure code 35.97 (Percutaneous mitral valve repair with implant)), along with the following list of ICD-9-CM procedure codes that identify the various types of valve replacements performed by an endovascular or transcatheter technique:

• 35.05 (Endovascular replacement of aortic valve);
• 35.06 (Transapical replacement of aortic valve);
• 35.07 (Endovascular replacement of pulmonary valve);
• 35.08 (Transapical replacement of pulmonary valve); and
• 35.09 (Endovascular replacement of unspecified valve).

We performed analysis of claims data from the December 2013 update of the FY 2013 MedPAR file for both the percutaneous mitral valve repair and the transcatheter/endovascular cardiac valve replacement codes in their respective MS-DRGs. The percutaneous mitral valve repair with implant (MitraClip®) procedure code is currently assigned to MS-DRGs 250 and 251, while the transcatheter/endovascular cardiac valve replacement procedure codes are currently assigned to MS-DRGs 216, 217, 218, 219, 220, and 221. As illustrated in the table below, the data demonstrate that, for MS-DRGs 250 and 251, there were a total of 194 cases reporting procedure code 35.97, with an average length of stay of 5.5 days and average costs of $30,286.

Upon analysis of cases in MS-DRGs 216 through 221 reporting the cardiac valve replacement procedure codes, we found a total of 7,287 cases with an average length of stay of 8.1 days and average costs of $53,802, as shown in the table below.

The data clearly demonstrate that the volume of cases for the transcatheter/endovascular cardiac valve replacement procedures is much higher in comparison to the volume of cases for the percutaneous mitral valve repair (MitraClip®) procedure (7,287 compared to 194). In addition, the average costs of the transcatheter/endovascular cardiac valve replacement procedures are significantly higher than the average costs of the percutaneous mitral valve repair with implant ($53,802 compared to $30,286).

Our clinical advisors did not support grouping a percutaneous valve repair procedure with transcatheter/endovascular valve replacement procedures. They do not believe that these procedures are clinically coherent or similar in terms of resource consumption because the MitraClip® technology identified by procedure code 35.97 is utilized for a percutaneous mitral valve repair, while the other technologies, identified by procedure codes 35.05 through 35.09, are utilized for transcatheter/endovascular cardiac valve replacements. Consequently, the data analysis and our clinical advisors did not support the creation of a new MS-DRG. Therefore, for FY 2015, we did not propose to create a new MS-DRG to group cases reporting the percutaneous mitral valve repair (MitraClip®) procedure with transcatheter/endovascular cardiac valve replacement procedures. We invited public comments on our proposal.

Comment: One commenter recommended reassignment of procedure code 35.97 to a more appropriate MS-DRG. However, the commenter did not offer a specific recommendation as to which MS-DRG would be more appropriate.

Response: We appreciate the commenter's recommendation. However, as the commenter did not provide a specific MS-DRG to which procedure code 35.97 should be reassigned, we were unable to evaluate the recommendation. As we noted earlier, and as referenced in section II.G.1.b. of the preamble of this final rule, we encourage input from our stakeholders concerning the annual IPPS updates when that input is made available to us by December 7 of the year prior to the next annual proposed rule update. For example, to be considered for any updates or changes in FY 2016, comments and suggestions should be submitted by December 7, 2014.

Comment: One commenter urged CMS to reassign procedure code 35.97 from its current assignment in MS-DRGs 250 and 251 to a more appropriate MS-DRG that would better recognize case complexity as a major cardiovascular procedure with a permanent implant. This commenter specifically recommended the inclusion of transcatheter mitral valve repair (TMVR) within the newly proposed MS-DRGs 266 and 267, and to subsequently retitle these MS-DRGs, “Endovascular Transcatheter Valve Therapy with Implant.”

Response: As stated in the FY 2015 IPPS/LTCH PPS proposed rule, our analysis did not support including cases reporting procedure code 35.97 for percutaneous mitral valve repair procedures together with transcatheter/endovascular cardiac valve replacement procedures in a new MS-DRG. The average costs of the transcatheter/endovascular cardiac valve replacement procedures are significantly higher than the average costs of the percutaneous mitral valve repair procedures with implant ($53,802 compared to $30,286).

In addition, our clinical advisors did not support grouping a percutaneous valve repair procedure with transcatheter/endovascular valve replacement procedures. They do not believe that these procedures are clinically coherent or similar in terms of resource consumption because the MitraClip® technology identified by procedure code 35.97 is utilized for a percutaneous mitral valve repair, while the other technologies, identified by procedure codes 35.05 through 35.09, are utilized for transcatheter/endovascular cardiac valve replacements.

Comment: One commenter disagreed with the CMS analysis that transcatheter mitral valve repair (TMVR) is significantly different than transcatheter aortic valve replacement (TAVR). The commenter asserted that “unlike alternative open repair and replacement procedures, a heart valve prosthesis is being manipulated/modified from a Transcatheter approach; whether the prosthesis serves to `replace' or `repair' an existing valve is irrelevant in regards to resource consumption.” The commenter urged CMS to consider all transcatheter valve procedures equally with respect to DRG assignment.

Response: We disagree with the commenter that TMVR and TAVR are not significantly different. As explained in the FY 2015 IPPS/LTCH PPS proposed rule, our analysis of the claims data and the recommendation from our clinical advisors do not support treating TMVR and all transcatheter valve procedures equally with respect to MS-DRG assignment. As noted previously, the average costs of the transcatheter/endovascular cardiac valve replacement procedures are significantly higher than the average costs of the percutaneous mitral valve repair procedures with implant ($53,802 compared to $30,286).

After consideration of the public comments we received, we are finalizing our proposal to not create a new MS-DRG to group cases reporting the percutaneous mitral valve repair (MitraClip®) procedure with transcatheter/endovascular cardiac valve replacement procedures.

Endovascular Cardiac Valve Replacement

The similar but separate request relating to endovascular cardiac valve replacement procedures consisted of creating a new MS-DRG that would only include the various types of cardiac valve replacements performed by an endovascular or transcatheter technique. In other words, this request specifically did not include the MitraClip® technology (ICD-9-CM procedure code 35.97 (Percutaneous mitral valve repair with implant)) and only included the list of ICD-9-CM procedure codes that identify the various types of valve replacements performed by an endovascular or transcatheter technique (ICD-9-CM procedure codes 35.05 through 35.09) as described earlier in this section.

The human heart contains four major valves—the aortic, mitral, pulmonary, and tricuspid valves. These valves function to keep blood flowing through the heart. When conditions such as stenosis or insufficiency/regurgitation occur in one or more of these valves, valvular heart disease may result. Cardiac valve replacement surgery is performed in an effort to correct these diseased or damaged heart valves. The endovascular or transcatheter technique presents a viable option for high-risk patients who are not candidates for the traditional open surgical approach.

We reviewed the claims data from the December 2013 update of the FY 2013 MedPAR file for cases in MS-DRGs 216 through 221. Our findings are shown in the chart below. The data analysis shows that cardiac valve replacements performed by an endovascular or transcatheter technique represent a total of 7,287 of the cases in MS-DRGs 216 through 221, with an average length of stay of 8.1 days and higher average costs ($53,802 compared to $47,177) in comparison to all of the cases in MS-DRGs 216 through 221.

As the data appear to indicate support for the creation of a new base MS-DRG, based on our evaluation of resource consumption, patient characteristics, volume, and costs between the cardiac valve replacements performed by an endovascular or transcatheter technique and the open surgical technique, we then applied our established criteria to determine if these cases would meet the requirements to create subgroups. We use five criteria established in the FY 2008 IPPS final rule (72 FR 47169) to review requests involving the creation of a new CC or an MCC subgroup within a base MS-DRG. As outlined in the FY 2012 IPPS proposed rule (76 FR 25819), the original criteria were based on average charges but were later converted to average costs. In order to warrant creation of a CC or an MCC subgroup within a base MS-DRG, this subgroup must meet all of the following five criteria:

• A reduction in variance of costs of at least 3 percent.
• At least 5 percent of the patients in the MS-DRG fall within the CC or the MCC subgroup.
• At least 500 cases are in the CC or the MCC subgroup.
• There is at least a 20-percent difference in average costs between subgroups.
• There is a $2,000 difference in average costs between subgroups.

In applying the five criteria, we found that the data support the creation of a new MS-DRG subdivided into two severity levels. We also consulted with our clinical advisors. Our clinical advisors stated that patients receiving endovascular cardiac valve replacements are significantly different from those patients who undergo an open chest cardiac valve replacement. They noted that patients receiving endovascular cardiac valve replacements are not eligible for open chest cardiac valve procedures because of a variety of health constraints. This highlights the fact that peri-operative complications and post-operative morbidity have significantly different profiles for open chest procedures compared with endovascular interventions. This is also substantiated by the different average lengths of stay demonstrated by the two cohorts. Our clinical advisors further noted that separately grouping these endovascular valve replacement procedures provides greater clinical cohesion for this subset of high-risk patients.

In the FY 2015 IPPS/LTCH PPS proposed rule, we proposed to create the following MS-DRGs for endovascular cardiac valve replacements:

• Proposed new MS-DRG 266 (Endovascular Cardiac Valve Replacement with MCC); and
• Proposed new MS-DRG 267 (Endovascular Cardiac Valve Replacement without MCC).

We invited public comments on our proposal to create these new MS-DRGs for FY 2015.

Comment: Several commenters supported the proposal to create new MS-DRGs for endovascular cardiac valve replacement procedures. One commenter noted that “the endovascular or transcatheter approach presents a viable option for high-risk patients who are not candidates for the traditional open chest surgical approach. The proposed MS-DRGs better align the more extensive cardiac valve procedures based on clinical coherence and similar resource costs.” Another commenter stated that, by establishing these new MS-DRGs, “CMS will continue to be able to collect the necessary information that will help assure appropriate payment in the future as these technologies evolve.” Other commenters supported creation of the new MS-DRGs, noting it was reasonable given the data and information provided. Another commenter applauded CMS for proposing the two new MS-DRGs, noting that “this decision will allow patients, particularly women, to have increased access to innovative therapies that will ease their suffering from the debilitating effects of severe aortic stenosis.”

Response: We appreciate the commenters' support.

Comment: One commenter commended CMS for proposing new MS-DRGs to identify endovascular/transcatheter valve procedures. However, the commenter suggested that CMS reconsider the title of the proposed MS-DRGs. The commenter noted that the accepted nomenclature is “transcatheter” and not “endovascular”.

Response: We acknowledge that many individuals prefer the use of the term “transcatheter”, such as occurs in the frequently used acronym TAVR (transcatheter aortic valve replacement). However, we note that this nomenclature is by no means universal. “Endovascular” is also used to describe these procedures. The current ICD-9-CM procedure code for TAVR, for example, is 35.05 (Endovascular replacement of aortic valve). Recognizing that universal agreement on medical nomenclature is still an unachievable goal at the present time, we have elected to retain the term “endovascular” to maintain consistency with the current ICD-9-CM terminology.

After consideration of the public comments we received, we are finalizing our proposal to create new MS-DRG 266 (Endovascular Cardiac Valve Replacement with MCC) and MS-DRG 267 (Endovascular Cardiac Valve Replacement without MCC).

d. Abdominal Aorta Graft

We received a request that we change the MS-DRG assignment for procedure code 39.71 (Endovascular implantation of other graft in abdominal aorta), which is assigned to MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and without MCC, respectively). The requestor asked that we reassign procedure code 39.71 to MS-DRGs 228, 229, and 230 (Other Cardiothoracic Procedures with MCC, with CC, and without CC/MCC, respectively). The requestor stated that the average cost of endovascular abdominal aorta graft implantation cases is significantly higher than other cases in MS-DRGs 237 and 238. The requestor stated that the average cost of endovascular abdominal aorta graft implantation cases is closer to those in MS-DRGs 228, 229, and 230.

The requestor stated that the goal of endovascular repair for abdominal aneurysm is to isolate the diseased, aneurismal portion of the aorta and common iliac arteries from continued exposure to systemic blood pressure. The procedure involves the delivery and deployment of endovascular prostheses, also referred to as a graft, as required to isolate the aneurysm above and below the extent of the disease. The requestor stated that this significantly reduces patient morbidity and death caused by leakage and/or sudden rupture of an untreated aneurysm.

We examined claims data from the December 2013 update of the FY 2013 MedPAR file for cases of endovascular abdominal aorta graft implantations. The following table shows our findings.

As this table shows, endovascular abdominal aorta graft implantation cases have higher average costs and shorter lengths of stay than all cases within MS-DRGs 237 and 238. The average cost for endovascular abdominal aorta graft implantation cases in MS-DRG 237 is $9,256 greater than that for all cases in MS-DRG 237 ($44,898 compared to $35,642). The average cost for endovascular abdominal aorta graft implantation cases in MS-DRG 238 is $3,973 higher than that for all cases in MS-DRG 238 ($28,484 compared to $24,511). Cases in MS-DRG 228 have average costs that are $7,417 higher than the endovascular abdominal aorta graft implantation cases in MS-DRG 237 ($52,315 compared to $44,898). MS-DRG 228 and MS-DRG 237 both contain cases with MCCs. Cases in MS-DRG 229, which contain a CC, have average costs that are $3,586 higher than average costs of the endovascular abdominal aorta graft implantation cases in MS-DRG 238, which do not contain an MCC ($32,070 compared to $28,484). Cases in MS-DRG 230, which have neither an MCC nor a CC, have average costs that are $797 higher than the endovascular abdominal aorta graft implantation cases in MS-DRG 238 ($29,281 compared to $28,484). While the average costs were higher for endovascular abdominal aorta graft implantation cases compared to all cases within MS-DRGs 237 and 238, each MS-DRG has some cases that are higher and some cases that are lower than the average costs for the entire MS-DRG. MS-DRGs were developed to capture cases that are clinically consistent with similar overall average resource requirements. This results in some cases within an MS-DRG having costs that are higher than the overall average and other cases having costs that are lower than the overall average. This may be due to specific types of cases included within the MS-DRGs or to the fact that some cases will simply require additional resources on a specific admission. However, taken as a whole, the hospital will be paid an appropriate amount for the group of cases that are assigned to the MS-DRG. We believe the endovascular abdominal aorta graft implantation cases are appropriately grouped with other procedures within MS-DRGs 237 and 238.

Our clinical advisors reviewed this issue and determined that the endovascular abdominal aorta graft implantation cases are appropriately classified within MS-DRGs 237 and 238 because they are clinically similar to the other procedures in MS-DRGs 237 and 238, which include other procedures on the aorta. While the endovascular abdominal aorta graft implantation cases have higher average costs than the average for all cases within MS-DRGs 237 and 238, our clinical advisors do not believe this justifies moving the cases to MS-DRGs 228, 229 and 230, which involve a different set of cardiothoracic surgeries.

As we stated in the FY 2015 IPPS/LTCH PPS proposed rule, based on the results of examination of the claims data and the recommendations of our clinical advisors, we did not believe that proposing to reclassify endovascular abdominal aorta graft implantation cases from MS-DRGs 237 and 238 was warranted. We proposed to maintain the current MS-DRG assignments for endovascular abdominal aorta graft implantation cases. We invited public comments on our proposal.

Comment: A number of commenters supported CMS' proposal to maintain the current MS-DRG assignments for endovascular abdominal aorta graft implantation cases. The commenters stated that the proposal was reasonable given the data and information provided. One commenter disagreed with the proposal and stated that endovascular abdominal aorta graft implantation cases should be reassigned to MS-DRGs 228, 229, and 230. The commenter stated that neither MS-DRGs 237 and 238 nor MS-DRGs 228, 229, and 230 have absolute clinical coherence and that there are a mix of procedures in both set of MS-DRGs. The commenter also expressed concern that CMS was prioritizing clinical coherence over total resource cost in deciding not to approve this request to assign procedure code 39.71 to MS-DRGs 228, 229, and 230. The commenter stated that if CMS is concerned about the perception regarding clinical coherence of the MS-DRG assignment for procedures represented by code 39.71, CMS should change the titles for these five MS-DRGs to accommodate the evolution of these procedures while also allowing for new indications of various types of grafts in the aorta and its branches. The commenter did not suggest specific new MS-DRG titles for MS-DRGs 228, 229, 230, 237, and 238.

Response: We appreciate the commenters' support for our proposal to maintain the current assignments for endovascular abdominal aorta graft implantation cases in MS-DRGs 237 and 238. We are not accepting the commenter's suggestion that we modify the titles of MS-DRGs 228, 229, 230, 237, and 238 in order to justify the reassignment of abdominal aorta graft procedures to MS-DRGs 228, 229, and 230. Our clinical advisors reviewed this issue and disagree with the commenters' statement that CMS puts too high a priority on the clinical coherence of the MS-DRGs. MS-DRGs were developed based on clinical similarities of groups of medical and surgical patients. We also consider average costs of these patients in evaluating the need to make modifications to the MS-DRGs. However, for the reasons described previously, we do not believe that the higher average costs for the endovascular abdominal aorta graft implantation cases as compared to the average for all cases within MS-DRGs 237 and 238 warrant reassigning these cases to MS-DRGs 228, 229, and 230. We will continue to evaluate the need to make updates to the MS-DRGs to better capture procedures of the aorta and its branches. We welcome any specific recommendations for refinements to better capture changes in medical treatment. Any requests for MS-DRG updates must be received by December 7, 2014, in order to be considered for the FY 2016 proposed rule.

After consideration of the public comments we received, we are finalizing our proposal to maintain the current assignments for endovascular abdominal aorta graft implantation cases in MS-DRGs 237 and 238.

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)

a. Shoulder Replacement Procedures

We received a request to change the MS-DRG assignment for shoulder replacement procedures. This request involved the following two procedure codes:

• 81.88 (Reverse total shoulder replacement); and
• 81.97 (Revision of joint replacement of upper extremity).

With respect to procedure code 81.88, the requestor asked that reverse total shoulder replacements be reassigned from MS-DRGs 483 and 484 (Major Joint/Limb Reattachment Procedure of Upper Extremities with CC/MCC and without CC/MCC, respectively) to MS-DRG 483 only. The reassignment of procedure code 81.88 from MS-DRGs 483 and 484 was discussed previously in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50534 through 50536). The result of reassigning reverse shoulder replacements from MS-DRGs 483 and 484 to MS-DRG 483 only would be that this procedure would be assigned to MS-DRG 483 whether or not the case had a CC or an MCC. The requestor stated that reverse shoulder replacement procedures are more clinically cohesive with higher severity MS-DRGs due to the complexity and resource consumption of these procedures. We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50534 through 50536) for a discussion of the reverse total shoulder replacement.

The requestor also recommended that we reassign what it described as another shoulder procedure involving procedure code 81.97, which is assigned to MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and Connective Tissue O.R. Procedures with MCC, with CC, and without CC/MCC, respectively), to MS-DRG 483. We point out that MS-DRG 483 contains upper joint replacements, including shoulder replacements. MS-DRG 483 does not contain any joint revision procedures. Similar to the request for reassignment of procedure code 81.88, this would mean that procedure code 81.97 would be assigned to MS-DRG 483 whether or not the case had a CC or an MCC. If CMS did not support this recommendation for moving procedure code 81.97 to MS-DRG 483, the requestor recommended an alternative reassignment to MS-DRG 515 (Other Musculoskeletal System and Connective Tissue O.R. procedures with MCC) even if the case had no MCC.

We point out that, while the requestor refers to procedure code 81.97 as a shoulder procedure, the code description actually includes revisions of joint replacements of a variety of upper extremity joints, including those in the elbow, hand, shoulder, and wrist.

As stated earlier, reverse shoulder replacements are assigned to MS-DRGs 483 and 484. Revisions of upper joint replacements are assigned to MS-DRGs 515, 516, and 517. We examined claims data from the December 2013 update of the FY 2013 MedPAR file for MS-DRGs 483 and 484. The following table shows our findings of cases of reverse shoulder replacement.

As the above table shows, MS-DRG 484 reverse shoulder replacement cases have similar average costs to those in MS-DRG 483 ($18,719 for reverse shoulder replacements in MS-DRG 484 compared to $18,807 for all cases in MS-DRG 483). However, in reviewing the data, we observed that the claims data no longer support two severity levels for MS-DRGs 483 and 484.

We use the five criteria established in FY 2008 (72 FR 47169) to review requests involving the creation of a new CC or MCC subgroup within a base MS-DRG. As outlined in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25819), the original criteria were based on average charges but were later converted to average costs. In order to warrant creation of a CC or an MCC subgroup within a base MS-DRG, the subgroup must meet all of the following five criteria:

• A reduction in variance of costs of at least 3 percent.
• At least 5 percent of the patients in the MS-DRG fall within the CC or MCC subgroup.
• At least 500 cases are in the CC or MCC subgroup.
• There is at least a 20-percent difference in average costs between subgroups.
• There is a $2,000 difference in average costs between subgroups.

We found through our examination of the claims data from the December 2013 update of the FY 2013 MedPAR file that the two severity subgroups of MS-DRG 483 and 484 no longer meet the fourth criterion of at least a 20-percent difference in average costs between subgroups. We found that there is a $2,453 difference in average costs between MS-DRG 483 and MS-DRG 484. The difference in average costs would need to be $3,761 to meet the fourth criterion. Therefore, our claims data support collapsing MS-DRGs 483 and 484 into a single MS-DRG. Our clinical advisors reviewed this issue and agreed that there is no longer enough difference between the two severity levels to justify separate severity subgroups for MS-DRGs 483 and 484, which include a variety of upper joint replacements. Therefore, our clinical advisors supported our recommendation to collapse MS-DRGs 483 and 484 into a single MS-DRG.

In the FY 2015 IPPS/LTCH PPS proposed rule, based on the results of examination of the claims data and the advice of our clinical advisors, we proposed to collapse MS-DRGs 483 and 484 into a single MS-DRG by deleting MS-DRG 484 and revising the title of MS-DRG 483 to read “Major Joint/Limb Reattachment Procedure of Upper Extremities”.

The following table shows our findings of cases of revisions of upper joint replacement from the December 2013 update of the FY 2013 MedPAR file.

Cases identified by code 81.97 in MS-DRGs 515, 516, and 517 have lower average costs and shorter lengths of stay than all cases in MS-DRG 515. The average costs of cases in MS-DRG 515 are $3,977 higher than the average costs of the cases with procedure code 81.97 in MS-DRG 516 ($22,191 compared to $18,214). The average costs of cases in MS-DRG 515 are $6,271 higher than cases with procedure code 81.97 in MS-DRG 517 ($22,191 compared to $15,920).

The table above shows that the average costs of cases in MS-DRG 483 are $3,278 lower than the average costs of cases with procedure code 81.97 in MS-DRG 515 ($18,807 compared to $22,085). The average costs of cases in MS-DRG 483 are $593 higher than the average costs of cases with procedure code 81.97 in MS-DRG 516 ($18,807 compared to $18,214). The average costs of cases in MS-DRG 483 are $2,887 higher than the average costs of cases with procedure code 81.97 in MS-DRG 517 ($18,807 compared to $15,920).

The claims data did not support moving all procedure code 81.97 cases to MS-DRG 515 or MS-DRG 483, whether or not there is a CC or an MCC. We also pointed out once again that procedure code 81.97 is a nonspecific code that captures revisions to not only the shoulder, but also a variety of upper extremity joints including those in the elbow, hand, shoulder, and wrist. Therefore, we have no way of determining how many cases reporting procedure code 81.97 were actually shoulder procedures as opposed to procedures on the elbow, hand, or wrist.

Our clinical advisors reviewed this issue and determined that the revisions of upper joint replacement procedures are appropriately classified within MS-DRGs 515, 516, and 517, which include other joint revision procedures. They did not support moving revisions of upper joint replacement procedures to MS-DRG 515, whether or not there is an MCC. They supported the current classification, which bases the severity level on the presence of a CC or an MCC. They also did not support moving revisions of upper joint replacement procedures to MS-DRG 483, whether or not there is a CC or an MCC, because these revisions are not joint replacements. Based on the results of our examination and the advice of our clinical advisors, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not propose moving revisions of upper joint replacement procedures to MS-DRG 515 or MS-DRG 483, whether or not there is a CC or an MCC.

In summation, we proposed to collapse MS-DRGs 483 and 484 into a single MS-DRG by deleting MS-DRG 484 and revising the title of MS-DRG 483 to read “Major Joint/Limb Reattachment Procedure of Upper Extremities”. We proposed to maintain the current MS-DRG assignments for revisions of upper joint replacement procedures in MS DRGs 515, 516, and 517. We invited public comments on our proposals.

Comment: A number of commenters supported the proposal to collapse MS-DRGs 483 and 484 into a single MS-DRG by deleting MS-DRG 484 and revising the title of MS-DRG 483 to read “Major Joint/Limb Reattachment Procedure of Upper Extremities.” The commenters stated that the proposal was reasonable given the data and information provided.

One commenter stated that collapsing the two MS-DRGs is supported by claims data indicating little cost difference between cases in the current two severity levels. Several commenters stated that the new, single MS-DRG represented clinically cohesive procedures with similar complexity and resource consumption.

Response: We appreciate the commenters' support for our proposal to collapse MS-DRGs 483 and 484 into a single MS-DRG by deleting MS-DRG 484 and revising the title of MS-DRG 483 to read “Major Joint/Limb Reattachment Procedure of Upper Extremities”.

After consideration of the public comments we received, we are adopting as final, without modification, our proposal to collapse MS-DRGs 483 and 484 into a single MS-DRG by deleting MS-DRG 484 and revising the title of MS-DRG 483 to read “Major Joint/Limb Reattachment Procedure of Upper Extremities”.

Comment: A number of commenters supported the proposal to maintain the MS-DRG assignment for code 81.97 in MS-DRGs 515, 516, and 517. The commenters stated that the recommendation was reasonable give the data and information provided. One commenter disagreed with the proposal and stated that code 81.97 would be more accurately classified in MS-DRG 483 (Major Joint/Limb Reattachment of Upper Extremities with CC/MCC) because MS-DRG 483 includes upper extremity procedures.

Response: We appreciate the commenters' support for our proposal to maintain the current MS-DRG assignment for code 81.97 in MS-DRGs 515, 516, and 517. We disagree with the commenter that code 81.97 is similar to other procedures currently assigned to MS-DRG 483. MS-DRG 483 contains replacements, not revisions, of the wrist, shoulder, and elbow as well as reattachments of the forearm. Revision of the joint could include a variety of procedures to joints of the upper extremity. Procedure code 81.97 is a nonspecific code that captures revisions to not only the shoulder, but also a variety of upper extremity joints including those in the elbow, hand, shoulder, and wrist. Therefore, we have no way of determining how many cases reporting procedure code 81.97 were actually shoulder procedures as opposed to procedures on the elbow, hand, or wrist.

Our clinical advisors reviewed this issue and continue to advise that code 81.97 not be reassigned to MS-DRG 483 because the procedure is neither a replacement nor a reattachment procedure as are the current procedures within MS-DRG 483. In addition, the code captures a variety of joint revisions of the upper extremities and is not clinically similar to the replacements and reattachment procedures in MS-DRG 483. Our clinical advisors recommend that code 81.97 continue to be assigned to MS-DRG 515, 516, and 517.

After consideration of the public comments we received, we are finalizing our proposal to maintain the current assignment of code 81.97 in MS-DRG 515, 516, and 517.

b. Ankle Replacement Procedures

We received a request to change the MS-DRG assignment for two ankle replacement procedures. The request involved the following two procedure codes:

• 81.56 (Total ankle replacement); and
• 81.59 (Revision of joint replacement of lower extremity, not elsewhere classified).

The reassignment of procedure code 81.56 from MS-DRGs 469 and 470 (Major Joint Replacement or Reattachment of Lower Extremity with MCC and without MCC, respectively) to a new MS-DRG or, alternatively, to MS-DRG 469 was discussed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50536 through 50537). We refer readers to this final rule for a discussion of ankle replacement procedures. The requestor asked that we again evaluate reassigning total ankle replacement procedures. The requestor also asked that we reassign what it referred to as another ankle replacement revision procedure captured by procedure code 81.59 (Revision of joint replacement of lower extremity, not elsewhere classified), which is assigned to MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and Connective Tissue O.R. Procedures with MCC, with CC, and without CC/MCC, respectively).

The requestor asked that we reassign procedure code 81.56 from MS-DRGs 469 and 470 to MS-DRG 483 (Major Joint/Limb Reattachment Procedure of Upper Extremities with CC/MCC) and rename the MS-DRG to better capture the additional lower extremity cases. The requestor stated that the result would be assignment of lower joint procedures to an MS-DRG that currently captures only upper extremity cases and assignment to the highest severity level even if the case did not have a CC or an MCC. If CMS did not find this acceptable, the requestor made an alternative recommendation of assigning procedure code 81.56 to MS-DRG 469 and renaming the MS-DRG to better capture the additional cases. Cases would be assigned to the highest severity level whether or not the case had an MCC.

The requestor also recommended that procedure code 81.59, which is assigned to MS-DRGs 515, 516, and 517, be reassigned to MS-DRG 483 and that the MS-DRG be given a new title to better capture the additional lower extremity cases. The requestor stated that the result would be assignment of lower joint procedures to an MS-DRG that currently captures only upper extremity cases and assignment to the highest severity level even if the patient did not have a CC or an MCC. If CMS did not support this recommendation, the requestor suggested two additional recommendations. One involves moving procedure code 81.59 to MS-DRG 515 even when the case had no MCC. The other recommendation was to move procedure code 81.59 to MS-DRG 469, whether or not the case had a MCC.

We point out that while the requestor refers to procedure code 81.59 as a revision of an ankle replacement, the code actually includes revisions of joint replacements of a variety of lower extremity joints including the ankle, foot, and toe.

The following table shows the number of total ankle replacement cases, average length of stay, and average costs for procedure code 81.56 in MS-DRGs 469 and 470 found in claims data from the December 2013 update of the FY 2013 MedPAR file compared to all cases within MS-DRGs 469, 470, and 483.

In summary, the requestor asked us to reassign procedure code 81.56 in MS-DRGs 469 and 470 to one of the following two options: MS-DRG 483 (highest severity level); or MS-DRG 469 (highest severity level).

As the table for total ankle replacement above shows, the average cost of cases with procedure code 81.56 in MS-DRG 469 is $27,419 and $19,332 in MS-DRG 470. This compares with the average costs of all cases in MS-DRGs 469 and 470 of $22,548 and $15,119, respectively. While the average cost of cases reporting procedure code 81.56 in MS-DRG 469 is $4,871 higher than the average cost for all cases in MS-DRG 469, we point out that there were only 32 cases. The relatively small number of cases may have been impacted by other factors such as complications or comorbidities. Several expensive cases could impact the average costs for a very small number of patients. The average cost of cases reporting procedure code 81.56 in MS-DRG 470 is $4,213 higher than the average cost for all cases in MS-DRG 470. While the average costs are higher, within all MS-DRGs, some cases have higher and some cases have lower average costs. MS-DRGs are groups of clinically similar cases that have similar overall costs. Within a group of cases, one would expect that some cases have costs that are higher than the overall average and some cases have costs that are lower than the overall average.

MS-DRG 469 ankle replacement cases have average costs that are $8,612 higher than the average costs of all cases in MS-DRG 483 ($27,419 compared to $18,807). Moving these cases (procedure code 81.56) to MS-DRG 483 would result in payment below average costs compared to the current MS-DRG assignment in MS-DRG 469. Furthermore, as noted earlier, moving total ankle replacement cases to MS-DRG 483 would result in a lower extremity procedure being added to what is now an upper extremity MS-DRG. This would significantly disrupt the clinical cohesion of MS-DRG 483.

The average costs of all cases in MS-DRG 469 are $3,216 higher than the average costs of those cases with procedure code 81.56 in MS-DRG 470 ($22,548 compared to $19,332). The data did not support moving procedure code 81.56 cases to MS-DRG 483 or 469 because it would not result in payments that more accurately reflect their current average costs. Our clinical advisors reviewed this issue and determined that the ankle replacement cases are appropriately classified within MS-DRGs 469 and 470 with the severity level leading to the MS-DRG assignment. They did not support moving these cases to MS-DRG 483 because ankle replacements, which are lower joint procedures, are not clinically similar to upper joint replacement procedures. Based on the results of examination of the claims data, the issue of clinical cohesion, and the recommendations from our clinical advisors, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not propose to move total ankle procedures to MS-DRG 483 or MS-DRG 469 when there is no MCC. We proposed to maintain the current MS-DRG assignments for ankle replacement cases. We invited public comments on our proposal.

Comment: A number of commenters supported the proposal to maintain the current MS-DRG assignments for ankle replacement cases. The commenters stated the proposal was reasonable given the data and information provided. Several other commenters urged CMS to reconsider its decision and to create a new MS-DRG for total ankle replacements for FY 2015 that is more appropriate both in terms of resource utilization and clinical cohesiveness, and reassign ICD-9-CM procedure code 81.56 to the new MS-DRG. The commenters stated that, despite evidence that the current Medicare assignment results in payments to hospitals below the average costs for total ankle replacement procedures, and the greater clinical complexity of total ankle replacements relative to other procedures that map to these same MS-DRGs, CMS proposed to maintain the current MS-DRG assignment for total ankle replacement procedures. The commenters stated that total ankle replacement is a complex surgical procedure involving the replacement of the damaged parts of three bones (talus, tibia, and fibula) that make up the articulations of the ankle, as compared to two bones in most other total joint replacement procedures, including hips and knees. The commenters stated that the resources involved with total ankle replacement procedures are not comparable to other procedures in the major joint MS-DRG and that failure to establish a new MS-DRG that more appropriately reflects the higher cost will likely comprise patient access to this procedure.

One commenter acknowledged that there are a relatively small volume of total ankle replacement procedures compared to total hip and total knee replacements. However, the commenter suggested that this imbalance in case volume of total ankle replacements compared to total hip and knee replacements dampens the influence of actual hospital cost data for the total ankle replacements. The commenter recommended that all total ankle replacements be assigned to MS-DRG 469 even if the case does not have a MCC. This commenter acknowledged that the average cost of cases with procedure code 81.56 in MS-DRG 470 is $19,332 compared to average cost of $22,548 for all cases in MS-DRG of 469. However, the commenter suggested that moving all total ankle replacements to MS-DRG 469 was more appropriate than having cases assigned to MS-DRGs 469 and 470 based on the presence of an MCC. The commenter also acknowledged CMS' statement that under the MS-DRG system in general, some cases will have average costs higher than the overall average costs for the MS-DRG, while other cases will have lower average costs. However, the commenter stated that this was an insufficient rationale to apply to total ankle replacements. The commenter disagreed with the determination of the CMS clinical advisors that ankle replacement cases are appropriately classified within MS-DRGs 469 and 470, based on severity level. The commenter stated that total ankle replacement is a complicated surgery that involves the replacement of the damaged parts of the three bones that make up the ankle joint, as compared to two bones in hip and knee replacement procedures. The commenter stated that this surgery required a specialized skill set, operative technique, and level of operating room resource utilization that is vastly dissimilar from that of total hip and total knee replacements. The commenter recommended that CMS create a new MS-DRG for total ankle replacements or move all total ankle replacements to MS-DRG 469.

Response: We appreciate the commenters' support for our proposal to maintain the current MS-DRG assignment for total ankle replacements. We are not accepting the commenter's recommendation to create a new MS-DRG for total ankle replacements or to move all cases to MS-DRG 469. We point out that there were only 1,411 total ankle replacements with 32 cases in MS-DRG 469 and 1,379 cases in MS-DRG 470. Creating a new MS-DRG for this single procedure would not be appropriate. MS-DRGs were created to provide payment to hospitals for groups of clinically similar conditions and procedures. MS-DRGs were not created to provide payment for each single procedure. MS-DRGs 469 and 470 contain replacement and reattachment procedures of the lower extremity, including those of the hip, knee, ankle, foot, lower leg, and thigh. Within each MS-DRG, there will be cases with costs higher than the average costs and others with costs below the average costs. Basing a new MS-DRG on a small number of cases could lead to distortions in the relative payment weights for the MS DRG because several expensive cases could impact the overall relative payment weight. Having larger clinically cohesive groups within an MS-DRG provides greater stability for annual updates to the relative payment weights. We also point out that combining total ankle replacements into a single new MS-DRG would result in the same payment for cases with an MCC as those without an MCC. As indicated above, total ankle replacements with MCCs have average costs of $27,419 and those without MCCs have average costs of $19,332. Combining all total ankle replacements into a single, newly created MS-DRG would reduce the payment accuracy of cases with different severity levels.

We also disagree with the recommendation to move all total ankle replacement to MS-DRG 469. As stated earlier, total ankle replacements with MCCs have average costs of $27,419 and those without MCCs have average costs of $19,332. The average cost of all cases in MS-DRG 469 (which includes cases with MCCs) is $22,548. We point out again that, under the MS-DRGs, some cases will have average costs higher than the overall average costs for the MS-DRG while other cases will have lower average costs. The total ankle replacements are appropriately assigned to MS-DRGs 469 and 470 based on the presence of a MCC.

Our clinical advisors reviewed the public comments and clinical data and continue to support maintaining the current MS-DRG assignment for total ankle replacements. They advised that total ankle replacements are appropriately assigned to MS-DRGs 469 and 470 along with other major joint replacement and reattachment procedures of the lower extremities because they are all replacement and reattachment procedures of the lower extremities. Our clinical advisors noted that, whereas they consider average cost as one element of the decision, they expect the average cost of any subset to be different than the average cost of the MS-DRG, as that is inherent in a system of averages. They note that average length of stay, another metric of resource usage, is lower than the MS-DRG average for this subgroup. Even more importantly, they further noted that leaving these procedures in a MS-DRG with other lower extremity procedures promotes greater clinical consistency than could be achieved by moving the ankle procedures into an upper extremity DRG. They noted that, for the inpatient prospective system, clinical consistency includes not just technical considerations of the surgery or device costs but also consideration of pre- and post-operative patient care needs, medications, and care for common comorbid conditions, among other factors. Finally, our clinical advisors also pointed out that creating a new MS-DRG for total ankle replacements would result in combining cases with average length of stay of 6.19 days for cases with MCC and 2.13 days for cases without MCC. The cases are more appropriately assigned to MS-DRGs 469 and 470 with the two severity levels. Our clinical advisors do not support creating a new MS-DRG which would contain only total ankle replacements.

After consideration of the public comments we received, we are finalizing our proposal to maintain the current MS-DRG assignment for total ankle replacements in MS-DRGs 469 and 470.

The following table shows our findings from examination of the claims data from the December 2013 update of the FY 2013 MedPAR file for the number of cases reporting procedure code 81.59 in MS-DRGs 515, 516, and 517 (revision of joint replacement of lower extremity) and their average length of stay and average costs as compared to all cases within MS-DRGs 515, 516, and 517 (where procedure code 81.59 is currently assigned), as well as data for MS-DRGs 469 and 483.

The requestor asked that all cases with procedure code 81.59 in MS-DRGs 515, 516, and 517 be assigned to one of the following three choices:

• MS-DRG 483 (highest severity level);
• MS-DRG 515 (highest severity level) whether or not there is an MCC; or
• MS-DRG 469 (highest severity level).

Our review of data from the above revision of joint replacement of lower extremity table shows that cases in MS-DRG 483 have average costs that are $5,560 higher than the average costs of cases with procedure code 81.59 in MS-DRG 515; $5,550 greater than those in MS-DRG 516; and $8,844 greater than those in MS-DRG 517 ($22,548 compared to $16,988; $22,548 compared to $16,998, and $22,548 compared to $13,704, respectively). As mentioned earlier, MS-DRG 483 is currently composed of only upper extremity procedures. Moving lower extremity procedures into this MS-DRG would disrupt the clinical cohesiveness of MS-DRG 483.

The average costs of all cases in MS-DRG 469 are $18,807, compared to average costs of $16,988, $16,998, and $13,703 for procedure code 81.59 cases in MS-DRGs 515, 516, and 517, respectively. The data did not support moving all procedure code 81.59 cases to MS-DRG 469 even when there is no MCC. We also point out that moving cases with procedure code 81.59 to MS-DRG 469 would disrupt the clinical cohesiveness of MS-DRG 469, which currently captures major joint replacement or reattachment procedures of the lower extremity. Procedure code 81.59 includes revisions of joint replacements of a variety of lower extremity joints including the ankle, foot, and toe. This nonspecific code would not be considered a major joint procedure. The code captures revisions of an ankle replacement as well as a more minor revision of the toe.

Our clinical advisors reviewed this issue and determined that the revision of joint replacement of lower extremity cases are appropriately classified within MS-DRGs 515, 516, and 517 where revisions of other joint replacements are captured. They supported the current severity levels in MS-DRGs 515, 516, and 517, which allow the presence of a CC or an MCC to determine the severity level assignment. They did not support moving these cases to MS-DRG 483, which is applied to upper extremity procedures because these procedures are not clinically consistent with revisions of lower joint procedures. They also did not support moving these cases to MS-DRG 469 when there is no MCC because these procedures are not joint replacement procedures. Based on the findings of our examination of the claims data, the issue of clinical cohesion, and the recommendations from our clinical advisors, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not propose to move the revision of joint replacement of lower extremity cases to MS-DRGs 483 or 469, whether or not there is an MCC. We proposed to maintain the current MS-DRG assignments for revision of joint replacement of lower extremity cases.

In summary, we proposed to maintain the current MS-DRG assignment for total ankle replacements in MS-DRGs 469 and 470 and revision of joint replacement of lower extremity procedures in MS-DRGs 515, 516, and 517. We invited public comments on our proposals.

Comment: A number of commenters supported the proposal to maintain the current MS-DRG assignment for code 81.59. One commenter agreed with this proposal given the lack of specificity for this code which does not identify the specific joint being revised. The commenter recommended that CMS create the following new ICD-9-CM procedure code: 81.58 (Revision of ankle replacement, not otherwise specified). Once this code is created, the commenter recommended that this new code be assigned to MS-DRGs 466, 467, and 468 and that these MS-DRGs be renamed Revision of Hip, Knee or Ankle (with MCC, with CC, and without CC/MCC, respectively).

Response: We appreciate the commenters' support for our proposal not to change the MS-DRG assignment for code 81.59. We agree with the commenter who pointed out that code 81.59 does not identify the joint being revised and, therefore, code 81.59 should continue to be assigned to MS-DRGs 515, 516, and 517. ICD-10-PCS codes provide greater detail than do ICD-9-CM codes and provide the ability to identify the joint being revised. As mentioned earlier, the Secretary announced plans to release an interim final rule in the near future that will include a new compliance date to require the use of ICD-10 beginning October 1, 2015. The interim final rule will also require HIPAA covered entities to continue to use ICD-9-CM through September 30, 2015. Given this timeline, it will not be possible to create a new ICD-9-CM procedure code for the next annual update on October 1, 2015 because ICD-10 will be implemented on that date. However, ICD-10-PCS will provide the necessary level of detail.

After consideration of the public comments we received, we are finalizing our proposal to maintain the current MS-DRG assignment for total ankle replacements in MS-DRGs 469 and 470 and revision of joint replacement of lower extremity procedures in MS-DRGs 515, 516, and 517.

c. Back and Neck Procedures

We received a request to reassign cases identified with a complication or comorbidity (CC) in MS-DRG 490 (Back & Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) to MS-DRG 491 (Back & Neck Procedures Except Spinal Fusion without CC/MCC or Disc Device/Neurostimulator). The requester suggested that we create a new MS-DRG that would be subdivided based solely on the “with MCC or Disc Device/Neurostimulator” and the “without MCC” (and no device) criteria.

For the FY 2008 rulemaking cycle, we performed a comprehensive analysis of all the spinal DRGs as we proposed (72 FR 24731 through 24735) and finalized (72 FR 47226 through 47232) adoption of the MS-DRGs. With the revised spinal MS-DRGs, we were better able to identify a patient's level of severity, complexity of service, and utilization of resources. This was primarily attributed to the new structure for the severity level designations of “with MCC,” “with CC,” and “non-CC” (or without CC/MCC). Another contributing factor was that we incorporated specific procedures and technologies into the GROUPER logic for some of those spinal MS-DRGs. Specifically, as noted above, in the title of MS-DRG 490, we accounted for disc devices and neurostimulators because the data demonstrated that the procedures utilizing those technologies were more complex and required greater utilization of resources.

According to the requester, since that time, concerns have been expressed in the provider community regarding inadequate payment for MS-DRG 490 when these technologies are utilized. An analysis conducted by the requester alleged that the subset of patients identified in the “with MCC or disc device/neurostimulator” group are different with regard to resource use from the “without CC/MCC” (and no device) patient group.

We examined claims data from the December 2013 update of the FY 2013 MedPAR file for MS-DRGs 490 and 491. The table below shows our findings.

As shown in the table above, there were a total of 16,930 cases in MS-DRG 490 with an average length of stay of 4.53 days and average costs of $13,727. For MS-DRG 491, there were a total of 25,778 cases with an average length of stay of 2.20 days and average costs of $8,151.

We then analyzed the data for MS-DRGs 490 and 491 by subdividing cases based on the “with MCC or Disc Device/Neurostimulator” and the “without MCC” (and no device) criteria. We found a total of 3,379 cases with an average length of stay of 6.6 days and average costs of $21,493 in the “with MCC or Disc Device/Neurostimulator” group and a total of 39,329 cases with an average length of stay of 2.8 days and average costs of $9,405 in the “without MCC” and no device group. Due to the wide range in the volume of cases, length of stay, and average costs between these two subgroups, we concluded that further analysis of the data using a separate “with CC” (and no device) subset of patients was warranted.

Therefore, we evaluated the data using a three-way severity level split that consisted of the three subgroups shown in the table below.

For the first subgroup, “with MCC or Disc Device/Neurostimulator,” we found a total of 3,379 cases with an average length of stay of 6.6 days and average costs of $21,493. In the second subgroup, “with CC” (no device), we found a total of 13,551 cases with an average length of stay of 3.9 days and average costs of $11,791. In the third subgroup, “without CC/MCC” (no device), we found a total of 25,778 cases with an average length of stay of 2.2 days and average costs of $8,151.

The results of this additional data analysis demonstrate a better distribution of cases with regard to length of stay and average costs. Our clinical advisors agreed that a patient's severity of illness is captured more appropriately with this subdivision. The data also meet the established criteria for creating subgroups within a base MS-DRG as discussed earlier.

As the subdivision of the claims data based on these subgroups better captures a patient's severity level and utilization of resources and is supported by our clinical advisors, in the FY 2015 IPPS/LTCH PPS proposed rule, we proposed to create three new MS-DRGs and to delete MS-DRGs 490 and 491. We proposed that these proposed new MS-DRGs would be titled as follows and would be effective as of October 1, 2014:

• Proposed new MS-DRG 518 (Back & Neck Procedures Except Spinal Fusion with MCC or Disc Device/Neurostimulator);
• Proposed new MS-DRG 519 (Back & Neck Procedures Except Spinal Fusion with CC); and
• Proposed new MS-DRG 520 (Back & Neck Procedures Except Spinal Fusion without CC/MCC).

We invited public comments on our proposal to create these proposed new MS-DRGs for FY 2015.

Comment: Several commenters supported the proposal to delete MS-DRGs 490 and 491 and to create three new MS-DRGs that better account for a patient's severity of illness and utilization of resources when disc devices and neurostimulators are involved. One commenter stated that the new MS-DRGs would enable CMS to assess utilization of resources for these services and ensure that “important innovation in device dependent neurosurgical procedures is adequately accounted for and reimbursed appropriately.” Another commenter expressed its appreciation for CMS' careful data analysis that resulted in the development of the proposal. This commenter noted “that the data presented by CMS make a compelling case for the proposed three subdivisions, because it would more appropriately compensate hospitals for the costs associated with implantation of a disc device or neurostimulator than the current two-division framework.” Another commenter applauded CMS' past efforts to assure MS-DRGs 490 and 491 reflect the most appropriate payment amounts for these procedures. This commenter stated “the proposed three-way split of cases in current MS-DRGs 490 and 491 demonstrates a better distribution of cases with regard to resource use. CMS should proceed with its proposed change to this MS-DRG category to improve the accuracy of the payments, consistent with its criteria for establishing severity levels within the MS-DRGs.” Another commenter noted that “subdividing the code set into three distinct MS-DRGs is not only a more accurate representation of the clinical condition experienced by the patient, but also better categorizes the resources expended by the facility, as evidenced by the supporting claims data.”

Response: We thank the commenters for their support. As noted in the FY 2015 IPPS/LTCH PPS proposed rule, the additional data analysis demonstrated a better distribution of cases with regard to length of stay and average costs. Our clinical advisors also agreed that a patient's severity of illness is captured more appropriately with this subdivision. Lastly, the data also meet the established criteria for creating subgroups within a base MS-DRG as discussed earlier.

After consideration of the public comments we received, for FY 2015 we are adopting as final our proposal to create new MS-DRG 518 (Back & Neck Procedures Except Spinal Fusion with MCC or Disc Device/Neurostimulator); MS-DRG 519 (Back & Neck Procedures Except Spinal Fusion with CC); and MS-DRG 520 (Back & Neck Procedures Except Spinal Fusion without CC/MCC).

6. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders): Disorders of Porphyrin Metabolism

We received a comment on the FY 2014 IPPS/LTCH PPS proposed rule that we considered out of scope for the proposed rule. We stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50550) that we would consider this issue in future rulemaking as part of our annual review process. The request was for the creation of a new MS-DRG to better identify cases where patients with disorders of porphyrin metabolism exist, to recognize the resource requirements in caring for these patients, to ensure appropriate payment for these cases, and to preserve patient access to necessary treatments. This issue has been discussed previously in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27904 and 27905) and final rule (77 FR 53311 through 53313).

Porphyria is defined as a group of rare disorders (“porphyrias”) that interfere with the production of hemoglobin that is needed for red blood cells. While some of these disorders are genetic (inborn) and others can be acquired, they all result in the abnormal accumulation of hemoglobin building blocks, called porphyrins, which can be deposited in the tissues where they particularly interfere with the functioning of the nervous system and the skin. Treatment for patients suffering from disorders of porphyrin metabolism consists of an intravenous injection of Panhematin® (hemin for injection). In 1984, this pharmaceutical agent became the first approved drug for a rare disease to be designated under the Orphan Drug Act. The requestor stated that it is the only FDA-approved prescription treatment for acute intermittent porphyria. ICD-9-CM diagnosis code 277.1 (Disorders of porphyrin metabolism) describes these cases, which are currently assigned to MS-DRG 642 (Inborn and Other Disorders of Metabolism).

We analyzed claims data from the December 2013 update of the FY 2013 MedPAR file for cases assigned to MS-DRG 642. Our findings are shown in the table below.

As shown in the table above, we found a total of 1,486 cases in MS-DRG 642, with an average length of stay of 4.61 days and average costs of $8,151. We then analyzed the data for cases reporting diagnosis code 277.1 as the principal diagnosis in this same MS-DRG. We found a total of 299 cases, with an average length of stay of 5.98 days and average costs of $13,303.

While the data show that the average costs for the 299 cases reporting a principal diagnosis code of 277.1 were higher than the average costs for all cases in MS-DRG 642 ($13,303 compared to $8,151), the number of cases is small. In the FY 2015 IPPS/LTCH PPS proposed rule, we stated that, given the small number of porphyria cases, we did not believe there is justification for creating a new MS-DRG. Basing a new MS-DRG on such a small number of cases could lead to distortions in the relative payment weights for the MS-DRG because several expensive cases could impact the overall relative payment weight. Having larger clinical cohesive groups within an MS-DRG provides greater stability for annual updates to the relative payment weights. In addition, as discussed earlier, one of the criteria we apply in evaluating whether to create new severity subgroups within an MS-DRG is whether there are at least 500 cases in the CC or MCC subgroup. While this criterion is used to evaluate whether to create a severity subgroup within an MS-DRG, applying it here suggests that creating a new MS-DRG for cases reporting a principal diagnosis of code 277.1 would not be appropriate. Our clinical advisors reviewed this issue and recommended no MS-DRG change for porphyria cases because they fit clinically within MS-DRG 642.

In summary, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not propose to create a new MS-DRG for porphyria cases. We invited public comments on our proposal to maintain porphyria cases in MS-DRG 642.

Comment: Several commenters supported the proposal to maintain porphyria cases in MS-DRG 642 and to not create a new MS-DRG for these cases.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to maintain porphyria cases in MS-DRG 642 and to not create a new MS-DRG for these cases.

7. MDC 15 (Newborns and Other Neonates With Conditions Originating in the Perinatal Period)

We received a request to evaluate the MS-DRG assignment of seven ICD-9-CM diagnosis codes in MS-DRG 794 (Neonate with Other Significant Problems) under MDC 15. The requestor stated that these codes have no bearing on the infant, and are not representative of a neonate with a significant problem. The requestor recommended that we change the MS-DRG logic so that the following seven ICD-9-CM codes would not lead to assignment of MS-DRG 794. The requestor recommended that the diagnoses be added to the “only secondary diagnosis” list under MS-DRG 795 (Normal newborn) so that the case would be assigned to MS-DRG 795 (Normal newborn).

• V17.0 (Family history of psychiatric condition)
• V17.2 (Family history of other neurological Diseases)
• V17.49 (Family history of other cardiovascular diseases)
• V18.0 (Family history of diabetes mellitus)
• V18.19 (Family history of other endocrine and metabolic diseases)
• V18.8 (Family history of infectious and parasitic diseases)
• V50.3 (Ear piercing)

In the case of a newborn with one of these diagnosis codes reported as a secondary diagnosis, the case would be assigned to MS-DRG 794. The commenter believed that any of these seven diagnosis codes (noted above), when reported as a secondary diagnosis for a newborn case, should be assigned to MS-DRG 795 instead of MS-DRG 794.

Our clinical advisors reviewed this request and concurred with the commenter that the seven ICD-9-CM diagnosis codes noted above should not continue to be assigned to MS-DRG 794, as there is no clinically usable information reported in those codes identifying significant problems. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28017), we proposed to reassign these following seven diagnoses to the “only secondary diagnosis list” under MS-DRG 795 so that the case would be assigned to MS-DRG 795.

• V17.0 (Family history of psychiatric condition)
• V17.2 (Family history of other neurological diseases)
• V17.49 (Family history of other cardiovascular diseases)
• V18.0 (Family history of diabetes mellitus)
• V18.19 (Family history of other endocrine and metabolic diseases)
• V18.8 (Family history of infectious and parasitic diseases)
• V50.3 (Ear piercing)

We invited public comments on this proposal.

Comment: Several commenters supported the proposal to reassign the identified seven diagnoses to the “only secondary diagnosis” list under MS-DRG 795 so that the case would be assigned to MS-DRG 795.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to reassign the following seven diagnoses to the “only secondary diagnosis list” under MS-DRG 795 so that the case would be assigned to MS-DRG 795:

• V17.0 (Family history of psychiatric condition)
• V17.2 (Family history of other neurological diseases)
• V17.49 (Family history of other cardiovascular diseases)
• V18.0 (Family history of diabetes mellitus)
• V18.19 (Family history of other endocrine and metabolic diseases)
• V18.8 (Family history of infectious and parasitic diseases)
• V50.3 (Ear piercing)

8. Medicare Code Editor (MCE) Changes

The Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and demographic information are entered into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into an MS-DRG.

As discussed in section II.G.1.a. of the preamble of this final rule, we developed an ICD-10 version of the current MS-DRGs, which are based on ICD-9-CM codes. We refer to this version of the MS-DRGs as the ICD-10 MS-DRGs Version 31.0-R. In November 2013, we also posted a Definitions of Medicare Code Edits Manual of the ICD-10 MCE Version 31.0 on the ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We produced mainframe and computer software for Version 31.0 of the MS-DRG GROUPER with Medicare Code Editor, which was made available to the public in December 2013. Information on ordering the mainframe and computer software through NTIS was posted on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the “Related Links” section. This ICD-10 MS-DRG GROUPER with Medicare Code Editor Version 31.0 computer software facilitated additional review of the ICD-10 MS-DRGs conversion. We encouraged the public to submit to CMS any comments on areas where they believed the ICD-10 MS-DRG GROUPER and MCE did not accurately reflect the logic and edits found in the ICD-9-CM MS-DRG GROUPER and MCE Version 31.0.

We also have posted an ICD-10 version of the current MCE, which is based on ICD-9-CM codes, and refer to that version of the MCE as the ICD-10 MCE Version 31.0-R. Both of these documents are posted on our ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We will continue to share ICD-10 MS-DRG and MCE conversion activities with the public through this Web site.

In the FY 2015 IPPS/LTCH PPS proposed rule, for FY 2015, we proposed to remove extracranial-intracranial (EC-IC) bypass surgery from the “Noncovered Procedure” edit code list for Version 32.0 of the MCE. This procedure is identified by ICD-9-CM procedure code 39.28 (Extracranial-intracranial (EC-IC) vascular bypass).

Because of the complexity of appropriately classifying the circumstances under which the EC-IC bypass surgery may, or may not, be considered reasonable and necessary for certain conditions, we proposed to remove the MCE “Noncovered Procedure” edit for EC-IC bypass surgery from the “Noncovered Procedure” edit code list for Version 32.0 of the MCE. We invited public comments on this proposal.

Comment: Several commenters supported the proposal to remove the MCE “Noncovered Procedure” edit for EC-IC bypass surgery (procedure code 39.28) from the “Noncovered Procedure” edit code list for Version 32.0 of the MCE. The commenters stated that the proposal was reasonable given the information that was provided. Commenters also agreed that because of the complexity of appropriately classifying the circumstances under which the EC-IC bypass surgery may be considered reasonable and necessary for certain conditions, the Medicare noncovered procedure edit for EC-IC bypass surgery should be removed.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to remove procedure code 39.28 (Extracranial-intracranial (EC-IC) vascular bypass) from the noncovered procedure edit effective FY 2015.

9. Changes to Surgical Hierarchies

Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different MS-DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which these cases are assigned to a single MS-DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource-intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class.

Because the relative resource intensity of surgical classes can shift as a function of MS-DRG reclassification and recalibrations, for FY 2015, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications and recalibrations, to determine if the ordering of classes coincides with the intensity of resource utilization.

A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single MS-DRG (MS-DRG 652) and the class “major bladder procedures” consists of three MS-DRGs (MS-DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 001 and 002 and surgical class B includes MS-DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG 001 are higher than that of MS-DRG 003, but the average costs of MS-DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency (that is, by the number of cases in the MS-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 O.R. procedures” as discussed below.

This methodology may occasionally result in assignment of a case involving multiple procedures to the lower-weighted MS-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 search for the procedure in the most resource-intensive surgical class, in cases involving multiple procedures, this result is sometimes unavoidable.

We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average cost is ordered above a surgical class with a higher average cost. For example, the “other O.R. procedures” surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that surgical class may be higher than those for other surgical classes in the MDC. The “other O.R. procedures” class is a group of procedures that are only infrequently related to the diagnoses in the MDC, but are still occasionally performed on patients with cases assigned to the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate.

A second example occurs when the difference between the average costs for two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average costs are likely to shift such that the higher-ordered surgical class has lower average costs than the class ordered below it.

Based on the changes that we proposed to make for FY 2015, as discussed in sections II.G.4.c., II.G.5.a., and II.G.5.c. of the preamble of the FY 2015 IPPS/LTCH PPS proposed rule, we proposed to revise the surgical hierarchy for MDC 5 (Diseases and Disorders of the Circulatory System) and MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue) as follows:

In MDC 5, we proposed to sequence proposed new MS-DRG 266 (Endovascular Cardiac Valve Replacement with MCC) and proposed new MS-DRG 267 (Endovascular Cardiac Valve Replacement without MCC) above MS-DRG 222 (Cardiac Defibrillator Implant with Cardiac Catheterization with AMI/HF/Shock with MCC).

In MDC 8, we proposed to delete MS-DRGs 490 (Back & Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) and MS-DRG 491 (Back & Neck Procedures Except Spinal Fusion without CC/MCC or Disc Device/Neurostimulator) from the surgical hierarchy. We proposed to sequence proposed new MS-DRG 518 (Back & Neck Procedure Except Spinal Fusion with MCC or Disc Device/Neurostimulator), proposed new MS-DRG 519 (Back & Neck Procedure Except Spinal Fusion with CC), and proposed new MS-DRG 520 (Back & Neck Procedure Except Spinal Fusion without CC/MCC) above MS-DRG 492 (Lower Extremity and Humerus Procedure Except Hip, Foot, Femur with MCC).

We invited public comments on our proposals.

Comment: We did not receive any public comments opposing our proposals for the surgical hierarchy. Commenters expressed general support for the proposals, noting they were reasonable given the information that was provided.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal for MDC 5 to sequence new MS-DRG 266 (Endovascular Cardiac Valve Replacement with MCC) and new MS-DRG 267 (Endovascular Cardiac Valve Replacement without MCC) above MS-DRG 222 (Cardiac Defibrillator Implant with Cardiac Catheterization with AMI/HF/Shock with MCC). We also are finalizing our proposal for MDC 8 to delete MS-DRG 490 (Back & Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) and MS-DRG 491 (Back & Neck Procedures Except Spinal Fusion without CC/MCC or Disc Device/Neurostimulator) from the surgical hierarchy. We are sequencing new MS-DRG 518 (Back & Neck Procedure Except Spinal Fusion with MCC or Disc Device/Neurostimulator), new MS-DRG 519 (Back & Neck Procedure Except Spinal Fusion with CC), and new MS-DRG 520 (Back & Neck Procedure Except Spinal Fusion without CC/MCC) above MS-DRG 492 (Lower Extremity and Humerus Procedure Except Hip, Foot, Femur with MCC), effective FY 2015.

10. Changes to the MS-DRG Diagnosis Codes for FY 2015

a. Major Complications or Comorbidities (MCCs) and Complications or Comorbidities (CC) Severity Levels for FY 2015

A complete updated MCC, CC, and Non-CC Exclusion List is available via the Internet on the CMS Web site at: http://cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as follows:

• Table 6I (Complete MCC list);
• Table 6J (Complete CC list); and
• Table 6K (Complete list of CC Exclusions).

b. Coronary Atherosclerosis Due to Calcified Coronary Lesion

We received a request that we change the severity level for ICD-9-CM diagnosis code 414.4 (Coronary atherosclerosis due to calcified coronary lesion) from a non-CC to an MCC. This issue was previously discussed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27522) and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541 through 50542).

We examined claims data from the December 2013 update of the FY 2013 MedPAR file for ICD-9-CM diagnosis code 414.4. The following chart shows our findings.

We ran the above data as described in the FY 2008 IPPS final rule with comment period (72 FR 47158 through 47161). The C1 value reflects a patient with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 value reflects a patient with at least one other secondary diagnosis that is a CC, but none that is an MCC. The C3 value reflects a patient with at least one other secondary diagnosis that is an MCC.

The chart above shows that the C1 finding is 1.16. A value close to 1.0 in the C1 field suggests that the diagnosis produces the same expected value as a non-CC. A value close to 2.0 suggests the condition is more like a CC than a non-CC, but not as significant in resource usage as an MCC. A value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or a non-CC. The C2 finding was 2.18. A C2 value close to 2.0 suggests the condition is more like a CC than a non-CC, but not as significant in resource usage as an MCC when there is at least one other secondary diagnosis that is a CC but none that is an MCC. While the C1 value of 1.16 is above the 1.0 value for a non-CC, it does not support reclassification to an MCC. As stated earlier, a value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or a non-CC. The C2 finding of 2.18 also does not support reclassifying this diagnosis code to an MCC. Our clinical advisors reviewed the data and evaluated this condition. They recommended that we not change the severity level of diagnosis code 414.4 from a non-CC to an MCC. They did not believe that this diagnosis would increase the severity level of patients. They pointed out that a similar code, diagnosis code 414.2 (Chronic total occlusion of coronary artery), is a non-CC. Our clinical advisors believe that diagnosis code 414.4 represents patients who are less severe than diagnosis code 414.2. Considering the C1 and C2 ratings of diagnosis code 414.4 and the input from our clinical advisors, in the FY 2015 IPPS/LTCH PPS proposed rule, we did not propose to reclassify diagnosis code 414.4 to an MCC; the diagnosis code would continue to be considered a non-CC.

Therefore, based on the data and clinical analysis, we proposed to maintain diagnosis code 414.4 as a non-CC. We invited public comments on our proposal.

Comment: Several commenters supported the proposal to keep diagnosis code 414.4 as a non-CC. One commenter requested that diagnosis code 414.4, when present as a secondary diagnosis, be included on the MCC list. The commenter believed that treating calcified coronary lesions with atherectomy is underpaid by the Medicare program for patients requiring percutaneous coronary intervention when calcified coronary lesions prevent successful angioplasty and placement of coronary stents. The commenter further stated that treating coronary calcification is significantly more difficult to treat, requires more time and equipment, and has clinical outcomes that are much worse compared to treating noncalcified or mildly calcified coronary obstructions. Consequently, the commenter believed it costs hospitals more to treat patients with calcified coronary lesions and that hospitals should be compensated for their expense to treat coronary atherosclerosis in Medicare beneficiaries. The commenter recognized the opinion of our clinical advisors that patients with a code 414.4 diagnosis are less severe than those with a code 414.2 diagnosis, but disagreed with that opinion. The commenter believed that both disease states add substantial treatment time and costs to the providers, health care systems, and society and both are worthy of classification as an MCC.

Response: We appreciate the commenters' support for our proposal to maintain code 414.4 as a non-CC. We are not accepting the commenter's recommendation to change this code to an MCC because our clinical data do not support such a change. The data continue to support keeping diagnosis code 414.4 as a non-CC and do not support changing the code to an MCC, for the reasons described above.

We examined claims data from the December 2013 update of the FY 2013 MedPAR file for ICD-9-CM diagnosis code 414.2. The following chart shows our findings.

The chart above for diagnosis code 414.2 shows that the C1 finding is 1.25. A value close to 1.0 in the C1 field suggests that the diagnosis produces the same expected value as a non-CC. A value close to 2.0 suggests the condition is more like a CC than a non-CC, but not as significant in resource usage as an MCC. A value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or a non-CC. The C2 finding was 2.09. A C2 value close to 2.0 suggests the condition is more like a CC than a non-CC, but not as significant in resource usage as an MCC when there is at least one other secondary diagnosis that is a CC but none that is an MCC. While the C1 value of 1.25 is above the 1.0 value for a non-CC, it does not support reclassification to an MCC. As stated earlier, a value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or a non-CC. The C2 finding of 2.09 also does not support reclassifying this diagnosis code to an MCC.

Our clinical advisors reviewed the data and evaluated the severity level for both diagnosis code 414.4 and 414.2. They continue to recommend that we not change the severity level of diagnosis code 414.4 from a non-CC to an MCC. Furthermore, they recommend that we not change the severity level for diagnosis code 414.2. They do not believe that the diagnosis represented by either code would increase the severity level of patients. After reviewing the commenter's justification for changing diagnosis code 414.4 from a non-CC to an MCC, our clinical advisors continue to recommend that we not change the severity level of diagnosis code 414.4 from a non-CC to an MCC. They again pointed out that diagnosis code 414.2 is a similar code and is a non-CC. As noted, they also recommend maintaining diagnosis code 414.2 as a non-CC. Our clinical advisors continue to believe that diagnosis code 414.4 represents patients who are less severe than diagnosis code 414.2.

After consideration of the public comments we received, the C1 and C2 ratings in our claims data, and the input from our clinical advisors, we are finalizing our proposal to not reclassify diagnosis code 414.4 from a non-CC to an MCC; the diagnosis code will continue to be considered a non-CC.

11. Complications or Comorbidity (CC) Exclusions List

a. Background of the CC List and the CC Exclusions List

Under the IPPS MS-DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length of stay by at least 1 day in at least 75 percent of the patients. However, depending on the principal diagnosis of the patient, some diagnoses on the basic list of complications and comorbidities may be excluded if they are closely related to the principal diagnosis. In FY 2008, we evaluated each diagnosis code to determine its impact on resource use and to determine the most appropriate CC subclassification (non-CC, CC, or MCC) assignment. We refer readers to sections II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS-DRGs we adopted for FY 2008 (72 FR 47152 through 47171).

b. CC Exclusions List for FY 2015

In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) To preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. As we indicated above, we developed a list of diagnoses, using physician panels, to include those diagnoses that, when present as a secondary condition, would be considered a substantial complication or comorbidity. In previous years, we have made changes to the list of CCs, either by adding new CCs or deleting CCs already on the list.

In the May 19, 1987 proposed notice (52 FR 18877) and the September 1, 1987 final notice (52 FR 33154), we explained that the excluded secondary diagnoses were established using the following five principles:

• Chronic and acute manifestations of the same condition should not be considered CCs for one another;
• Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for the same condition should not be considered CCs for one another;
• Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another;
• Codes for the same condition in anatomically proximal sites should not be considered CCs for one another; and
• 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. 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.

In the FY 2015 IPPS/LTCH PPS proposed rule, for FY 2015, we did not propose any changes to the CC Exclusion List. Therefore, we did not develop or publish Tables 6G (Additions to the CC Exclusion List) or Table 6H (Deletions from the CC Exclusion List). We developed Table 6K (Complete List of CC Exclusions), which is available only via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Because of the length of Table 6K, we are not publishing it in the Addendum to this final rule. Each of these principal diagnosis codes for which there is a CC exclusion is shown with an asterisk and the conditions that will not count as a CC are provided in an indented column immediately following the affected principal diagnosis. Beginning with discharges on or after October 1 of each year, the indented diagnoses are not recognized by the GROUPER as valid CCs for the asterisked principal diagnoses.

A complete updated MCC, CC, and Non-CC Exclusions List is available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.

Because there were no proposed new, revised, or deleted diagnosis or procedure codes for FY 2015, we have not developed Table 6A (New Diagnosis Codes), Table 6B (New Procedure Codes), Table 6C (Invalid Diagnosis Codes), Table 6D (Invalid Procedure Codes), Table 6E (Revised Diagnosis Code Titles), and Table 6F (Revised Procedure Codes) to the final rule and they are not published as part of this final rule.

We did not propose any additions or deletions to the MS-DRG MCC List for FY 2015 nor any additions or deletions to the MS-DRG CC List for FY 2015. Therefore, as we proposed, for this final rule, we have not developed Tables 6I.1 (Additions to the MCC List), 6I.2 (Deletions to the MCC List), 6J.1 (Additions to the CC List), and 6J.2 (Deletions to the CC List), and they are not published as part of this final rule.

Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current MS-DRG Definitions Manual, Version 31.0, is available on a CD for $225.00. This manual may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303, or by obtaining an order form at the Web site: http://www.3MHIS.com. Please specify the revision or revisions requested. Version 32.0 of this manual, which includes the final FY 2015 MS-DRG changes, is available on a CD for $225.00. This manual may be obtained by writing 3M/HIS at the address provided above; or by calling (203) 949-0303; or by obtaining an order form at the Web site at: http://www/3MHIS.com. Please specify the revision or revisions requested.

12. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 986; and 987 Through 989

Each year, we review cases assigned to former CMS DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these CMS DRGs. Under the MS-DRGs that we adopted for FY 2008, CMS DRG 468 was split three ways and became MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively).

MS-DRGs 981 through 983, 984 through 986, and 987 through 989 (formerly CMS DRGs 468, 476, and 477, respectively) are reserved for those cases in which none of the O.R. procedures performed are related to the principal diagnosis. These MS-DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. MS-DRGs 984 through 986 (previously CMS DRG 476) are 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, not elsewhere classified);
• 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);
• 60.96 (Transurethral destruction of prostate tissue by microwave thermotherapy);
• 60.97 (Other transurethral destruction of prostate tissue by other thermotherapy); and
• 60.99 (Other operations on prostate).

All remaining O.R. procedures are assigned to MS-DRGs 981 through 983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis.

Our review of MedPAR claims data showed that there were no cases that merited movement or should logically be assigned to any of the other MDCs. Therefore, for FY 2015, we did not propose to change the procedures assigned among these MS-DRGs.

We did not receive any public comments on our proposal. Therefore, as we proposed, we are not making any changes to the procedures assigned to MS-DRGs 981 through 983, MS-DRGs 984 through 986, and MS-DRGs 987 through 989 for FY 2015.

a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 Through 989 Into MDCs

We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (Extensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these MS-DRGs into one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS-DRGs for the MDC in which the diagnosis falls. As noted above, there were no cases that merited movement or that should logically be assigned to any of the other MDCs. Therefore, for FY 2015, we did not propose to remove any procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs for the MDC into which the principal diagnosis is assigned.

We did not receive any public comments on our proposal. Therefore, as we proposed, we are not removing any procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs into which the principal diagnosis is assigned for FY 2015.

b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989

We also annually review the list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R. procedure unrelated to principal diagnosis with MCC, with CC, or without CC/MCC, respectively), and 987 through 989, to ascertain whether any of those procedures should be reassigned from one of these three MS-DRGs to another of the three MS-DRGs based on average costs and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data.

There were no cases representing shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical, or that merited movement so that cases should logically be assigned to any of the other MDCs. Therefore, for FY 2015, we did not propose to move any procedure codes among these MS-DRGs.

We did not receive any public comments on our proposal. Therefore, as we proposed, we are not moving any procedure codes among these MS-DRGs for FY 2015.

c. Adding Diagnosis or Procedure Codes to MDCs

Based on the review of cases in the MDCs, as described above in sections II.G.2. through 7. of the preamble of this final rule, we did not propose to add any diagnosis or procedure codes to MDCs for FY 2015. We did not receive any public comments on our proposal. Therefore, as we proposed, we are not adding any diagnosis or procedure codes to MDCs for FY 2015.

13. Changes to the ICD-9-CM System

a. ICD-10 Coordination and Maintenance Committee

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), the Centers for Disease Control and Prevention, and CMS, charged with maintaining and updating the ICD-9-CM system. The final update to ICD-9-CM codes was to be made on October 1, 2013. Thereafter, the name of the Committee was changed to the ICD-10 Coordination and Maintenance Committee, effective with the March 19-20, 2014 meeting. The ICD-10 Coordination and Maintenance Committee will address updates to the ICD-10-CM, ICD-10-PCS, and ICD-9-CM coding systems. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the coding systems 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 official list of ICD-9-CM diagnosis and procedure codes by fiscal year can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/codes.html. The official list of ICD-10-CM and ICD-10-PCS codes can be found on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/index.html.

The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-10-PCS and 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), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, 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 implementation in FY 2015 at a public meeting held on September 18-19, 2013, and finalized the coding changes after consideration of comments received at the meetings and in writing by November 15, 2013.

The Committee held its 2014 meeting on March 19-20, 2014. It was announced at this meeting that any new ICD-10-CM/PCS codes for which there was consensus of public support and for which complete tabular and indexing changes would be made by May 2014 would be included in the October 1, 2014 update to ICD-10-CM/ICD-10-PCS. For FY 2015, there are no new, revised, or deleted ICD-10-CM diagnosis codes or ICD-10-PCS procedure codes, and no new, revised, or deleted ICD-9-CM diagnosis or procedure codes.

Copies of the minutes of the procedure codes discussions at the Committee's September 18-19, 2013 meeting and March 19-20, 2014 meeting can be obtained from the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/icd9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the diagnosis codes discussions at the September 18-19, 2013 meeting and March 19-20, 2014 meeting are found at: http://www.cdc.gov/nchs/icd/icd9cm.html. These Web sites also provide detailed information about the Committee, including information on requesting a new code, attending a Committee meeting, and timeline requirements and meeting dates.

We encourage commenters to address suggestions on coding issues involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-10 Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo Road, Hyattsville, MD 20782. Comments may be sent by email to: dfp4@cdc.gov.

Questions and comments concerning the procedure codes should be addressed to: Patricia Brooks, Co-Chairperson, ICD-10 Coordination and Maintenance Committee, CMS, Center for Medicare Management, Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent by email to: patricia.brooks2@cms.hhs.gov.

In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October.

Section 503(a) of Public Law 108-173 included a requirement for updating ICD-9-CM codes twice a year instead of a single update on October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the “Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) . . . until the fiscal year that begins after such date.” This requirement improves the recognition of new technologies under the IPPS system by providing information on these new technologies at an earlier date. Data will be available 6 months earlier than would be possible with updates occurring only once a year on October 1.

While section 1886(d)(5)(K)(vii) of the Act states that the addition of new diagnosis and procedure codes on April 1 of each year shall not require the Secretary to adjust the payment, or DRG classification, under section 1886(d) of the Act until the fiscal year that begins after such date, we have to update the DRG software and other systems in order to recognize and accept the new codes. We also publicize the code changes and the need for a mid-year systems update by providers to identify the new codes. Hospitals also have to obtain the new code books and encoder updates, and make other system changes in order to identify and report the new codes.

The ICD-10 (previously the ICD-9-CM) Coordination and Maintenance Committee holds its meetings in the spring and fall in order to update the codes and the applicable payment and reporting systems by October 1 of each year. Items are placed on the agenda for the Committee meeting if the request is received at least 2 months prior to the meeting. This requirement allows time for staff to review and research the coding issues and prepare material for discussion at the meeting. It also allows time for the topic to be publicized in meeting announcements in the Federal Register as well as on the CMS Web site. The public decides whether or not to attend the meeting based on the topics listed on the agenda. Final decisions on code title revisions are currently made by March 1 so that these titles can be included in the IPPS proposed rule. A complete addendum describing details of all diagnosis and procedure coding changes, both tabular and index, is published on the CMS and NCHS Web sites in May of each year. Publishers of coding books and software use this information to modify their products that are used by health care providers. This 5-month time period has proved to be necessary for hospitals and other providers to update their systems.

A discussion of this timeline and the need for changes are included in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance Committee Meeting minutes. The public agreed that there was a need to hold the fall meetings earlier, in September or October, in order to meet the new implementation dates. The public provided comment that additional time would be needed to update hospital systems and obtain new code books and coding software. There was considerable concern expressed about the impact this new April update would have on providers.

In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee meeting are considered for an April 1 update if a strong and convincing case is made by the requester at the Committee's public meeting. The request must identify the reason why a new code is needed in April for purposes of the new technology process. The participants at the meeting and those reviewing the Committee meeting summary report are provided the opportunity to comment on this expedited request. All other topics are considered for the October 1 update. Participants at the Committee meeting are encouraged to comment on all such requests. There were no requests approved for an expedited April l, 2014 implementation of a code at the September 18-19, 2013 Committee meeting. Therefore, there were no new codes implemented on April 1, 2014.

ICD-9-CM addendum and code title information is published on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/icd9ProviderDiagnosticCodes/01overview.asp#TopofPage. ICD-10-CM and ICD-10-PCS addendum and code title information is published on the CMS Web site at http://www.cms.gov/Medicare/Coding/ICD10/index.html. Information on ICD-10-CM diagnosis codes, along with the Official ICD-10-CM Coding Guidelines, can also be found on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.html. Information on new, revised, and deleted ICD-10-CM/ICD-10-PCS codes is also provided to the AHA for publication in the Coding Clinic for ICD-10. AHA also distributes information to publishers and software vendors.

CMS also sends copies of all ICD-9-CM coding changes to its Medicare contractors for use in updating their systems and providing education to providers.

The code titles are adopted as part of the ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee process. Therefore, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules.

b. Code Freeze

In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3340), there was a discussion of the need for a partial or total freeze in the annual updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes. The public comment addressed in that final rule stated that the annual code set updates should cease l year prior to the implementation of ICD-10. The commenters stated that this freeze of code updates would allow for instructional and/or coding software programs to be designed and purchased early, without concern that an upgrade would take place immediately before the compliance date, necessitating additional updates and purchases.

HHS responded to comments in the ICD-10 final rule that the ICD-9-CM Coordination and Maintenance Committee has jurisdiction over any action impacting the ICD-9-CM and ICD-10 code sets. Therefore, HHS indicated that the issue of consideration of a moratorium on updates to the ICD-9-CM, ICD-10-CM, and ICD-10-PCS code sets in anticipation of the adoption of ICD-10-CM and ICD-10-PCS would be addressed through the Committee at a future public meeting.

The code freeze was discussed at multiple meetings of the ICD-9-CM Coordination and Maintenance Committee and public comment was actively solicited. The Committee evaluated all comments from participants attending the Committee meetings as well as written comments that were received. The Committee also considered the delay in implementation of ICD-10 until October 1, 2014. There was an announcement at the September 19, 2012 ICD-9-CM Coordination and Maintenance Committee meeting that a partial freeze of both ICD-9-CM and ICD-10 codes will be implemented as follows:

• The last regular annual update to both ICD-9-CM and ICD-10 code sets was made on October 1, 2011.
• On October 1, 2012 and October 1, 2013, there will be only limited code updates to both ICD-9-CM and ICD-10 code sets to capture new technology and new diseases.
• On October 1, 2014, there were to be only limited code updates to ICD-10 code sets to capture new technology and diagnoses as required by section 503(a) of Public Law 108-173. There were to be no updates to ICD-9-CM on October 1, 2014.
• On October 1, 2015, one year after the originally scheduled implementation of ICD-10, regular updates to ICD-10 were to begin.

On May 15, 2014, CMS posted an updated Partial Code Freeze schedule on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-9-CM-Coordination-and-Maintenance-Committee-Meetings.html. This updated schedule provided information on the extension of the partial code freeze until 1 year after the implementation of ICD-10. As stated earlier, on April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93) was enacted, which specified that the Secretary may not adopt ICD-10 prior to October 1, 2015. On May 1, 2014, the Department announced that it expects to release a interim final rule in the near future that will include a new compliance date to require the use of ICD-10 beginning October 1, 2015. The rule will also require HIPAA covered entities to continue to use ICD-9-CM through September 30, 2015. Accordingly, the updated schedule for the partial code freeze is as follows:

• The last regular annual updates to both ICD-9-CM and ICD-10 code sets were made on October 1, 2011.
• On October 1, 2012, October 1, 2013, and October 1, 2014, there will be only limited code updates to both the ICD-9-CM and ICD-10 code sets to capture new technologies and diseases as required by section 1886(d)(5)(K) of the Act.
• On October 1, 2015, there will be only limited code updates to ICD-10 code sets to capture new technologies and diagnoses as required by section 1886(d)(5)(K) of the Act. There will be no updates to ICD-9-CM, as it will no longer be used for reporting.
• On October 1, 2016 (1 year after implementation of ICD-10), regular updates to ICD-10 will begin.

The ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee announced that it would continue to meet twice a year during the freeze. At these meetings, the public will be encouraged to comment on whether or not requests for new diagnosis and procedure codes should be created based on the need to capture new technology and new diseases. Any code requests that do not meet the criteria will be evaluated for implementation within ICD-10 one year after the implementation of ICD-10, once the partial freeze is ended.

Complete information on the partial code freeze and discussions of the issues at the Committee meetings can be found on the ICD-10 Coordination and Maintenance Committee Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/meetings.html. A summary of the September 19, 2012 Committee meeting, along with both written and audio transcripts of this meeting, is posted on the Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2012-09-19-MeetingMaterials.html.

This partial code freeze has dramatically decreased the number of codes created each year as shown by the following information.

As mentioned earlier, the public is provided the opportunity to comment on any requests for new diagnosis or procedure codes discussed at the ICD-10 Coordination and Maintenance Committee meeting. The public has supported only a limited number of new codes during the partial code freeze, as can be seen by data shown above. We have gone from creating several hundred new codes each year to creating only a limited number of new ICD-9-CM and ICD-10 codes.

At the September 18-19, 2013 and March 19-20, 2014 Committee meetings, we discussed any requests we had received for new ICD-10-CM diagnosis and ICD-10-PCS procedure codes that were to be implemented on October 1, 2014. We did not discuss ICD-9-CM codes. The public was given the opportunity to comment on whether or not new ICD-10-CM and ICD-10-PCS codes should be created, based on the partial code freeze criteria. The public was to use the criteria as to whether codes were needed to capture new diagnoses or new technologies. If the codes do not meet those criteria for implementation during the partial code freeze, consideration was to be given as to whether the codes should be created after the partial code freeze ends one year after the implementation of ICD-10-CM/PCS. We invited public comments on any code requests discussed at the September 18-19, 2013 and March 19-20, 2014 Committee meetings for implementation as part of the October 1, 2014 update. The deadline for commenting on code proposals discussed at the September 18-19, 2013 Committee meeting was November 15, 2013. The deadline for commenting on code proposals discussed at the March 19-20, 2014 Committee meeting was April 18, 2014.

14. Public Comments on Issues Not Addressed in the Proposed Rule

We received three public comments regarding MS-DRG issues that were outside of the scope of the proposals included in the FY 2014 IPPS/LTCH PPS proposed rule. Below we summarize these public comments. However, because we consider these public comments to be outside of the scope of the proposed rule, we are not responding to them in this final rule. As stated in section II.G.1.b. of the preamble of this final rule, we encourage individuals with comments about MS-DRG classifications to submit these comments no later than December 7 of each year so they can be considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. We will consider these public comments for possible proposals in future rulemaking as part of our annual review process.

a. Request for Review and MS-DRG Reassignment for ICD-9-CM Diagnosis Code 784.7 Reported With Procedure Codes 39.75 and 39.76

One commenter expressed concern regarding specific procedure codes that are assigned to MS-DRGs 981 through 983; 984 through 986; and 987 through 989 in relation to our discussion of the annual review of these MS-DRGs in section II.G.12. of the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28020). The commenter noted that the endovascular embolization of the arteries of the branches of the internal maxillary artery is frequently performed for intractable posterior epistaxis. The commenter stated that, currently, diagnosis code 784.7 (Epistaxis) reported with procedure codes 39.75 (Endovascular embolization or occlusion of vessel(s) of head or neck using bare coils) and 39.76 (Endovascular embolization or occlusion of vessel(s) of head or neck using bioactive coils) groups to MS-DRG 981(Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC), MS-DRG 982 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with CC), and MS-DRG 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis without CC/MCC). The commenter indicated that it also found this grouping with ICD-10 diagnosis code R04.0 (Epistaxis) reported with artery occlusion procedure codes. The commenter requested that CMS review these groupings and consider the possibility of reassigning these procedure codes into a more specific MS-DRG.

We consider this public comment to be outside of the scope of the FY 2015 IPPS/LTCH PPS proposed rule and therefore are not addressing it in this final rule. However, we will consider this public comment for possible proposals in future rulemaking as part of our annual review process.

b. Coding for Extracorporeal Membrane Oxygenation Procedures (ECMO)

Several commenters expressed concern that hospitals may not be correctly reporting extracorporeal membrane oxygenation (ECMO) and percutaneous cardiopulmonary bypass procedures. The commenters requested that CMS inform hospitals that they should appropriately code each procedure separately because each code captures different procedures.

We consider this coding issue to be outside of the scope of the FY 2015 IPPS/LTCH PPS proposed rule. We refer commenters to the American Hospital Association's Central Office on Coding, which has responsibility for providing coding advice on such specific coding issues through its publication Coding Clinic.

c. Adding Severity Levels to MS-DRGs 245 through 251

One commenter recommended including additional severity levels under MS-DRG 245 (AICD Generator Procedures); MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents); MS-DRG 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC); MS-DRG 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC); MS-DRG 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent with MCC); and MS-DRG 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent without MCC).

We consider this public comment to be outside of the scope of the FY 2015 IPPS/LTCH PPS proposed rule, and therefore are not addressing it in this final rule. However, we will consider the comment for possible proposals in future rulemaking as part of our annual review process.

H. Recalibration of the FY 2015 MS-DRG Relative Weights

1. Data Sources for Developing the Relative Weights

In developing the FY 2015 system of weights, we used two data sources: Claims data and cost report data. As in previous years, the claims data source is the MedPAR file. This file is based on fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2013 MedPAR data used in this final rule include discharges occurring on October 1, 2012, through September 30, 2013, based on bills received by CMS through March 31, 2014, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which at that time were under a waiver from the IPPS under section 1814(b)(3) of the Act). The FY 2013 MedPAR file used in calculating the relative weights includes data for approximately 10,090,385 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR “GHO Paid” indicator field on the claim record is equal to “1” or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR “Indirect Medical Education (IME)” payment field, indicating that the claim was an “IME only” claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the March 31, 2014 update of the FY 2013 MedPAR file complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a variable called “claim type.” Claim type “60” indicates that the claim was an inpatient claim paid as fee-for-service. Claim types “61,” “62,” “63,” and “64” relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the calculation of the relative weights for FY 2015 also excludes claims with claim type values not equal to “60.” The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. We note that the FY 2015 relative weights are based on the ICD-9-CM diagnoses and procedures codes from the MedPAR claims data, grouped through the ICD-9-CM version of the FY 2015 GROUPER (Version 32). The second data source used in the cost-based relative weighting methodology is the Medicare cost report data files from the HCRIS. Normally, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year. Specifically, we used cost report data from the March 31, 2014 update of the FY 2012 HCRIS for calculating the FY 2015 cost-based relative weights.

2. Methodology for Calculation of the Relative Weights

As we explain in section II.E.2. of the preamble of this final rule, we are calculating the FY 2015 relative weights based on 19 CCRs, as we did for FY 2014. The methodology we used to calculate the FY 2015 MS-DRG cost-based relative weights based on claims data in the FY 2013 MedPAR file and data from the FY 2012 Medicare cost reports is as follows:

• To the extent possible, all the claims were regrouped using the FY 2015 MS-DRG classifications discussed in sections II.B. and II.G. of the preamble of this final rule.
• The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2012 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)
• Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers.
• Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $10.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, special equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood charges, and anesthesia charges were also deleted.
• At least 92.2 percent of the providers in the MedPAR file had charges for 14 of the 19 cost centers. All claims of providers that did not have charges greater than zero for at least 14 of the 19 cost centers were deleted. In other words, a provider must have no more than five blank cost centers. If a provider did not have charges greater than zero in more than five cost centers, the claims for the provider were deleted. (We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50551) for the edit threshold related to FY 2014 and prior fiscal years).
• Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the geometric mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG.
• Effective October 1, 2008, because hospital inpatient claims include a POA indicator field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to “Y” for “Yes” for all claims that otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the POA field.

Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a “Y” indicator is associated with the diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an “N” indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HAC cases are likely to be higher as well. Therefore, if the higher charges of these HAC claims are grouped into lower severity MS-DRGs prior to the relative weight-setting process, the relative weights of these particular MS-DRGs would become artificially inflated, potentially skewing the relative weights. In addition, we want to protect the integrity of the budget neutrality process by ensuring that, in estimating payments, no increase to the standardized amount occurs as a result of lower overall payments in a previous year that stem from using weights and case-mix that are based on lower severity MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC policy would be lost.

To avoid these problems, we reset the POA indicator field to “Y” only for relative weight-setting purposes for all claims that otherwise have an “N” or a “U” in the POA field. This resetting “forced” the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases.

Once the MedPAR data were trimmed and the statistical outliers were removed, the charges for each of the 19 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals located in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 19 cost groups so that each MS-DRG had 19 standardized charge totals. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2012 cost report data.

The 19 cost centers that we used in the relative weight calculation are shown in the following table. The table shows the lines on the cost report and the corresponding revenue codes that we used to create the 19 national cost center CCRs.

We refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48462) for a discussion on the revenue codes included in the Supplies and Equipment and Implantable Devices CCRs, respectively.

3. Development of National Average CCRs

We developed the national average CCRs as follows:

Using the FY 2012 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-3 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D-3. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs.

After we multiplied the total charges for each MS-DRG in each of the 19 cost centers by the corresponding national average CCR, we summed the 19 “costs” across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight.

The FY 2015 cost-based relative weights were then normalized by an adjustment factor of 1.645837 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

The 19 national average CCRs for FY 2015 are as follows:

Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS-DRG grouping system.

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. In the FY 2015 IPPS/LTCH PPS proposed rule, we proposed to use that same case threshold in recalibrating the MS-DRG relative weights for FY 2015. Using data from the FY 2013 MedPAR file, there were 8 MS-DRGs that contain fewer than 10 cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we no longer have separate DRGs for patients aged 0 to 17 years. With the exception of newborns, we previously separated some DRGs based on whether the patient was age 0 to 17 years or age 17 years and older. Other than the age split, cases grouping to these DRGs are identical. The DRGs for patients aged 0 to 17 years generally have very low volumes because children are typically ineligible for Medicare. In the past, we have found that the low volume of cases for the pediatric DRGs could lead to significant year-to-year instability in their relative weights. Although we have always encouraged non-Medicare payers to develop weights applicable to their own patient populations, we have received frequent complaints from providers about the use of the Medicare relative weights in the pediatric population. We believe that eliminating this age split in the MS-DRGs will provide more stable payment for pediatric cases by determining their payment using adult cases that are much higher in total volume. Newborns are unique and require separate MS-DRGs that are not mirrored in the adult population. Therefore, it remains necessary to retain separate MS-DRGs for newborns. All of the low-volume MS-DRGs listed below are for newborns. In FY 2015, because we do not have sufficient MedPAR data to set accurate and stable cost relative weights for these low-volume MS-DRGs, we proposed to compute relative weights for the low-volume MS-DRGs by adjusting their final FY 2014 relative weights by the percentage change in the average weight of the cases in other MS-DRGs. The crosswalk table is shown below:

We did not receive any public comments on this proposal and, therefore, are finalizing it for FY 2015 as proposed.

4. Bundled Payments for Care Improvement (BPCI) Initiative

The Bundled Payments for Care Improvement (BPCI) initiative, developed under the authority of section 3021 of the Affordable Care Act (codified at section 1115A of the Act), is comprised of four broadly defined models of care, which link payments for multiple services beneficiaries receive during an episode of care. Under the BPCI initiative, organizations enter into payment arrangements that include financial and performance accountability for episodes of care. On January 31, 2013, CMS announced the health care organizations selected to participate in the BPCI initiative. For additional information on the BPCI initiative, we refer readers to the CMS' Center for Medicare and Medicaid Innovation's Web site at http://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to section IV.H.4. of the preamble of the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through 53343) for a discussion on the BPCI initiative.

In the FY 2013 IPPS/LTCH PPS final rule, for FY 2013 and subsequent fiscal years, we finalized a policy to treat hospitals that participate in the BPCI initiative the same as prior fiscal years for the IPPS payment modeling and ratesetting process without regard to a hospital's participation within these bundled payment models (that is, as if a hospital were not participating in those models under the BPCI initiative). Therefore, for FY 2015, we proposed to continue to include all applicable data from subsection (d) hospitals participating in BPCI Models 1, 2, and 4 in our IPPS payment modeling and ratesetting calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on our final policy for the treatment of hospitals participating in the BPCI initiative in our ratesetting process.

Comment: One commenter was concerned about the policy to treat all providers that participate in the BPCI initiative the same as prior fiscal years for the IPPS payment modeling and ratesetting process without regard to a hospital's participation within these bundled payment models. The commenter stated that while it is unlikely to have a demonstrable effect in FY 2015, the BPCI initiative has just begun and has few participants compared to the total number of PPS hospitals. The commenter further stated that the cohort is expected to expand dramatically, given the additional round of applications, and it expected participants to focus their cost reduction activities in select MS-DRGs, which could skew specific weights and inappropriately shift payments to other MS-DRGs. The commenter added that providers that are not part of the initiative cannot be expected to reach the same performance levels without the same tools available within the BPCI. The commenter recommended that CMS reconsider removing BPCI participants from the IPPS relative weight setting process.

Response: As the commenter stated, the BPCI initiative is unlikely to have a demonstrable effect for FY 2015. Accordingly, we are finalizing our proposal to continue to include all applicable data from subsection (d) hospitals participating in BPCI Models 1, 2, and 4 in our IPPS payment modeling and ratesetting calculations for FY 2015. However, we will monitor the possible impact that hospitals enrolled in the BPCI initiative may have on the MS-DRG relative weights in future fiscal years.

I. Add-On Payments for New Services and Technologies

1. Background

Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies (sometimes collectively referred to in this section as “new technologies”) under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that a new medical service or technology may be considered for new technology add-on payment if, “based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.” We note that beginning with discharges occurring in FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs.

The regulations at 42 CFR 412.87 implement these provisions and specify three criteria for a new medical service or technology to receive the additional payment: (1) The medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. Below we highlight some of the major statutory and regulatory provisions relevant to the new technology add-on payment criteria as well as other information. For a complete discussion on the new technology add-on payment criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574).

Under the first criterion, as reflected in § 412.87(b)(2), a specific medical service or technology will be considered “new” for purposes of new medical service or technology add-on payments until such time as Medicare data are available to fully reflect the cost of the technology in the MS-DRG weights through recalibration. We note that we do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a technology receives a new FDA approval, it may not necessarily be considered “new” for purposes of new technology add-on payments if it is “substantially similar” to a technology that was approved by FDA and has been on the market for more than 2 to 3 years. In the FY 2006 IPPS final rule (70 FR 47351) and the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and 43814), we explained our policy regarding substantial similarity in detail.

Under the second criterion, § 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to the discharge involving the new medical services or technologies must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. Table 10 that was released with the FY 2014 IPPS/LTCH PPS final rule contains the final thresholds that we use to evaluate applications for new technology add-on payments for FY 2015. We refer readers to the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2014-IPPS-Final-Rule-Home-Page.html for a complete viewing of Table 10 from the FY 2014 IPPS/LTCH PPS final rule.

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed the issue of whether the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule at 45 CFR Parts 160 and 164 applies to claims information that providers submit with applications for new technology add-on payments. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51573) for complete information on this issue.

Under the third criterion, § 412.87(b)(1) of our existing regulations provides that a new technology is an appropriate candidate for an additional payment when it represents “an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.” For example, a new technology represents a substantial clinical improvement when it reduces mortality, decreases the number of hospitalizations or physician visits, or reduces recovery time compared to the technologies previously available. (We refer readers to the September 7, 2001 final rule for a more detailed discussion of this criterion (66 FR 46902).)

The new medical service or technology add-on payment policy under the IPPS provides additional payments for cases with relatively high costs involving eligible new medical services or technologies while preserving some of the incentives inherent under an average-based prospective payment system. The payment mechanism is based on the cost to hospitals for the new medical service or technology. Under § 412.88, if the costs of the discharge (determined by applying cost-to-charge ratios (CCRs) as described in § 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 50 percent of the estimated costs of the new technology (if the estimated costs for the case including the new technology exceed Medicare's payment); or (2) 50 percent of the difference between the full DRG payment and the hospital's estimated cost for the case. Unless the discharge qualifies for an outlier payment, the additional Medicare payment is limited to the full MS-DRG payment plus 50 percent of the estimated costs of the new technology.

Section 503(d)(2) of Public Law 108-173 provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, in accordance with section 503(d)(2) of Public Law 108-173, add-on payments for new medical services or technologies for FY 2005 and later years have not been subjected to budget neutrality.

In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our regulations at § 412.87 to codify our longstanding practice of how CMS evaluates the eligibility criteria for new medical service or technology add-on payment applications. That is, we first determine whether a medical service or technology meets the newness criterion, and only if so, do we then make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. We also amended § 412.87(c) to specify that all applicants for new technology add-on payments must have FDA approval or clearance for their new medical service or technology by July 1 of each year prior to the beginning of the fiscal year that the application is being considered.

The Council on Technology and Innovation (CTI) at CMS oversees the agency's cross-cutting priority on coordinating coverage, coding and payment processes for Medicare with respect to new technologies and procedures, including new drug therapies, as well as promoting the exchange of information on new technologies between CMS and other entities. The CTI, composed of senior CMS staff and clinicians, was established under section 942(a) of Public Law 108-173. The Council is co-chaired by the Director of the Center for Clinical Standards and Quality (CCSQ) and the Director of the Center for Medicare (CM), who is also designated as the CTI's Executive Coordinator.

The specific processes for coverage, coding, and payment are implemented by CM, CCSQ, and the local claims-payment contractors (in the case of local coverage and payment decisions). The CTI supplements, rather than replaces, these processes by working to assure that all of these activities reflect the agency-wide priority to promote high-quality, innovative care. At the same time, the CTI also works to streamline, accelerate, and improve coordination of these processes to ensure that they remain up to date as new issues arise. To achieve its goals, the CTI works to streamline and create a more transparent coding and payment process, improve the quality of medical decisions, and speed patient access to effective new treatments. It is also dedicated to supporting better decisions by patients and doctors in using Medicare-covered services through the promotion of better evidence development, which is critical for improving the quality of care for Medicare beneficiaries.

To improve the understanding of CMS' processes for coverage, coding, and payment and how to access them, the CTI has developed an “Innovator's Guide” to these processes. The intent is to consolidate this information, much of which is already available in a variety of CMS documents and in various places on the CMS Web site, in a user-friendly format. This guide was published in August 2008 and is available on the CMS Web site at: http://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf.

As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we invite any product developers or manufacturers of new medical technologies to contact the agency early in the process of product development if they have questions or concerns about the evidence that would be needed later in the development process for the agency's coverage decisions for Medicare.

The CTI aims to provide useful information on its activities and initiatives to stakeholders, including Medicare beneficiaries, advocates, medical product manufacturers, providers, and health policy experts. Stakeholders with further questions about Medicare's coverage, coding, and payment processes, or who want further guidance about how they can navigate these processes, can contact the CTI at CTI@cms.hhs.gov.

We note that applicants for add-on payments for new medical services or technologies for FY 2016 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2016, the CMS Web site also will post the tracking forms completed by each applicant.

2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments

Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of Public Law 108-173, provides for a mechanism for public input before publication of a notice of proposed rulemaking regarding whether a medical service or technology represents a substantial clinical improvement or advancement. The process for evaluating new medical service and technology applications requires the Secretary to—

• Provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries;
• Make public and periodically update a list of the services and technologies for which applications for add-on payments are pending;
• Accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial clinical improvement; and
• Provide, before publication of a proposed rule, for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data regarding whether a new medical service or technology represents a substantial clinical improvement to the clinical staff of CMS.

In order to provide an opportunity for public input regarding add-on payments for new medical services and technologies for FY 2015 prior to publication of the FY 2015 IPPS/LTCH PPS proposed rule, we published a document in the Federal Register on November 29, 2013 (78 FR 71555 through 71557), and held a town hall meeting at the CMS Headquarters Office in Baltimore, MD, on February 12, 2014. In the announcement notice for the meeting, we stated that the opinions and alternatives provided during the meeting would assist us in our evaluations of applications by allowing public discussion of the substantial clinical improvement criterion for each of the FY 2015 new medical service and technology add-on payment applications before the publication of the FY 2015 proposed rule.

Approximately 91 individuals registered to attend the town hall meeting in person, while additional individuals listened over an open telephone line. We also live-streamed the town hall meeting and posted the town hall on the CMS YouTube Web page at: http://www.youtube.com/watch?v=WXyR_TILfKo&list=TLiu1B_AxXsinTW6EEn4BVUdR4iEM61eV4. We considered each applicant's presentation made at the town hall meeting, as well as written comments submitted on the applications that were received by the due date of January 21, 2014, in our evaluation of the new technology add-on payment applications for FY 2015 in the proposed rule.

In response to the published document and the New Technology Town Hall meeting, we received written comments regarding the applications for FY 2015 new technology add-on payments. We summarized these comments in the preamble of the proposed rule or, if applicable, indicated that there were no comments received, at the end of each discussion of the individual applications in the proposed rule.

A number of attendees at the New Technology Town Hall meeting provided comments that were unrelated to the “substantial clinical improvement” criterion. As explained above and in the Federal Register document announcing the New Technology Town Hall meeting (78 FR 71555 through 71557), the purpose of the meeting was specifically to discuss the substantial clinical improvement criterion in regard to pending new technology add-on payment applications for FY 2015. Therefore, we did not summarize those comments in the proposed rule. Commenters were informed that they were welcome to resubmit these comments during the comment period in response to proposals presented in the proposed rule. We summarize and respond to these comments under the applicable discussions within this final rule.

We also received public comments in response to the proposed rule relating to topics such as marginal cost factors for new technology add-on payments, mapping new technologies to the appropriate MS-DRG, deeming a new technology a substantial clinical improvement if it receives HDE approval from the FDA, and the use of external data in determining the cost threshold. Because we did not request public comments nor propose to make any changes to any of the issues above, we are not summarizing these public comments nor responding to them in this final rule.

Another commenter asked CMS to consider the implications of the new technology add-on payment policy on antibiotics that fall under the current IPPS and, in particular, the Hospital VBP Program for which the inclusion of the MRSA bacteremia measure and the C-difficile measure are proposed. The commenter was concerned that current payment policy will be inadequate and place further financial pressure on hospitals. The commenter stated that CMS must consider the evolving payment paradigm facing inpatient facilities (IQR, HAC, and VBP) and ensure that these various policies do not have competing goals. Although we agree with the commenter that CMS should consider the evolving payment paradigm facing inpatient facilities regarding payment reductions under the Hospital IQR Program, the HAC Reduction Program, and the Hospital VBP Program and ensure that these various policies do not have competing goals, we are not providing a detailed response because we did not present any policy proposals concerning these issues.

Comment: One commenter expressed concern that services identified as appropriate for new technology add-on payments do not receive the new technology add-on payment even when the claims for these services are correctly submitted to the Medicare administrative contractors (MACs). The commenter stated that the MACs are often unable to explain the reason for the failure to include the new technology add-on payment or answer inquiries regarding this issue. The commenter recommended that CMS provide additional education to the MACs regarding CMS regulations related to services available for new technology add-on payments.

Response: We encourage providers to work with their MACs to ensure that the new technology add-on payments are accurately and appropriately made. If MACs are having any issues, they can contact the CMS Central Office for further assistance. Also, the regulations at § 412.88 explain how the new technology add-on payments are made. We note that, under certain conditions, even if an approved new technology was billed on the claim, a new technology add-on payment may not be made, such as if the total payment for the claim without the new technology add-on payment exceeds the costs of the case. In addition, each year after the final rule, CMS issues a transmittal to the MACs listing the eligibility and maximum add-on payment for each approved new technology.

3. FY 2015 Status of Technologies Approved for FY 2014 Add-On Payments

a. Glucarpidase (Trade Brand Voraxaze®)

BTG International, Inc. submitted an application for new technology add-on payments for Glucarpidase (trade brand Voraxaze®) for FY 2013. Glucarpidase is used in the treatment of patients who have been diagnosed with toxic methotrexate (MTX) concentrations as of result of renal impairment. The administration of Glucarpidase causes a rapid and sustained reduction of toxic MTX concentrations.

Voraxaze® was approved by the FDA on January 17, 2012. Beginning in 1993, certain patients could obtain expanded access for treatment use to Voraxaze® as an investigational drug. Since 2007, the applicant has been authorized to recover the costs of making Voraxaze® available through its expanded access program. We describe expanded access for treatment use of investigational drugs and authorization to recover certain costs of investigational drugs in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53346 through 53350). Voraxaze® was available on the market in the United States as a commercial product to the larger population as of April 30, 2012. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27936 through 27939), we expressed concerns about whether Voraxaze® could be considered new for FY 2013. After consideration of all of the public comments received, in the FY 2013 IPPS/LTCH PPS final rule, we stated that we considered Voraxaze® to be “new” as of April 30, 2012, which is the date of market availability.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology payments for Voraxaze® and consideration of the public comments we received in response to the FY 2013 IPPS/LTCH PPS proposed rule, we approved Voraxaze® for new technology add-on payments for FY 2013. Cases of Voraxaze® are identified with ICD-9-CM procedure code 00.95 (Injection or infusion of glucarpidase). The cost of Voraxaze® is $22,500 per vial. The applicant stated that an average of four vials is used per Medicare beneficiary. Therefore, the average cost per case for Voraxaze® is $90,000 ($22,500 × 4). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the technology or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for Voraxaze® is $45,000 per case.

As stated above, the new technology add-on payment regulations provide that a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology (§ 412.87(b)(2)). Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year, and we have generally followed a guideline that uses a 6-month window before and after the start of the fiscal year to determine whether to extend the new technology add-on payment for an additional fiscal year. In general, we extend add-on payments for an additional year only if the 3-year anniversary date of the product's entry on the market occurs in the latter half of the fiscal year (70 FR 47362).

With regard to the newness criterion for Voraxaze®, as stated above, we consider the beginning of the newness period to commence when Voraxaze® was first available on the market on April 30, 2012. Because the 3-year anniversary date for Voraxaze® will occur in the latter half of FY 2015 (April 30, 2015), we proposed to continue new technology add-on payments for this technology for FY 2015.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on this proposal.

Comment: Several public commenters supported the proposal to continue new technology add-on payments for Voraxaze® for FY 2015.

Response: We appreciate the commenters' support. Because the 3-year anniversary date for Voraxaze® will occur in the latter half of FY 2015 (April 30, 2015), we are finalizing our proposal to continue to make new technology add-on payments for Voraxaze® for FY 2015.

b. DIFICID^TM (Fidaxomicin) Tablets

Optimer Pharmaceuticals, Inc. submitted an application for new technology add-on payments for FY 2013 for the use of DIFICID^TM tablets. As indicated on the labeling submitted to the FDA, the applicant noted that Fidaxomicin is taken twice a day as a daily dosage (200 mg tablet twice daily = 400 mg per day) as an oral antibiotic. The applicant asserted that Fidaxomicin provides potent bactericidal activity against C. Diff., and moderate bactericidal activity against certain other gram-positive organisms, such as enterococcus and staphylococcus. Unlike other antibiotics used to treat CDAD, the applicant noted that the effects of Fidaxomicin preserve bacteroides organisms in the fecal flora. These are markers of normal anaerobic microflora. The applicant asserted that this helps prevent pathogen introduction or persistence, which potentially inhibits the re-emergence of C. Diff., and reduces the likelihood of overgrowths as a result of vancomycin-resistant Enterococcus (VRE). Because of this narrow spectrum of activity, the applicant asserted that Fidaxomicin does not alter this native intestinal microflora.

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27939 through 27941), we expressed concern that DIFICID^TM may not be eligible for new technology add-on payments because eligibility is limited to new technologies associated with procedures described by ICD-9-CM codes. We further stated that drugs that are only taken orally (such as DIFICID^TM) may not be eligible for consideration for new technology add-on payments because there is no procedure associated with these drugs and, therefore, no ICD-9-CM code(s). In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53350 through 53358), after consideration of the public comments received, we revised our policy to allow the use of National Drug Codes (NDCs) to identify oral medications that have no inpatient procedure for the purposes of new technology add-on payments. The revised policy is effective for payments for discharges occurring on or after October 1, 2012. We refer readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on this issue.

With regard to the newness criterion, Fidaxomicin was approved by the FDA on May 27, 2011, for the treatment of CDAD in adult patients, 18 years of age and older. In the FY 2013 IPPS/LTCH PPS final rule, we established that the beginning of the newness period for this technology is its FDA approval date of May 27, 2011.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology add-on payments for DIFICID^TM and consideration of the public comments we received in response to the FY 2013 IPPS/LTCH PPS proposed rule, we approved DIFICID^TM for new technology add-on payments for FY 2013. Cases of DIFICID^TM are identified with ICD-9-CM diagnosis code 008.45 (Intestinal infection due to Clostridium difficile) in combination with NDC code 52015-0080-01. Providers must report the NDC on the 837i Health Care Claim Institutional form (in combination with ICD-9-CM diagnosis code 008.45) in order to receive the new technology add-on payment. According to the applicant, the cost of DIFICID^TM is $2,800 for a 10-day dosage. The average cost per day for DIFICID^TM is $280 ($2,800/10). Cases of DIFICID^TM within the inpatient setting typically incur an average dosage of 6.2 days, which results in an average cost per case for DIFICID^TM of $1,736 ($280 × 6.2). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the technology or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for DIFICID^TM is $868.

As stated above, the new technology add-on payment regulations provide that a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology (§ 412.87(b)(2)).

The manufacturer commented through a letter to CMS, prior to the publication of the proposed rule, requesting that CMS extend the eligibility for a third year of new technology add-on payments for DIFICID^TM in FY 2015. The manufacturer maintained that the technology still meets all three criteria for new technology add-on payments. Regarding the substantial clinical improvement criterion, the applicant stated that DIFICID^TM continues to remain the only FDA-approved treatment to demonstrate substantial clinical improvement over existing therapies. No new treatments for CDAD have been approved by the FDA since DIFICID^TM. The applicant further stated that a third year of new technology add-on payments for DIFICID^TM would continue to reduce access barriers in the acute care hospital inpatient setting, which would support the appropriate use of DIFICID^TM, a treatment that offers a substantial clinical improvement over existing therapies.

With respect to the cost criterion, the applicant stated that DIFICID^TM continues to meet the cost criterion. Using claims data from the FY 2012 MedPAR file, the applicant provided updated data from the two analyses described in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53350 through 53358), and demonstrated that the average case-weighted standardized charge per case exceeded the average case-weighted thresholds under both analyses. The applicant stated that the new technology add-on payment is intended to offer additional payments to support patient access and appropriate use of new technologies for a period of time until the MS-DRGs are adjusted to reflect the cost of the new technology. The applicant believed that the analyses conducted with the most recent MedPAR claims data available demonstrate that the MS-DRG recalibrations are insufficient to accommodate the cost associated with CDAD and new technologies to treat CDAD under the IPPS within the allotted timeframe of 2 years. According to the applicant, these payment amounts remain an obstacle for the appropriate use of new technologies for CDAD that demonstrate substantial clinical improvement over existing treatments, such as DIFICID^TM. The applicant concluded that a third year of new technology add-on payments for DIFICID^TM is needed to allow sufficient data for future MS-DRG recalibration analyses.

With regard to newness criterion, the manufacturer commented that it believed that the technology still meets the newness criterion for the following reason: § 412.87(b)(2) states that “A medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) code assigned to the new service or technology (depending on when a new code is assigned and data on the new service or technology become available for DRG recalibration). After CMS has recalibrated the DRGs, based on available data, to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered `new' under the criterion of this section.” The manufacturer noted that DIFICID^TM was not assigned an ICD-9-CM procedure code and DIFICID^TM is the first product for which no inpatient procedure is associated to receive a new technology add-on payment since the implementation of the new technology add-on payment policy.

The manufacturer also cited the FY 2013 IPPS/LTCH PPS final rule (77 FR 53352), which indicated that “Hospitals currently code and report procedures and more invasive services such as surgeries, infusion of drugs, and specialized procedures such as cardiac catheterizations. Hospitals neither code nor report self-administered drugs.” Therefore, the manufacturer contended that, as an oral therapy, neither DIFICID^TM nor its administration was assigned an ICD-9-CM procedure code and, therefore, the technology should still be eligible for the new technology add-on payments.

The manufacturer further noted that, in the FY 2013 IPPS/LTCH PPS final rule, because an ICD-9-CM procedure code for the administration of an oral medication did not exist and hospitals had no other mechanism to report the use of DIFICID^TM, for FY 2013, CMS instructed hospitals to report the DIFICID^TM NDC on hospital inpatient claims to receive the new technology add-on payment for DIFICID^TM. Prior to October 1, 2012, hospitals did not use NDCs on hospital inpatient claims, which prevented CMS from isolating DIFICID^TM cases and their associated costs. The manufacturer further stated that the NDC methodology was a bold change in policy and inpatient billing processes, and it stands to reason that, because of hospitals unfamiliarity with reporting NDCs on inpatient claims, hospitals' use of the DIFICID^TM NDC would greatly lag behind the traditional use of ICD-9-CM procedure codes. As such, the manufacturer reasoned that any lag in hospital reporting would directly impact CMS' ability to track and analyze the cost data associated with DIFICID^TM cases.

The manufacturer also noted that on August 31, 2012, CMS issued Transmittal 2539, which is a change request for MACs concerning updates for the upcoming fiscal year. The manufacturer stated that because the new technology add-on heading was omitted in the transmittal, this change request did not highlight the NDC billing approach to ensure that hospitals recognized the important change, which may have caused hospitals to overlook the claim reporting instructions for DIFICID^TM.

The manufacturer added that Transmittal 2539 and a Medicare Learning Network® Matters (MLN) article were rescinded and replaced by Transmittal 2627 on January 4, 2013. The manufacturer noted that among CMS' reasons for replacing the transmittal was to insert the omitted new technology add-on section heading. The manufacturer stated that, although the original transmittal further supports that collection of DIFICID^TM-specific data did not begin until at least October 1, 2012, CMS' reissuance of the claims processing instructions, and the missing header in the initial instructions, effectively delayed implementation of the new technology add-on payments for 3 months past the October 2012 beginning date. The manufacturer also believed that the need to replace the transmittal underlies hospitals' difficulties instituting claims' reporting instructions to receive new technology add-on payments for DIFICID^TM at the hospital level.

The manufacturer noted that anecdotal feedback from hospitals, which was shared with CMS during a meeting in June 2013, suggests that some hospitals faced challenges implementing the appropriate billing and coding processes. The manufacturer was concerned that that these challenges were, in part, caused by the missing header, and that these challenges may have impacted whether eligible cases were properly billed and coded to receive the new technology add-on payment for DIFICID^TM. The manufacturer was further concerned that the effects of any lag or delay caused by unfamiliarity with reporting NDCs and the missing header would also impact the data available to CMS to recalibrate the MS-DRGs and, separately, to evaluate the impact of the new technology add-on payment for DIFICID^TM. The manufacturer further explained that, while DIFICID^TM was available to hospitals after its launch in July 2011, hospitals had no experience reporting NDCs until October 2012, and may not have recognized the opportunity to, or understood the mechanism for doing so, until after January 2013. For the purposes of inpatient data collection and ratesetting, the manufacturer believed that this meant that 2 complete years of DIFICID^TM costs would not be fully reflected in the Medicare claims data for the FY 2015 MS-DRG recalibrations.

The manufacturer also analyzed the 100 percent sample of the Standard Analytical File (SAF) for CY 2012, which contained first quarter claims data for FY 2013, the first 3 months that DIFICID^TM was eligible for the new technology add-on payments. The manufacturer found a total of 43,608 cases with a diagnosis of CDI. Of these 43,608 cases, the manufacturer found 38 cases across 26 hospitals that reported new technology add-on payments for DIFICID^TM on submitted claims. The manufacturer stated that this preliminary data suggests that the number of cases available for MS-DRG recalibrations for FY 2015 is limited. The manufacturer stated that it is currently attempting to secure FY 2013 MedPAR claims data and that it will likely provide further insights on these issues.

In addition, the manufacturer noted that prior new technology add-on payment application approvals have involved technologies with much narrower patient populations compared to DIFICID^TM, allowing the costs of those technologies to influence the MS-DRG relative payment weights for the small number of MS-DRGs with which they are associated. The manufacturer explained that, unlike other technologies approved for new technology add on payments, the DIFICID^TM therapeutic value, while limited to patients with CDAD, is used in patients across a wide range of MS-DRGs due to it being reported as a secondary diagnosis in two-thirds of the cases compared to other technologies, which are assigned to a relatively small number of MS-DRGs. For example, cases involving the Spiration IBV® Valve System, which was granted approval for new technology add-on payments in FY 2010, primarily mapped to three MS-DRGs: 163 (Major Chest Procedures with MCC); 164 (Major Chest Procedures with CC); and 165 (Major Chest Procedures without CC/MCC). In its analysis of the FY 2012 MedPAR data for the cost criterion, the manufacturer found cases using DIFICID^TM mapped to 544 unique MS-DRGs. Under the 100 percent sample of the SAF for CY 2012, the 38 cases mentioned above mapped to 20 different MS-DRGs. The manufacturer maintained that because of the diffuse nature of the DIFICID^TM cases mapping to many MS-DRGs, it believed an extension of the newness period is required for the costs to be adequately reflected in the MS-DRG relative payment weights. In the unique case of DIFICID^TM for the treatment of CDAD, the manufacturer stated that 2 years of new technology add-on payments is insufficient to allow the 544 MS-DRGs to be recalibrated to sufficiently reflect the cost of the use of DIFICID^TM, a treatment that offers significant clinical improvement over existing therapies.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28032 through 28033), we responded to the comments above. Specifically, with regard to the technology's newness, as discussed in the FY 2005 IPPS final rule (69 FR 49003), the timeframe that a new technology can be eligible to receive new technology add-on payments begins when data become available. Section 412.87(b)(2) clearly states that a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology (depending on when a new code is assigned and data on the new service or technology become available for DRG recalibration). Section 412.87(b)(2) also states that after CMS has recalibrated the DRGs, based on available data, to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered “new” under the criterion of this section. Therefore, regardless of whether a technology can be individually identified by a separate ICD-9-CM code or whether it can only be identified using a NDC code, if the costs of the technology are included in the charge data, and the MS-DRGs have been recalibrated using that data, then the technology can no longer be considered “new” for the purposes of this provision. We further stated in that final rule that the period of newness does not necessarily start with the approval date for the medical service or technology, and does not necessarily start with the issuance of a distinct code. Instead, it begins with availability of the product on the U.S. market, which is when data become available. We have consistently applied this standard, and believe that it is most consistent with the purpose of new technology add-on payments.

In addition, similar to our discussion in the FY 2006 IPPS final rule (70 FR 47349), we do not believe that case volume is a relevant consideration for making the determination as to whether a product is “new.” Consistent with the statute, a technology no longer qualifies as “new” once it is more than 2 to 3 years old, irrespective of how frequently it has been used in the Medicare population. Similarly, this same determination is applicable no matter how many MS-DRGs the technology is spread across. Therefore, if a product is more than 2 to 3 years old, we consider its costs to be included in the MS-DRG relative weights whether its use in the Medicare population has been frequent or infrequent. We recognize that using an NDC was a novel billing practice under the IPPS. Nevertheless, even though hospitals may not have coded all uses of DIFICID^TM with the NDC, hospital bills would still include charges for all items and services furnished to a Medicare patient, including use of DIFICID^TM. Therefore, even though we may be not be able to identify all uses of DIFICID^TM in the Medicare charge data, hospital charges for the MS-DRGs would continue to reflect use of this technology.

With respect to the Transmittal 2539 omitting the header referenced above, as noted above, CMS corrected this issue as soon as possible by rescinding and reissuing this transmittal. Additionally, as noted by the manufacturer, this transmittal was meant for MACs and not hospitals. We believe the guidance issued in Transmittal 2539 clearly described to MACs how hospitals were to report the NDC on the inpatient claim in order to identify cases using DIFICID^TM for purposes of new technology add-on payments. Additionally, the MLN article that the manufacturer referred to above (MLN articles are typically a summary of transmittals for the general public) clearly indicated that DIFICID^TM was new for FY 2013 new technology add-on payments and clearly described how to properly code DIFICID^TM on the inpatient bill in order to receive the new technology add-on payment for FY 2013. The MLN article can be downloaded from the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/MM8041.pdf.

After considering the manufacturer's comments above, as we explained in the FY 2015 IPPS/LTCH PPS proposed rule, we continue to consider the beginning of the newness period to commence when DIFICID^TM was first approved by the FDA on May 27, 2011. Because the 3-year anniversary date of the product's entry on the U.S. market occurred in the second half of the fiscal year (after April 1, 2014), we continued new technology add-on payments for DIFICID^TM for FY 2014. However, for FY 2015, the 3-year anniversary date of the product's entry on the U.S. market occurred on May 27, 2014, which is prior to the beginning of FY 2015. Therefore, we proposed to discontinue new technology add-on payments for DIFICID^TM for FY 2015.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on this proposal.

Comment: One commenter stated that CMS has the authority to grant a third year of new technology add-on payments for DIFICID^TM. The commenter stated that if Congress intended for the Secretary to begin the data collection period described in the statute based on the date of FDA approval, Congress would have done so. The commenter added that it agrees that, as a threshold matter, a product must be “new.” Specifically, the commenter reasoned that Congress did not intend to make available the new technology add-on payment for technologies that have been approved for years and received a unique code years later. The commenter believed that once a product is deemed “new,” the statute requires that data are to be collected for 2 to 3 years from the date of the ICD-9-CM code assignment. The commenter believed that CMS has the authority to first deem a product new and then collect data two to three years from the date of the inpatient code assignment. The commenter explained that sections 1886(d)(5)(K)(i) and 1886(d)(5)(K)(ii) of the Act mandate two separate legal requirements. The commenter further stated that this policy would mitigate the effect of older technologies that receive ICD-9-CM codes many years after their FDA approval date being eligible for new technology add-on payments. Therefore, the commenter stated that, under this policy, DIFICID^TM is eligible for a third year of new technology add-on payments.

The commenter also quoted the FY 2005 IPPS final rule (69 FR 49002 through 49003) where CMS stated the following: “Using the ICD-9-CM code alone is not an appropriate test of newness because technologies that are new to the market are automatically placed into the closest ICD-9-CM category when they first come on the market, unless the manufacturer requests the assignment of a new ICD-9-CM code because existing codes do not adequately reflect or describe the medical service or device. The services and technologies that have been placed into existing ICD-9-CM codes have been paid for using those descriptors.” The commenter believed that this policy is not relevant to oral drugs because hospitals do not typically code for oral medications. Therefore, the commenter stated that CMS must make a special exception for oral drugs and rely on the statutory authority to measure the length of time for data collection for new technology add-on payments based on the date of the “hospital inpatient code.”

Response: As discussed above, and as we stated in the FY 2005 IPPS final rule (69 FR 49003), the timeframe that a new technology can be eligible to receive new technology add-on payments begins when data become available. We have consistently applied this standard, and believe that it is most consistent with the purpose of new technology add-on payments. We refer readers to the discussion above and the FY 2005 IPPS final rule (69 FR 49002 through 49003) for further details regarding this issue. For these reasons, we disagree with the commenter that DIFICID^TM is eligible for a third year of new technology add-on payments.

With respect to the second comment, while oral drugs are not typically coded by hospitals, we maintain what we stated in the FY 2005 IPPS final rule that the services and technologies that have been assigned existing ICD-9-CM codes have been paid for using those descriptors. Although DIFICID^TM did not receive a specific ICD-9-CM code, it can be described or identified through additional ICD-9-CM procedure or diagnosis codes (such as diagnosis code 008.45, Intestinal infection due to Clostridium difficile). Moreover, as we noted above and in the proposed rule, hospital charges would include charges for all items and services furnished to a Medicare beneficiary, including use of DIFICID^TM. Therefore, we disagree with the commenter and continue to believe that DIFICID^TM is no longer new nor is any special exception warranted.

Comment: Several commenters reiterated the arguments made by the manufacturer as explained above and in the proposed rule that DIFICID^TM should be eligible for new technology add-on payments in FY 2015.

Response: After considering these comments, for the reasons stated above and in the proposed rule, we consider the beginning of the newness period to commence when DIFICID^TM was first approved by the FDA on May 27, 2011. The 3-year anniversary date of the product's entry on the U.S. market occurred on May 27, 2014, which is prior to the beginning of FY 2015. Therefore, we are finalizing our proposal to discontinue new technology add-on payments for DIFICID^TM for FY 2015.

c. Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft

Cook® Medical submitted an application for new technology add-on payments for the Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft (Zenith® F. Graft) for FY 2013. The applicant stated that the current treatment for patients who have had an AAA is an endovascular graft. The applicant explained that the Zenith® F. Graft is an implantable device designed to treat patients who have an AAA and who are anatomically unsuitable for treatment with currently approved AAA endovascular grafts because of the length of the infrarenal aortic neck. The applicant noted that, currently, an AAA is treated through an open surgical repair or medical management for those patients not eligible for currently approved AAA endovascular grafts.

With respect to newness, the applicant stated that FDA approval for the use of the Zenith® F. Graft was granted on April 4, 2012. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53360 through 53365), we stated that because the Zenith® F. Graft was approved by the FDA on April 4, 2012, we believed that the Zenith® F. Graft met the newness criterion as of that date.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology add-on payments for the Zenith® F. Graft and consideration of the public comments we received in response to the FY 2013 IPPS/LTCH PPS proposed rule, we approved the Zenith® F. Graft for new technology add-on payments for FY 2013. Cases involving the Zenith® F. Graft that are eligible for new technology add-on payments are identified by ICD-9-CM procedure code 39.78 (Endovascular implantation of branching or fenestrated graft(s) in aorta). In the application, the applicant provided a breakdown of the costs of the Zenith® F. Graft. The total cost of the Zenith® F. Graft utilizing bare metal (renal) alignment stents was $17,264. Of the $17,264 in costs for the Zenith® F. Graft, $921 is for components that are used in a standard Zenith AAA Endovascular Graft procedure. Because the costs for these components are already reflected within the MS-DRGs (and are no longer “new”), in the FY 2013 IPPS/LTCH PPS final rule, we stated that we do not believe it is appropriate to include these costs in our calculation of the maximum cost to determine the maximum add-on payment for the Zenith® F. Graft. Therefore, the total maximum cost for the Zenith® F. Graft is $16,343 ($17,264—$921). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case involving the Zenith® F. Graft is $8,171.50.

As stated above, the new technology add-on payment regulations provide that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology” (§ 412.87(b)(2)). With regard to the newness criterion for the Zenith® F. Graft, as stated above, we consider the beginning of the newness period to commence when the Zenith® F. Graft was approved by the FDA on April 4, 2012. Because the 3-year anniversary date of the entry of the Zenith® F. Graft on the U.S. market will occur in the second half of the fiscal year (April 4, 2015), we proposed to continue new technology add-on payments for this technology for FY 2015.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on this proposal.

Comment: Several commenters supported the proposal to continue new technology add-on payments for the Zenith® F. Graft ® for FY 2015.

Response: We appreciate the commenters' support. Because the 3-year anniversary date for Zenith® F. Graft will occur in the latter half of FY 2015 (April 4, 2015), we are finalizing our proposal to continue to make new technology add-on payments for the Zenith® F. Graft for FY 2015.

d. Kcentra^TM

CSL Behring submitted an application for new technology add-on payments for Kcentra^TM for FY 2014. Kcentra^TM is a replacement therapy for fresh frozen plasma (FFP) for patients with an acquired coagulation factor deficiency due to warfarin and who are experiencing a severe bleed. Kcentra^TM contains the Vitamin K dependent coagulation factors II, VII, IX and X, together known as the prothrombin complex, and antithrombotic proteins C and S. Factor IX is the lead factor for the potency of the preparation. The product is a heat-treated, non-activated, virus filtered and lyophilized plasma protein concentrate made from pooled human plasma. Kcentra^TM is available as a lyophilized powder that needs to be reconstituted with sterile water prior to administration via intravenous infusion. The product is dosed based on Factor IX units. Concurrent Vitamin K treatment is recommended to maintain blood clotting factor levels once the effects of Kcentra^TM have diminished.

Kcentra^TM was approved by the FDA on April 29, 2013. In the FY 2014 IPPS/LTCH PPS final rule, we approved new ICD-9-CM procedure code 00.96 (Infusion of 4-Factor Prothrombrin Complex Concentrate) which uniquely identifies Kcentra^TM.

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27538), we noted that we were concerned that Kcentra^TM may be substantially similar to FFP and/or Vitamin K therapy. In the FY 2014 IPPS/LTCH PPS final rule, in response to comments submitted by the manufacturer, we stated that we agree that Kcentra^TM may be used in a patient population that is experiencing an acquired coagulation factor deficiency due to Warfarin and who are experiencing a severe bleed currently but are ineligible for FFP, particularly for use by IgA deficient patients and other patient populations that have no other treatment option to resolve severe bleeding in the context of an acquired Vitamin K deficiency. In addition, FFP is limited because it requires special storage conditions while Kcentra^TM is stable for up to 36 months at room temperature thus allowing hospitals that otherwise would not have access to FFP (for example, small rural hospitals as discussed by the applicant in its comments) to keep a supply of Kcentra^TM and treat patients who would possibly have no access to FFP. We noted that FFP is considered perishable and can be scarce by nature (due to production and other market limitations) thus making some hospitals unable to store FFP, which limits access to certain patient populations in certain locations. Therefore, we stated that we believe that Kcentra^TM provides a therapeutic option for a new patient population and is not substantially similar to FFP. Also, we gave credence to the information presented by the manufacturer that Kcentra^TM provides a simple and rapid repletion relative to FFP and reduces the risk of a transfusion reaction relative to FFP because it does not contain ABO antibodies and does not require ABO typing. As a result, we concluded that Kcentra^TM is not substantially similar to FFP, and that it meets the newness criterion.

After evaluation of the newness, cost, and substantial clinical improvement criteria for new technology add-on payments for Kcentra^TM and consideration of the public comments we received in response to the FY 2014 IPPS/LTCH PPS proposed rule, we approved Kcentra^TM for new technology add-on payments for FY 2014 (78 FR 50575 through 50580). Cases involving Kcentra^TM that are eligible for new technology add-on payments are identified by ICD-9-CM procedure code 00.96. In the application, the applicant estimated that the average Medicare beneficiary would require an average dosage of 2500 International Units (IU). Vials contain 500 IU at a cost of $635 per vial. Therefore, cases of Kcentra^TM would incur an average cost per case of $3,175 ($635 x 5). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the technology or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case of Kcentra^TM is $1,587.50 for FY 2014.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50579), we stated that new technology add-on payments for Kcentra^TM would not be available with respect to discharges for which the hospital received an add-on payment for a blood clotting factor administered to a Medicare beneficiary with hemophilia who is a hospital inpatient. Under section 1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective payment rate is “the amount of the payment with respect to the operating costs of inpatient hospital services (as defined in subsection (a)(4) of this section)” for discharges on or after April 1, 1988. Section 1886(a)(4) of the Act excludes from the term “operating costs of inpatient hospital services” the costs with respect to administering blood clotting factors to individuals with hemophilia. The costs of administering a blood clotting factor to a Medicare beneficiary who has hemophilia and is a hospital inpatient are paid separately from the IPPS. (For information on how the blood clotting factor add-on payment is made, we refer readers to Section 20.7.3 of Chapter Three of the Medicare Claims Processing Manual, which can be downloaded from the CMS Web site at: http://cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf.) In addition, we stated that if Kcentra^TM is approved by the FDA as a blood clotting factor, we believed that it may be eligible for blood clotting factor add-on payments when administered to Medicare beneficiaries with hemophilia. We make an add-on payment for Kcentra^TM for such discharges in accordance with our policy for payment of a blood clotting factor, and the costs would be excluded from the operating costs of inpatient hospital services as set forth in section 1886(a)(4) of the Act.

Section 1886(d)(5)(K)(i) of the Act requires the Secretary to “establish a mechanism to recognize the costs of new medical services and technologies under the payment system established under this subsection” beginning with discharges on or after October 1, 2001. We believe that it is reasonable to interpret this requirement to mean that the payment mechanism established by the Secretary recognizes only costs for those items that would otherwise be paid based on the prospective payment system (that is, “the payment system established under this subsection”). As noted above, under section 1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective payment rate is the amount of payment for the operating costs of inpatient hospital services, as defined in section 1886(a)(4) of the Act, for discharges on or after April 1, 1988. We understand this to mean that a new medical service or technology must be an operating cost of inpatient hospital services paid based on the prospective payment system, and not excluded from such costs, in order to be eligible for the new technology add-on payment. We pointed out that new technology add-on payments are based on the operating costs per case relative to the prospective payment rate as described in § 412.88. Therefore, we believe that new technology add-on payments are appropriate only when the new technology is an operating cost of inpatient hospital services and are not appropriate when the new technology is excluded from such costs.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50579), we stated that we believe that hospitals may only receive new technology add-on payments for discharges where Kcentra^TM is an operating cost of inpatient hospital services. In other words, a hospital would not be eligible to receive the new technology add-on payment when it is administering Kcentra^TM in treating a Medicare beneficiary who has hemophilia. In those instances, Kcentra^TM is specifically excluded from the operating costs of inpatient hospital services in accordance with section 1886(a)(4) of the Act and paid separately from the IPPS. However, when a hospital administers Kcentra^TM to a Medicare beneficiary who does not have hemophilia, the hospital would be eligible for a new technology add-on payment because Kcentra^TM would not be excluded from the operating costs of inpatient hospital services. Therefore, discharges where the hospital receives a blood clotting factor add-on payment are not eligible for a new technology add-on payment for the blood clotting factor. We refer readers to Chapter Three, Section 20.7.3 of the Medicare Claims Processing Manual for a complete discussion on when a blood clotting factor add-on payment is made. The manual can be downloaded from the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf.

As stated above, the new technology add-on payment regulations provide that a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology (§ 412.87(b)(2)). With regard to the newness criterion for Kcentra^TM, as stated above, we consider the beginning of the newness period to commence when Kcentra^TM was approved by the FDA on April 29, 2013. Because Kcentra^TM is still within the 3-year newness period, we proposed to continue new technology add-on payments for this technology for FY 2015.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on this proposal.

Comment: Several commenters supported the proposal to continue new technology add-on payments for Kcentra^TM for FY 2015.

Response: We appreciate the commenters' support. Because the 3-year anniversary date for Kcentra^TM will occur in the second half of FY 2016 (April 29, 2016), we are finalizing our proposal to continue to make new technology add-on payments for Kcentra^TM FY 2015.

e. Argus® II Retinal Prosthesis System

Second Sight Medical Products, Inc. submitted an application for new technology add-on payments for the Argus® II Retinal Prosthesis System (Argus® II System) for FY 2014. The Argus® II System is an active implantable medical device that is intended to provide electrical stimulation of the retina to induce visual perception in patients who are profoundly blind due to retinitis pigmentosa (RP). These patients have bare or no light perception in both eyes. The system employs electrical signals to bypass dead photo-receptor cells and stimulate the overlying neurons according to a real-time video signal that is wirelessly transmitted from an externally worn video camera. The Argus® II implant is intended to be implanted in a single eye, typically the worse-seeing eye. Currently, bilateral implants are not intended for this technology. According to the applicant, the surgical implant procedure takes approximately 4 hours and is performed under general anesthesia.

The Argus® II System consists of three primary components: (1) An implant which is an epiretinal prosthesis that is fully implanted on and in the eye (that is, there are no percutaneous leads); (2) external components worn by the user; and (3) a “fitting” system for the clinician that is periodically used to perform diagnostic tests with the system and to custom-program the external unit for use by the patient. We describe these components more fully below.

• Implant: The retinal prosthesis implant is responsible for receiving information from the external components of the system and electrically stimulating the retina to induce visual perception. The retinal implant consists of: (a) A receiving coil for receiving information and power from the external components of the Argus® II System; (b) electronics to drive stimulation of the electrodes; and (c) an electrode array. The receiving coil and electronics are secured to the outside of the eye using a standard scleral band and sutures, while the electrode array is secured to the surface of the retina inside the eye by a retinal tack. A cable, which passes through the eye wall, connects the electronics to the electrode array. A pericardial graft is placed over the extra-ocular portion on the outside of the eye.
• External Components: The implant receives power and data commands wirelessly from an external unit of components, which include the Argus II Glasses and Video Processing Unit (VPU). A small lightweight video camera and transmitting coil are mounted on the glasses. The telemetry coils and radio-frequency system are mounted on the temple arm of the glasses for transmitting data from the VPU to the implant. The glasses are connected to the VPU by a cable. This VPU is worn by the patient, typically on a belt or a strap, and is used to process the images from the video camera and convert the images into electrical stimulation commands, which are transmitted wirelessly to the implant.
• “Fitting System”: To be able to use the Argus® II System, a patient's VPU needs to be custom-programmed. This process, which the applicant called “fitting”, occurs in the hospital/clinic shortly after the implant surgery and then periodically thereafter as needed. The clinician/physician also uses the “Fitting System” to run diagnostic tests (for example, to obtain electrode and impedance waveform measurements or to check the radio-frequency link between the implant and external unit). This “Fitting System” can also be connected to a “Psychophysical Test System” to evaluate patients' performance with the Argus® II System on an ongoing basis.

These three components work together to stimulate the retina and allow a patient to perceive phosphenes (spots of light), which they then need to learn to interpret. While using the Argus® II System, the video camera on the patient-worn glasses captures a video image. The video camera signal is sent to the VPU, which processes the video camera image and transforms it into electrical stimulation patterns. The electrical stimulation data are then sent to a transmitter coil mounted on the glasses. The transmitter coil sends both data and power via radio-frequency (RF) telemetry to the implanted retinal prosthesis. The implant receives the RF commands and delivers stimulation to the retina via an array of electrodes that is secured to the retina with a retinal tack.

In patients with RP, the photoreceptor cells in the retina, which normally transduce incoming light into an electro-chemical signal, have lost most of their function. The stimulation pulses delivered to the retina via the electrode array of the Argus® II System are intended to mimic the function of these degenerated photoreceptors cells. These pulses induce cellular responses in the remaining, viable retinal nerve cells that travel through the optic nerve to the visual cortex where they are perceived as phosphenes (spots of light). Patients learn to interpret the visual patterns produced by these phosphenes.

With respect to the newness criterion, according to the applicant, the FDA designated the Argus® II System a Humanitarian Use Device in May 2009 (HUD designation #09-0216). The applicant submitted a Humanitarian Device Exemption (HDE) application (#H110002) to the FDA in May 2011 to obtain market approval for the Argus® II System. The HDE was referred to the Ophthalmic Devices Panel of the FDA's Medical Devices Advisory Committee for review and recommendation. At the Panel's meeting held on September 28, 2012, the Panel voted 19 to 0 that the probable benefits of the Argus® II System outweigh the risks of the system for the proposed indication for use. The applicant received the HDE approval from the FDA on February 14, 2013. Currently there are no other approved treatments for patients with severe to profound RP. The Argus® II System has an IDE number of G050001 and is a Class III device. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50580 through 50583), we approved new ICD-9-CM procedure code 14.81 (Implantation of Epiretinal Visual Prosthesis), which uniquely identifies the Argus® II System. The other two codes approved by CMS are for removal, revision, or replacement of the device. More information on these codes can be found on the CMS Web site at: http://cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2013-03-05-MeetingMaterials.html.

After evaluation of the new technology add-on payment application and consideration of public comments received, we concluded that the Argus® II System met all of the new technology add-on payment policy criteria. Therefore, we approved the Argus® II System for new technology add-on payments in FY 2014 (78 FR 50580 through 50583). Cases involving the Argus® II System that are eligible for new technology add-on payments are identified by ICD-9-CM procedure code 14.81. We note that section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services or technologies under the payment system established under that subsection, which establishes the system for paying for the operating costs of inpatient hospital services. The system of payment for capital costs is established under section 1886(g) of the Act, which makes no mention of any add-on payments for a new medical service or technology. Therefore, it is not appropriate to include capital costs in the add-on payments for a new medical service or technology. In the application, the applicant provided a breakdown of the costs of the Argus® II System. The total operating cost of the Argus® II System is $144,057.50. Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case involving the Argus® II System for FY 2014 is $72,028.75.

As stated above, the new technology add-on payment regulations provide that a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology (§ 412.87(b)(2)). With regard to the newness criterion for the Argus® II System, as stated above, we consider the beginning of the newness period to commence when the Argus® II System was approved by the FDA on February 14, 2013. Because the Argus® II System is still within the 3-year newness period, we proposed to continue new technology add-on payments for this technology for FY 2015.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on this proposal.

Comment: Several commenters supported the proposal to continue new technology add-on payments for the Argus® II System for FY 2015. Some commenters noted that, while the Argus® II System received FDA approval on February 14, 2013, it was not available on the U.S. market until December 20, 2013. The commenters explained that as part of this lengthy process, the manufacturer first had to submit a request to the Federal Communications Commission (FCC) for a waiver of section 15.209(a) of the FCC rules to allow the manufacturer to then apply for FCC authorization to utilize this specific RF band. The FCC granted the request for a waiver of the rules on November 30, 2011. After receiving the FCC waiver of section 15.209(a), the manufacturer was required to obtain a Grant of Equipment Authorization to utilize the specific RF band, which the FCC issued on December 20, 2013. Therefore, the commenters stated that the date the Argus® II System first became available for commercial sale in the United States was December 20, 2013.

Response: We appreciate the commenters' input and support. We agree with the commenters that due to the delay described above, the date of newness for the Argus® II System is now December 20, 2013, instead of February 14, 2013. Because the 3-year anniversary date for the Argus® II System will occur in the first half of FY 2017 (December 20, 2016), we are finalizing our proposal to continue to make new technology add-on payments for the Argus® II System for FY 2015.

f. Zilver® PTX® Drug Eluting Peripheral Stent

Cook® Medical submitted an application for new technology add-on payments for the Zilver® PTX® Drug Eluting Peripheral Stent (Zilver® PTX®) for FY 2014. The Zilver® PTX® is intended for use in the treatment of peripheral artery disease (PAD) of the above-the-knee femoropopliteal arteries (superficial femoral arteries). According to the applicant, the stent is percutaneously inserted into the artery(s), usually by accessing the common femoral artery in the groin. The applicant stated that an introducer catheter is inserted over the wire guide and into the target vessel where the lesion will first be treated with an angioplasty balloon to prepare the vessel for stenting. The applicant indicated that the stent is self-expanding, made of nitinol (nickel titanium), and is coated with the drug Paclitaxel. Paclitaxel is a drug approved for use as an anticancer agent and for use with coronary stents to reduce the risk of renarrowing of the coronary arteries after stenting procedures.

The applicant received FDA approval on November 15, 2012, for the Zilver® PTX®. The applicant maintains that the Zilver® PTX® is the first drug-eluting stent used for superficial femoral arteries. The technology is currently described by ICD-9-CM procedure code 00.60 (Insertion of drug-eluting stent(s) of the superficial femoral artery).

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50583 through 50585), after evaluation of the new technology add-on payment application and consideration of the public comments received, we approved the Zilver® PTX® for new technology add-on payments in FY 2014. Cases involving the Zilver® PTX® that are eligible for new technology add-on payments are identified by ICD-9-CM procedure code 00.60. As explained in the FY 2014 IPPS/LTCH PPS final rule, to determine the amount of Zilver® PTX® stents per case, instead of using the amount of stents used per case based on the ICD-9-CM codes, the applicant used an average of 1.9 stents per case based on the Zilver® PTX® Global Registry Clinical Study. The applicant stated in its application that the anticipated cost per stent is approximately $1,795. Therefore, cases of the Zilver® PTX® would incur an average cost per case of $3,410.50 ($1,795 × 1.9). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case of the Zilver® PTX® is $1,705.25 for FY 2014.

As stated above, the new technology add-on payment regulations provide that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology” (§ 412.87(b)(2)). With regard to the newness criterion for the Zilver® PTX®, as stated above, we consider the beginning of the newness period to commence when the Zilver® PTX® was approved by the FDA on November 15, 2012. Because the Zilver® PTX® is still within the 3-year newness period, we proposed to continue new technology add-on payments for this technology for FY 2015.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on this proposal.

Comment: Several commenters supported the proposal to continue new technology add-on payments for the Zilver® PTX® for FY 2015.

Response: We appreciate the commenters' support. Because the 3-year anniversary date for the Zilver® PTX® will occur in the first half of FY 2016 (November 12, 2015), we are finalizing our proposal to continue to make new technology add-on payments for the Zilver® PTX® FY 2015.

4. FY 2015 Applications for New Technology Add-On Payments

We received seven applications for new technology add-on payments for FY 2015, three of which were applications resubmitted from FY 2014. However, one applicant withdrew its application prior to the publication of the proposed rule. In addition, the applicant for the Watchman® System withdrew its application prior to the publication of this final rule. In accordance with the regulations under § 412.87(c), applicants for new technology add-on payments must have FDA approval by July 1 of each year prior to the beginning of the fiscal year that the application is being considered. A discussion of the five remaining applications is presented below.

Comment: One commenter stated that CMS was critical of evidence presented by the applicants to support their claims that the new technology represents a substantial clinical improvement. The commenter explained that CMS finds fault with peer-reviewed literature, registry data, meta-analysis of clinical trials, lack of long-term outcome data, age of clinical trial participants below the age of Medicare beneficiaries, single arm studies, non-inferiority studies, and weak primary efficacy results. The commenter urged CMS to avoid blanket judgments on what types of evidence are considered adequate and to carefully consider the totality of the circumstances associated with a particular product. The applicant concluded that, given the list of evidence cited by CMS, it would appear that only head to head trials are sufficient to show substantial clinical improvement over standard of care, but it is important to note that in the case of first in class products, such trials are not feasible.

Another commenter shared similar concerns and stated that a study may be designed to measure noninferiority when compared to conventional treatment, but the results of the study may demonstrate superiority in terms of other measures, such as reduced pain, decreased recovery time or shorter hospitalizations. In addition, the commenter stated that study data that provide information regarding patient outcomes may be more important than whether the study was designed as a superiority trial or a noninferiority trial. The commenter concluded that a policy to require superiority studies, or at least to question noninferiority studies, could have negative results, including delaying patient access to innovative treatments, improved care outcomes, curtailing innovation, and discouraging competition. The commenter stated that CMS should give great weight to the totality of the evidence, including non-inferiority studies and other methodological approaches, as it considers approval of applications for new technology add-on payments.

Some commenters stated that CMS has a precedent of accepting noninferiority studies to evaluate technologies under the substantial clinical improvement criterion. In particular, these commenters indicated that CMS approved new technology add-on payments for Fidaxomicin in FY 2013 (77 FR 53350-53358) and Kcentra^TM in FY 2014 (78 FR 50575-50580) and that both of these technologies submitted data from clinical trials demonstrating non-inferiority. One commenter stated that CMS' approval of Fidaxomicin for new technology add-on payments establishes a precedent for approval for a technology that shows non-inferiority for a primary end point in addition to the acceptance of other clinically important secondary analysis, and that precedent should be used to approve all technologies. Another commenter stated that CMS' approval of Kcentra^TM for new technology add-on payments is an example of how a technology can use data from randomized controlled trials demonstrating noninferiority to show that the technology represents a substantial clinical improvement.

One commenter stated that non-inferiority trials are a well-established and appropriately accepted standard, and noninferiority designs are the only affordable and ethical option for drug developers in researching acute bacterial skin and skin structure infections. The commenter also stated that primary focus for developing new agents targeted for acute bacterial skin and skin structure infection patients is not to improve clinical cure rates, but to “enhance the efficiency and cost effectiveness of achieving clinical cures, ease therapeutic administration (and, therefore, improve compliance) and limit avoidable exposure to healthcare acquired infections (which, when they occur, significantly increase costs and create patient safety risks).” The commenter urged CMS to clarify that it has not suggested or proposed to adopt a blanket judgment approach against technologies studied on a noninferiority basis.

Response: We appreciate the commenters' input and support. CMS always considers the totality of the clinical evidence whenever it makes a substantial clinical improvement determination. We agree with the commenters that we approved new technology add-on payments for Fidaxomicin and Kcentra^TM by determining that both of these technologies not only met the newness and cost criteria for new technology add-on payments, but also represented a substantial clinical improvement in the treatment options available for Medicare beneficiaries. We also appreciate that the commenter reviewed the policies we established in FY 2002 (66 FR 46902) with regard to the substantial clinical improvement criterion and clarified in FY 2008 (72 FR 47301). We continue to believe, as we did in FY 2008, that it is a reasonable concern that establishing specific data standards may make it more difficult for an applicant to qualify for a new technology add-on payment because such standards cannot account for the various types of new technologies that may become available in the future and the types of requirements that those novel technologies may or may not be able to meet. In other words, we clarify that we did not propose to establish nor are we establishing a blanket judgment approach against technologies studied on a non-inferiority basis. As we stated in the final rule that appeared in the Federal Register on September 7, 2001 (referred to hereinafter as the Inpatient New Technology Add-on Payment Final Rule), one of the ways to determine if a technology meets the substantial clinical improvement criterion is for the applicant to demonstrate that use of the technology significantly improves clinical outcomes for a patient population as compared with currently available treatments (66 FR 46914). In that rule, we finalized the policy that we would require applicants to submit evidence to demonstrate this. For the purposes of seeking additional payment from Medicare under the IPPS, we believe that it is preferable, when possible, for applicants to submit evidence that demonstrates superiority of the applicant technology as compared with currently available treatments. We note that this superiority can be derived, extrapolated, or inferred from noninferiority studies in which the results demonstrate a far greater delta than proposed in the power analysis. This belief is based on earlier experiences, which we described in the FY 2002 final rule: “[W]e would point out that various new technologies introduced over the years have been demonstrated to have been less effective than initially thought, or in some cases even potentially harmful. We believe it is in the best interest of Medicare beneficiaries to proceed very carefully with respect to the incentives created to quickly adopt new technology” (66 FR 46913). However, we point out that in that same rule, we provide two additional ways for an applicant technology to demonstrate substantial clinical improvement: if the device offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments; or if the device offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods. There must also be evidence that the use of the device to make a diagnosis affects the management of the patient's care. (We refer readers to the Inpatient New Technology Add-on Payment Final Rule (66 FR 46914).) Similarly, for these two additional ways to meet the substantial clinical improvement criterion, we continue to believe that it is appropriate to require that applicants submit evidence that the technology in fact meets the criterion through one of these two ways. We do not require an applicant to meet the criterion in more than one of these ways, but emphasize that we require evidence to support an applicant's claim. If an applicant chooses to demonstrate that use of its technology significantly improves clinical outcomes, we believe that it is appropriate for CMS to consider all of the evidence presented in determining whether there is sufficient objective clinical evidence to determine if a new technology meets the substantial clinical improvement criterion.

a. Dalbavancin (Durata Therapeutics, Inc.)

Durata Therapeutics, Inc. submitted an application for new technology add-on payments for FY 2015 for the use of Dalbavancin. Dalbavancin is an intravenous (IV) lipoglycopeptide antibiotic administered as a once-weekly 30-minute infusion via a peripheral line for the treatment of patients with acute bacterial skin and skin structure infections, or ABSSSI. According to the applicant, Dalbavancin's unique pharmacokinetic profile demonstrates rapid bactericidal activity that is potent and sustained against serious gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA).

With respect to the newness criterion, the applicant stated that Dalbavancin's once-weekly dosing, a simpler regimen than the current standard of care (Vancomycin) of daily or multiple-times daily intravenous dosing, allows for the discontinuation of IV access with its attendant risks of line-related thrombosis and infection. The applicant submitted a New Drug Approval Application (NDA) on September 26, 2013, and as stated in the FY 2015 IPPS/LTCH PPS proposed rule, anticipated FDA approval of Dalbavancin sometime in May of 2014. The applicant also applied for a new ICD-10-PCS code to describe the administration of Dalbavancin, which was presented at the March 19-20, 2014 ICD-10 Coordination and Maintenance Committee meeting. To date, no ICD-10-PCS code specifically describes the administration of Dalbavancin. However, if approved, the new ICD-10-PCS code will be effective on October 1, 2014. We also note in section II.G. of the preamble of this final rule that, per section 212 of the PAMA (Pub. L. 113-93), the Secretary announced plans to establish a new compliance date for ICD-10. We also discuss in that section the requests for ICD-10-PCS codes for FY 2015. We refer readers to section II.G. of the preamble of this final rule for a complete discussion of these issues.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether the technology meets the newness criterion. However, we did not receive any public comments regarding whether the technology meets the newness criterion. After the publication of the FY 2015 IPPS/LTCH PPS proposed rule, we were informed that the applicant received FDA approval for the use of the technology on May 23, 2014. Therefore, for purposes of consideration for FY 2015 IPPS new technology add-on payments, we believe that the technology should be considered “new” as of May 23, 2014, when the technology received FDA approval.

We note that in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 through 43814), we established criteria for evaluating whether a new technology is substantially similar to an existing technology, specifically: (1) whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome; (2) whether a product is assigned to the same or a different MS-DRG; and (3) whether the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population. If a technology meets all three of the criteria above, it would be considered substantially similar to an existing technology and would not be considered “new” for purposes of new technology add-on payments.

In evaluating the first criterion, the applicant stated that Dalbavancin's mechanism of action is unique compared to other antibiotics as it involves the interruption of cell wall synthesis resulting in bacterial cell death. Furthermore, the applicant cited Dalbavancin's long half-life as the factor that differentiates itself from existing antibacterial agents active against MRSA. With respect to the second criterion, as we stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28036), we believe that cases of ABSSSI that use Dalbavancin or other antibiotics for treatment would be assigned to the same MS-DRGs. Finally, with respect to the third criterion, we believe that Dalbavancin and other antibiotics used to treat cases of ABSSSI treat the same disease and patient population. Based on evaluation of the substantially similarity criteria, we stated in the FY 2015 IPPS/LTCH PPS proposed rule, it appears that Dalbavancin is not substantially similar to other antibiotics for the treatment of ABSSSI because it does not use the same or a similar mechanism of action to achieve a therapeutic outcome.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments regarding whether Dalbavancin is substantially similar to existing antibiotics and whether Dalbavancin meets the newness criterion. However, we did not receive any public comments discussing whether Dalbavancin is substantially similar to existing antibiotics in the context of the newness criterion. After further evaluation of the new technology add-on payment application, we believe that Dalbavancin is not substantially similar to other antibiotics for the treatment of ABSSSI because it does not use the same or a similar mechanism of action to achieve a therapeutic outcome.

According to the applicant, Dalbavancin is indicated to treat gram-positive ABSSSIs, such as cellulitis or erysipelas, and MRSA. These conditions may be a primary diagnosis, but are often secondary to an underlying condition such as diabetes, heart failure, and pressure ulcers, among others. Therefore, the technology is eligible to be used across all MS-DRGs. To demonstrate that it meets the cost criterion, the applicant searched the FY 2012 MedPAR file (across all MS-DRGs) for cases where at least one ABSSSI ICD-9-CM code was present on the claim, including those where MRSA was present on a claim with an ABSSSI diagnosis. Specifically, the applicant searched for cases with one of the following diagnosis codes: 035 (Erysipelas); 681.00 (Cellulitis and abscess of finger, unspecified); 681.01 (Felon); 681.02 (Onychia and paronychia of finger); 681.10 (Cellulitis and abscess of toe, unspecified); 681.11 (Onychia and paronychia of toe); 681.9 (Cellulitis and abscess of unspecified digit); 682.0-682.9 (Other cellulitis and abscess of face, neck, trunk, upper arm and forearm, hand except fingers and thumb, buttock, leg except foot, foot except toes, specified sites, unspecified sites); 686.00 (Pyoderma, unspecified); 686.01 (Pyoderma gangrenosum); 686.09 (Other pyoderma); 686.1 (Pyogenic granuloma of skin and subcutaneous tissue); 686.8 (Other specified local infections of skin and subcutaneous tissue); 686.9 (Unspecified local infection of skin and subcutaneous tissue); 958.3 (Posttraumatic wound infection not elsewhere classified); 998.51 (Infected postoperative seroma); and 998.59 (Other postoperative infection). The applicant believed that these cases represent potential cases eligible for the administration of Dalbavancin.

The applicant found 570,698 cases across 682 MS-DRGs and noted that almost 25 percent of the total number of cases would map to MS-DRGs 603 (Cellulitis without MCC), while the top 10 MS-DRGs accounted for almost half (or 49 percent) of the total number of cases. Of the 682 MS-DRGs, only 90 of these MS-DRGs accounted for 1,000 cases or more. The applicant standardized the charges for all 570,698 cases, which equated to an average case-weighted standardized charge per case of $46,138. We note that the applicant did not inflate the charges nor did it include charges for Dalbavancin in the average case-weighted standardized charge per case. The applicant calculated an average case-weighted threshold of $44,255 across all MS-DRGs. Therefore, the applicant asserted the average case-weighted standardized charge per case (without inflating and including charges for Dalbavancin) exceeds the average case-weighted threshold of $44,255 (as indicated in Table 10 of the FY 2014 IPPS/LTCH PPS final rule). Therefore, the applicant maintained that Dalbavancin meets the cost criterion.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments regarding whether Dalbavancin meets the cost criterion, particularly with regard to the assumptions and methodology used in the applicant's analysis.

Comment: The applicant submitted a public comment maintaining that Dalbavancin meets the cost criterion requirement because the cost of the target cases exceeds the average case-weighted cost threshold requirement prior to accounting for an inflation factor, or including the costs of Dalbavancin. The applicant further stated that it also included the “costs of Dalbavancin in its analysis to further demonstrate that Dalbavancin exceeds the established NTAP cost threshold.”

Response: We appreciate the applicant's response. We reviewed the applicant's analysis. We note that, while the applicant's analysis included the charges associated with Dalbavancin in their final cost estimate, the applicant did not remove the charges for the current therapy for treating acute bacterial skin and skin structure infections. We agree that the applicant's analysis using data from all 570,698 cases across 682 MS-DRGs showed that Dalbavancin exceeds the average case-weighted threshold prior to the inclusion of inflation factors and charges associated with Dalbavancin.

We note that it is unclear to what degree Dalbavancin would be used in each of these cases across the specific MS-DRGs, in part, because a procedure code has not been established to identify the technology's use in the claims data. Therefore, we reviewed the additional analyses using the claims data submitted by the applicant to substantiate that the technology meets the cost criterion. For example, in the data submitted by the applicant, the top 10 MS-DRGs ranked by case volume constitute roughly half of the cases with at least one ICD-9-CM code associated with acute bacterial skin infections. These 10 MS-DRGs include: MS-DRG 0603 (Cellulitics Without MCC); MS-DRG 0602 (Cellulitics With MCC); MS-DRG 0871 (Septicemia or Severe Sepsis Without MV 96+ Hours With MCC); MS-DRG 0863 (Postoperative & Post-Traumatic Infections Without MCC); MS-DRG 0872 (Septicemia or Severe Sepsis Without MV 96+ Hours Without MCC); MS-DRG 0300 (Peripheral Vascular Disorders With CC); MS-DRG 0292 (Heart Failure & Shock with CC); MS-DRG 0862 (Postoperative & Post-Traumatic Infections With MCC); MS-DRG 0857 (Postoperative or Post-Traumatic Infections With O.R. Procedure With CC); and MS-DRG 0853 (Infectious and Parasitic Diseases With O.R. Procedure With MCC). An average case-weighted threshold and standardized charges could be calculated using these MS-DRGs and compared to determine if the standardized charges exceed the average case-weighted threshold for these top 10 MS-DRGs.

In summary, we agree with the applicant that the technology meets the cost criterion.

With regard to substantial clinical improvement, as previously stated by the applicant, Dalbavancin is a new intravenous (IV) lipoglycopeptide antibiotic administered as a once-weekly 30 minute infusion via a peripheral line for the treatment of patients with acute bacterial skin and skin structure infections, or ABSSSI. The applicant noted that, in the setting of continuing emergence of resistance among gram-positive pathogens worldwide, there is an increasing medical need for new antibacterial agents with enhanced gram-positive activity. The applicant cited the Infectious Diseases Society of America (IDSA), stating the need for a multi-pronged approach to address the impact of antibiotic resistance. In addition, the applicant stated the FDA has also designated MRSA as a pathogen of special interest which allows an antibiotic effective against this organism to be designated as a “Qualified Infectious Disease Product,” recognizing the medical need for drugs to treat infections caused by this pathogen. The applicant believed that having a medicinal agent with clinical efficacy against gram-positive pathogens, including MRSA and CA-MRSA, a favorable benefit/risk ratio, and a favorable pharmacokinetics profile allowing convenient dosing in inpatients and outpatients with the potential for minimizing patient noncompliance would be a valuable addition to the antibacterial armamentarium for the treatment of ABSSSI. The applicant also noted that, when taking Dalbavancin, there is no need for oral step-down therapy.

The applicant suggested that Dalbavancin offers treatment advantages over other available options for therapy for skin infections as a result of the following:

• Improved potency against key bacterial pathogens with the concentration of Dalbavancin required to kill key target pathogens lower relative to other antibiotics commonly used to treat such pathogens;
• Retained activity against staphylococcus aureus resistant to other antibiotics;
• Improved safety profile as Dalbavancin exhibits more favorable tolerability and safety than alternative approved antibacterial drugs in areas such as no evidence of thrombocytopenia as seen with linezolid and tedezolid, superior infusion related tolerability relative to other antibiotics, an absence or reduction of drug specific toxicities, and once a week dosing of IV Dalbavancin avoids pitfalls of patient noncompliance with an oral medication;
• Lack of drug interactions due to metabolic profile which minimizes risk of unexpected adverse events when co-administered with other compounds as seen with linezolid and quinupristin/dalfopristin;
• Decreased requirement for therapeutic interventions, specifically the need for an intravenous catheter as Dalbavancin is administered once a week, thus reducing catheter related infection as well;
• Reduced time to patient defined recovery;
• Reduced mortality rate as demonstrated in the combined phase of the Discover 1 and Discover 2 clinical trials;
• The potential for avoidance of admission to the hospital as Dalbavancin allows the utilization of a weekly treatment regimen, thus potentially increasing the convenience of outpatient therapy for patients.

The applicant conducted three phase three randomized, controlled, double blinded clinical trials. The first was the pivotal VER001-9 study with a total of 873 patients with ABSSSIs, which compared the safety and efficacy of IV Dalbavancin with possible switch to oral placebo to IV Linezolid with possible switch to oral Linezolid. According to the applicant, the primary efficacy endpoint of clinical response at test of 14 days with a plus or minus of 2 days after completion of therapy demonstrated comparable clinical efficacy to linezolid and met the requirement of statistical demonstration of non-inferiority. In the clinically evaluable population, 88.9 percent of patients who received Dalbavancin compared to 91.2 percent of patients who received vancomycin/linezolid were clinical successes. The applicant also noted that Dalbavancin had an improved safety profile compared to Linezolid as the overall incidence and percentage of adverse events and deaths were lower in the Dalbavancin group, which was statistically significant.

The second and third clinical trials were the Discover 1 and Discover 2 trials, which enrolled a total of 1,312 patients with ABSSSI and compared IV Dalbavancin with IV placebo every 12 hours to match Vancomycin with possible switch to oral Vancomycin to IV Vancomycin with IV placebo to match IV Dalbavancin with possible switch to oral Linezolid. The applicant reported that in both studies, the primary efficacy outcome measure was clinical response in 48 to 72 hours post-study drug initiation and a secondary outcome measure was clinical status at the end of treatment visit (day 14) in the Intent to Treat (ITT) and clinically evaluable at End of Treatment populations. Clinical status was also determined at the short-term follow-up and long-term follow-up visits.

According to the applicant, the Discover 1 trial demonstrated that 83.3 percent of patients in the ITT population who received Dalbavancin were responders at 48 to 72 hours after the start of therapy compared to 81.8 percent of patients who received Vancomycin/Linezolid. The applicant also noted that Dalbavancin was non-inferior to Vancomycin/Linezolid (Absolute Difference in Success Rates (95 percent confidence interval): −4.6 percent; 7.9 percent).

The applicant further noted that the Discover 2 trial showed similar results to the Discover 1 trial. Specifically, the trial demonstrated that 76.8 percent of patients in the ITT population who received Dalbavancin were responders at 48 to 72 hours after the start of therapy compared to 78.3 percent of patients who received Vancomycin/Linezolid. The applicant again noted that Dalbavancin was non-inferior to Vancomycin/Linezolid (Absolute Difference in Success Rates (95 percent confidence interval): −7.4 percent; 4.6 percent).

The applicant found Dalbavancin to be effective against MRSA and other gram-positive bacteria associated with ABSSSI. The applicant stated that 25 percent of patients in the study were treated without an inpatient admission.

We stated in the FY 2015 IPPS/LTCH PPS proposed rule that we are concerned with the details of the trial design and the primary efficacy endpoints used within those trials that were used to provide the clinical data supplied by the applicant. All of the trials were noninferiority studies, which prevent any determination as to substantial clinical improvement from the trial data. The primary efficacy endpoint was defined as having no increase in lesion size, and no fever 48 to 72 hours after drug initiation. The secondary endpoint was a >20 percent reduction in infection area at defined points in time. At neither endpoint is the patient oriented endpoint of resolution of infection increased. With these limitations in using efficacy data to establish substantial clinical improvement, the applicant suggested that the outpatient treatment, elimination of central lines and avoidance of hospitalization all may improve safety, avoid treatment-associated infections and improve patient satisfaction, and that these factors demonstrate substantial clinical improvement. While the factors mentioned may be true, the applicant did not present any evidence to support its assertions.

We invited public comments on whether Dalbavancin meets the substantial clinical improvement criterion, including public comments in response to our concern that the applicant has only provided efficacy data of noninferiority, and no data for the other suggested benefits.

Comment: Several commenters stated that Dalbavancin meets the substantial clinical improvement criteria and, therefore, CMS should approve the application for new technology add-on payments in FY 2015.

Response: We appreciate the commenters' input. We considered these public comments in our determination of whether this technology represents a substantial clinical improvement in the treatment options currently available to Medicare beneficiaries.

Comment: As previously summarized, some of the commenters stated that CMS has a precedent of accepting noninferiority studies to evaluate technologies under the substantial clinical improvement criterion. In particular, these commenters indicated that CMS approved new technology add-on payments for Fidaxomicin in FY 2013 (77 FR 53350 through 53358) and Kcentra^TM in FY 2014 (78 FR 50575 through 50580), and both of these technologies submitted data from clinical trials demonstrating non-inferiority. One commenter stated that CMS' approval of Fidaxomicin for new technology add-on payments establishes a precedent for approval for a technology that shows noninferiority for a primary end point in addition to the acceptance of other clinically important secondary analysis. The commenters believed that precedent should be used to approve the application for new technology add-on payments for Dalbavancin. Another commenter stated that CMS' approval of Kcentra^TM for new technology add-on payments is an example of how a technology can use data from randomized controlled trials demonstrating noninferiority to show that technology represents a substantial clinical improvement.

The applicant also provided additional data from its clinical trials on the degree to which patients who were improving were permitted to stop their treatment after 10 days. The data showed that patients randomized to Dalbavancin were more likely to stop therapy at 10 days, and less likely to continue treatment through 14 days. The applicant stated that by day 10 most patients were being treated on an outpatient basis on oral therapy (either with an oral placebo or oral linezolid), and that treatment was discontinued at the patient's discretion. The applicant further stated that “the implication of this finding is that, from the patient's perspective, resolution of the underlying infection was occurring more rapidly for those randomized to Dalbavancin.”

Response: We refer readers to section II.I.4. of the preamble of this final rule for our detailed response to commenters' concerns regarding noninferiority trials.

We believe that our preliminary assessment (and final determination described later in this section) with regard to Dalbavancin is consistent with prior determinations made with regard to other approved technologies, including the two technologies identified by the commenters, Fidaxomicin and Kcentra^TM. With regard to Fidaxomicin, we note that we stated that we believed that it represented a treatment option with the potential to decrease utilization, reduce the recurrence of clostridium-difficile associated disease (CDAD), and improve quality of life. We also note that we considered the information the applicant provided with regard to the endpoints in its clinical trial, which as the commenters point out, were indeed to demonstrate that the effects of administering Fidaxomicin were non-inferior to administering Vancomycin. (We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53357 through 53358).) Similarly, with regard to Kcentra^TM, we note that we stated that we believed that it provided a rapid beneficial resolution of the patient's blood clotting factor deficiency, decreases the risk of exposure to blood borne pathogens, and reduces the rate of transfusion-associated complications. These conclusions also were based on information the applicant provided with regard to the endpoints in its clinical trial. (We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50578 through 50579).) However, we note that in their clinical trials, these applicants were able to show a wider margin of difference between the treatment and control groups. The small margin of difference between the groups in this study leads us to conclude that any additional analysis of the trial data would be unlikely to demonstrate superiority of the treatment group.

With regard to the additional data the applicant provided regarding days of therapy, it is our understanding that most patients in both groups were on oral therapy by day 10 and that patients in both groups were allowed to discontinue their therapy at their discretion. The treatment group was more likely to discontinue use of Dalbavancin by day 10. We believe that it is difficult to assess the degree to which this implied that resolution of the underlying infection was occurring more rapidly, or would meet our definition of substantial clinical improvement. However, in light of the data from the applicant's non-inferiority trial, which did not show a wide margin of difference between the treatment and control groups, we do not believe that this is sufficient objective evidence to determine that Dalbavancin is a substantial clinical improvement in the treatment options available for Medicare beneficiaries.

Comment: Many commenters described how they believed that Dalbavancin's administration would improve patient safety and reduce adverse events, improve medication compliance, and reduce potential additional health care utilization.

With regard to patient safety and adverse events, many commenters asserted that using Dalbavancin does not require an indwelling IV access, unlike treatments using Vancomycin and, therefore, it is self-evident that the potential for catheter-associated infections is eliminated. Some of these commenters emphasized the importance of reducing catheter-associated infections, and noted that Dalbavancin could help achieve this goal.

In addition, with regard to patient safety and adverse events, the applicant provided references discussing the frequency of central venous catheter complications nationally. The applicant also provided data from their pivotal clinical trial showing the number and proportion of patients who died and those with adverse events, including drug-related adverse events and treatment-related serious adverse events. The applicant asserted that the data showed that fewer patients randomized to Dalbavancin died relative to the standard of care, showing that one patient (0.2 percent) treated with Dalbavancin died while 7 patients (1.1 percent) treated with Vancomycin/Linezolid died. Notably, while these data showed with a p value of 0.05 that 33 percent of patients treated with Dalbavancin had an adverse event compared to 38 percent of patients treated with Vancomycin or Linezolid, the data also showed that it was difficult to distinguish between the two groups in terms of drug-related adverse events and treatment-related serious adverse event. The data showed that 12 percent of patients treated with Dalbavancin experienced a drug-related adverse event compared to 14 percent of patients treated with Vancomycin/Linezolid with a p value of 0.45. The data also showed that 0.3 percent of patients treated with Dalbavancin experienced a treatment-related serious adverse event compared to 0.6 percent of patients treated with Vancomycin/Linezolid with a p value of 0.41. In addition to these data, the applicant also presented data collected in their clinical program that compared the infusion-related adverse events of patients receiving Dalbavancin to those of patients receiving commonly used alternative agents. These data showed that 2.2 percent of patients treated with Dalbavancin experienced an infusion-related adverse event, while 3.1 of comparator agent patients experienced an infusion-related adverse event.

One commenter, having reviewed the applicant's clinical trial data, concluded that while the safety profile to date of Dalbavancin appears similar to Vancomycin, the ultimate determination of safety must await broader clinical use. The commenter noted that future clinical trials are needed to define the safety profile of Dalbavancin.

Response: We appreciate commenters' input and the additional data submitted by the applicant.

We disagree with commenters that it is self-evident that the technology eliminates the potential for catheter-associated infections, particularly with respect to indwelling catheters. It is not clear if these patients already would have had indwelling catheters in place, whether for antibiotic administration or other purposes. Therefore, it is not evident that simply having the option of an antibiotic that does not require an indwelling catheter would eliminate the potential for catheter-associated infections. We agree with the commenters that the administration of Dalbavancin could reduce the potential for these infections in patients that otherwise would not have an indwelling catheter, but note that it was not possible to discern the degree to which this potential reduction occurs based on the data and comments provided.

As previously stated, we appreciate the applicant's submission of additional data from its trials regarding safety and adverse events. We agree with the applicant that Dalbavancin appears to be associated with fewer infusion-associated adverse events and patient deaths relative to the comparator group. We note that the applicant's data showed that drug-related and treatment-related serious adverse events appeared to be less frequent for patients treated with Dalbavancin relative to the comparator group, but that it was not clear to what degree the groups actually differed because the p values were in excess of 0.4. We also agree with the commenter that stated that it would appear that more clinical use and data should be gathered to more fully develop Dalbavancin's safety profile.

Comment: Many commenters stated that they believed that Dalbavancin would improve medication compliance and reduce potential additional health care utilization. Some commenters noted that patients diagnosed with acute bacterial skin and skin structure infections are often treated as inpatients. One commenter noted that the rate of these skin and skin structure infections are higher than they have ever historically been. One commenter described these hospitalizations as unnecessary. Another commenter stated that while Dalbavancin is not more efficacious than Vancomycin, it is easier to administer. The commenter concluded that Dalbavancin would make it possible to treat patients with complicated skin and skin structure infections that might otherwise require hospitalization on an outpatient basis without compromising efficacy and without the need for either laboratory monitoring or an indwelling intravenous catheter. Several commenters noted that less pharmacist monitoring time was required for the administration of Dalbavancin relative to Vancomycin. Several commenters stated that no additional data beyond the pivotal trials are needed to show that a single infusion involves fewer administrations and requires less health care resources than a course of therapy that lasts a week or more. One commenter described the importance of medication compliance in the context of treating a patient population that faces socioeconomic hardships. Specifically, the commenter noted that noncompliant patients are more likely to present to the emergency department with worsening infections and that Dalbavancin's dosing profile reduces the risk of noncompliance that is typically associated with oral therapy.

Response: We appreciate the commenters' input. We agree with the commenters that there is the possibility that Dalbavancin could make it possible for certain patients to be treated on an outpatient basis rather than as inpatients of a hospital. We further agree with commenters that there is the potential for treatment benefits for Medicare beneficiaries that would help avoid hospitalizations, including avoiding potential future iatrogenic events. However, we are concerned that neither the applicant, nor any of the commenters, provided specific information or data regarding the reduced resource use that they believe would occur. It is common that benefits from events that appear to be “self-evident,” as suggested by the commenters, prove to not be beneficial events when subjected to the rigors of a clinical trial.

After consideration of the public comments we received, we do not believe that Dalbavancin meets the substantial clinical improvement criterion to qualify the technology for new technology add-on payments under the IPPS in FY 2015. In particular, we do not believe there is sufficient objective clinical evidence to determine that Dalbavancin significantly improves clinical outcomes for Medicare beneficiaries in order for the technology to qualify for new technology add-on payments. While we recognize that Dalbavancin has met FDA standards for safety and effectiveness, the new technology add-on payment application process and approval requires a demonstration of a substantial clinical improvement, which is not inherent in the FDA's regulatory process. We recognize that the technology is the first drug designated as a Qualified Infectious Disease Product (QIDP) to receive FDA approval and was granted QIDP designation because it is an antibacterial or antifungal human drug intended to treat serious or life-threatening infections. We are equally committed to encouraging increased development and approval of new antibacterial drugs, providing physicians and patients with important new treatment options and will support this endeavor by providing payment for Dalbavancin through our prospective payment processes. However, in the case of this application, we do not believe that the technology meets the substantial clinical improvement criterion. Therefore, we are not approving new technology add-on payments for Dalbavancin for FY 2015.

b. Heli-FX^TM EndoAnchor System (Aptus Endosystems, Inc.)

The Heli-FX^TM EndoAnchor System is indicated for use in the treatment of patients whose endovascular grafts during treatment of aortic aneurysms have exhibited migrations or endoleaks, or in the treatment of patients who are at risk of such complications, and in whom augmented radial fixation and/or sealing is required to regain or maintain adequate aneurysm exclusion.

The Heli-FX^TM EndoAnchor System is comprised of the following three components: (1) The EndoAnchor Implant; (2) the Heli-FX^TM Applier; and (3) the Heli-FX^TM Guide with Obturator. The Heli-FX^TM EndoAnchor System is a mechanical fastening device that is designed to enhance the long-term durability and reduce the risk of repeat interventions in endovascular aneurysm repair (EVAR) and thoracic endovascular aneurysm repair (TEVAR). By deploying a small helical screw (the Heli-FX^TM EndoAnchors) to connect the endograft to the aorta, the Heli-FX^TM System seeks to provide a permanent seal and fixation, similar to the stability achieved with an open surgical anastomosis.

The original Heli-FX^TM EndoAnchor System, designed for treating abdominal aortic aneurysms (AAA), was cleared by the FDA through the “de novo” 510(k) process on November 21, 2011 (reference K102333). The Heli-FX^TM Thoracic System, which allows the expanded use of the Heli-FX^TM EndoAnchor System technology to the treatment of thoracic aortic aneurysms (TAA), was cleared by the FDA on August 14, 2012 (reference K121168).

The applicant submitted two applications for approval for new technology add-on payment in FY 2015: one for the treatment of AAAs and the other for the treatment of TAA repair. We note that, as stated in the Inpatient New Technology Add-on Payment Final Rule (66 FR 46915), two applications are necessary in this instance, because patients that may be eligible for use of the technology under the first indication are not expected to be assigned to the same MS-DRGs as patients receiving treatment using the new technology under the second indication. Specifically, patients who have endovascular grafts implanted for the treatment of AAA map to MS-DRGs 237 (Major Cardiovascular Procedures with MCC) and 238 (Major Cardiovascular Procedures without MCC), while patients who have endovascular grafts implanted for the treatment of TAA map to MS-DRGs 219 (Cardiac Valve and Other Major Cardiothoracic Procedure without Cardiac Catheter with MCC), 220 (Cardiac Valve and Other Major Cardiothoracic Procedure without Cardiac Catheter with CC), and 221 (Cardiac Valve and Other Major Cardiothoracic Procedure without Cardiac Catheter without CC/MCC). Each indication/application must also meet the cost criterion and the substantial clinical improvement criterion in order to be eligible for new technology add-on payments beginning in FY 2015. We discuss both of these applications below.

(1) Heli-FX^TM EndoAnchor System for the Treatment of AAA (Heli-FX^TM AAA)

As mentioned above, the original Heli-FX^TM EndoAnchor System, designed for treating patients diagnosed with AAA, was cleared by the FDA through the “de novo” 510(k) process on November 21, 2011 (reference K102333). According to the applicant, the device became available to Medicare beneficiaries following the product launch at the Society of Vascular Surgery (SVS) Annual Meeting held on June 7-9, 2012. Therefore, the applicant maintained that the Heli-FX^TM AAA meets the “newness” criterion because the technology was not available on the U.S. market until June 2012. The applicant explained that the delay in the general market availability of the original Heli-FX^TM AAA, following initial FDA clearance, was mainly because of the regulatory uncertainty inherent in the “de novo” 510(k) process. This uncertainty prevented the manufacturer from being able to secure the venture capital funding that was necessary to prepare for commercialization before obtaining market clearance. The ability to secure venture capital through the fundraising process was dependent upon the FDA clearance. According to the applicant, funding to commercially market the technology was not obtained until June 2012. In subsequent discussions with the applicant, the applicant confirmed that the Heli-FX^TM AAA was available on the U.S. market as of November 2011. Further, the applicant acknowledged that four implantations were performed on Medicare beneficiaries between November 2011 and June 2012. Therefore, the Heli-FX^TM AAA is considered “new” as of November 2011 when the technology was cleared by the FDA and became available on the U.S. market.

Section 412.87(b)(2) of the regulations state that a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology. Our past practice has been to begin and end the eligibility for new technology add-on payments on a fiscal year basis. We have generally followed a guideline that uses a 6-month window, before and after the beginning of the fiscal year, to determine whether to still consider a technology “new” and extend approved new technology add-on payments for an additional fiscal year. In general, a technology is still considered “new” (and eligible to receive new technology add-on payments) only if the 3-year anniversary date of the product's entry on the market occurs in the latter half of the fiscal year. (We refer readers to 70 FR 47362.) With regard to the newness criterion for the Heli-FX^TM AAA, as stated above, we consider the beginning of the newness period for the device to begin when the technology first became available on the U.S. market in November 2011. As previously stated, the applicant acknowledged that four implantations were performed on Medicare beneficiaries between November 2011 and June 2012. Therefore, the costs of the Heli-FX^TM AAA are currently reflected in the MS-DRGs, and the 3-year anniversary date under the newness criterion for the product's entry on the U.S. market will occur during November 2014 (the first half of FY 2015). As such, we do not believe that the Heli-FX^TM AAA meets the newness criterion.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether the Heli-FX^TM AAA meets the newness criterion. We note that the applicant requested an ICD-10-PCS code, and presented comments at the March 2014 ICD-10 Coordination & Maintenance Committee meeting. We also note in section II.G. of the preamble of this final rule that, per section 212 of the PAMA (Pub. L. 113-93), the Secretary announced plans to establish a new compliance date for ICD-10-PCS. We also discuss in that section requests for ICD-10-PCS codes for FY 2015. We refer readers to section II.G. of the preamble of this final rule for a complete discussion of these issues.

Comment: The applicant submitted a public comment in response to the concerns that CMS presented in the FY 2015 IPPS/LTCH PPS proposed rule regarding the newness criterion. The applicant noted that questions raised by CMS centered solely on whether the Heli-FX^TM AAA was charged to Medicare prior to the product launch in June 2012. Additionally, the applicant asserted that CMS did not reference the relevance of the April 1 date for purposes of determining whether a technology meets the newness criterion.

Based on CMS' concerns presented in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28039), the applicant conducted another review of the data previously provided to CMS. As previously submitted, there were four cases where the applicant was able to determine that the Heli-FX AAA was implanted in Medicare beneficiaries, and where charges were submitted to Medicare, prior to the product launch. These procedures occurred on April 24, 2012, May 7, 2012, May 23, 2012, and June 4, 2012. The applicant stated that because all of these cases were completed after April 1, 2012, it believes that the Heli-FX^TM AAA meets the newness criterion for FY2015.

Response: In a further follow-up discussion to clarify the availability of the Heli-FX^TM AAA, the applicant's representatives noted that, although not in large quantities, the Heli-FX AAA was available to patients prior to April 1, 2012. We appreciate the information the applicant provided regarding the newness criterion. As we explained in the FY 2015 IPPS/LTCH PPS proposed rule, in general, a new technology is still considered “new” (and eligible to receive new technology add-on payments) only if the 3-year anniversary date of the product's entry on the market occurs in the latter half of the fiscal year. Although the applicant has stated that the initial four implantations were after April 1, 2012, the technology was still available prior to April 1, 2012. Therefore, we still consider the beginning of the newness period for the device to begin when the technology first became available on the U.S. market in November 2011, which is prior to April 1, 2012. As stated in the FY 2015 IPPS/LTCH PPS proposed rule, the 3-year anniversary date under the newness criterion for the product's entry on the U.S. market will occur during November 2014 (the first half of FY 2015). As such, the Heli-FX^TM AAA does not meet the newness criterion and, therefore, is not eligible for new technology add-on payments for FY 2015.

To demonstrate that the technology meets the cost criterion, the applicant researched claims data from the 100 percent sample of the 2012 Inpatient Hospital Standard Analytical File (SAF) for cases reporting either procedure code 39.71 (Endovascular implantation of other graft in abdominal aorta), or procedure code 39.79 (Other endovascular procedures on other vessels) in the first or second procedure position on the claim, in combination with one of the following primary diagnosis codes: 441.4 (Abdominal aneurysm without mention of rupture); 996.1 (Mechanical complication of other vascular device, implant, and graft); or 996.74 (Other complications due to other vascular device, implant, and graft). The applicant believed that this combination of ICD-9-CM codes identifies cases treated for AAA. We note that the 2012 SAF dataset includes all claims submitted from hospitals paid under the IPPS for calendar year 2012.

The applicant focused its analysis on MS-DRGs 237 and 238 because these are the MS-DRGs that cases treated with the implantation of endovascular grafts for AAAs would most likely map to. The applicant found a total of 8,142 cases, and noted that 9.35 percent of the total number of cases would map to MS-DRG 237, and 90.65 percent of the total number of cases would map to MS-DRG 238. The applicant standardized the charges for all 8,142 cases. Using the inflation factor of 1.47329 published in the FY 2014 IPPS/LTCH final rule (78 FR 50982), the applicant inflated the standardized charges by 14.88 percent (the applicant multiplied 1.47329 × 1.47329 × 1.47329 in order to inflate the charges from 2012 to 2015). The applicant then added the charges for the Heli-FX^TM AAA to the standardized charges by dividing the cost of the Heli-FX^TM AAA device by each individual hospital specific CCR from the FY 2012 impact file. This equated to an average case-weighted inflated standardized charge per case of $111,613. The applicant noted that the average case-weighted inflated standardized charge per case did not contain additional operating room charges that relate to the Heli-FX^TM AAA. Therefore, the applicant determined that it was necessary to add an additional $1,440 for operating room charges, which was based on an additional half hour of operating room time from one hospital, to the average case-weighted standardized charge per case. This resulted in an average case-weighted standardized charge per case of $113,053. The applicant calculated an average case-weighted threshold of $86,278 across both MS-DRGs 237 and 238. The applicant noted that the average case-weighted standardized charge per case, computed without including the additional operating room charges that relate to the Heli-FX^TM AAA, exceeded the average case-weighted threshold of $86,278. Therefore, the applicant maintained that the technology meets the cost criterion.

The applicant also submitted claims data from the ANCHOR (Aneurysm Treatment Using the Heli-FX Aortic Securement System Global Registry) study to demonstrate that the technology meets the cost criterion. A total of 51 cases were submitted with 11.76 percent of all the cases mapping to MS-DRG 237, and 88.24 percent of all the cases mapping to MS-DRG 238. The applicant standardized the charges for all 51 cases, and determined an average case-weighted standardized charge per case of $128,196. The applicant calculated an average case-weighted threshold of $87,118 across MS-DRGs 237 and 238. Therefore, because the average case-weighted standardized charge per case exceeds the average case-weighted threshold, the applicant maintained that the technology meets the cost criterion.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether the Heli-FX^TM AAA meets the cost criterion, particularly with regard to the assumptions and methodology used in the applicant's analyses.

Comment: Some commenters believed that the high cost of the Heli-FX^TM device would deter facilities from using it.

Response: As discussed above, because the Heli-FX^TM AAA does not meet the newness criterion, it is not eligible for new technology add-on payments for FY 2015. Therefore, we are not summarizing the details of this comment nor are we responding to the issues presented in this discussion. However, we do address this comment in the later discussion of the Heli-FX^TM EndoAnchor System for the Treatment of Thoracic Aortic Aneurysms.

We discuss whether the Heli-FX^TM EndoAnchor System (for the treatment of AAA and TAA) represents a substantial clinical improvement over other treatments used for the repair of both abdominal and thoracic aortic aneurysms in one discussion below.

(2) Heli-FX^TM EndoAnchor System for the Treatment of Thoracic Aortic Aneurysms (Heli-FX^TM TAA)

The Heli-FX^TM TAA, which allows the expanded use of the Heli-FX^TM EndoAnchor System technology to TAA repair, was cleared by the FDA on August 14, 2012 (reference K121168). The new system consists of a longer delivery device with additional tip configurations to allow the helical EndoAnchor technology to treat TAA. A line extension to the original Heli-FX^TM EndoAnchor System, allowing improved treatment of AAA patients with larger aortic neck diameters, was cleared by the FDA on April 12, 2013 (reference K130677).

With regard to the newness criterion for the Heli-FX^TM TAA, we consider the newness period for the device to begin when the technology was approved by the FDA on August 14, 2012. Because the 3-year anniversary date of the product's entry on the U.S. market would occur in the second half of FY 2015 (August 14, 2015), we believe that the Heli-FX^TM TAA meets the newness criterion.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether the Heli-FX^TM TAA meets the newness criterion. As noted above, the applicant requested an ICD-10-PCS code, and presented comments at the March 2014 ICD-10 Coordination & Maintenance Committee meeting. We also note in section II.G. of the preamble of this final rule that, per section 212 of the PAMA (Pub. L. 113-93), the Secretary announced plans to establish a new compliance date for the ICD-10-PCS. We also discuss in that section requests for ICD-10-PCS codes for FY 2015. We refer readers to section II.G. of the preamble of this final rule for a complete discussion these issues. We did not receive any public comments on whether the Heli-FX^TM TAA meets the newness criterion.

To demonstrate that the Heli-FX^TM TAA meets the cost criterion, similar to the analysis performed for the Heli-FX^TM AAA, the applicant researched claims data from the 100 percent sample of the 2012 SAF for cases reporting procedure code 39.73 (Endovascular implantation of graft in thoracic aorta) in the first or second procedure position on the claim, in combination with one of the following primary diagnosis codes: 404.93 (Hypertensive heart and chronic kidney disease, unspecified, with heart failure and chronic kidney disease stage V or end-stage renal disease); 441.01 (Dissection of aorta, thoracic); 441.03 (Dissection of aorta, thoracoabdominal); 441.2 (Thoracic aneurysm without mention of rupture); 441.4 (Abdominal aneurysm without mention of rupture); 441.7 (Thoracoabdominal aneurysm, without mention of rupture); 996.1 (Mechanical complication of other vascular device, implant, and graft); or 996.74 (Other complications due to other vascular device, implant, and graft). The applicant believed that this combination of ICD-9-CM codes identifies cases treated for TAA. We note that the 2012 SAF dataset includes all claims submitted from hospitals paid under the IPPS for CY 2012.

The applicant focused its analysis on MS-DRGs 219, 220, and 221 because these are the MS-DRGs to which cases treated with the implantation of endovascular grafts for TAA repair would most likely map. The applicant found a total of 642 cases, and noted that 27.88 percent of the total number of cases would map to MS-DRG 219, 40.50 percent of the total number of cases would map to MS-DRG 220, and 31.62 percent of the total number of cases would map to MS-DRG 221. The applicant standardized the charges for all 642 cases. Using the inflation factor of 1.47329 published in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50982), the applicant inflated the standardized charges by 14.88 percent (the applicant multiplied 1.47329 × 1.47329 × 1.47329 in order to inflate the charges from 2012 to 2015). The applicant then added the charges for the Heli-FX^TM TAA to the standardized charges by dividing the cost of the Heli-FX^TM TAA by each individual hospital specific CCR from the FY 2012 impact file. This equated to an average case-weighted inflated standardized charge per case of $156,625. The applicant noted that the average case-weighted inflated standardized charge per case did not contain additional operating room charges related to the use of this technology. Therefore, the applicant determined that it was necessary to add an additional $2,160 for operating room charges, which was based on an additional 45 minutes of operating room time from one hospital, to the average case-weighted standardized charge per case. This resulted in an average case-weighted standardized charge per case of $158,785. The applicant calculated an average case-weighted threshold of $141,194 across MS-DRGs 219, 220, and 221. The applicant noted that the average case-weighted standardized charge per case, without including charges for additional operating room time, exceeded the average case-weighted threshold of $141,194. Therefore, the applicant maintained that the technology meets the cost criterion.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether the Heli-FX^TM TAA meets the cost criterion, particularly with regard to the assumptions and methodology used in the applicant's analysis.

Comment: Some commenters stated that the high cost of the Heli-FX^TM device would deter facilities from using it. Therefore, the commenters supported the approval of the Heli-FX^TM TAA for new technology add-on payment in order to assist with cost coverage so that more facilities would be willing to use the device in the treatment of their patients.

Response: We appreciate the commenters' input and support. We agree with the commenters that the Heli-FX^TM TAA meets the cost criterion.

(3) Evaluation of the Substantial Clinical Improvement Criterion for the Heli-FX^TM EndoAnchor System for the Treatment of Abdominal and Thoracic Aortic Aneurysms

The applicant stated that the Heli-FX^TM EndoAnchor System represents a substantial clinical improvement for the following reasons: the technology improves overall rates of aneurysm exclusion and long-term success after EVAR by increasing the integrity and long-term durability of the proximal seal and fixation; the technology reduces the risk and rate of secondary interventions and readmissions due to aneurysm-related complications (for example, endoleaks, migration, aneurysm enlargement) caused by failure of the proximal seal; the technology improves the general applicability of EVAR to patients with a broader spectrum of aortoiliac anatomy, including those with hostile proximal neck anatomy; and the technology reduces the rigor of life-long imaging follow-up for EVAR patients by reducing the rate of late failure and increasing the post-EVAR rates of aneurysm sac regression due to complete, endoleak-free durable aneurysm exclusion.

While current devices and capabilities are greatly improved over the first generation of devices, the applicant noted that EVAR treatments using the first generation of devices has not proven to be as durable, anatomically applicable, or complication-free as open surgery. Several critical and life-threatening limitations continue to require improvement to these devices and procedures, including the need to reduce serious early and late device and procedure-related complications, such as loss of stability, and integrity and robustness of the clinical proximal aortic landing zone, and to offer an alternative method of EVAR to a broader segment of the patient population.

The applicant provided literature, analyses of data from the “STAPLE-2” clinical trial and the ANCHOR Registry, and a meta-analysis of EVAR trials to demonstrate that the Heli-FX^TM EndoAnchor System represents a substantial clinical improvement above current treatments available. We summarize the information provided by the applicant that supports the clinically beneficial results of using the Heli-FX^TM EndoAnchor System.

The “STAPLE-2” clinical trial enrolled 155 patients at 25 U.S. centers between September 2007 and January 2009. Clinical (and imaging) data are available for 147, 139 and 125 patients at 1-year, 2-year, and 3-year follow-up, respectively, representing the complete data sets at these time points. Patients enrolled in the clinical trial and observed under the study will continue to be followed per protocol for 5 years following aneurysm repair. According to the applicant, the results of the trial and study demonstrate that the Heli-FX^TM EndoAnchor System is associated with an extremely low rate of proximal neck-related issues in long-term follow-up. The applicant maintained that this determination results in improved outcomes for aortic aneurysm patients, and reduced rate of re-interventions, which are associated with hospital admissions, procedural risks, and reversions to increased follow-up frequency requiring more physician visits and radiographic imaging studies.

The data used for this analysis was extracted from the clinical database on February 1, 2013, and are identical to those used to generate the most recent Annual Progress Report (APR) submitted to the FDA, as required under the U.S. IDE regulations.

While the “STAPLE-2” clinical trial was conducted exclusively with the Aptus AAA endograft (which remains investigational), the applicant believed that the use of the Heli-FX^TM EndoAnchor System-related data is applicable to the use of the anchor with the compatible Cook, Gore, and Medtronic manufactured endografts in treatment anatomies for AAA and TAA cases.

Through 3-year follow-up, the applicant noted that there have been no anchor fractures as observed by the core lab. Further, there have been no relative migrations of the Heli-FX^TM EndoAnchor System as compared to other endografts reported by the core laboratory.

In the analysis of the “STAPLE-2” clinical trial data at 1-year follow-up, the applicant noted that the core lab observed no proximal migrations, and a single case of Type I endoleak. A single secondary intervention was required to address the Type I endoleak in a patient with a circumferentially incomplete proximal neck within the 1-year follow-up period.

The applicant further noted that no additional Type I endoleaks have been observed beyond the 1-year follow-up in any patient enrolled in the trial. In addition, there were no reported instances of aneurysm rupture, vessel perforation, vessel dissection, catheter embolization, enteric fistula, infection, Type III endoleak, conversion, allergic reactions, renal emboli, or patient death associated with the use of the Heli-FX^TM EndoAnchor System. Further, there have been no reports of bleeding or hematoma at the EndoAnchor penetration locations in the aortic neck.

Beyond the 1-year follow-up, three patients have demonstrated proximal migrations less than 1 cm. None of these cases were associated with Type I endoleaks or aneurysm sac expansions.

The applicant then compared migrations and Type I endoleaks data from the “STAPLE-2” clinical trial to analogous data from five compatible AAA endografts that were not anchored (data taken from published SSE data obtained from the FDA's Web site). One year of data was compared because this timeframe is what is reported in a standard fashion from IDE trials of endografts. The applicant noted that the Heli-FX^TM EndoAnchor System data compares favorably against the data obtained in U.S. pivotal trials of devices that did not employ discrete independent fixation means, particularly when viewed in light of the shorter average neck lengths treated in the “STAPLE-2” clinical trial versus those involving the Cook, Gore, and Medtronic manufactured endografts. According to the applicant, the number of proximal migrations were low across devices as reported in the SSE data, and an analysis using the Fisher's exact method demonstrated no statistically significant differences when compared to the anchored endografts used in the “STAPLE-2” clinical trial (all p=NS). The incidence of Type I endoleaks and the need for secondary interventions to address them was significantly lower for the Heli-FX^TM EndoAnchor System endografts analyzed under the “STAPLE-2” clinical trial versus the Medtronic, AneuRx, and Talent manufactured endografts (p=0.026 versus AneuRx and p=0.015 versus Talent). The applicant stated that the applicability of post-hoc statistical analyses is limited. However, the applicant believed that because the data being compared under the analyses were collected through similar protocols and with the same endpoint definitions, post-hoc comparisons were deemed appropriate. The applicant further believed that the comparison of this data demonstrates that the Heli-FX^TM EndoAnchor System is associated with very low rates of Type I endoleaks and migrations.

The applicant also provided data from the ANCHOR Registry, which is a post-market, prospective, observational, multi-center, international, dual-arm study designed to capture real-world data on the usage patterns and clinical results associated with the use of the Heli-FX^TM EndoAnchor System as a method of treatment for patients in need of EVAR. The applicant explained that the ANCHOR Registry represents a growing body of data on the application of the Heli-FX^TM EndoAnchor System used as a method of endovascular aortic aneurysm repair. The applicant noted that to its knowledge, the anatomical challenges present in the registry are greater than those in any large scale published series. The applicant further noted that, although long-term results are limited, the acute results demonstrate a high level of device safety, technical feasibility and acute success in a patient population with few viable options.

Primary safety for the ANCHOR Registry is being measured as a composite of freedom from device or procedure-related serious adverse events through 1-year follow-up following the Heli-FX^TM EndoAnchor System implantation. Primary effectiveness is being measured as a composite of acute technical success and freedom from Type Ia endoleaks and endograft migrations through 1-year follow-up. Inclusion and exclusion criteria are minimal, essentially following the IFU requirements. Patients are being followed in the registry by their physician's standard of care for 5 years.

Enrollment in the ANCHOR Registry began in March 2012. Through August 2013, a total of 258 patients were enrolled at 40 participating centers (29 located in the United States and 11 located in the European Union), and data are available in the registry's database. Of these, 195 patients (76 percent) were enrolled in the primary arm, having the Heli-FX^TM EndoAnchor System implanted at the time of their initial aneurysm treatment, either as a prophylactic measure, or to address an acute leak seen on completion arteriography. The remaining patients (63 or 24 percent) were enrolled in the revision arm, having the Heli-FX^TM EndoAnchor Systems implanted at a secondary procedure to arrest migration, or address endoleaks discovered on follow-up in previously implanted endografts.

The applicant noted that physicians are choosing to apply the Heli-FX^TM EndoAnchor System in a subset of patients that are at a higher risk for proximal neck-related complications during follow-up. The large average sac diameter in the revision arm suggested that these patients' initial treatments were unsuccessful and, as such, they have experienced continued sac expansion post-EVAR. These patients also represent a high-risk subset of patients.

Acute results are measured in terms of technical success. In the primary arm, 193 of 194 procedures were successful, and in the revision arm, 57 of 63 procedures were successful. All technical failures were persistence of Type Ia endoleaks. There has been a single re-intervention at 69 days post-Endoanchor implantation for a persistent Type Ia endoleak in one patient in the revision arm, in which the Heli-FX^TM EndoAnchor System combined with a proximal cuff were unable to completely resolve the endoleak. There have been no device-related serious adverse events.

As mentioned above, because the “STAPLE-1”, and “STAPLE-2” clinical trials were single-arm studies, no data are available from them to assess the impact of the Heli-FX^TM EndoAnchor System on endograft performance. To make this assessment, a meta-analysis was conducted. The meta-analysis combined long-term AAA endograft performance from endografts marketed in the United States, and compared these measures to those from long-term follow-up in the “STAPLE-2” trial.

According to the applicant, the key findings from the meta-analysis are as follows:

• Heli-FX^TM EndoAnchors reduced the proportion of treated aneurysms with enlargement greater than 5 mm at 3 years from 12.7 percent to 3.9 percent (p=.002).
• Heli-FX EndoAnchor System reduced the proportion of leaks requiring treatment at 3 years from 12 percent to 1.3 percent (p.001).
• Heli-FX^TM EndoAnchor System reduced (all-cause) mortality at 3 years from 18.8 percent to 8.4 percent (p=.002). However, this does not appear to have been totally mediated by AAA-related mortality, which was reduced by the Heli-FX^TM EndoAnchor System from 2.5 percent to 0.7 percent at 3 years (but was not statistically significant, p=.372).

According to the applicant, in general, patients in the ANCHOR Registry were similar to the patients in the AAA endograft studies. The applicant noted that the results of the analysis using the Fisher's Exact Tests were consistent between the All-Studies' comparisons and the IDE-Studies' comparisons: All-Cause Mortality, Leaks requiring Treatment, and Enlargement were all significantly lower at 3 years in the endografts implanted with the Heli-FX^TM EndoAnchor System than in standard endografts.

The applicant asserted that the meta-analysis shows that there is objective evidence that the Heli-FX^TM EndoAnchor System effectively reduces well-documented problems with endografts. By providing the endograft with better apposition to the native artery, the applicant noted that the Heli-FX^TM EndoAnchor System reduces the rates of enlargement and endoleaks requiring treatment. The applicant further noted that these results were consistent in the All-Studies' and IDE Studies' meta-analyses. The applicant believed that lower rates of leaks requiring intervention would save payers money over the long term.

The applicant observed that, while there was no significant improvement in the rate of ruptures with the Heli-FX^TM EndoAnchor System, this may be due to the fact that leaks were treated and, thereby, prevented any ruptures. The applicant believed that the higher rate of treated endoleaks in endografts implanted without the Heli-FX^TM EndoAnchor System provides for this hypothesis. Also, migration did not appear to be significantly reduced by the Heli-FX^TM EndoAnchor System (3.5 percent at 3 years in both groups; p=1.0).

Finally, the applicant concluded that, overall, the lower complication rates seen with the Heli-FX^TM EndoAnchor System in the meta-analysis provide evidence of the clinical benefits and likely economic benefits associated with the use of the Heli-FX^TM EndoAnchor System. The applicant believed that the technology may be especially helpful in patients with difficult anatomy, and that it may be reasonable to consider using the Heli-FX^TM EndoAnchor System prophylactically in the treatment of all such patients.

In addition to the formal study data from the “STAPLE-2” trial, the Global ANCHOR Registry, and the meta-analysis based on these, the applicant provided published peer-reviewed literature that represent an early state of scientific data dissemination outside of non-company sponsored clinical studies, which is commensurate with the recent market approvals of the Heli-FX^TM EndoAnchor System technology. The applicant believed that these data demonstrate strong initial physician enthusiasm and resulting favorable clinical results in their experience to date. The applicant noted that the general body of scientific literature is considered meaningful and growing for this early stage of market introduction. However, the applicant asserted that the literature supports the study and meta-analysis data above that documents that improved clinical outcomes were observed, including outcomes in a broader range of patients that are often ineligible for, or at greatest risk with, EVAR.

In the FY 2015 IPPS/LTCH PPS proposed rule, we stated that we are concerned that the three sources of data, the “STAPLE-2” clinical trial, the Anchor registry, and the literature review that the applicant submitted to support their application are not high quality evidence. The `STAPLE-2” study was a single-arm study and only used one endograft, the registry is an observational study, and the literature review does not provide clinical data. Also, the meta-analysis of all the submitted data is only as good as the data used. While the clinical data submitted suggests that some outcomes such as EVAR failure are improved, we stated that we are concerned that there is not enough clinical evidence to support the substantial clinical improvement criterion.

We invited public comments on whether the submitted data demonstrate that the Heli-FX^TM EndoAnchor System represents a substantial clinical improvement in the treatment of Medicare beneficiaries, particularly in regard to the concerns we identified.

Comment: Several commenters stated that the Heli-FX^TM System meets the substantial clinical improvement criterion and, therefore, CMS should approve the Heli-FX^TM System for new technology add-on payments in FY 2015.

Response: We appreciate the commenters' support. We considered these comments in our determination of whether the Heli-FX^TM System represents a substantial clinical improvement in the treatment options available to Medicare beneficiaries.

Comment: The applicant commented in response to CMS' concerns presented in the FY 2015 IPPS/LTCH PPS proposed rule regarding the lack of enough high quality evidence to support the substantial improvement criterion because the three sources of data submitted by the applicant were not considered to be `high quality evidence.' Specifically, CMS stated that it believed that the meta-analysis of submitted data is only as good as the data used, the STAPLE-2 Pivotal FDA Study was a single arm study and only used one Endograft, and the ANCHOR Registry is an observational study and the literature review does not provide clinical data. The applicant first outlined some basic background information into the EVAR regulatory process.

With respect to the concerns regarding the meta-analysis of submitted data being only as good as the data used, the applicant asserted that it has not attempted to substantiate the finding of substantial clinical improvement through a single source of information. The applicant believed that the entirety of evidence demonstrated that this criterion was met as stated in its application. Specifically, the applicant stated that the Heli-FX^TM EndoAnchor System offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, including the primary cases with hostile necks and complex revisions (refer to the ANCHOR Registry data demonstrating 90.2 percent of hostile necks in the population). The technology has shown significantly improved clinical outcomes for the short proximal aortic neck patient population when compared to current available treatments (refer to STAPLE-2 average neck length of 22.1mm, shorter than any conventional Endograft IDE Study), and has been shown to reduce aneurysm related mortality (refer to the meta-analysis results). The applicant further stated that the Heli-FX^TM has also been shown to reduce proximal neck related device complications and reduced subsequent therapeutic interventions (refer to STAPLE-2 where no late Type 1 endoleaks or proximal neck related revisions were required), and with previously unseen aneurysm sac regression (refer to STAPLE-2 which showed the highest reported at 81.7 percent at 3 years), indicating more rapid resolution of the disease process. Based on all of the above information, the applicant stated that it believes that the Heli-FX^TM EndoAnchor System has met this evidentiary threshold for the substantial clinical improvement criterion.

The applicant also addressed CMS' concerns about the quality of evidence that the Aptus' single arm STAPLE-2 study may provide, specifically, that the STAPLE-2 Pivotal FDA Study was a single arm study and only used one Endograft. According to the applicant, the STAPLE-2 Study was a two arm study of patients treated with the Aptus Stent Graft in conjunction with the EndoAnchors versus an historical open surgical control (SVS Lifeline database). The applicant stated that this kind of trial design is typical for U.S. pre-market IDE EVAR Studies with current Endovascular stent grafts. According to the applicant, many of the recently approved endografts in the United States used a similar study design and the FDA has no requirement for a concurrent surgical control. The applicant noted that in no case for the device regulatory approval processes for recent endografts were randomization or blinding utilized.

The applicant also addressed CMS' concern that the STAPLE-2 Study utilized a single type of Endograft. According to the applicant, while the STAPLE-2 Study utilized a single type of Endograft, this may provide a uniquely compelling indication of substantial clinical improvement based on two aspects relating to STAPLE-2. While the Endograft was an entirely conventional design utilizing Polyester fabric supported by a Nitinol stent structure with infrarenal fixation and an unsupported main body (eliminating any contribution of columnar strength to aid in fixation), the applicant stated that this Endograft has no other means of fixation beyond the Aptus EndoAnchors. Despite this, the applicant stated that results indicated highly favorable proximal seal related outcomes in this most challenging proximal neck anatomy patient population. In this cohort, the proximal necks in STAPLE-2 patients contained the shortest average neck length of any conventional (non-Fenestrated) Endograft evaluated in a U.S. PMA trial to date. The applicant further stated that unlike other endografts, such as the Medtronic Endurant or the Gore Excluder, being utilized with Heli-FX currently both in the ANCHOR trial and commercially worldwide, the graft studied in STAPLE-2 has no inherent fixation, active or otherwise. The applicant explained that this is because there are no integral hooks, barbs, supra-renal fixation, “anatomical fixation” or “anchor pins” or other means to secure the Aptus Endograft beyond the fixation provided by the Heli-FX^TM EndoAnchors. In effect, because the Heli-FX^TM is the only source of fixation for the graft studied, the applicant stated that it represents a “worst case” and significant performance challenge of the clinical effectiveness of the Heli-FX^TM EndoAnchors. Despite this worst-case aspect of no inherent fixation in the STAPLE-2 Endograft other than Heli-FX^TM EndoAnchors for Endograft fixation and sealing to the aortic wall, the applicant reported that there were excellent clinical and technical results with respect to proximal neck seal and fixation. This was observed despite the very short proximal necks treated in the study cohort. The applicant noted that the aneurysm size regression is also among the most rapid and highest frequency seen with any Endograft U.S. IDE study. The applicant stated that in the setting of an Endograft with no means of fixation beyond the Heli-FX^TM EndoAnchors, this is especially meaningful and indicative of the EndoAnchor capabilities with more advanced, current generation commercial Endografts.

With respect to CMS' concern that the ANCHOR Registry is an observational study, the applicant believed that the Anchor Registry provides important, highly valuable and meaningful evidence in support of the substantial clinical improvement criterion. The applicant stated that the ANCHOR Registry is a formal, Institutional Review Board (IRB) and Ethics Committee (EC) approved Post-Market Study that utilizes a Core Lab and a Safety Medical Reviewer for aneurysm related outcomes, anatomical adjudication for all patients at each follow-up time-point, as well as clinical outcomes acutely and in follow- up. The applicant further noted that the use of a Core Lab and a Safety Medical Reviewer in the setting of EVAR for both baseline and outcome data and the associated aneurysm anatomical aspects is extremely rare and, therefore, so far only the ANCHOR Registry has utilized this approach within the known EVAR Registries. The applicant stated that this optimizes the scientific rigor and robustness of this real-world study. The applicant further noted that there are currently 417 patients enrolled (there were 258 patients at the time of the application), with core lab analysis available for 311 subjects, and the data has continued to be highly favorable in what is now among the most hostile proximal necks studied in any Endograft population seen in the scientific literature. The applicant asserted that a key and applicable aspect where Heli-FX^TM is having significant patient impact (including as seen in the patients' challenging proximal neck anatomy in STAPLE-2 and ANCHOR cohorts) is offering a treatment option for a patient population ineligible for currently available treatments. While the applicant acknowledged the important and favorable aneurysm exclusion results and expanded patient applicability provided by the recently FDA-approved Cook Zenith Fenestrated Endograft system, which expanded proximal neck capabilities as low as 4mm in length, there are situations affecting patients which limit access to this advanced Endograft technology. The applicant believed that these higher risk situations often require physicians to utilize Heli-FX^TM EndoAnchors with conventional Endografts in sub-optimal proximal neck anatomy. The applicant asserted that this is especially applicable in patients deemed unsuitable for open surgical repair.

With respect to CMS' concern that the literature review did not provide clinical data, the applicant acknowledged that the non-STAPLE-2 and ANCHOR related Heli-FX^TM peer-reviewed scientific literature did not constitute formal clinical data in themselves, but nonetheless the applicant believed that the information provided the manuscripts to highlight the various applicability and utility of the Heli-FX^TM in various settings, including primary revision, in AAA and TAA.

Response: We appreciate the applicant's response to our concerns presented in the proposed rule. While we recognize that Heli-FX^TM EndoAnchor System has received regulatory approval for marketing, therefore meeting FDA standards for safety and effectiveness, the new technology add-on payment process requires demonstration of a substantial clinical improvement, which is not inherent in the FDA's regulatory process. As previously stated, we believe that data used to support substantial clinical improvement should come from high quality evidence. For example, well-designed studies that compare the new technology to other similar services that the applicant is contending will be replaced by the new technology. We did not suggest that the comparative should have been an open, surgical procedure. The substantial clinical improvement criterion requires that technologies demonstrate substantial clinical improvement over existing technologies. In this case, we would have liked to have seen a randomized trial comparing the use of Heli-FX^TM anchors with various endografts such as hooks, barbs, supra-renal fixation, anatomical fixation or anchor pins using the same brands of endografts. That data, if positive, would have been sufficient to demonstrate substantial clinical improvement over existing technologies.

Further, we also believe that the alternatives just mentioned—hooks, barbs, supra-renal fixation, anatomical fixation, or anchor pins—are alternatives to the Heli-FX^TM System and the data submitted does not support that patients have no other alternatives. Therefore, based on the reasoning above, we do not believe that the Heli-FX^TM System meets the substantial clinical improvement criterion.

After consideration of the public comments we received, and as discussed above, we conclude that the Heli-FX^TM AAA does not meet the newness criterion and, therefore, the technology is not eligible for new technology add-on payments for FY 2015. The Heli-FX^TM TAA meets the newness and cost criteria. However, as discussed above, the Heli-FX^TM AAA and TAA do not meet the substantial clinical improvement criterion. Therefore, we are not approving new technology add-on payments for the Heli-FX^TM TAA because the technology does not meet the substantial clinical improvement criterion.

c. CardioMEMS^TM HF (Heart Failure) Monitoring System

CardioMEMS, Inc. submitted an application for new technology add-on payment for FY 2015 for the CardioMEMS^TM HF (Heart Failure) Monitoring System, which is an implantable hemodynamic monitoring system comprised of an implantable sensor/monitor placed in the distal pulmonary artery. Pulmonary artery hemodynamic monitoring is used in the management of heart failure. The CardioMEMS^TM HF Monitoring System measures multiple pulmonary artery pressure parameters for an ambulatory patient to measure and transmit data via a wireless sensor to a secure Web site.

The CardioMEMS^TM HF Monitoring System utilizes radiofrequency (RF) energy to power the sensor and to measure pulmonary artery (PA) pressure and consists of three components: an Implantable Sensor with Delivery Catheter, an External Electronics Unit, and a Pulmonary Artery Pressure Database. The system provides the physician with the patient's PA pressure waveform (including systolic, diastolic, and mean pressures) as well as heart rate. The sensor is permanently implanted in the distal pulmonary artery using transcatheter techniques in the catheterization laboratory where it is calibrated using a Swan-Ganz catheter. PA pressures are transmitted by the patient at home in a supine position on a padded antenna, pushing one button which records an 18-second continuous waveform. The data also can be recorded from the hospital, physician's office or clinic.

The hemodynamic data, including a detailed waveform, are transmitted to a secure Web site that serves as the Pulmonary Artery Pressure Database, so that information regarding PA pressure is available to the physician or nurse at any time via the Internet. Interpretation of trend data allows the clinician to make adjustments to therapy and can be used along with heart failure signs and symptoms to adjust medications.

The applicant believed that a large majority of patients receiving the sensor would be admitted as an inpatient to a hospital with a diagnosis of acute or chronic heart failure, which is typically described by ICD-9-CM diagnosis code 428.43 (Acute or chronic combine systolic and diastolic heart failure) and the sensor would be implanted during the inpatient stay. The applicant stated that for safety considerations, a small portion of these patients may be discharged and the sensor would be implanted at a future date in the hospital outpatient setting. In addition, there would likely be a group of patients diagnosed with chronic heart failure who are not currently hospitalized, but who have been hospitalized in the past few months for which the treating physician believes that regular pulmonary artery pressure readings are necessary to optimize patient management. Depending on the patient's status, the applicant stated that these patients may have the sensor implanted in the hospital inpatient or outpatient setting.

The applicant received FDA approval on May 28, 2014. The CardioMEMS^TM HF Monitoring System is currently described by ICD-9-CM procedure code 38.26 (Insertion of implantable pressure sensor without lead for intracardiac or great vessel hemodynamic monitoring).

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments regarding how the CardioMEMS^TM HF System meets the newness criterion. We did not receive any public comments concerning how the CardioMEMS^TM HF Monitoring System meets the newness criterion. Therefore, after evaluation of the information provided by the applicant, we believe that the CardioMEMS^TM HF Monitoring System meets the newness criterion, and we consider the technology to be “new” as of May 28, 2014, when the technology received FDA approval.

With respect to cost criterion, the applicant submitted actual claims from the CHAMPION clinical trial. Of the 550 patients enrolled in the trial, the applicant received 310 hospital bills. The applicant excluded the following claims: incomplete or missing procedure codes, incomplete charge information and bills that were statistical outliers (three standard deviations away from the geometric mean). This resulted in a final cohort of 138 claims. The applicant noted that cases treated with the CardioMEMS^TM HF Monitoring System would typically map to MS-DRG 264 (Other Circulatory System Operating Room Procedures). Using the 138 clinical trial claims, the applicant standardized the charges and added charges for the CardioMEMS^TM HF Monitoring System (because the clinical trial claims did not contain charges for the CardioMEMS^TM HF Monitoring System). This resulted in an average case-weighted standardized charge per case of $79,218.

Using the FY 2014 Table 10 thresholds, the threshold for MS-DRG 264 is $60,172. Because the average case-weighted standardized charge per case exceeded the threshold amount, the applicant maintained that the CardioMEMS^TM HF Monitoring System would meet the cost criterion.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether or not the CardioMEMS^TM HF System meets the cost criterion. We did not receive any public comments regarding whether or not the CardioMEMS^TM HF System meets the cost criterion. Based on the analysis above, we believe the CardioMEMS^TM HF System meets the cost criterion.

With regard to substantial clinical improvement, the applicant asserted that elevated PA pressures occur prior to signs and symptoms of heart failure and changes in PA pressures provide a sound physiologic basis for its management. The applicant also contended that, until the creation of the CardioMEMS wireless PA implant, knowledge of PA pressure was only feasible in the hospital with the performance of a right heart catheterization. According to the applicant, the CardioMEMS HF Monitoring System provides physicians knowledge of PA pressure while the patient is at home, allowing proactive management to prevent heart failure decompensation and hospitalization.

The applicant cited clinical data from the CHAMPION trial. The trial is a prospective, multicenter, randomized, single-blinded clinical trial conducted in the United States, designed to evaluate the safety and efficacy of the CardioMEMS^TM HF Monitoring System in reducing heart failure-related hospitalizations in a subset of subjects suffering from heart failure. The applicant shared several major findings from the CHAMPION trial as described below.

The primary efficacy endpoint of the CHAMPION trial was the rate of HF hospitalizations during the first 6 months of randomized access. There were 84 heart failure hospitalizations in the treatment group compared with 120 heart failure hospitalizations in the control group. This difference between the groups represented a 28-percent reduction in the rate of hospitalization for heart failure in the treatment group (0.32 hospitalizations per patient in the treatment group versus 0.44 hospitalizations per patient in the control group, p=0.0002). Although not a primary end point, the rate of HF hospitalizations after 18 months was 33 percent lower in the treatment group than in the control group.

According to the applicant, secondary endpoints of the CHAMPION trial are changes in pulmonary artery pressures, proportion of subjects hospitalized, days alive outside of the hospital, quality of life (QOL), and heart failure management which demonstrated the following results:

• Pulmonary Artery Pressures: At baseline, both treatment and control patients had similar PA mean pressures. The change in pressure over the first 6 months was evaluated by integrating the area under the pressure curve (AUC). At 6 months of follow-up, the treatment group had a significantly greater reduction in AUC of −155.7 mmHg days compared to the control group which had an increase in AUC of +33.1 mmHg-days; p=0.0077.
• Proportion of Subjects Hospitalized: During the 6-month follow-up period, the proportion of subjects hospitalized for 1 or more HF hospitalizations was significantly lower in the treatment group (55 out of 270 patients) than in the control group (80 out of 280 patients) (20.4 percent versus 28.6 percent; p=0.0292).
• Days Alive Outside of the Hospital: At 6 months, treatment patients had a nonsignificant and clinically not meaningful increase in days alive outside of the hospital (174.4 versus 172.1; p=0.0280) and fewer average days in the hospital (2.2 versus 3.8; p=0.0246) compared to control patients.
• Quality of Life: The heart failure specific quality of life was assessed with the MLHFQ total score at 6 months. The average total score in the treatment group was 45.2 ± 26.4 which was significantly better than the average total score in the control group 50.6 ± 24.8 (p=0.0236). The difference in total quality of life was primarily due to the physical domain. The average physical score for the treatment group (19.8 ± 11.2) was significantly better than the control group (22.4 ± 10.9) (p=0.0096). There was also a significant difference in the emotional domain with an average score of 9.5 ± 8.1 for the treatment group and 11.0 ± 7.7 for the control group (p=0.0398).
• Heart Failure Management: Physicians responded to treatment of patients' elevated PA pressures by making medication changes to lower PA pressures and reduce the risk for HF hospitalization. Physicians documented all medication changes for all patients and indicated whether the change was made in response to PA pressures or standard of care information. During the 6-month follow-up period, physicians made approximately one additional HF medication change per patient per month in the treatment group when compared to the control group. Specifically, treatment patients had 1.55 medication changes per month on average compared to control patients having 0.65 medication changes per month (p<0.0001). The difference in HF management between the treatment and control group was due to HF medication changes made in response to PA pressures.

The study met the two primary safety endpoints: (1) freedom from device/system related complications (DSRC); and (2) freedom from sensor failure. The protocol pre-specified objective performance criterion (OPC) were that at least 80 percent of patients were to be free from DSRC and at least 90 percent were to be free from pressure sensor failure. Of the 575 patients in the safety population, 567 (98.6 percent) were free from DSRC at 6 months (lower confidence limit 97.3 percent, p<0.0001). This lower limit of 97.3 percent is greater than the pre-specified OPC of 80 percent. There were no sensor explants or repeat implants and all sensors were operational at 6 months for a freedom from sensor failure of 100 percent (lower confidence limit 99.3 percent, p<0.0001). This lower limit of 99.3 percent is greater than the pre-specified OPC of 90 percent.

The applicant also noted that the CardioMEMS^TM HF System reduces the occurrence of HF hospitalizations in NYHA Class III heart failure patients. According to the applicant, the device had very few device and system related complications occurring over the course of the clinical trial. All primary and secondary study endpoints were successfully achieved. In addition, the CHAMPION trial suggests the safety and effectiveness of the device was maintained during longer term follow-up.

After reviewing the information provided by the applicant, we stated in the FY 2015 IPPS/LTCH PPS proposed rule that we have the following concerns. The applicant did not discuss long-term outcomes, specifically death. We stated that we believe additional long-term outcome information and information regarding how the technology changes long-term outcomes would further assist in our determination of whether the technology represents a substantial clinical improvement. With regard to the clinical trial, information from the randomized access period and the open access period did not include the total number of deaths in each group. While the data support a reduction in total hospitalizations, the rate of hospitalization in each group (0.32 versus 0.44) does not appear to be clinically meaningful. This is supported by total days alive out of the hospital being virtually identical in both groups. Finally, we stated that we are concerned about the cause of the significant dropouts in the Kaplan Meier curves which further demonstrates lack of impact on survival.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether or not the CardioMEMS^TM HF Monitoring System technology represents a substantial clinical improvement in the treatment options available to Medicare beneficiaries.

Comment: Several commenters, including various physicians, supported the approval of new technology add-on payment for the CardioMEMS^TM HF Monitoring System.

Response: We appreciate the commenters' support. We considered these comments in our determination of whether the CardioMEMS^TM HF Monitoring System represents a substantial clinical improvement.

Comment: The applicant submitted a public comment, which included responses to each of CMS' concerns presented in the proposed rule. CMS' major concern outlined in the FY 2015 IPPS/LTCH PPS proposed rule was the lack of mortality data to support the improvement seen in the specified endpoint, hospitalizations. The applicant provided information that the Randomized Access Period includes approximately 800 patient-years of follow-up, with an average patient follow-up of 18 months. The primary endpoint of the CHAMPION trial was HF hospitalizations because it remains a major clinical and public health problem, which is inadequately addressed by current treatment options. Although the trial was not powered to assess mortality, the applicant stated that the data showed strong favorable trends for reduced mortality, and a highly significant reduction for HF hospitalization or mortality. During the first 6 months of follow-up, the applicant stated that the proportion of patients who died that were enrolled in the treatment group (n=15, 5.6 percent) was lesser than in the proportion patients who died that were enrolled in the control Group (n=20, 7.1 percent), with a nonsignificant but favorable relative risk reduction rate of 23 percent (HR 0.77, 95 percent CI 0.40-1.51, p=0.4484). During the entire Randomized Access Period, the applicant stated that the proportion of patients who died that were enrolled in the treatment group (n=50, 18.5 percent) was lesser than the proportion of patients that were enrolled in the control group (n=64, 22.9 percent), with a nonsignificant but favorable relative risk reduction rate of 20 percent (HR 0.80, 95 percent CI 0.55-1.15, p=0.2303).

The applicant further stated that in measuring the combined impact of mortality and HF hospitalizations on the study population, analysis of the time to death or first HF hospitalization is frequently used. During the first 6 months of the Randomized Access Period, the applicant noted that the proportion of patients who died or that had at least one HF hospitalization that were enrolled in the treatment group (n=63, 23.3 percent) was lesser than the proportion of patients who died or that had at least one HF hospitalization that were enrolled in the control group (n=91, 32.5 percent), with a significant relative risk reduction rate of 31 percent (HR 0.69, 95 percent CI 0.50-0.95; p=0.0239). During the entire Randomized Access Period, the applicant noted that the proportion of patients who died or had at least one HF hospitalization that were enrolled in the treatment group (n=121, 44.8 percent) was lesser than the proportion of patients who died or had at least one HF hospitalization that were enrolled in the control group (n=145, 51.8 percent), with a significant relative risk reduction rate of 23 percent (HR 0.77, 95 percent CI 0.60-0.98, p=0.0330). The applicant further noted that other endpoints other than time to event analyses are event rate analyses for repeat events, including HF hospitalization rates (primary efficacy endpoint) and all cause hospitalization rates. The applicant also indicated that event rate analyses for composite events also are frequently used to assess the impact of both mortality and HF hospitalizations (combined deaths and HF hospitalization rates) and total morbidity and mortality (combined deaths and all cause hospitalizations rates). According to the applicant, the large treatment effect size on long-term outcomes and the low number needed to treat and prevent hospitalizations and deaths demonstrated that CardioMEMS^TM HF Monitoring System represents a substantial clinical improvement.

CMS also was concerned that while the data supported a reduction in total hospitalizations, the rate of hospitalization in each group (0.32 versus 0.44) does not appear to be clinically meaningful. The applicant stated in response that the days alive outside of the hospital (DAOH) endpoint was a secondary endpoint in the CHAMPION trial. The applicant further stated that the endpoint is used in clinical trials as an alternative measure for evaluating the combined impact of mortality and hospitalizations on the study population. Endpoints that are traditionally used to measure this combined effect include time to event analyses (for example, time to death or first HF hospitalization) and composite event rate analyses (for example, rate of death and repeat HF hospitalizations). The applicant noted that, for many HF drug and device trials, these more traditional analyses are frequently used as the primary or co-primary efficacy endpoints. The applicant further stated that the DAOH endpoint is susceptible to many influences including variable follow-up time (that is, patients with longer follow-up time have the potential for more DAOH than patients with shorter follow-up time), the length of the study duration interval for which the DAOH endpoint is being analyzed, and differences in proportion of patients experiencing a mortality or hospitalization event relative to the proportion of patients not experiencing a mortality or hospitalization event (that is, a shorter duration interval will have a greater proportion of patients without any events when compared to a longer duration interval where the proportion of patients experiencing events increases over time). In response to CMS' concerns in regard to the numerical similarity of DAOH between the treatment and control groups which is based on the shorter follow-up interval of 6 months, the applicant stated that during this shorter follow-up interval, approximately 70 percent of the patients did not experience a mortality or HF hospitalization event. The applicant stated that indication skews the dataset because these patients are experiencing 100 percent in measurement of DAOH. Despite this fact, the applicant stated that there was a statistically significant difference of 2.3 days in favor of the treatment group. The applicant asserted that a treatment effect that increases the number of DAOH by 2.3 days over a 6-month period is clinically meaningful to this patient population, as evidenced by the improved quality of life of the patients that were enrolled in the treatment group. DAOH rates were also analyzed over a longer period of follow-up during the Randomized Access Period. To reduce the effects of variable follow-up time and to have a consistent study duration interval, DAOH was analyzed over the first 12 months of follow-up. Patients enrolled in the treatment group being managed using the CardioMEMS^TM HF Monitoring System experienced 6.1 more DAOH than the patients that were enrolled in the control group after 12 months of follow-up. The applicant believed that this increase represents a substantial clinical improvement with respect to current treatment options available to Medicare beneficiaries.

In regard to CMS' concern about the cause of the significant dropouts in the Kaplan Meier curves, which further demonstrates lack of impact on survival, the applicant provided the following information in response. According to the applicant, the dropout rates in the CHAMPION trial were low; the patients transitioning from Randomized to Open Access are being misconstrued as dropouts. The applicant reported that CHAMPION enrolled 550 patients from September 2007 to October 2009. In addition, all of the patients remained in their randomized groups until the last patient enrolled in the CHAMPION trial completed at least 6 months of follow-up. As result of this enrollment over time, the applicant stated that the average patient follow-up in the Randomized Access Period was significantly longer at 18 months. The applicant further indicated that patients with a lower enrollment number and implanted earlier in 2008 had the potential for longer follow-up times in the Randomized Access Period than patients with a higher enrollment number and implanted later in 2009. As a result, the applicant believed that these patients are being construed as dropouts on the Kaplan Meier curve, but actually are patients being censored at the time of their transition to the Open Access Period. According to the applicant, because the maximum follow-up for the Randomized Access Period was already achieved, patients in this category were not eligible or “at risk” for the longer follow-up periods represented in the Kaplan Meier curve understanding that the follow-up time is now part of the Open Access Period.

In response to CMS' invitation for public comments on whether or not the CardioMEMS^TM HF Monitoring System technology represents a substantial clinical improvement in the Medicare population, the applicant stated that heart failure is a significant clinical burden to Medicare beneficiaries, their caregivers, and hospitals throughout the U.S. health care system. The applicant believed that rising HF hospitalizations rates and the increasing cost of care for Medicare beneficiaries diagnosed with HF and the detrimental effect the condition is having on the U.S. health care system is not sustainable.

The applicant believed that the CardioMEMS^TM HF Monitoring System technology represents a substantial clinical improvement treatment options available to Medicare beneficiaries. In the CHAMPION trial, 245 patients (45 percent) were 65 years or older at the time of sensor implantation (120 in the treatment group and 125 in the control group). Patients who were enrolled in the treatment group and managed on the basis of PA pressure information obtained from the CardioMEMS^TM HF Monitoring System had a significantly reduced HF hospitalization rate (0.34 events/patient-year) compared to patients who were enrolled in the control group (0.67 events/patient-year) and managed according to best available practices (HR 0.51, 95 percent CI 0.37-0.70, p<0.0001).

Response: We appreciate the applicant's response to each of CMS' concerns and the additional data provided. Other than data indicating that the primary endpoint of reduced hospitalizations was met, additional longer term data demonstrated improved mortality. Therefore, we believe that the data indicates that the CardioMEMS^TM Monitoring System meets the substantial clinical improvement criterion.

After consideration of the public comments we received, we believe that the CardioMEMS^TM HF Monitoring System meets all of the new technology add-on payment policy criteria. Therefore, we are approving the CardioMEMS^TM HF Monitoring System for new technology add-on payments in FY 2015. Cases involving the CardioMEMS^TM HF Monitoring System that are eligible for new technology add-on payments will be identified by ICD-9-CM procedure code 38.26 (Insertion of implantable wireless pressure sensor for intracardiac or great vessel hemodynamic monitoring), which was effective October 1, 2011. With the new technology add-on payment application, the applicant stated that the total operating cost of the CardioMEMS^TM HF Monitoring System is $17,750. Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum payment for a case involving the CardioMEMS^TM HF Monitoring System is $8,875 for FY 2015.

d. MitraClip® System

Abbott Vascular submitted an application for new technology add-on payments for the MitraClip® System for FY 2015. (We note that the applicant submitted an application for new technology add-on payments for FY 2014 but failed to receive FDA approval by the July 1 deadline.) The MitraClip® System is a transcatheter mitral valve repair system that includes a MitraClip® device implant, a Steerable Guide Catheter, and a Clip Delivery System. It is designed to perform reconstruction of the insufficient mitral valve for high-risk patients who are not candidates for conventional open mitral valve repair surgery.

Mitral regurgitation (MR), also referred to as mitral insufficiency or mitral incompetence, occurs when the mitral valve fails to close completely causing the blood to leak or flow backwards (regurgitate) into the left ventricle. If the amount of blood that leaks backwards into the left ventricle is minimal, then intervention is usually not necessary. However, if the amount of blood that is regurgitated becomes significant, this can cause the left ventricle to work harder to meet the body's need for oxygenated blood. Severity levels of MR can range from grade 1+ through grade 4+. If left untreated, severe MR can lead to heart failure and death. The American College of Cardiology (ACC) and the American Heart Association (AHA) issued practice guidelines in 2006 that recommended intervention for moderate/severe or severe MR (grade 3+ to 4+). The applicant stated that the MitraClip® System is “indicated for percutaneous reduction of significant mitral regurgitation . . . in patients who have been determined to be at prohibitive risk for mitral value surgery by a heart team, which includes a cardiac surgeon experienced in mitral valve surgery and a cardiologist experienced in mitral valve disease and in whom existing comorbidities would not preclude the expected benefit from correction of the mitral regurgitation.”

The MitraClip® System mitral valve repair procedure is based on the double-orifice surgical repair technique that has been used as a surgical technique in open chest, arrested-heart surgery for the treatment of MR since the early 1990s. According to the applicant, in utilizing “the double-orifice technique, a portion of the anterior leaflet is sutured to the corresponding portion of the posterior leaflet using standard techniques and forceps and suture, creating a point of permanent cooptation (“approximation”) of the two leaflets. When the suture is placed in the middle of the valve, the valve will have a functional double orifice during diastole.”

With regard to the newness criterion, the MitraClip® System received a premarket approval from the FDA on October 24, 2013. The MitraClip® System is indicated “for the percutaneous reduction of significant symptomatic mitral regurgitation (MR ≥ 3+) due to primary abnormality of the mitral apparatus (degenerative MR) in patients who have been determined to be at prohibitive risk for mitral valve surgery by a heart team, which includes a cardiac surgeon experienced in mitral valve surgery and a cardiologist experienced in mitral valve disease, and in whom existing comorbidities would not preclude the expected benefit from reduction of the mitral regurgitation.” The MitraClip® System became immediately available on the U.S. market following FDA approval. The MitraClip® System is a Class III device, and has an investigational device exemption (IDE) for the EVEREST study (Endovascular Valve Edge-to-Edge Repair Study)—IDE G030061, and for the COAPT study (Cardiovascular Outcomes Assessment of the MitraClip Percutaneous Therapy for Health Failure Patients with Functional Mitral Regurgitation)—IDE G120024. Effective October 1, 2010, ICD-9-CM procedure code 35.97 (Percutaneous mitral valve repair with implant) was created to identify and describe the MitraClip® System technology.

CMS received a formal National Coverage Decision (NCD) request from the Society of Thoracic Surgeons (STS), the American College of Cardiology Foundation (ACCF), the Society for Cardiovascular Angiography and Interventions (SCAI), and the American Association for Thoracic Surgery (AATS) jointly asking that CMS cover Transcatheter Mitral Valve Repair procedures using a system that has received FDA premarket approval (PMA) for the treatment of MR when performed according to an FDA-approved indication. We refer readers to the CMS Web site at: http://www.cms.gov/medicare-coverage-database/details/nca-tracking-sheet.aspx?NCAId=273 for information related to this ongoing NCD. The tracking sheet for this National Coverage Analysis (NCA) indicates an expected NCA completion date of August 13, 2014, which is after the FY 2015 IPPS/LTCH PPS final rule is scheduled to be published. The processes for evaluation and determination of an NCD, and the processes for evaluation and approval of an application for new technology add-on payments are made independent of each other. However, any payment made under the Medicare program for services provided to a beneficiary would be contingent on CMS' coverage of the item, and any restrictions on the coverage would apply.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on how the MitraClip® System meets the newness criterion for purposes of new technology add-on payments and the issues that may arise from concurrent NCD requests and new technology add-on payment application review and approval processes.

Comment: The applicant stated that the technology is a first in kind and is not substantially similar to any FDA approved technology on the market. Therefore, the applicant believed that the technology meets the newness criterion. Several other public comments believed that the MitraClip® System meets the newness criterion.

Response: We appreciate the commenters' input. After consideration of the application, we agree with the commenters that the MitraClip® System meets the newness criterion. Therefore, for purposes of determining eligibility for FY 2015 IPPS new technology add-on payments, we consider the technology to be “new” as of October 24, 2013, and will use ICD-9-CM procedure code 35.97 (Percutaneous mitral valve repair with implant) to identify the technology for new technology add-on payments.

Comment: One commenter noted that the application to request a NCD was not made by the applicant, as stated in the proposed rule. Rather, the commenter stated that this request was made by a coalition of four national physician specialty societies that specialize in treating patients diagnosed with valve disease.

Response: We appreciate the commenter's input concerning this clarification.

With regard to the cost criterion, the applicant conducted two analyses. The applicant noted that, while ICD-9-CM procedure code 35.97 maps to MS-DRGs 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with Major Complication or Comorbidity (MCC) or 4+ Vessels/Stents), 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC), 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC), 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC), and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC), clinical experience with the MitraClip® System device has demonstrated that it is extremely rare for a patient to receive stents concurrently during procedures using the MitraClip® System device. The applicant further cited the FY 2013 IPPS/LTCH PPS final rule (77 FR 53308) which stated, “According to the Food and Drug Administration's (FDA's) terms of the clinical trial for MitraClip® System, the device is to be implanted in patients without any additional surgeries performed. Therefore, based on these terms, we stated that while the procedure code is assigned to MS-DRGs 246 through 251, the most likely MS-DRG assignments would be MS-DRGs 250 and 251.” As a result, the applicant stated that it conducted its analyses solely for MS-DRGs 250 and 251 to demonstrate that the cases involving the MitraClip® System device meet the incremental cost thresholds provided in Table 10 for those MS-DRGs.

The applicant researched the FY 2012 MedPAR file for claims for cases reporting ICD-9-CM procedure code 35.97. Under the first analysis and methodology, the applicant noted that this search yielded actual claims for cases in which the MitraClip® System device was used in procedures performed in an IDE study type setting, and hospitals obtained the MitraClip® System device at a reduced investigational price. The applicant further stated that it is likely that hospitals did not report the charges for the investigational device, or submitted claims for charges that were significantly less than the actual device acquisition costs (we refer readers to the explanation below). The applicant found 57 cases in MS-DRG 250 (29.38 percent of the total number of cases), and 137 cases in MS-DRG 251 (70.61 percent of the total number of cases), which resulted in an average case-weighted standardized charge per case of $232,670.

The applicant standardized the charges using the FY 2014 IPPS final rule impact file, and inflated the result using three different inflation factors. We note that, since the applicant used FY 2012 MedPAR data, we believe it is appropriate to use comparable data for standardization. Therefore, we believe use of the FY 2012 final rule impact file is more appropriate rather than the FY 2014 final rule impact file. The first analysis and methodology used an inflation factor of 4.57 percent, which was based on data from the BLS' non-seasonally adjusted CPI for all urban consumers between January 2011 and January 2013. This resulted in an average case-weighted standardized charge per case of $94,517. The second methodology under the first analysis used an inflation factor of 9.92 percent, which was based on the 2-year charge inflation factor listed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50982). This resulted in an average case-weighted standardized charge per case of $96,199. The third methodology used under the first analysis used an inflation factor of 4.63 percent, which was based on the Medicare Economic Index (MEI) from the IPPS market basket update between the third quarter of 2012 projected through the third quarter of 2014. This resulted in an average case-weighted standardized charge per case of $91,570. The applicant noted that all three methodologies used under the first analysis to determine each respective average case-weighted standardized charge per case were calculated without any adjustments to reflect the reduced investigational price, or inadequate hospital claim reporting and billing.

Using the FY 2014 IPPS Table 10 thresholds, the average case-weighted threshold for MS-DRGs 250 and 251 is $71,467 (all calculations above were performed using unrounded numbers). Because the average case-weighted standardized charge per case for the applicable MS-DRGs calculated under each methodology under the first analysis discussed above exceeds the average case-weighted threshold amount, the applicant maintained that the technology meets the cost criterion.

Under the second analysis, which used the same premise as the first analysis, the applicant researched the FY 2012 MedPAR file for claims for cases reporting procedure code 35.97 that mapped to MS-DRGs 250 and 251, except that the applicant excluded charges related to the MitraClip® System by removing all charges from the claim that would map to the implantable cost center on the cost report. The applicant then standardized the charges, inflated the result using the three inflation factors above, and added a fixed amount of commercial charges based on post-FDA approval pricing. This resulted in an average case weighted standardized charge per case of $139,536 under the first inflation factor (4.57 percent), $142,364 under the second inflation factor (9.2 percent), and $139,568 under the third inflation factor (4.63 percent).

Using the FY 2014 IPPS Table 10 thresholds, the average case-weighted threshold for MS-DRGs 250 and 251 is $71,467 (all calculations above were performed using unrounded numbers). Because the average case-weighted standardized charge per case for the applicable MS-DRGs calculated under all three methodologies discussed above exceeds the average case-weighted threshold amount, the applicant maintained that the MitraClip® System meets the cost criterion.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether or not the MitraClip® System meets the cost criterion. In addition, we invited public comments on the methodologies used by the applicant in its two analyses.

Comment: In response to CMS' statement in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28049) that it believed use of the FY 2012 final rule impact file is more appropriate rather than the FY 2014 final rule impact file for standardization, the applicant submitted the following supplemental data updating its cost analyses.

With regard to the second analysis, the applicant submitted revised data using the FY 2012 MedPAR file and the FY 2012 impact file to standardize the charges. We note that in the proposed rule we inadvertently listed $232,670 as the average case-weighted standardized charge per case. This amount is the average case-weighted non-standardized charge per case. Based on the revised data, the corrected average case-weighted standardized charge per case is $151,111.

Using the same methodology described above and the FY 2012 impact file, under the second analysis, the applicant determined an inflated average case-weighted standardized charge per case of $136,479 under the first inflation factor (4.57 percent), $139,151 under the second inflation factor (9.2 percent), and $139,509 under the third inflation factor (4.63 percent). The applicant compared these amounts to the average case-weighted threshold of $71,467 for MS-DRGs 250 and 251 (all calculations above were performed using unrounded numbers). Because the inflated average case-weighted standardized charge per case for the applicable MS-DRGs calculated under all three methodologies discussed above exceeds the average case-weighted threshold amount of $71,467, the applicant maintained that the MitraClip® System meets the cost criterion.

The applicant also revised the second analysis using FY 2013 MedPAR and the FY 2013 impact file. Based on this data, similar to above, the applicant searched the FY 2013 MedPAR file for claims for cases reporting ICD-9-CM procedure code 35.97. The applicant found 43 cases in MS-DRG 250 (28.66 percent of the total number of cases), and 107 cases in MS-DRG 251 (71.33 percent of the total number of cases), which resulted in an average case-weighted standardized charge per case of $149,725.

The first methodology used an inflation factor of 3.20 percent, which was based on data from the BLS' non-seasonally adjusted CPI for all urban consumers between January 2012 and January 2013. This resulted in an inflated average case-weighted standardized charge per case of $152,945 (which included a fixed amount of commercial charges based on post-FDA approval pricing). The second methodology used an inflation factor of 11.46 percent (second quarter of FY 2012 through first quarter of FY 2014), which was based on the outlier inflation factor in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28321). This resulted in an inflated average case-weighted standardized charge per case of $158,425 (which included a fixed amount of commercial charges based on post-FDA approval pricing). The third methodology used an inflation factor of 4.53 percent, which was based on the MEI from the IPPS market basket update between the third quarter of 2013 projected through the third quarter of 2015. This resulted in an average case-weighted standardized charge per case of $153,827 (which included a fixed amount of commercial charges based on post-FDA approval pricing).

Using the FY 2014 IPPS Table 10 thresholds, the average case-weighted threshold for MS-DRGs 250 and 251 is $75,772 (all calculations above were performed using unrounded numbers). Because the inflated average case-weighted standardized charge per case for the applicable MS-DRGs calculated under each methodology under this analysis discussed above exceeds the average case-weighted threshold amount, the applicant maintained that the technology meets the cost criterion.

Several other commenters believed that the MitraClip® System meets the cost criterion.

Response: We appreciate the applicant's submission of the supplemental data. We agree with the commenters that the MitraClip® System meets the cost criterion. We note that in section II.I.4.b. of the preamble of this final rule, we denied the applicant's request to reassign cases reporting a TMVR using the MitraClip® System from MS-DRGs 250 and 251 to MS-DRGs 216 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC), 217 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization with CC), 218 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization without CC/MCC), 219 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC), 220 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization with CC), and 221 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization without CC/MCC). We also denied the applicant's request to create a new base MS-DRG for transcatheter valve therapies. We refer readers to section II.G. for a complete discussion on these requests.

The applicant asserted that the MitraClip® System meets the substantial clinical improvement criterion. Severe MR is associated with significant morbidity and mortality rates, and is a progressive condition. For symptomatic patients diagnosed with significant MR, surgical repair or replacement is considered the gold standard—offering improvements in symptoms and longer survival rates. However, the applicant explained that studies have indicated that a significant proportion of patients are not eligible for mitral valve repair and/or replacement surgery because of risk factors, including reduced left ventricular function, significant comorbidities, and advanced age. As a result, the applicant stated that there is a significant unmet clinical need for patients diagnosed with severe MR who are too high-risk for surgery, who are receiving palliative medical management.

The applicant also stated that the MitraClip® System meets the substantial clinical improvement criterion based on clinical studies that have consistently shown that procedures performed using the MitraClip® System device lead to a significant reduction of MR; improvements in left ventricular (LV) function including LV volumes and dimensions; improved patient outcomes as measured by improvements in New York Heart Association (NYHA) functional class, improvement in health-related quality of life measures, and reductions in heart-failure related hospitalizations; and significantly lower mortality rates than predicted surgical mortality rates.

The applicant cited clinical data from the EVEREST II High-Risk Study and the EVEREST II (REALISM) Continued Access Study/Registry. The applicant also cited clinical data from a high-risk cohort of patients (the EVEREST II High-Risk Cohort), which is an integrated analysis of the following: (1) patients within the EVEREST II High-Risk Study who met eligibility criteria for being too high-risk to undergo mitral valve repair surgery; and (2) patients within the EVEREST II (REALISM) Continued Access Study/Registry who were too high-risk for surgery using identical eligibility inclusion criteria. The applicant also cited data from the Prohibitive Risk Degenerative Mitral Regurgitation (DMR) Cohort, which is an analysis of retrospectively evaluated high-risk patients diagnosed with DMR enrolled in the EVEREST II studies that had 1-year follow-up available.

In addition to the published clinical experience from the EVEREST studies, the applicant cited data on the use of the MitraClip® System device in a “real-world” setting published recently by a select number of European centers as part of their individual and/or multi-center commercial experience or enrollment in the MitraClip® System device group of the ACCESS-EU post-approval clinical trial in Europe. The European use of the MitraClip® System device is focused on patients who are too high-risk for surgery, and patients who are selected for therapy using a multi-disciplinary “heart team” approach.

The applicant stated that published reports on the MitraClip® System device and the procedures in which the device was used have consistently demonstrated a significant reduction in MR incidents that have been durable out to 1, 2, 3, and 4 years. The applicant cited the EVEREST II High-Risk Study (an analysis of 78 patients diagnosed with degenerative or functional MR enrolled in the trial), which stated that “objective measures of MR grade improved in the MitraClip^TM group, including MR grade of ≤2+ in 78 percent of surviving patients at 1 year. These patients also experienced clinically significant improvements in left ventricular volume measurements. The clinical significance of these improvements is reflected in the NYHA class improvements. At baseline, 89 percent of patients were NYHA III/IV, improving to Class I/II in 74 percent of surviving patients at 12 months. Quality of life scores also improved significantly. Finally, the number of admissions for heart failure was significantly reduced compared to the year prior to MitraClip^TM therapy.”

The applicant cited clinical outcomes from the Prohibitive Risk DMR cohort. These results are the basis of the FDA premarket approval. Major effectiveness endpoints evaluated at 12 months demonstrated clinically important improvements in MR severity, with MR severity grades of 3+/4+ decreasing from 90.4 percent at baseline to 16.7 percent at 1 year; NYHA Class III/IV decreasing from 86.6 percent at baseline to 13.1 percent at 1 year; and the SF-36 Physical/Mental scale measuring 33.4/46.6 at baseline increasing to 39.4/52.2 at 1 year.

The applicant stated in its new technology add-on payment application that, “Heart failure hospitalizations were reduced by 73 percent in the 12 months post MitraClip^TM procedure from the 12 month pre-MitraClip^TM procedure . . .,” and “the primary safety analysis indicated low procedural (30-day) mortality (6.3 percent) after MitraClip^TM in comparison with the STS predicted surgical mortality risk score for these patients (13.2 percent).”

The applicant discussed published results “assessing the relationship between the magnitude of reduction in MR and left ventricular (LV) and left atrial (LA) remodeling after the MitraClip^TM therapy.” In this study of patients diagnosed with significant (grade 3+ or 4+) DMR or functional MR (FMR), the authors found that, “even reduction of MR severity to moderate (2+) is associated with LV and LA reverse remodeling. In both DMR and FMR, reduction in left ventricular end-diastolic volume (LVEDV) and LA volumes were improved proportionally to the degree of MR reduction at one year.”

In conclusion, the applicant cited data from the ACCESS-EU study, which noted improvement in disease-specific quality of life measures, including the Minnesota Living with Heart Failure Questionnaire and Six-Minute Walk Test. The applicant also provided data supporting the overall safety and effectiveness of the MitraClip® System device in European “real-world” outcome studies.

We stated in the FY 2015 IPPS/LTCH PPS proposed rule that, as noted in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27547 through 27552), we are concerned that the applicant revised its initial FDA request for the use of the MitraClip® System device in all patients diagnosed with significant MR, after learning that the FDA expressed concern that the initial study, EVEREST II, demonstrated that, while the MitraClip® System device had clinically meaningful improvements in LV volume and QOL, the surgical option had better outcomes than the MitraClip® System device in surgical candidates. The FDA then required a second trial focused on high surgical risk patients. We noted that the data evaluated by the FDA and presented by the applicant in its application for new technology add-on payments included information from the following:

EVEREST I feasibility trial; enrollment 2003-2006; 55 patients.

EVEREST II RCT; enrollment 2005-2008; 279 patients.

EVEREST II High-Risk Study; enrollment 2007-2008; 78 patients. (A comparator group of 36 patients was identified from patients who were screened for the study, but did not meet the mitral valve anatomic criteria for placement of the device.)

EVEREST (REALISM) Continued Access Study and compassionate use; enrollment 2009-2013; 49 patients.

The applicant provided comparisons of various outcomes prior to the procedure using the MitraClip® System device and outcomes 12 months later. MR severity, LV end diastolic volume, NYHA Class, SF36 Physical/Mental scale, and heart failure hospitalization rates all had clinically meaningful improvements. For the EVEREST II HRS, the applicant provided analysis demonstrating a significant survival benefit (76 percent versus 55 percent/p<0.047) over the comparator group.

We stated in the FY 2015 IPPS/LTCH PPS proposed rule that in our review of the clinical trials' data, we have the following key points of concern:

• Post-hoc analyses of pooled data sets retain all of the individual shortcomings of the individual data sets;
• Pooling does not enhance the utility and scientific value of uncontrolled single-arm registries with no comparators; and
• Inappropriate pooling introduces additional confounders.

We stated that it is also unclear if the appropriate target population for the MitraClip® System device has been identified because the clinical trials conducted by the applicant included patients diagnosed with both DMR and FMR. This makes it difficult to determine which group of patients may benefit more, or less, from the new technology. For example, in a subgroup analysis of the EVEREST II RCT, the authors concluded that, older patients and those patients diagnosed with FMR or abnormal left ventricular function had results more comparable to surgical repair. Data results from 2 years of the EVEREST II RCT also demonstrated that surgery reduced incidents of MR more than the procedures performed using the percutaneous MitraClip® System device. However, both the surgical patients and the patients who were treated using the MitraClip® System device showed comparable results for improved left ventricular function, NYHA functional class, and quality of life.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether this technology meets the substantial clinical improvement criterion, particularly in comparison to other surgical therapies, such as mitral valve repair or replacement, and the appropriate target population for this technology.

Comment: A number of commenters agreed with the applicant that the MitraClip® System meets the substantial clinical improvement criterion. The commenters also recommended the approval of the MitraClip® System for new technology add-on payments in FY 2015. One commenter, an association of thoracic surgeons, expressed support for the approval of the MitraClip® System for new technology add-on payments. The commenter explained that the MitraClip® System provides a treatment option to Medicare beneficiaries that represents a substantial clinical improvement for patients who are too high risk for surgical mitral valve repair or replacement. Other commenters indicated that they had experience using the MitraClip® System.

Response: We appreciate the commenters' support. Many of the commenters described their positive experiences using the MitraClip® System, which improved the clinical outcome of the patients treated. Furthermore, the commenters believed that most, if not all, of the cases treated using the MitraClip® System would have had no other treatment option available. In addition, the commenters asserted that the MitraClip® System helped to provide improvements to the quality of life of the patients treated with the technology. We considered the commenters' positive experiences using the MitraClip® System in our determination of whether the MitraClip® System represents a substantial clinical improvement in the treatment options available to Medicare beneficiaries.

Comment: The applicant submitted a public comment that stated peer-reviewed evidence supported the belief that the MitraClip® System meets the substantial clinical improvement criterion. The applicant further noted that in previous rulemaking, CMS has indicated that new technologies represent a substantial clinical improvement if “the device offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatment.” The commenter believed that the MitraClip® System meets this criterion when used in accordance with the FDA-approved indication for the treatment of prohibitive risk degenerative mitral regurgitation (DMR). Specifically, the applicant stated that for those patients who are ineligible for surgery due to prohibitive surgical risk, the MitraClip® System offers the first available option to mechanically correct their mitral valve disease and, therefore, improve cardiac functioning and functional status and quality of life, while decreasing heart failure related hospitalizations and potentially reducing mortality.

The applicant reiterated the opinion that the clinical evidence demonstrated that the technology represents a substantial clinical improvement in the treatment options available to Medicare beneficiaries for the following reasons:

• A majority of patients experience MR reduction from 3+/4+ to ≤2+ after the procedure. This improvement is sustained in 83 percent of patients at 12 months. Results at 2 years demonstrated that 82.5 percent of surviving patients remained at ≤2+, which demonstrated that there is no evidence of deterioration of MR severity between 1-year and 2-year follow up.
• Reduction in MR with the MitraClip therapy to ≤2+ has been shown to provide significant symptomatic DMR patients with meaningful clinical benefits including reduction of left ventricular volumes.
• Patients experienced clinically important improvement in NYHA Functional Class at 12 months; roughly 87 percent of patients experienced NYHA Class III or Class IV symptoms at baseline, which improved to less than 15 percent at 12 months.
• Despite the elderly and highly comorbid nature of the population, quality of life scores improved. The improvements in both the Physical Component Summary and Mental Component Summary scores exceeded the 2-3 point threshold generally considered to represent a minimum clinically important difference.
• Heart failure hospitalizations were reduced by 73 percent in the 12 months post-MitraClip procedure from the 12 months pre-MitraClip procedure.

The commenter concluded that, in recognition of these benefits, the 2014 AHA/ACC Guidelines for the Management of Patients with Valvular Heart Disease recommended the MitraClip therapy as a treatment option for the FDA-approved indication. The commenter noted that the guidelines state that TMVR may be considered for severely symptomatic patients (NYHA Class III to Class IV) with chronic severe primary MR (stage D) who have favorable anatomy for the repair procedure and a reasonable life expectancy, but who have a prohibitive surgical risk because of severe comorbidities and remain severely symptomatic despite optimal GDMT for HF.

The applicant also addressed CMS' concerns presented in the proposed rule. Specifically, with respect to the concern regarding the appropriate target population for this technology, the commenter believed that the target population has been clearly defined in the FDA approval indication and associated labeling for the MitraClip® System. The applicant noted that since the publication of the proposed rule, as stated above, the AHA/ACC has reviewed the MitraClip® System evidence and updated their guidelines to recommend consideration for the use of the MitraClip® System for patients meeting the FDA-approved indication. In addition, the applicant indicated that the CMS Coverage and Analysis Group has also reviewed the MitraClip® evidence and issued a proposed decision memorandum to extend coverage for the FDA-approved indication at highly experienced centers of excellence meeting specific criteria. Further, the applicant noted that detailed multi-society requirements have been published specifying operator and institutional criteria for performing the MitraClip® System procedure, and these have been incorporated by CMS into the proposed decision memorandum. Finally, the applicant stated that it has worked together with national societies and CMS to establish a new mitral module of the national TVT registry to systematically track adherence to these requirements by all health care centers using the MitraClip® System and to collect data on patient outcomes with linkage to the CMS claims database.

With respect to CMS' concerns regarding how the MitraClip® system compares to other surgical therapies, such as mitral valve repair or replacement, the applicant stated that clinical outcomes from the prohibitive risk DMR Cohort were determined by the FDA to adequately establish the safety, effectiveness, and positive benefit-risk profile of the MitraClip® System for the indicated population, and these data are the basis for Premarket Approval Application (PMA) approval. In conclusion of thought, the applicant stated that the FDA concluded that the totality of clinical evidence demonstrated the reasonable assurance of safety and effectiveness of the MitraClip® System to reduce MR and provide patient benefit in this discrete and specific patient population.

The applicant also commented that the prohibitive risk DMR Cohort, on which FDA approval was granted, included 127 consecutively-enrolled patients who completed 12 months of follow-up after treatment with the MitraClip® System device. The applicant explained that this Cohort included 25 patients from the EVEREST II High Risk Registry (HRR) study, 98 patients from the high risk arm of the REALISM Continued Access study, and 4 Compassionate Use patients. The applicant further explained that the four Compassionate Use patients are included for analysis in the Prohibitive Risk DMR Cohort because they meet the definition of prohibitive risk and all valve anatomic criteria for eligibility. For inclusion in this Cohort, three physicians (two experienced mitral valve surgeons and one experienced mitral valve cardiologist) had to concur that the patient met the definition of prohibitive risk.

The applicant further stated that patients in the prohibitive risk DMR Cohort were all enrolled under a highly-rigorous IDE clinical trial protocol that included pre-specified eligibility criteria and adjudicated endpoints. The applicant stated that pooling of the EVEREST II Continued Access Study (REALISM) data with EVEREST II HRR was intended and pre-specified in the REALISM protocol. The applicant noted that one of the REALISM protocol's stated objectives was to gather additional safety and effectiveness data to support the PMA. The applicant further stated that the same device design was used, and care was taken to ensure the two studies had identical entry criteria, data collection, monitoring, and analysis methods. In addition, the applicant stated that the REALISM protocol defined the evaluation of poolability and specified clinically important baseline variables to be compared. The applicant stated that the majority (10/13) of these baseline characteristics, especially high-risk characteristics/comorbidities, was similar in REALISM and HRR, resulting in comparable average STS predicted mortality risk scores.

The applicant stated that the findings from the prohibitive risk DMR Cohort were highly consistent with real-world evidence from a large number of published European studies that included similar groups of high-risk patients.

The applicant concluded that despite some limitations in evaluating evidence from pooled datasets, it should be noted that all available evidence on the MitraClip® System consistently indicate that the use of this technology provides both mechanistic and clinical benefit for these high surgical risk patients.

Response: We appreciate the applicant's subsequent analysis of data. With respect to the substantial clinical improvement represented by this technology, we considered all the case specific clinical information presented by the applicant and the public to determine whether there is evidence to support a conclusion that the use of the MitraClip® System represents a substantial clinical improvement in the treatment options available to Medicare beneficiaries. Specifically, we considered the peer-reviewed medical literature, clinical studies, and the clinically accepted use of the device. We believe that it is important that the MitraClip® System be used in the treatment of the appropriate target population and that the NCD will establish the appropriate Medicare patient population for this procedure. We agree with the applicant that the MitraClip® System offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatment; specifically those patients that have been determined to be at prohibitive risk for mitral valve surgery (per the FDA indications). In addition, we received positive comments from a major cardiovascular and a major thoracic society and from many physicians who indicated that the MitraClip® System helped to produce positive clinical outcomes by providing a treatment option for patients with no other available options, as well as resolving MR. Furthermore, the MitraClip® System is the only device currently available to mechanically correct mitral valve disease. Without the availability of this device, patients with DMR might otherwise receive general treatment to maintain their condition, which would eventually result in death rather than a treatment to resolve their condition. Also, the MitraClip® System can be an effective treatment option that improves quality of life and reduces heart failure symptoms and hospitalizations. Therefore, after reviewing the totality of the evidence, we believe that the MitraClip® System represents a substantial clinical improvement over existing therapies. We remain interested in seeing whether the clinical evidence will continue to find that the MitraClip® System will be effective. We will continue to monitor the clinical data as the data become available.

After consideration of the public comments we received, we are approving the MitraClip® System for new technology add-on payments in FY 2015. As noted above, any payment made under the Medicare program for services provided to a beneficiary is contingent upon CMS' coverage of the item, and any restrictions on the coverage apply. This approval is on the basis of using the MitraClip® consistent with any coverage decision that will be issued by CMS after the publication of this final rule. Subject to any coverage determinations made by CMS regarding the MitraClip® System, cases involving the MitraClip® System that are eligible for the new technology add-on payments will be identified by ICD-9-CM procedure code 35.97. The average cost of the MitraClip® System is reported as $30,000. Under section 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case involving the MitraClip® System is $15,000 for FY 2015.

e. Responsive Neurostimulator (RNS®) System

NeuroPace, Inc. submitted an application for new technology add-on payments for FY 2015 for the use of the RNS® System. (We note that the applicant submitted an application for new technology add-on payments for FY 2014, but failed to receive FDA approval prior to the July 1 deadline.) Seizures occur when brain function is disrupted by abnormal electrical activity. Epilepsy is a brain disorder characterized by recurrent, unprovoked seizures. According to the applicant, the RNS® System is the first implantable medical device (developed by NeuroPace, Inc.) for treating persons diagnosed with epilepsy whose partial onset seizures have not been adequately controlled with antiepileptic medications. The applicant further stated that, the RNS® System is the first closed-loop, responsive system to treat partial onset seizures. Responsive electrical stimulation is delivered directly to the seizure focus in the brain when abnormal brain activity is detected. A cranially implanted programmable neurostimulator senses and records brain activity through one or two electrode-containing leads that are placed at the patient's seizure focus/foci. The neurostimulator detects electrographic patterns previously identified by the physician as abnormal, and then provides brief pulses of electrical stimulation through the leads to interrupt those patterns. Stimulation is delivered only when abnormal electrocorticographic activity is detected. The typical patient is treated with a total of 5 minutes of stimulation a day. The RNS® System incorporates remote monitoring, which allows patients to share information with their physicians remotely.

With respect to the newness criterion, the applicant stated that some patients diagnosed with partial onset seizures that cannot be controlled with antiepileptic medications may be candidates for the vagus nerve stimulator (VNS) or for surgical removal of the seizure focus. According to the applicant, these treatments are not appropriate for, or helpful to, all patients. Therefore, the applicant believed that there is an unmet clinical need for additional therapies for partial onset seizures. The applicant further stated that the RNS® System addresses this unmet clinical need by providing a novel treatment option for treating persons diagnosed with medically intractable partial onset seizures. The applicant received FDA premarket approval in November 2013. The following ICD-9-CM procedure codes are used to identify this technology: 01.20 (Cranial implantation or replacement of neurostimulator pulse generator); 01.29 (Removal of cranial neurostimulator pulse generator); and 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)).

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether the technology meets the newness criterion. However, we did not receive any public comments in response to the proposed rule regarding whether the technology meets the newness criterion. The applicant received FDA premarket approval on November 14, 2013. Therefore, for the purpose of evaluation for determinng eligibility for FY 2015 IPPS new technology add-on payments, we consider this technology to be “new” as of November 14, 2013, and we will use the following ICD-9-CM procedure codes to identify the technology for purposes of new technology add-on payments: 01.20 (Cranial implantation or replacement of neurostimulator pulse generator); 01.29 (Removal of cranial neurostimulator pulse generator); and 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)).

With regard to the cost criterion, the applicant stated that substantially all cases eligible for the RNS® System would map to MS-DRG 024 (Craniotomy with Major Device Implant/Acute Complex Central Nervous System Principal Diagnosis without MCC). The applicant further stated that, while it is possible for some cases to occur in MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex Central Nervous System Principal Diagnosis with MCC or Chemotherapy Implant), it would be extremely rare because the applicant believed that these major complications and/or comorbidities would probably preclude a patient from receiving treatment using the RNS® System because the technology is an elective procedure.

The applicant submitted two analyses to demonstrate that the technology meets the cost criterion. For the first analysis, the applicant used clinical trial claims data collected in the RNS® System Pivotal Clinical Investigation to calculate the anticipated average case-weighted standardized charge per case. The applicant maintained that this analysis best represents the anticipated charges for the technology because it is based on actual cases treated using this technology. The applicant analyzed 163 claims from 28 hospitals participating in the clinical trial. Five claims from one hospital were excluded because no hospital-specific information regarding standardization was available. The resulting 158 claims included dates of service ranging from May 2006 through May 2009. The average case-weighted standardized charge per case for these 158 claims was $54,691.

The applicant then standardized the charges for each claim. The applicant noted that it was not necessary to remove any charges from these claims because the technology was provided at no charge in the trial. After standardizing the charges for each claim, the applicant inflated the charges reported on each claim using the BLS' CPI-IP data covering the same period. Specifically, because the publicly available FY 2012 MedPAR data do not identify the month of the discharge on inpatient claims, but do identify the calendar quarter, the applicant used a mid-month convention to determine the relevant monthly CPI-IP for each calendar quarter. The applicant then calculated the percentage change from the relevant quarter to the quarter of the most recently available CPI-IP, which was the August 2013 CPI-IP. Specifically, the applicant used the following assumptions:

After inflating the charges, the applicant estimated charges for the RNS® System by multiplying the device cost to the hospital by an anticipated hospital markup of 100 percent, or conversely by dividing the device cost by a CCR of 0.50. The applicant based its estimated CCR on four analyses. First, the applicant reviewed the 2007 and 2008 reports prepared by RTI for CMS on charge compression, which found that the national aggregate CCR for devices and implants was 0.43 and 0.467, as presented in the respective reports. Second, the applicant queried hospitals participating in the RNS® System Pivotal trial, and these queries yielded a mean and median CCR for implantable devices of 0.37 and 0.36, respectively. Third, the applicant reviewed data from the (All Payor) Premier database for cases performed during 2000 through 2010 that reported ICD-9 CM procedure codes 02.93 and/or 86.95 on a claim, and calculated a mean and median CCR for implanted leads and neurostimulators of 0.50 and 0.44, respectively. The applicant then reviewed other discussions of past new technology add-on payment applications published in the Federal Register, and noted that other applicants used lower CCRs (higher markups) for implanted devices than the CCR of 0.50 used in the applicant's analyses.

Using this approach, the applicant added the anticipated hospital charge for the implantable RNS® System to the average case-weighted standardized charge per case, and determined a final average case-weighted standardized charge per case of $128,723. The anticipated hospital charge for the implantable RNS® System is $73,900. Using the FY 2014 IPPS Table 10 thresholds, the threshold for MS-DRG 024 is $91,197. Because the final average case-weighted standardized charge per case of $128,723 for MS-DRG 024 exceeds the average case-weighted threshold amount, the applicant maintained that the RNS® System meets the cost criterion.

In the second analysis, which the applicant characterizes as supplementary, the applicant researched the FY 2012 MedPAR file for cases reporting the following combinations of ICD-9-CM procedures codes: 02.93 and 86.95, or procedures codes 02.93 and 01.20 that mapped to MS-DRG 024. The applicant found 383 claims for cases reporting the combination of ICD-9-CM procedures codes 02.93 and 01.20, and pointed out that these cases were coded with procedure code 01.20 in error because no new RNS® System implantations occurred after May 2009. The applicant analyzed these 383 claims, and found that more than 90 percent of these cases had a primary or secondary diagnosis of Parkinson's disease, essential tremor, or dystonia. These diagnoses are FDA-approved indications for deep brain stimulation (DBS). In addition, the applicant noted that the total covered charges for these cases were less than the estimated charges for a full DBS system, and hypothesized that these cases did not represent implantation of a full DBS system, but did represent the implantation of leads only. The applicant contacted two hospitals that reported claims for cases where total covered charges were less than the charges for a full DBS system, and the hospitals confirmed that their claims represented lead implantations only. Therefore, for the second analysis, the applicant included all of the cases assigned to MS-DRG 024 reporting a combination of ICD-9-CM procedures codes 02.93 and 86.95, and all of the cases assigned to MS-DRG 024 reporting a combination of ICD-9-CM procedures codes 02.93 and 01.20 where the covered charges were greater than, or equal to, the estimated charges of a full DBS system. The applicant maintained that 374 claims from 106 providers met this criterion, and data represented claims from the fourth calendar quarter of 2011 through the third calendar quarter of 2012. Based on this assumption, the applicant calculated an average case-weighted standardized charge per case of $65,555.

The applicant then removed DBS charges from the average case-weighted standardized charge per case. The applicant estimated charges for a full DBS system, and maintained that the average cost for a full DBS system is $25,979. Similar to its first analysis, the applicant assumed a CCR of 0.50, or 100 percent markup, which resulted in estimated charges for a full DBS system of $51,958. After removing the DBS system charges, the applicant inflated the charges to the current period using the same methodology in the first analysis, added charges for the RNS® System, and determined a final average case-weighted standardized charge per case of $130,233. As noted above, the anticipated hospital charge for the implantable RNS® System is $73,900. Using the FY 2014 IPPS Table 10 thresholds, the average case-weighted threshold for MS-DRG 024 is $91,197. Because the final average standardized charge per case of $130,233 for MS-DRG 024 exceeds the threshold amount, the applicant maintained that the RNS® System meets the cost criterion.

Under either analysis, the applicant maintained that the final average case-weighted standardized charge per case would exceed the average case-weighted threshold.

In the FY 2015 IPPS/LTCH PPS proposed rule, we invited public comments on whether the RNS® System meets the cost criterion, particularly based on the assumptions and methodology used in the applicant's analyses. However, we did not receive any public comments in response to the proposed rule regarding whether this technology meets the cost criterion. After further evaluation of the new technology add-on payment application, we believe that the technology meets the cost criterion.

With regard to substantial clinical improvement, as previously stated, some patients diagnosed with partial onset seizures may not be able to control their seizures with antiepileptic medications, VNS, or with surgical removal of the seizure focus. The applicant stated that the RNS® System provides treatment for those patients diagnosed with partial onset seizures who fail treatment with antiepileptic medications, or VNS therapy, and who are ineligible for respective surgery because of the extent and/or location of the seizure focus, or patients who do not elect surgery. According to the applicant, the RNS® System clinical trials provide Class I evidence that treatment using the RNS® System substantially reduces disabling seizures in patients diagnosed with severe epilepsy, who have tried and failed treatment with antiepileptic medications, and in many cases, VNS or epilepsy surgery. The applicant maintained that the results from their clinical trials demonstrate significant and sustained improvements in health outcomes over the controlled period and over the long term. The applicant conducted a feasibility trial, which was designed to demonstrate adequate safety of its treatment, and provide evidence of effectiveness to support commencement of a randomized double-blinded pivotal trial. In addition, the applicant has an ongoing long-term treatment clinical investigation trial (LTT trial) to assess the long-term safety and effectiveness of the treatment on patients who have completed either the Feasibility trial, or the RNS® System Pivotal trial for an additional seven years. The LTT trial started in April 2006, and the final patient is expected to complete the trial in 2018. The applicant noted that patients enrolled in the LTT trial continued to experience a reduction in seizures over several years of follow-up, further demonstrating the positive effect of responsive stimulation from the RNS® System is durable.

The applicant stated that their pivotal trial met its primary effectiveness endpoint by proving that there was a statistically significant greater reduction in seizures in the treatment group compared to the control group (p = 0.012). Significant improvements at 1 and 2 years post-implant included:

• A significant reduction in disabling seizures of 44 percent and 53 percent at 1 and 2 years, respectively;
• Fifty-five percent of patients who reached 2 years post-implant experienced a 50 percent or greater reduction in seizures; and
• Significant improvements in overall quality of life, as well as individual quality of life measures including memory, language, attention, concentration and medication effects.

The applicant asserted that there was no negative effect of treatment using the RNS® System on neuropsychological function (including verbal functioning, visual spatial processing, and memory) or mood. The applicant concluded that the RNS® System Pivotal trial provides Class I evidence that responsive cortical stimulation is effective in significantly reducing seizure frequency in adults with one or two seizure foci who have failed two or more antiepileptic medication trials. The applicant stated that experience across all of the RNS® System trials demonstrates the reduction in seizure frequency of disabling partial onset seizures improves over time. In addition, the applicant noted that sustained improvements were also seen in quality of life. Finally, the applicant noted that safety and tolerability measures compare favorably to alternative treatments, such as antiepileptic medications, VNS, and epilepsy surgery.

With regard to the substantial clinical improvement criterion, we stated in the proposed rule that we are concerned that the average age of the patients enrolled in the applicant's trials was 35 years. Although the applicant maintained that 31 percent of the patients enrolled in the pivotal trial were Medicare beneficiaries, we are unsure of the extent to which this technology would be used by Medicare beneficiaries because of the relatively young age of the majority of the patients enrolled in the pivotal trial. We also are concerned that further clarification on how the RNS® System compares to other neurostimulation treatments was not provided by the applicant.

Because the applicant included claims with DBS charges in one of its cost analyses, we believe that the similarities and differences between DBS and the RNS® System may also be relevant under the substantial clinical improvement criterion. In addition, we stated in the proposed rule that we are concerned that the time period in the clinical trial may not be sufficient to confirm durability. In the RNS® System Pivotal Clinical Investigation, the primary effectiveness endpoint considered seizure frequency over the last 3 months of the blinded period of the trial. We note that the applicant is currently conducting a 5-year study.

We invited public comments on whether the RNS® System meets the substantial clinical improvement criterion, particularly in regard to the degree in which the technology would be used by Medicare beneficiaries, the comparison to other neurostimulation treatments, and its durability.

Comment: Commenters stated that the technology is currently used and will continue to be used in the treatment of Medicare beneficiaries who have been diagnosed with epilepsy. One commenter noted that 31 percent of individuals in the RNS® System clinical trial were Medicare beneficiaries, and all of these individuals were enrolled in the Medicare program because of a disability as opposed to being enrolled in the Medicare program because of their age. In addition, the commenter provided an analysis of data obtained from publicly available databases, specifically using the Premier Perspective all payor database for the time period from 2008 through 2013 and the CMS MedPAR database for FY 2012 and FY 2013. This analysis showed that, for Medicare beneficiaries who have been diagnosed with medically intractable partial epilepsy, 72 to 77 percent of the Medicare claims were submitted for payment of services provided to patients who were under the age of 65. The commenter also queried the public Web sites of the healthcare centers that participated in the RNS® System Pivotal trial, which included data on patients who have participated in specific programs directed by 120 adult comprehensive epilepsy centers, and found that these centers reported that 33 percent of their patients who have been diagnosed with epilepsy were enrolled in the Medicare program and 76 percent of these Medicare beneficiaries were under the age of 65. Several other commenters asserted that patients who have been diagnosed with epilepsy and receive treatment using this technology would be eligible for Medicare based on a disabling condition. The commenter provided examples of the types of patients that they have treated who are younger than the age of 65, but who are insured through the Medicare program based on a disabling condition.

Response: We appreciate the information detailed within the commenter's analysis. We agree with the commenters that this technology will be available for use by Medicare beneficiaries.

Comment: Commenters provided comparison analyses for this technology and VNS therapy, DBS, surgical resection, and other medications, and also conducted assessments of the durability of the RNS® System. (We further discuss the results of the comparison analyses and assessments conducted by these commenters below.) Many of these commenters pointed out that this technology is capable of capturing and storing information regarding seizure activity, which could enable the use of this technology to initiate possible changes in medical management of patients treated with an implant over time.

In comparison to VNS therapy, commenters stated that the RNS® System is a closed loop system that provides electrical stimulation in response to brain activity, while VNS therapy is an open loop system that provides electrical stimulation continuously or intermittently at programmed intervals. In addition, commenters stated that the RNS® System can be applied directly to the seizure focus or foci in the brain, while VNS therapy provides stimulation to the vagus nerve. The commenters noted that this distinction represents an improvement relative to VNS therapy because patients receive less stimulation using the RNS® System. The commenters also pointed out that the side effects of VNS therapy, such as hoarseness, coughing, and throat pain, are distressing and uncomfortable for patients and can make VNS therapy difficult to tolerate. These commenters also noted that these side effects do not emerge with the use of the RNS® System. One commenter provided data from the clinical trials for VNS therapy, which showed that more than half of the patients treated with VNS therapy “perceived” stimulation. The commenter also provided data from clinical trials for VNS therapy that showed that the side effects for VNS therapy included voice alternation, increased coughing, pharyngitis, dyspnea, dyspepsia, nausea, and laryngismus. The commenter compared the indications from the clinical trial data with data from the RNS® System trials, which indicate that there were no patients with ongoing complaints related to “perception of stimulation,” although some patients experienced symptoms such as flashing lights or focal muscle twitching. The commenter stated that stimulation with the RNS® System was adjusted for patients experiencing these symptoms, such that the symptoms became imperceptible. Many commenters stated that they were able to use the RNS® System to reduce the frequency of seizures in patients who have been diagnosed with epilepsy for whom VNS therapy did not reduce seizures. One commenter provided clinical trial data regarding VNS therapy that showed that in two studies in blinded periods VNS therapy reduced median seizures per day by 6 to 23 percent, and that over 3 years VNS therapy reduced median seizures per day by 31 to 41 percent. The commenter also provided clinical trial data regarding the RNS® System that showed in the blinded period a 28 percent reduction of median seizures per day compared to 19 percent for the control group. In addition, the commenter also provided clinical trial data regarding the RNS® System that showed that over 3 years the RNS® System reduced median seizures by 44 to 60 percent. The commenter also pointed out that 34 percent of patients enrolled in the RNS® System trial were previously treated with VNS therapy, but experienced positive outcomes with the RNS® System.

In comparison to DBS, commenters stated that the RNS® System was not approved by the FDA for treatment of epilepsy, and DBS is not considered to be the standard of care for the treatment of epilepsy by the American Academy of Neurology or the American Epilepsy Society. The commenters stated that they did not have experience with the RNS® System to compare with DBS to because it is not typically used, or approved for, treating patients diagnosed with epilepsy. One commenter noted that DBS is only available to patients on an experimental or investigational basis for the treatment of epilepsy. Another commenter stated that no direct comparison trial has been conducted between DBS and the RNS® System. The commenter reviewed data from a clinical trial that studied the use of DBS treatment of the anterior nucleus of the thalamus in subjects with medically intractable partial seizures. While the commenter stated that some of the data appeared to be comparable to the results of the RNS® System trials in terms of seizure reduction and quality of life, differences existed in the construction of the trials, including inclusion and exclusion criteria and primary efficacy endpoints. The commenter also stated that, similar to VNS therapy, DBS provides continuous or intermittent stimulation at program intervals, resulting in more stimulation being delivered than delivered using the RNS® System.

In comparison to surgical resection, commenters noted that the RNS® System can be used when surgical resection is not available as a treatment option. Commenters stated that some patients who have been diagnosed with epilepsy have seizure focus or foci area(s) in regions of the brain that should not be removed because removal would result in serious neurological defects. Therefore, commenters stated that the RNS® System represents a treatment option for patients who have been diagnosed with epilepsy for whom surgery is not an option. In addition, commenters stated that they were able to use the RNS® System to reduce the frequency of seizures in patients who had been treated with surgical resection and did not experience a reduction in seizures after surgery.

In comparison to antiepileptic medications used to treat patients who have been diagnosed with epilepsy, commenters stated that the RNS® System offers a treatment option that does not have the unpleasant side effects associated with some of these medications. The commenters stated that these side effects include problems with cognition or coordination, depression, and fatigue.

With regard to durability, one commenter provided data from the RNS® System clinical trial for 6 years. The results of the trial indicate that the median percent reduction in seizures compared to the baseline year was sustained or improved at 60 percent 3 years after implantation and 66 percent 6 years after implantation. The median follow-up time for this group of patients based on the trial's data was 5.4 years. The commenter indicated that these results are comparable, or better, for the subset of patients who were enrolled in the RNS® System clinical trial and that were Medicare beneficiaries. The commenter further stated that the updated data showed that the proportion of patients who were enrolled in the RNS® System clinical trial that experienced extended periods of seizure freedom of 3 or 6 months was slightly larger than previously shared in the November 1, 2012 new technology add-on payment application for the RNS® System.

Response: We appreciate the commenters' input. We agree with the commenters that the RNS® System offers a treatment option for a patient population that is unresponsive to currently available treatments. Specifically, we agree with the commenters that the RNS® System clinical trial data showed that the technology reduces seizure frequency in patients who have received treatment with VNS therapy or surgical resection and continued to have seizures subsequent to those treatments. We also agree with the commenters that the technology could be a treatment option for patients for whom surgical resection is not appropriate due to the location of the seizure focus or foci area(s). In addition, we agree with the commenters that use of the device improves clinical outcomes compared to currently available treatments. For example, it appears that seizure reduction over time using the RNS® System appears to be at least comparable with documented seizure reductions using VNS therapy, although no direct comparison of the two systems has been completed, and the RNS® System appears not to have the side effects that have been associated with VNS therapy. We agree with the commenters that it is inappropriate to compare the RNS® System to a technology that is not FDA approved for the same treatment.

After consideration of the public comments we received, we believe that the RNS® System meets all of the new technology add-on payment criteria. Therefore, we are approving new technology add-on payments for the RNS® System for FY 2015. Cases involving the RNS® System that are eligible for new technology add-on payments will be identified using the following ICD-9-CM procedure codes: 01.20 (Cranial implantation or replacement of neurostimulator pulse generator) in combination with 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)). According to the applicant, cases using the RNS® System would incur an anticipated cost per case of $36,950. Under § 412.88(a)(2) of the regulations, new technology add-on payments are limited to the lesser of 50 percent of the average costs of the device or 50 percent of the costs in excess of the MS-DRG payment rate for the case. As a result, the maximum add-on payment for cases involving the RNS® System is $18,475 for FY 2015.

III. Changes to the Hospital Wage Index for Acute Care Hospitals

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 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.” We currently define hospital labor market areas based on the delineations of statistical areas established by the Office of Management and Budget (OMB). A discussion of the FY 2015 hospital wage index based on the statistical areas appears under section III.B. of the preamble of this final rule.

Section 1886(d)(3)(E) of the Act requires the Secretary to update the wage index annually and to base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. This provision also requires that any updates or adjustments to the wage index be made in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The adjustment for FY 2015 is discussed in section II.B. of the Addendum to this final rule.

As discussed in section III.H. of the preamble of this final rule, 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 IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B), 1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The budget neutrality adjustment for FY 2015 is discussed in section II.A.4.b. of the Addendum to this final rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. A discussion of the occupational mix adjustment that we are applying to the FY 2015 wage index appears under section III.F. of the preamble of this final rule.

B. Core-Based Statistical Areas for the Hospital Wage Index

1. Background

The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. Under section 1886(d)(3)(E) of the Act, beginning with FY 2005, we delineate hospital labor market areas based on the Core-Based Statistical Areas (CBSAs) established by the Office of Management and Budget (OMB). The statistical areas used in FY 2014 are based on OMB standards published on December 27, 2000 (65 FR 82228) and Census 2000 data and Census Bureau population estimates for 2007 and 2008 (OMB Bulletin No. 10-02). For a discussion of OMB's delineations of CBSAs and our implementation of the CBSA definitions, we refer readers to the preamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032). We also discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582) and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53365) that, in 2013, OMB planned to announce new labor market area delineations based on new standards adopted in 2010 (75 FR 37246) and the 2010 Census of Population and Housing data. As stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27552) and final rule (78 FR 50586), on February 28, 2013, OMB issued OMB Bulletin No. 13-01, which established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of the delineations of these statistical areas. A copy of this bulletin may be obtained at http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. According to OMB, “[t]his bulletin provides the delineations of all Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan Statistical Areas, Combined Statistical Areas, and New England City and Town Areas in the United States and Puerto Rico based on the standards published on June 28, 2010, in the Federal Register (75 FR 37246 through 37252) and Census Bureau data.” In this FY 2015 IPPS/LTCH PPS final rule, when referencing the new OMB geographic boundaries of statistical areas, we are using the term “delineations” rather than the term ” definitions” that we have used in the past, consistent with OMB's use of the terms (75 FR 37249).

In order to implement these changes for the IPPS, it is necessary to identify the new labor market area delineation for each county and hospital in the country. While the revisions OMB published on February 28, 2013 are not as sweeping as the changes OMB announced in 2003, the February 28, 2013 bulletin does contain a number of significant changes. For example, under the new OMB delineations, there would be new CBSAs, urban counties that would become rural, rural counties that would become urban, and existing CBSAs would be split apart. In addition, the effect of the new OMB delineations on various hospital reclassifications, the out-migration adjustment (established by section 505 of Pub. L. 108-173), and treatment of hospitals located in certain rural counties (that is, “Lugar” hospitals) provided for under section 1886(d)(8)(B) of the Act must be considered. These are just a few of the many issues that need to be reviewed regarding the effects of the new OMB labor market area delineations prior to proposing and establishing policies.

However, because the bulletin was not issued until February 28, 2013, with supporting data not available until later, and because the changes made by the bulletin and their ramifications needed to be extensively reviewed and verified, we were unable to undertake such a lengthy process before publication of the FY 2014 IPPS/LTCH PPS proposed rule and, thus, did not implement changes to the wage index for FY 2014 based on these new OMB delineations. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50586), we stated that we intended to propose changes to the wage index based on the new OMB delineations in the FY 2015 IPPS/LTCH PPS proposed rule. As discussed below, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28054 through 28064, we proposed to implement the new OMB delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, effective for the FY 2015 IPPS wage index.

2. Implementation of New Labor Market Area Delineations

As discussed previously, CMS did not implement the new OMB labor market area delineations for FY 2014 because we needed sufficient time to assess the new changes. We believe it is important for the IPPS to use the latest labor market area delineations available as soon as is reasonably possible in order to maintain a more accurate and up-to-date payment system that reflects the reality of population shifts and labor market conditions. While CMS and other stakeholders have explored potential alternatives to the current CBSA-based labor market system (we refer readers to the CMS Web site at: www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Reform.html), no consensus has been achieved regarding how best to implement a replacement system. As discussed in the FY 2005 IPPS final rule (69 FR 49027), “While we recognize that MSAs are not designed specifically to define labor market areas, we believe they do represent a useful proxy for this purpose.” We further believe that using the most current delineations will increase the integrity of the IPPS wage index system by creating a more accurate representation of geographic variations in wage levels. We have reviewed our findings and impacts relating to the new OMB delineations, and find no compelling reason to delay implementation. Therefore, we proposed to implement the new OMB delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, effective for the FY 2015 IPPS wage index. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28055), we also proposed to use these new delineations to calculate area wage indexes in a manner that is generally consistent with the CBSA-based methodologies finalized in the FY 2005 IPPS final rule, and refined in subsequent rulemaking. We also proposed a wage index transition period applicable to all hospitals that experience negative impacts due to the proposed implementation of the new OMB delineations. This transition is discussed in more detail below.

Comment: Commenters were supportive of the proposal to adopt the new OMB delineations. One commenter, while supportive of CMS' proposal to adopt the new OMB delineations, effective for FY 2015, recommended that CMS adopt an alternative hospital wage index system in future rulemaking. Another commenter suggested that CMS implement new labor market area definitions to distinguish “core” urban areas from surrounding areas within a CBSA.

Response: We appreciate the support for our proposal to adopt the new OMB delineations. For FY 2015, we did not propose any modification to the current CBSA-based labor market area methodology, aside from proposing to adopt the new OMB labor market area delineations. However, we thank the commenters for their continued interest in examining alternative means for defining labor market areas. CMS presented an alternative wage index methodology in a Report to Congress on April 11, 2012 (http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/Wage-Index-Reform-Report-to-Congress-2012.zip). As discussed in the report, implementation of such a reform would require revisions to several statutory provisions that provide various forms of wage index reclassification and redesignation. Until a consensus on wage index reform is achieved, we believe that implementing the most recent OMB delineations is critical in maintaining the efficacy and integrity of the Medicare hospital wage index system. We did not propose, nor will we finalize, any additional changes to the CBSA-based labor market area delineations, including the concept of defining core and noncore portions of a CBSA.

After consideration of the public comments we received, we are finalizing the implementation of the new OMB delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, effective beginning with the FY 2015 IPPS wage index. We received public comments on our proposals with respect to the use of these new OMB delineations to calculate the area wage indexes and the transition periods, which we address in sections III.B.2.a. through d. of the preamble of this final rule. We also finalize our policies in those sections.

a. Micropolitan Statistical Areas

As discussed in the FY 2005 IPPS final rule (69 FR 49029 through 49032), CMS considered whether to use Micropolitan Statistical Areas to define the labor market areas for the purpose of the IPPS wage index. OMB defines a “Micropolitan Statistical Area” as a CBSA “associated with at least one urban cluster that has a population of at least 10,000, but less than 50,000” (75 FR 37252). We refer to these areas as Micropolitan Areas. After extensive impact analysis, CMS determined the best course of action would be to treat all hospitals located in Micropolitan Areas as “rural” and include them in the calculation of each State's rural wage index. Because Micropolitan areas tend to encompass smaller population centers and contain fewer hospitals than MSAs, we determined that if Micropolitan Areas were to be treated as separate labor market areas, the IPPS wage index would have included drastically more single-provider labor market areas. This larger number of labor market areas with fewer hospitals could create instability in year-to-year wage index values for a large number of hospitals; could reduce the averaging effect of the wage index, thus lessening some of the efficiency incentive inherent in a system based on the average hourly wages for a large number of hospitals; and could arguably create an inequitable system when so many hospitals have wage indexes based solely on their own wage data while other hospitals' wage indexes are based on an average hourly wage across many hospitals. For these reasons, we adopted a policy to include Micropolitan Areas in the State's rural wage area, and have continued this policy through the present.

Based upon the new 2010 Decennial Census data, a number of urban counties have switched status and have joined or became Micropolitan Areas, and some counties that once were part of a Micropolitan Area, under current OMB delineations, have become urban. Overall, there are fewer Micropolitan Areas (541) under the new OMB delineations based on the 2010 Census than existed under the latest data from the 2000 Census (581). We believe that the best course of action would be to continue the policy established in the FY 2005 IPPS final rule and include hospitals located in Micropolitan Areas in each State's rural wage index. These areas continue to be defined as having relatively small urban cores (populations of 10,000-49,999). We do not believe it would be appropriate to calculate a separate wage index for areas that typically may include only a few hospitals for the reasons set forth in the FY 2005 IPPS/LTCH PPS final rule, as discussed above. Therefore, in conjunction with our proposal to implement the new OMB labor market area delineations beginning in FY 2015, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28055), we proposed to continue to treat Micropolitan Areas as “rural” and to include the Micropolitan Areas in the calculation of each State's rural wage index.

Comment: A number of commenters supported CMS' proposal to continue to treat Micropolitan Areas as rural for hospital wage index purposes.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, in conjunction with our policy to implement the new OMB labor market area delineations beginning in FY 2015, we are continuing to treat Micropolitan Areas as “rural” and to include the Micropolitan Areas in the calculation of each State's rural wage index.

b. Urban Counties That Became Rural Under the New OMB Delineations

As previously discussed, we proposed to implement the new OMB labor market area delineations (based upon the 2010 Decennial Census data) beginning in FY 2015. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28055 through 28056), we stated that our analysis shows that a total of 37 counties (and county equivalents) and 12 hospitals that were once considered part of an urban CBSA would be considered to be located in a rural area, beginning in FY 2015, under these new OMB delineations. In the proposed rule, we included a listing of the 37 urban counties that would be rural if we finalized our proposal to implement the new OMB delineations.

We proposed that the wage data for all hospitals currently located in the 37 urban counties listed in the proposed rule would be considered rural under the new OMB delineations when calculating their respective State's rural wage index. We stated that we recognize that rural areas typically have lower area wage index values than urban areas, and hospitals located in these counties may experience a negative impact in their IPPS payment due to the proposed adoption of the new OMB delineations. We refer readers to section III.B.2.e. of the preamble of this final rule for a discussion of the proposed and finalized wage index transition period, in particular, the discussion regarding the 3-year transition for hospitals located in these specific counties.

Comment: Commenters were supportive of the proposal to adopt the new OMB delineations, including the proposed reassignment of counties from urban areas to rural areas.

Response: We appreciate the commenters' support.

As discussed above, we are finalizing our proposal to adopt the new OMB delineations. After consideration of the public comments we received, we also are finalizing our proposed reassignment of counties from urban areas to rural areas based on these new OMB delineations. The following chart lists the 37 urban counties that are considered to be rural under this policy.

c. Rural Counties That Became Urban Under the New OMB Delineations

As previously discussed, we proposed to implement the new OMB labor market area delineations (based upon the 2010 Decennial Census data) beginning in FY 2015. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28056 through 28058), we indicated that analysis of these OMB labor market area delineations shows that a total of 105 counties (and county equivalents) and 81 hospitals that were located in rural areas would be located in urban areas under the new OMB delineations. In the proposed rule, we included a listing of the 105 rural counties that would be urban if we finalized our proposal to implement the new OMB delineations.

We proposed that when calculating the area wage index, the wage data for hospitals located in these 105 rural counties would be included in their new respective urban CBSAs. Typically, hospitals located in an urban area would receive a higher wage index value than hospitals located in their State's rural area. However, with regard to the wage index applicable to individual hospitals, we proposed to implement a transitional wage index adjustment for any hospital that would receive a lower wage index under the new OMB delineations than it would have received under the current CBSA definitions. We refer readers to section III.B.2.e. of the preamble of this final rule for further discussion of this transition.

Comment: Commenters were supportive of the proposal to adopt the new OMB delineations, including the proposed reassignments of counties from rural areas to urban areas for purposes of the wage index.

Response: We appreciate the commenters' support.

As discussed above, we are finalizing our proposal to adopt the new OMB delineations. After consideration of the public comments we received, we also are finalizing our proposed reassignment of counties from rural to urban for purposes of the wage index based on these new OMB delineations. The following chart lists the 105 rural counties that will be urban for purposes of the wage index for FY 2015 under this policy.

d. Urban Counties That Moved to a Different Urban CBSA Under the New OMB Delineations

As we stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28058 through 28060), in addition to rural counties becoming urban and urban counties becoming rural, several urban counties would shift from one urban CBSA to another urban CBSA under our proposal to adopt the new OMB delineations. In certain cases, adopting the new OMB delineations would involve a change only in CBSA name or number, while the CBSA continues to encompass the same constituent counties. For example, CBSA 29140 (Lafayette, IN) would experience both a change to its number and its name, and become CBSA 29200 (Lafayette-West Lafayette, IN), while all of its three constituent counties would remain the same. For the proposed rule, we identified 19 counties that would remain in a CBSA that experienced a change in name or number under the new delineations, but would retain the same constituent counties. In the proposed rule, we included a table listing those 19 counties.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28059), we did not discuss further in this section the above proposed changes because they are inconsequential changes with respect to the IPPS wage index. However, we did discuss that, in other cases, which if we adopted the new OMB delineations, counties would shift between existing and new CBSAs, changing the constituent makeup of the CBSAs.

In one type of change, an entire CBSA would be subsumed by another CBSA. For example, CBSA 37380 (Palm Coast, FL) currently is a single county (Flagler, FL) CBSA. Flagler County would become a part of CBSA 19660 (Deltona-Daytona Beach-Ormond Beach, FL) under the new OMB delineations.

In another type of change, some CBSAs have counties that would split off to become part of or to form entirely new labor market areas. For example, CBSA 37964 (Philadelphia Metropolitan Division) currently is comprised of five Pennsylvania counties (Bucks, Chester, Delaware, Montgomery, and Philadelphia). We stated that if we adopted the new OMB delineations, Montgomery, Bucks, and Chester counties would split off and form the new CBSA 33874 (Montgomery County-Bucks County-Chester County, PA Metropolitan Division), while Delaware and Philadelphia counties would remain in CBSA 37964.

Finally, in some cases, a CBSA would lose counties to another existing CBSA if we adopted the new OMB delineations. For example, Lincoln County and Putnam County, WV would move from CBSA 16620 (Charleston, WV) to CBSA 26580 (Huntington-Ashland, WV-KY-OH). CBSA 16620 still would exist in the new labor market delineations with fewer constituent counties.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28059 through 28060), we included a listing of the urban counties that would move from one urban CBSA to another urban CBSA if we adopted the new OMB delineations. If hospitals located in these counties move from one CBSA to another under the new OMB delineations, there may be impacts, both negative and positive, upon their specific wage index values. We referred readers to section III.B.2.e. of the preamble of the proposed rule for a discussion of our proposals to moderate the impact of our proposed adoption of the new OMB delineations.

Comment: Commenters were supportive of the proposal to adopt the new OMB delineations, including the proposed reassignments of counties from one urban area to another urban area.

Response: We appreciate the commenters' support.

As discussed above, we are finalizing our proposal to adopt the new OMB delineations. After consideration of the public comments we received, we also are finalizing our proposed reassignment of counties from one urban area to another urban area for purposes of the wage index based on these new OMB delineations. The following chart identifies the 19 counties that remain in a CBSA that experienced a change in name or number under this policy, but will retain the same constituent counties for purposes of the FY 2015 wage index.

The following chart lists the urban counties that will move from one urban CBSA to another urban CBSA under our adoption of the new OMB delineations for purposes of the FY 2015 wage index.

e. Transition Period

(1) Background

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28060), we stated that, overall, we believe implementing the new OMB labor market area delineations would result in wage index values being more representative of the actual costs of labor in a given area. However, we recognized that some hospitals would experience decreases in wage index values as a result of the implementation of the new labor market area delineations. We also realize that some hospitals would have higher wage index values due to the implementation of the new labor market area delineations.

We explained that, in the past, we have provided for transition periods when adopting changes that have significant payment implications, particularly large negative impacts. For example, when implementing the new OMB definitions after the 2000 Census in the FY 2005 IPPS final rule (69 FR 49032 through 49034) for FY 2005, we evaluated several options to ease the transition to the new CBSA system.

As discussed in that FY 2005 IPPS final rule, we determined that the transition to the current wage index system would have the largest negative impacts upon hospitals that were originally considered urban, but would be considered rural under the new labor market area definitions. To alleviate the decreased payments associated with having a rural wage index, in calculating the area wage index, in the FY 2005 IPPS final rule, we allowed urban hospitals that became rural under new definitions to maintain their assignment to the labor market area where they were located for FY 2004. This adjustment was granted for a period of 3 fiscal years.

In the FY 2005 IPPS final rule, for all hospitals that experienced negative payment impacts due to adoption of new labor market area definitions (for example, they were moved to an urban CBSA with a lower wage index value than their previous rural or urban labor market area), we implemented a 1-year blended adjustment. We calculated wage indexes for all hospitals using both old and new labor market definitions. Hospitals received 50 percent of their wage index based on the new OMB delineations, and 50 percent of their wage index based on their current labor market area. This adjustment only applied to hospitals that would have experienced a drop in wage index values due to a change in labor market area definitions. Hospitals that benefitted from the labor market area transition received their new wage index at the time the new labor market area definitions became effective.

We continue to have the same concerns expressed in the FY 2005 IPPS final rulemaking. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28060 through 28064), we proposed a similar transition methodology to mitigate any negative financial impacts experienced by hospitals due to our proposal to implement the new OMB labor market area delineations for FY 2015.

(2) Transition for Hospitals in Urban Areas That Would Become Rural

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28060 through 28061), for hospitals that are currently located in an urban county that would become rural under the new OMB delineations, and would have no form of wage index reclassification or redesignation in place for FY 2015 (that is, MGCRB reclassifications under section 1886(d)(10) of the Act, redesignations under section 1886(d)(8)(B) of the Act, or rural reclassifications under section 1886(d)(8)(E) of the Act), we proposed a policy to assign them the urban wage index value of the CBSA in which they are physically located for FY 2014 for a period of 3 fiscal years (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied to the area wage index). As stated in the FY 2005 IPPS proposed rule (69 FR 28252), we have in the past provided transitions when adopting changes that have significant payment implications, particularly large negative impacts. We believe it is appropriate to apply a 3-year transition period for hospitals located in urban counties that would become rural under the new OMB delineations, given the potentially significant payment impacts for these hospitals. This is consistent with the transition policy adopted in FY 2005 (69 FR 49032 through 49034). We continue to believe, as we stated in the FY 2005 IPPS final rule (69 FR 49033), that the longer transition period is appropriate because, as a group, we expect these hospitals would experience a steeper and more abrupt reduction in their wage index due to the labor market revisions compared to other hospitals. Assigning these hospitals the urban wage index value of the CBSA in which they are physically located for FY 2014 for a period of 3 fiscal years (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied to the area wage index) would be the most similar to the actual payment wage index that these hospitals received in FY 2014, thereby minimizing the negative impact of adopting the new OMB delineations for these hospitals. Accordingly, for FYs 2015, 2016, and 2017, assuming no other form of wage index reclassification or redesignation is granted, we proposed to assign these hospitals the area wage index value of the urban CBSA in which they were geographically located in FY 2014 (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied to the area wage index). For example, if urban CBSA 12345 consisted of three counties in FY 2014, and, under the new OMB delineations, one of those counties, County X, would no longer be part of CBSA 12345 and would become rural for FY 2015, we proposed that hospitals in County X would be assigned the FY 2015 wage index of CBSA 12345, computed using the remaining two counties, with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied to the area wage index. We believe that assigning the wage index of the hospitals' current area is the simplest and most effective method for mitigating negative payment impacts due to the proposed adoption of the new OMB delineations. We have identified relatively few hospitals that are located in urban counties that would become rural, and fewer yet that do not have a reclassification or redesignation in effect for FY 2015. Because we believe that these urban to rural transitions would be the most likely to cause significant negative payment impacts, we believe that these hospitals should be granted a longer transition period than hospitals that may be switching between urban labor market areas, which as discussed later, we proposed to apply a 1-year blended wage index.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28061), we noted that there are situations where a hospital cannot be assigned the wage index value of the CBSA to which it geographically belonged in FY 2014 because that CBSA would be split and no longer exist and some or all of the constituent counties would be added to another urban labor market area under the new OMB delineations. If the hospital cannot be assigned the wage index value of the CBSA to which it is geographically located in FY 2014 because that CBSA would be split apart and no longer exist, and some or all of its constituent counties would be added to another urban labor market area under the new OMB delineations, we proposed that hospitals located in such counties that would become rural under the new OMB delineations would be assigned the wage index of the FY 2015 urban labor market area that contains the urban county in their FY 2014 CBSA to which they are closest (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied) for a period of 3 fiscal years. We believe this approach of assigning the wage index of the FY 2015 urban labor market area that contains the urban county in their FY 2014 CBSA to which they are closest (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied) would most closely approximate the hospitals' FY 2014 actual payment wage index, thereby minimizing the negative effects of the proposed change in the OMB delineations. For example, George County, MS and Jackson County, MS, together, in FY 2014, comprise the urban CBSA 37700 (Pascagoula, MS). Under the new OMB delineations, George County would be considered rural and Jackson County, MS would become part of the urban labor market area of Gulfport-Biloxi-Pascagoula, MS (CBSA 25060). In this instance, we proposed that hospitals in George County, MS would be assigned the FY 2015 wage index for CBSA 25060 (Gulfport-Biloxi-Pascagoula, MS), with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied.

Furthermore, we proposed that any hospital that is currently located in an urban county that would become rural for FY 2015 under the new OMB delineations, but also has a reclassification or redesignation in effect for FY 2015 (from a pre-existing reclassification or redesignation granted prior to FY 2015), would not be eligible for the 3-year transition wage index. This is because if the hospital is reclassified or redesignated in some manner, it would instead receive a wage index that reflects its own choice to obtain its reclassified or redesignated status. Accordingly, if a hospital is currently located in an urban county that would become rural for FY 2015 under the new OMB delineations and such hospital sought and was granted reclassification or redesignation for FY 2015 or such hospital seeks and is granted any reclassification or redesignation for FY 2016 or FY 2017, we proposed that the hospital would permanently lose its 3-year transitional assigned wage index status, and would not be eligible to reinstate it. For example, if a hospital that is currently urban but would become rural under the new OMB delineations received a 3-year transition wage index in FY 2015 based on the wage index of the urban CBSA to which it was geographically located in FY 2014 and then by its own choice, reclassifies to obtain a different area wage index in FY 2016, the hospital would not be eligible to reinstate the transition wage index, even if it opts to cancel its reclassification for FY 2017. We proposed the transition adjustment to assist hospitals if they experience a negative payment impact specifically due to the proposed adoption of the new OMB delineations in FY 2015. If a hospital chooses in a future fiscal year to forego this transition adjustment by obtaining some form of reclassification or redesignation, we do not believe reinstatement of this transition adjustment would be appropriate. The purpose of the adjustment is to assist hospitals that may be negatively impacted by the new OMB delineations in transitioning to a wage index based on these delineations. By obtaining a reclassification or redesignation, we believe that the hospital has made the determination that the transition adjustment is not necessary because it has other viable options for mitigating the impact of the transition to the new OMB delineations.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28061), with respect to the wage index computation, we proposed to follow our existing policy regarding the inclusion of a hospital's wage index data in the CBSA in which it is geographically located (we refer readers to Step 6 of the method for computing the unadjusted wage index in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592)). Accordingly, beginning with FY 2015, we proposed that the wage data of all hospitals receiving this type of 3-year transition adjustment would be included in the statewide rural area in which they are geographically located under the new OMB labor market area delineations. After the 3-year transition period, beginning in FY 2018, we proposed that these formerly urban hospitals discussed above would receive their statewide rural wage index, absent any reclassification or redesignation.

In addition, we proposed that the hospitals receiving this 3-year transition because they are in counties that were urban under the current CBSA definitions, but would be rural under the new OMB delineations, would not be considered urban hospitals. Rather, they would maintain their status as rural hospitals for other payment considerations. This is because our proposal to apply a 3-year transitional wage index for these newly rural hospitals only applies for the purpose of calculating the wage index under our proposal to adopt the new CBSA delineations. We did not propose transitions for other IPPS payment policies that may be impacted by the proposed adoption of the new CBSA delineations. However, we will continue to apply the existing regulations at § 412.102 with respect to determining DSH payments in the first year after a hospital loses urban status (we refer readers to section II.B.2.e.(7) of the preambles of the proposed rule and this final rule).

Comment: Commenters were supportive of CMS' proposals to provide a 3-year transition adjustment for hospitals that are shifting from urban to rural areas. Commenters appreciated CMS' attempt to mitigate the negative effects of the application of the new OMB labor market delineations. Some commenters questioned why hospitals that switch from urban to rural could benefit from a longer 3-year transition adjustment, while other hospitals that would also be negatively affected by the transition could only benefit from a single year of a blended transition adjustment. They suggested a similar 3-year transition adjustment for all hospital experiencing a negative impact, including hospitals that are moving from urban to urban, or are not moving at all, but are being impacted by other hospitals moving in or out of the labor market area.

Response: We appreciate the commenters' support for our proposals. We address comments pertaining to the difference between the 3-year urban to rural transition adjustment and the 1-year 50/50 blended wage index transition adjustment, as well as the requested 3-year transition period for all hospitals experiencing a negative impact in section III.B.2.e.(4) of the preamble of this final rule.

After consideration of the public comments we received, we are finalizing our proposals without modification. We will provide hospitals that are changing from an urban to a rural labor market area a 3-year wage index adjustment. Specifically, for hospitals that are currently located in an urban county that became rural under the new OMB delineations, and have no form of wage index reclassification or redesignation in place for FY 2015 (that is, MGCRB reclassifications under section 1886(d)(10) of the Act, redesignations under section 1886(d)(8)(B) of the Act, or rural reclassifications under section 1886(d)(8)(E) of the Act), we will assign them the urban wage index value of the CBSA in which they are physically located for FY 2014 for a period of 3 fiscal years (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied to the area wage index). If the hospital cannot be assigned the wage index value of the CBSA to which it is geographically located in FY 2014 because that CBSA is split apart and no longer exists, and some or all of its constituent counties are added to another urban labor market area under the new OMB delineations, hospitals located in such counties that became rural under the new OMB delineations will be assigned the wage index of the FY 2015 urban labor market area that contains the urban county in their FY 2014 CBSA to which they are closest (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied) for a period of 3 fiscal years. Any hospital that is currently located in an urban county that would become rural for FY 2015 under the new OMB delineations, but also has a reclassification or redesignation in effect for FY 2015 (from a preexisting reclassification or redesignation granted prior to FY 2015), will not be eligible for the 3-year transition wage index. Accordingly, if a hospital is currently located in an urban county that would become rural for FY 2015 under the new OMB delineations and such hospital sought and was granted reclassification or redesignation for FY 2015 or such hospital seeks and is granted any reclassification or redesignation for FY 2016 or FY 2017, the hospital will permanently lose its 3-year transitional assigned wage index status, and will not be eligible to reinstate it.

With respect to the wage index computation, we will follow our existing policy regarding the inclusion of a hospital's wage index data in the CBSA in which it is geographically located (we refer readers to Step 6 of the method for computing the unadjusted wage index in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592)). Beginning with FY 2015, the wage data of all hospitals receiving this type of 3-year transition adjustment will be included in the statewide rural area in which they are geographically located under the new OMB delineations. After the 3-year transition period, beginning in FY 2018, these formerly urban hospitals discussed above will receive their statewide rural wage index, absent any reclassification or redesignation. In addition, the hospitals receiving this 3-year transition because they are in counties that are urban under the current CBSA definitions, but become rural under the new OMB delineations, will not be considered urban hospitals. Rather, they will maintain their status as rural hospitals for other payment considerations.

(3) Transition for Hospitals Deemed Urban Under Section 1886(d)(8)(B) of the Act Where the Urban Area Became Rural Under the New OMB Delineations

As discussed in section II.H.3. of the preamble of the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28061 through 28062) and this final rule, there are some hospitals that are currently geographically located in rural areas but are deemed to be urban under section 1886(d)(8)(B) of the Act. For FY 2015, some of these hospitals currently redesignated under section 1886(d)(8)(B) of the Act would no longer be eligible for deemed urban status under the new OMB delineations, as discussed in detail in section III.H.3. of the preamble of this final rule. Similar to the policy implemented in the FY 2005 IPPS final rule (69 FR 49059), and consistent with the policy we proposed for other hospitals in counties that were urban and would become rural under the new OMB delineations, we proposed to apply the 3-year transition to these hospitals currently redesignated to urban areas under section 1886(d)(8)(B) of the Act that would no longer be deemed urban under the new OMB delineations and would revert to being rural. That is, for FYs 2015, 2016, and 2017, assuming no other form of wage index reclassification or redesignation is granted, we proposed to assign these hospitals the FY 2015 area wage index value of hospitals reclassified to the urban CBSA (that is, the attaching wage index) to which they were redesignated in FY 2014 (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied). If the hospital cannot be assigned the reclassified wage index value of the CBSA to which it was redesignated in FY 2014 because that CBSA would split apart and no longer exist, and some or all of its constituent counties would be added to another urban labor market area under the new OMB delineations, we proposed that such hospitals would be assigned the wage index of the hospitals reclassified to the FY 2015 urban labor market area that contains the urban county in their FY 2014 redesignated CBSA to which they are closest for a period of 3 fiscal years. We proposed to assign these hospitals the area wage index of hospitals reclassified to a CBSA because hospitals deemed urban under section 1886(d)(8)(B) of the Act are treated as reclassified under current policy, under which such hospitals receive an area wage index that includes wage data of all hospitals reclassified to the area.

We did not receive any specific public comment addressing these proposals. In general, commenters were supportive of CMS' proposal to implement the new OMB labor market delineations, including the policy to mitigate the negative effects of the transition to a new labor market area. We are finalizing our proposal to provide a 3-year adjustment to hospitals that were deemed urban under 1886(d)(8)(B) of the Act under the current labor market delineations, but are considered rural under the new delineations. We will apply the 3-year transition to these hospitals currently redesignated to urban areas under section 1886(d)(8)(B) of the Act that are no longer be deemed urban under the new OMB delineations and will revert to being rural. That is, for FYs 2015, 2016, and 2017, assuming no other form of wage index reclassification or redesignation is granted, we will assign these hospitals the FY 2015 area wage index value of hospitals reclassified to the urban CBSA (that is, the attaching wage index) to which they were redesignated in FY 2014 (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied). If the hospital cannot be assigned the reclassified wage index value of the CBSA to which it was redesignated in FY 2014 because that CBSA was split apart and no longer exists, and some or all of its constituent counties were added to another urban labor market area under the new OMB delineations, such hospitals will be assigned the wage index of the hospitals reclassified to the FY 2015 urban labor market area that contains the urban county in their FY 2014 redesignated CBSA to which they are closest for a period of 3 fiscal years. We will assign these hospitals the area wage index of hospitals reclassified to a CBSA because hospitals deemed urban under section 1886(d)(8)(B) of the Act are treated as reclassified under current policy, under which such hospitals receive an area wage index that includes wage data of all hospitals reclassified to the area. Beginning in FY 2015, affected hospitals will be assigned the reclassified wage index of an urban area (as described above) for a period of up to 3 years. This wage index assignment will be forfeited if the hospital obtains any form of wage index reclassification or redesignation.

(4) Transition for Hospitals That Will Experience a Decrease in Wage Index Under the New OMB Delineations

While we believe that instituting the latest OMB labor market area delineations would create a more accurate wage index system, we also recognize that implementing the new OMB delineations may cause some short-term instability in hospital payments. Therefore, in addition to the 3-year transition adjustment for hospitals being transitioned from urban to rural status as discussed above, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28062), we proposed a 1-year blended wage index for all hospitals that would experience any decrease in their actual payment wage index (that is, a hospital's actual wage index used for payment, which accounts for all applicable effects of reclassification and redesignation) exclusively due to the proposed implementation of the new OMB delineations. Similar to the policy adopted in the FY 2005 IPPS final rule (69 FR 49033), we proposed that a post-reclassified wage index with the rural and imputed floor applied would be computed based on the hospital's FY 2014 CBSA (that is, using all of its FY 2014 constituent county/ies), and another post-reclassified wage index with the rural and imputed floor applied would be computed based on the hospital's new FY 2015 CBSA (that is, the FY 2015 constituent county/ies). We proposed to compare these two wage indexes. If the proposed FY 2015 wage index with FY 2015 CBSAs would be lower than the proposed FY 2015 wage index with FY 2014 CBSAs, we proposed that a blended wage index would be computed, consisting of 50 percent of each of the two wage indexes added together. We proposed that this blended wage index would be the hospital's wage index for FY 2015. We stated our belief that a 1-year, 50/50 blend would mitigate the short-term instability and negative payment impacts due to the proposed implementation of the new OMB delineations, providing hospitals with a transition period during which they may adjust to their new geographic CBSA or may assess any reclassification options that would be available to them starting in FY 2016. We proposed a longer 3-year transition adjustment for hospitals losing urban status because there are significantly fewer affected urban-to-rural hospitals, and we believe the negative impacts to a hospital shifting from urban to rural status would typically be greater than other types of transitions. We believe that a transition period longer than 1 year to address other impacts of the proposed adoption of new OMB delineations would reduce the accuracy of the overall labor market area wage index system because far more hospitals would be affected.

In addition, for FY 2015, for hospitals that would receive the proposed 3-year transition, it is possible that receiving the FY 2015 wage index (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied) of the CBSA where the hospital is geographically located for FY 2014 might still be less than the FY 2015 wage index that the hospital would have received in the absence of the adoption of the new OMB delineations (particularly in States where the rural floor is historically very high). Therefore, such a hospital may additionally benefit from application of the 50/50 blended wage indexes. Accordingly, we proposed to include the assignment of the 3-year transitional wage index in our calculation of the FY 2015 portion of the 50/50 blended wage index for that hospital. After FY 2015, such a hospital may revert to the second year of the 3-year transition. For example, if Hospital X (formerly part of CBSA 12345, now rural) is assigned CBSA 12345's FY 2015 wage index value of 1.0000 as part of the 3-year transition, but that FY 2015 wage index value would have been 1.1000 under the previous OMB delineations, that hospital would receive a 50/50 blended wage index of 1.0500 for FY 2015. In FY 2016 and FY 2017, Hospital X would still be eligible to receive the remaining 2 years of the 3-year transition wage index of CBSA 12345 (that is, in FY 2016, Hospital X would receive the FY 2016 wage index of CBSA 12345 (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied)), and in FY 2017, Hospital X would receive the FY 2017 wage index of CBSA 12345 (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied).

Comment: Commenters were generally supportive of CMS' efforts to mitigate the negative impacts from the transition to the new OMB delineations. A number of commenters requested that CMS expand the 1-year 50/50 blended wage index adjustment for a longer period of time. One commenter suggested the adjustment be phased in over multiple years, with a first year adjustment equal to the hospital's wage index under the current CBSA definitions. Several of these commenters stated that because hospitals cannot obtain an MGCRB reclassification under the new OMB delineations until FY 2016, the adjustment for FY 2015 should negate any negative impacts from the transition to the new OMB delineations. These commenters explained that the MGCRB timetable would not allow them to benefit from newly available reclassification opportunities until at least 1 year following the implementation of new OMB delineations. Other commenters questioned why hospitals that switch from urban to rural could benefit from a longer 3-year transition adjustment, while other hospitals that also would be negatively affected by the transition could only benefit from a single year of a blended transition adjustment, and requested a 3-year transition period for all hospitals experiencing a negative impact. They suggested a similar 3-year transition adjustment for affected hospitals experiencing a negative impact, including the hospitals that are moving from urban to urban, or are not moving at all, but are being impacted by other hospitals moving in or out of the labor market area.

Response: We appreciate the commenters' support. We explored multiple alternatives to the proposed 1-year 50/50 blended wage index adjustment. While we acknowledge that some providers will see negative impacts based upon the adoption of the new OMB delineations, we also point out that some providers will experience increases in their wage index values from the new OMB delineations. It is CMS' longstanding policy to provide temporary adjustments to mitigate negative impacts from the adoption of new policies or procedures. However, these adjustments must be made in a budget-neutral manner, and all wage index values would be reduced to provide for any such transition benefit.

We continue to believe that, in general, rural labor markets tend to have lower area wage index values than nearby urban areas. We proposed a longer 3-year transition adjustment for hospitals losing urban status because there are significantly fewer affected urban-to-rural hospitals, and we believe the negative impacts on a hospital shifting from urban to rural status would typically be greater than other types of transitions. We believe that a transition period longer than 1 year to address other impacts of the proposed adoption of new OMB delineations would reduce the accuracy of the overall labor market area wage index system because far more hospitals would be affected. We identified nine hospitals that could be negatively affected by their transition from urban to rural status under the new OMB delineations. Based on our experience regarding the impact of the policy established in FY 2005, we believe it is necessary to provide up to a 3-year transition adjustment for these hospitals to prevent the potential for drastic reductions in wage index values. The relatively small number of affected providers causes little concern for potential budget neutrality adjustment distortions in overall wage index values. However, significantly more providers will be negatively affected by other impacts from adopting the new labor market area delineations. Moving away from a 1-year 50/50 blend to an adjustment value that more closely approximates the hospital's previous labor market assignment, or providing for a longer transition period, would result in a significantly larger national budget neutrality adjustment. We believe the implementation of the new labor market area delineations will create more accurate representations of a hospital's labor market areas, and we do not believe it is appropriate to expand or extend the 50/50 blended wage index adjustment further than what was proposed, because doing so would only further delay what we believe are the more refined and accurate labor market areas, based on the recent 2010 Census. Because the wage index is a relative measure of the value of labor in prescribed labor market areas, we believe it is important to implement the new delineations with as minimal a transition as is reasonable.

Hospitals currently must wait more than a year for an MGCRB reclassification application to become effective. We do not believe the implementation of new OMB delineations requires any modification to this policy. We believe the 1-year 50/50 blended wage index adjustment provides an adequate safeguard against significant hospital payment reductions, and provides hospitals time to assess their reclassification options for future fiscal years.

Comment: One group of commenters suggested CMS made an error in calculating the Connecticut rural wage index value under the old FY 2014 OMB definitions. Commenters claimed that CMS incorrectly assigned a hospital as being reclassified under section 1886(d)(8)(B) of the Act (that is, a “Lugar” hospital) when calculating the wage index under the old delineations. This hospital is located in a county that became urban under the new OMB delineations. Commenters claimed that the hospital opted to waive its “Lugar” status effective for FYs 2013, 2014, and FY 2015 in order to receive its outmigration adjustment. However, when CMS calculated the FY 2014 rural wage index for the purpose of applying the proposed transition blend, CMS calculated the rural wage index with this hospital being reclassified. By including this hospital as reclassified to an urban area, the commenters claimed that the wage index based on the “old” labor market area definitions, and therefore, the proposed FY 2015 payment wage index was significantly lower than it would be if this provider was properly identified as rural under the old definitions.

Response: In prior fiscal years, the Connecticut rural wage index was set by a single hospital. While there were multiple hospitals located in rural areas in the State, all but one obtained or was granted some form of reclassification to another area. The wage data of rural hospitals that reclassify elsewhere may only be included in their State's rural wage index if doing so would increase the wage index value (section 1886(d)(8)(C)(ii) of the Act). Because including the reclassified rural Connecticut hospitals would have lowered the State's rural area wage index value, the wage index was instead based on that single hospital's data. That hospital was designated urban under section 1886(d)(8)(B) of the Act but waived this status to receive an out-migration adjustment. As discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), a hospital may submit a request to waive its “Lugar” status for a period of 3 years. By doing so, we would no longer consider the hospital to be reclassified and would always use that hospital's data in the calculation the State's rural wage index. (We note that while we agree that the hospital waived its reclassification status for FY 2014 by accepting the out-migration adjustment, we disagree that the hospital in question waived its reclassified status for FY 2015. According to our records, the hospital sent a letter to CMS dated July 15, 2011, requesting to accept the out-migration adjustment and waive its Lugar redesignation for FYs 2012, 2013, and 2014.) When calculating the wage index based on the “old” labor market area definitions, CMS considered this hospital as being reclassified under section 1886(d)(8)(B) of the Act. Because all the rural Connecticut hospitals were now considered reclassified, the wage index was based upon their combined data because the baseline rural wage index did not include any hospitals. The result of including all reclassified hospitals was a rural wage index value that was significantly lower than in previous years. Considering that several hospitals in Connecticut benefited from the State's rural floor, this reduction in the rural wage index affected multiple hospitals in the State.

After further consideration of the commenters' concerns, we agree with the commenters that this hospital should be treated as rural for the portion of the 1-year blended wage index under the FY 2014 delineations because this hospital had waived it Lugar status by accepting the out-migration adjustment in FY 2014. Therefore, we are revising this hospital's wage index and the wage index of the hospitals affected by this change for FY 2015, as reflected in Tables 2-2, 4A-2 and 4B-2, 4C-2, and 4D-2.

After consideration of the public comments we received, we are finalizing the transition policy as proposed. We will apply a 1-year blended wage index for all hospitals that would experience any decrease in their actual payment wage index (that is, a hospital's actual wage index used for payment, which accounts for all applicable effects of reclassification and redesignation) exclusively due to the proposed implementation of the new OMB delineations. In FY 2015, a post-reclassified wage index with the rural and imputed floor applied will be computed based on the hospital's FY 2014 CBSA (that is, using all of its FY 2014 constituent county/ies), and another post-reclassified wage index with the rural and imputed floor applied will be computed based on the hospital's new FY 2015 CBSA (that is, the FY 2015 constituent county/ies). We will compare these two wage indexes. If the FY 2015 wage index with FY 2015 CBSAs is lower than the FY 2015 wage index with FY 2014 CBSAs, a blended wage index will be computed, consisting of 50 percent of each of the two wage indexes added together. This blended wage index will be the hospital's wage index for FY 2015.

For FY 2015, for hospitals that would receive the proposed 3-year transition, it is possible that receiving the FY 2015 wage index (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied) of the CBSA where the hospital is geographically located for FY 2014 might still be less than the FY 2015 wage index that the hospital would have received in the absence of the adoption of the new OMB delineations (particularly in States where the rural floor is historically very high). In this situation, we will include the assignment of the 3-year transitional wage index in our calculation of the FY 2015 portion of the 50/50 blended wage index for that hospital. After FY 2015, such a hospital may revert to the second year of the 3-year transition.

(5) Impact of Adoption of New OMB Labor Market Area Delineations

As we did for the proposed rule (79 FR 28062 through 28063), for this final rule, to illustrate how the adoption of the new OMB labor market area delineations will impact hospitals' FY 2015 wage indexes, we compared the final FY 2015 occupational mix adjusted post-reclassified wage indexes with rural floor budget neutrality applied under the FY 2014 CBSAs and under the FY 2015 CBSAs using the new OMB delineations. (This analysis does not include the effects of the out-migration adjustment, the frontier floor, the 3-year hold harmless transition wage indexes, or the 1-year transition blended wage indexes). As a result of applying the new OMB delineations to the wage data, the wage index values for 2,409 urban hospitals (85.6 percent) and 412 (65.2 percent) rural hospitals will increase. The wage index values of 2,372 (84.3 percent) urban hospitals will increase by less than 5 percent, and the wage index values of 14 (0.5 percent) urban hospitals will increase by at least 5 percent but less than 10 percent. The wage index values of 23 (0.8 percent) urban hospitals will increase by greater than or equal to 10 percent. The wage index values of 383 (60.6 percent) rural hospitals will increase by less than 5 percent, 18 rural hospitals (2.8 percent) will increase by at least 5 percent but less than 10 percent, and 11 rural hospitals (1.7 percent) will increase by greater than or equal to 10 percent. However, the wage index values for 397 urban hospitals (14.1 percent) and 220 (34.8 percent) rural hospitals will decrease. The wage index values of 341 (12.1 percent) urban hospitals will decrease by less than 5 percent, 50 urban hospitals (1.8 percent) will decrease by at least 5 percent but less than 10 percent, and 6 urban hospitals (0.2 percent) will decrease by greater than or equal to 10 percent. The wage index values of 191 (30.2 percent) rural hospitals will decrease by less than 5 percent, 28 rural hospitals (4.4 percent) will decrease by 5 percent and less than 10 percent, and 1 rural hospital (0.2 percent) will decrease by greater than or equal to 10 percent. The wage index values of 8 (0.3 percent) urban hospitals and zero rural hospitals will remain unchanged by the adoption of the new OMB delineations. The largest positive impacts are for 8 hospitals in 5 States (Texas, Michigan, Minnesota, Louisiana, and Alabama) that will be moving from a rural to an urban area under the new OMB delineations (ranging from a 17.23 percent increase in Texas to a 24.02 percent increase in wage index in Alabama), and for 14 hospitals that will be moving from one urban CBSA (FY 2014 CBSA 20764, Edison-New Brunswick, NJ) to new urban CBSA 35614 (New York-Jersey City-White Plains, NY-NJ) under the new OMB delineations, representing a 15.13 percent increase in wage index. The largest negative impacts will be for 5 hospitals in 4 States (New York, Alabama, Idaho, and North Carolina) that will be moving from an urban to a rural area under the new OMB delineations (ranging from a 12.18 percent decrease in North Carolina to a 27.06 percent decrease in wage index in New York). One hospital in Delaware is moving from a rural to an urban area under the new OMB delineations and will experience an 11.38 percent decrease in wage index. Another hospital in Texas is moving from one urban area to another urban area under the new OMB delineations and will experience a 10.19 percent decrease in wage index. These results illustrate that hospitals that move from rural CBSAs to urban CBSAs under the new OMB delineations generally will benefit significantly, while hospitals that move from urban to rural CBSAs generally will have negative impacts. For all hospitals combined, the wage index values of 2,821 hospitals (81.9 percent) overall will increase, and 617 hospitals (17.9 percent) overall will decrease, indicating that most hospitals will be positively affected by the adoption of the new OMB delineations. Furthermore, the magnitude of the changes will be relatively small overall, with only 151 hospitals (4.4 percent) experiencing either an increase or decrease of at least 5 percent.

The following table shows the impact of the adoption of the new OMB delineations on hospitals' FY 2015 wage indexes, comparing the FY 2015 occupational mix adjusted post-reclassified wage indexes with rural floor budget neutrality applied under the FY 2014 CBSAs and the FY 2015 CBSAs using the new OMB delineations. (This analysis does not include the effects of the out-migration adjustment, the frontier floor, the 3-year hold harmless transition wage indexes, or the 1-year transition blended wage indexes.)

We did not receive any public comments on the analysis in the proposed rule showing the effects of adopting the new CBSA delineations.

(6) Budget Neutrality

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28063), for FY 2015, we proposed to apply both the 3-year transition and 50/50 blended wage index adjustments in a budget neutral manner. We proposed to make an adjustment to the standardized amount to ensure that the total payments, including the effect of the transition provisions, would equal what payments would have been if we would not be providing for any transitional wage indexes under the new OMB delineations.

We did not receive any public comments specific to our proposal to implement the 3-year transition and the 50/50 blended wage index adjustments in a budget neutral manner. We are finalizing the policy as proposed. For a complete discussion on this budget neutrality adjustment for FY 2015, we refer readers to section II.A.4.b. of the Addendum to this final rule.

We note that, consistent with past practice (69 FR 49034), we are not adopting the new OMB delineations themselves in a budget neutral manner. We do not believe that the revision to the labor market areas in and of itself constitutes an “adjustment or update” to the adjustment for area wage differences, as provided under section 1886(d)(3)(E) of the Act.

(7) Determining Disproportionate Share Hospital (DSH) Payments Under the New OMB Delineations

As noted in the FY 2005 IPPS final rule (69 FR 49033), the provisions of § 412.102 of the regulations continue to apply with respect to determining DSH payments for hospitals affected by our adoption of the new OMB delineations. Specifically, in the first year after a hospital loses urban status, the hospital would receive an additional payment that equals two-thirds of the difference between the urban DSH payments applicable to the hospital before its redesignation from urban to rural and the rural DSH payments applicable to the hospital subsequent to its redesignation from urban to rural. In the second year after a hospital loses urban status, the hospital would receive an additional payment that equals one-third of the difference between the urban DSH payments applicable to the hospital before its redesignation from urban to rural and the rural DSH payments applicable to the hospital subsequent to its redesignation from urban to rural.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28063 through 28064), we proposed to make changes to the regulations to delete § 412.64(b)(1)(ii)(D). In this provision, we currently define a “hospital reclassified as rural” as a hospital located in a county that, in FY 2004, was urban but was redesignated as rural after September 30, 2004, as a result of the most recent census data and implementation of the new MSA definitions announced by OMB on June 6, 2003. Because the term “hospital reclassified as rural” is not used in § 412.64, but is used in § 412.102, we proposed to delete § 412.64(b)(1)(ii)(D) and revise the language at § 412.102 to address the circumstances set forth in § 412.64(b)(1)(ii)(D). The regulation at § 412.102, which addresses special treatment of hospitals located in areas that are changing from urban to rural as a result of a geographic redesignation, is the only location that currently references a “hospital reclassified as rural”, as defined at § 412.64(b)(1)(ii)(D). To avoid confusion with urban hospitals that choose to reclassify as rural under § 412.103, we proposed to revise the regulation text at § 412.102 so that it no longer refers to the defined term “hospital reclassified as rural,” and instead specifically states the circumstances in which § 412.102 applies. In addition, we proposed to modify the regulation text so that it would apply to all transitions from urban to rural status that occur as a result of any future adoption of new or revised OMB standards for delineating statistical areas adopted by CMS. Specifically, we proposed to revise the regulations at § 412.102 to state that an urban hospital that was part of an MSA, but was redesignated as rural as a result of the most recent OMB standards for delineating statistical areas adopted by CMS, may receive an adjustment to its rural Federal payment amount for operating costs for 2 successive fiscal years as provided in paragraphs (a) and (b) of the section.

We did not receive any public comments regarding either of these proposals. We are finalizing the changes to § 412.102 and § 412.64(b)(1)(ii)(D) as proposed, effective for FY 2015.

C. Worksheet S-3 Wage Data for the FY 2015 Wage Index

The FY 2015 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2011 (the FY 2014 wage indexes were based on data from cost reporting periods beginning during FY 2010).

1. Included Categories of Costs

The FY 2015 wage index includes the following categories of data associated with costs paid under the IPPS (as well as outpatient costs):

• Salaries and hours from short-term, acute care hospitals (including paid lunch hours and hours associated with military leave and jury duty);
• Home office costs and hours;
• Certain contract labor costs and hours (which includes direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services, and certain contract indirect patient care services (as discussed in the FY 2008 final rule with comment period (72 FR 47315 through 47318)); and
• Wage-related costs, including pension costs (based on policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 through 51590)) and other deferred compensation costs.

2. Excluded Categories of Costs

Consistent with the wage index methodology for FY 2014, the wage index for FY 2015 also excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as skilled nursing facility (SNF) services, home health services, costs related to GME (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The FY 2015 wage index also excludes the salaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and Federally qualified health centers (FQHCs) because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, salaries, hours, and wage-related costs of CAHs are excluded from the wage index, for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397 through 45398).

3. Use of Wage Index Data by Suppliers and Providers Other Than Acute Care Hospitals Under the IPPS

Data collected for the IPPS wage index also are currently used to calculate wage indexes applicable to suppliers and other providers, such as SNFs, home health agencies (HHAs), ambulatory surgical centers (ASCs), and hospices. In addition, they are used for prospective payments to IRFs, IPFs, and LTCHs, and for hospital outpatient services. We note that, in the IPPS rules, we do not address comments pertaining to the wage indexes of any supplier or provider except IPPS providers and LTCHs. Such comments should be made in response to separate proposed rules for those suppliers and providers.

D. Verification of Worksheet S-3 Wage Data

The wage data for the FY 2015 wage index were obtained from Worksheet S-3, Parts II and III of the Medicare cost report for cost reporting periods beginning on or after October 1, 2010, and before October 1, 2011. For wage index purposes, we refer to cost reports during this period as the “FY 2011 cost report,” the “FY 2011 wage data,” or the “FY 2011 data.” Instructions for completing the wage index sections of Worksheet S-3 are included in the Provider Reimbursement Manual (PRM), Part 2 (Pub. No. 15-2), Chapter 40, Sections 4005.2 through 4005.4 for Form CMS-2552-10. The data file used to construct the FY 2015 wage index includes FY 2011 data submitted to us as of June 25, 2014. As in past years, we performed an extensive review of the wage data, mostly through the use of edits designed to identify aberrant data.

We asked our MACs to revise or verify data elements that result in specific edit failures. For the proposed FY 2015 wage index, we stated that we identified and excluded 50 providers with aberrant data that should not be included in the wage index, although we stated that if data elements are corrected, we intended to include data from those providers in the final FY 2015 wage index (79 FR 28064). We have since determined that we had only removed 49, not 50, providers with aberrant data from the proposed wage index. We have received corrected data from 19 providers and data from an additional provider, and therefore, we are including the data for these 20 providers in the final FY 2015 wage index. However, since issuance of the proposed rule, we have determined that the data from 4 other providers (not included in the original 49 providers) were aberrant and should not be included in the final FY 2015 wage index. Therefore, in total, we are excluding the data of 34 providers from the final FY 2015 wage index.

In constructing the FY 2015 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2011, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. However, we excluded the wage data for CAHs as discussed in the FY 2004 IPPS final rule (68 FR 45397 through 45398). For the proposed rule, we removed 6 hospitals that converted to CAH status on or after February 14, 2013, the cut-off date for CAH exclusion from the FY 2014 wage index, and through and including February 13, 2014, the cut-off date for CAH exclusion from the FY 2015 wage index. After removing hospitals with aberrant data and hospitals that converted to CAH status, the final FY 2015 wage index is calculated based on 3,416 hospitals.

For the final FY 2015 wage index, we allotted the wages and hours data for a multicampus hospital among the different labor market areas where its campuses are located in the same manner that we allotted such hospitals' data in the FY 2014 wage index (78 FR 50587). Table 2 containing the final FY 2015 wage index associated with this final rule (available via the Internet on the CMS Web site) includes separate wage data for the campuses of 6 multicampus hospitals.

Comment: Commenters representing hospitals located in CBSA 46140 disagreed with the removal of the wage data of one hospital in that CBSA from the FY 2015 wage index. They argued that CMS's removal of the hospital's data is arbitrary and capricious, based only on the fact that the hospital's average hourly wage is higher than those of the other hospitals in the CBSA. The commenters noted that the hospital's data were included in the wage index in previous years, and CMS has provided “no rational explanation for its inconsistent treatment now.” The commenters further stated that “if CMS were to adopt a policy of excluding the hospital with the highest wage data from each CBSA, fairness would require that CMS also exclude the hospital with the lowest wage data from each CBSA.” The commenters stated that if CMS is employing a “bright-line cut off,” CMS must publish such “bright-line tests.”

Response: Section 1886(d)(3)(E) of the Act requires the Secretary to adjust the proportion of hospitals' costs attributable to wages and wage-related costs for area differences reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. We also refer readers to section 1886(d)(9)(C)(iv)(I) of the Act. Since the origin of the IPPS, the wage index has been subject to its own annual review process, first by the MACs, and then by CMS. Hospitals are aware that both the MACs (via instructions issued by CMS) and CMS evaluate the accuracy and reasonableness of hospitals' wage index data. Each year, in every IPPS proposed rule, we discuss the process wherein CMS asks the MACs to “revise or verify data elements that result in specific edit failures” (most recently, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28064)). We state that, in constructing the wage index, we include the wage data for facilities that were IPPS hospitals in the relevant cost reporting year (that is, FY 2011 for the FY 2015 wage index), and that we include “those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages” (emphasis added; 79 FR 28064). CMS has historically exercised its discretion in developing a wage index that reflects a relative measure of the value of the labor provided to a typical hospital in a particular labor market area. We applied these same procedures, as discussed below, to the hospital at issue, and we disagree with the commenters that we have arbitrarily and capriciously removed the wage data of the cited hospital from the FY 2015 wage index.

In the instance of the particular hospital to which the commenters refer, while the hospital's wage data was properly documented, it did not merely have the highest average hourly wage in the CBSA; its average hourly wage was extremely and unusually high, significantly higher than the next highest average hourly wage in that CBSA and in the surrounding areas. We do not believe that the average hourly wage of this particular hospital accurately reflects the economic conditions in its labor market area during the FY 2011 cost reporting period, and, therefore, its inclusion in the wage index would not ensure that the FY 2015 wage index represents the labor market area's current wages as compared to the national average of wages. Accordingly, we have exercised our discretion to remove this hospital's wage data from the February 20, 2014 PUF, and from the May 2, 2014 PUF as well. Similarly, we have exercised our discretion by removing from the wage index (in FY 2015 and in prior years) the data of hospitals with average hourly wages that are unusually and uncharacteristically low for their respective CBSAs because we believe that the wage data of those hospitals also do not accurately reflect the economic conditions in their labor market area. We included the hospital's data in the wage index in previous years because the hospital's average hourly wage was lower and more reasonable relative to its labor market area in the prior years and, thus, we did not remove the hospital's wage data from the prior years' wage index.

Questions have been raised recently regarding the reporting of contract housekeeping and dietary services on Worksheet S-3, Part II, lines 33 and 35 of the Medicare cost report. CMS finalized its proposal to begin collecting contract labor costs and hours for housekeeping, and dietary (along with management services and the overhead services of administrative and general) in the FY 2003 IPPS final rule (67 FR 50022 through 50023). At that time, we stated, “We continue to consider whether to expand our contract labor definition to include more types of contract services in the wage index. In particular, we have examined whether to include the costs for acquired dietary and housekeeping services, as many hospitals now provide these services through contracts. Costs for these services tend to be below the average wages for all hospital employees. Therefore, excluding the costs and hours for these services if they are provided under contract, while including them if the services are provided directly by the hospital, creates an incentive for hospitals to contract for these services in order to increase their average hourly wage for wage index purposes” (67 FR 50022). In the FY 2003 IPPS proposed rule, we explained that we selected the three overhead services of administrative and general, housekeeping, and dietary because they are provided at all hospitals, either directly or through contracts, and together they comprise about 60 percent of a hospital's overhead hours (67 FR 31433). In the FY 2003 IPPS final rule, we stated that we “will monitor the hospital industry for information regarding the hospitals' ability to provide the data. Further, we will work with hospitals and intermediaries [MACs] to develop acceptable methods for tracking the costs and hours. Finally, before including these additional costs in the wage index, we will provide a detailed analysis of the impact of including these additional costs in the wage index values in the Federal Register and provide for public comment. Our final decision on whether to include contract indirect patient care labor costs in our calculation of the wage index will depend on the outcome of our analyses and public comments” (67 FR 50023).

Subsequent to the issuance of the FY 2003 IPPS final rule, we revised Worksheet S-3, Part II of the Medicare cost report (CMS Form 2552-96) to add four lines for the reporting of contract labor salaries, wages, and hours. The lines added for contract housekeeping and dietary services were lines 26.01 and 27.01, respectively. (Line 9.03 for contract management and line 22.01 for contract administrative and general (A&G) services were also added at that time). These lines were effective with cost reporting periods beginning on or after October 1, 2003 (that is, FY 2004). Because the cost report data used for the wage index are on a 4-year lag, data from these new contract labor lines would first be available for the FY 2008 wage index.

In the FY 2008 rulemaking process, we provided an analysis of the effect on the inclusion in the wage index of the wages and hours related to the new contract labor lines. At that time, 56 hospitals (1.6 percent) failed edits for contract housekeeping line 26.01; and 99 hospitals (2.8 percent) failed edits for contract dietary line 27.01 (72 FR 24680 and 24782). We also noted that “many of these edit failures are for wage data that are not to be included in the wage index and will be excluded through the wage index calculation. . . . In addition, some of the aberrant data will be resolved by the final rule through the correction process” (72 FR 24680 and 24782). The small percentage of hospitals that failed edits for these contract labor lines indicates that the vast majority of hospitals completing these contract labor lines were able to obtain and report reasonable salaries, wages, and hours associated with contract housekeeping and dietary services. In the FY 2008 IPPS final rule, we stated that we believe that “the impact of this policy is generally very minor, and we do not believe the additional complexity of a transition wage index is warranted for an impact this small. Further, we continue to believe it is prudent policy to include in the wage index the costs for these contract indirect patient care services” (72 FR 47316). Therefore, we adopted the policy to include the new contract labor lines in the wage index, beginning with the FY 2008 wage index.

The questions that have recently come to our attention involve hospitals that consistently do not provide documentable salaries, wages, and hours for their contracted housekeeping and/or dietary services. (On the Medicare cost report (CMS Form 2552-10), contract housekeeping is on Worksheet S-3, Part II, line 33 and contract dietary is on line 35). When this situation occurs, CMS has instructed the MACs to use reasonable estimates, such as regional average hourly rates, as a substitute for actual wages and hours, and to report the estimates on the hospital's Worksheet S-3, Part II, line 33 or line 35, respectively. Our policy has been to use reasonable estimates for these housekeeping and dietary lines, rather than report zeroes for wages and hours, because, as discussed above and as stated in the FY 2003 IPPS final rule, “{c}osts for these services tend to be below the average wages for all hospital employees. Therefore, excluding the costs and hours for these services if they are provided under contract, while including them if the services are provided directly by the hospital, creates an incentive for hospitals to contract for these services in order to increase their average hourly wage for wage index purposes” (57 FR 50022). We understand that the reason many hospitals provide for failing to report such contract wages and hours is that their contracts do not clearly specify this information, often because they use a single vendor to provide several different contract labor services. We believe that allowing hospitals to routinely use contracts that do not clearly break out the salaries, wages, and hours associated with these services as a reason for not being able to report proper salaries, wages, and hours for these cost report lines undermines the purpose of instituting these lines in the first place. Furthermore, because every hospital must provide housekeeping and dietary services, and because the wage index is a relative measure of the value of the labor provided to a hospital in a particular labor market area, to report zeroes for salaries, wages, and hours for housekeeping and dietary services is not only unrealistic (in that every hospital provides for these services), but also misrepresents the labor costs in that area and undermines our policy. Consequently, CMS has instructed the MACs not to zero out these line items when a hospital cannot document the housekeeping or dietary salaries, wages, and hours, but instead to use a reasonable estimation of these wages and hours.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28065 through 28066) rule, we reiterated our requirement that all hospitals must document salaries, wages, and hours for the purpose of reporting this information on Worksheet S-3, Part II, lines 32, 33, 34, and/or 35 (for either directly employed housekeeping and dietary employees on lines 32 and 34, and contract labor on lines 33 and 35). It is not acceptable for a hospital to request that the MACs zero out these line items if the hospital's contract does not specifically break out the actual wages and hours. As indicated above, and stated in the FY 2008 IPPS proposed rule (72 FR 24680 and 24782), a small percentage of hospitals failed edits associated with the contract housekeeping and dietary lines, showing that the vast majority of hospitals reporting data on these lines were able to obtain and report reasonable salaries, wages, and hours associated with contract housekeeping and dietary services. We encourage hospitals to ensure that their contracts clearly specify the salaries, wages, and hours related to all of their contract labor. Because these line items have been included in the cost report since FY 2004, we believe that hospitals have had adequate notice and time to structure their contracts so that the wages and hours of contract employees can be determined and included in the cost reports. We expect hospitals to provide accurate data on their cost reports.

We understand that there may be rare situations where a hospital would not have documentable salaries, wages, and hours for contract housekeeping and dietary services. In these situations, we believe that it is appropriate and necessary to use reasonable estimates for these numbers in order to determinate the best, most realistic, wage index that we can. As discussed previously, housekeeping and dietary services are unique in that the costs for housekeeping and dietary services tend to be below the average wages for all hospital employees. Thus, an incentive is created for hospitals to avoid reporting these contract labor salaries, wages, and hours on the cost report in order to increase their average hourly wage for wage index purposes. To deter hospitals from not reporting this information and to ensure that the wage index more accurately reflects the labor costs in an area, we believe that it is both necessary and appropriate for the MACs to estimate such salaries, wages, and hours in the rare instance where a hospital cannot provide such information. Therefore, in the absence of documentable wages and hours for contract housekeeping and dietary services, MACs would continue to use reasonable estimates for these services. Examples of reasonable estimates are regional average hourly rates, including an average of the wages and hours for dietary and housekeeping services of other hospitals in the same CBSA as the hospital in question. Hospitals also may conduct time studies to determine hours worked. If, for whatever reason, regional averages or time studies cannot be used, MACs may use data from the Bureau of Labor Statistics to obtain average wages and hours for housekeeping and dietary services. Commenters may also suggest alternatives for imputing reasonable estimates for possible consideration by CMS. In all cases, MACs must determine that the data used are reasonable.

Comment: One commenter encouraged CMS to instruct the MACs to be consistent across their entire jurisdiction in how the MACs estimate wages and hours for contract dietary and housekeeping services, in the instances where there is a lack of documentable wages and hours for these services. Another commenter noted that CMS stated that commenters may suggest alternatives for imputing reasonable estimates for possible consideration by CMS. This commenter asked that CMS consider eliminating entirely all wages and hours associated with dietary and housekeeping services, both for hospital employees and contract labor, based on the belief that these services represent an “immaterial” 3.27 percent of total Worksheet S-3, Part II, line 1 wages, and their removal from the wage index would remove a time-consuming burden for both providers and MACs. The commenter asserted that if all wages and hours associated with dietary and housekeeping services were eliminated from the wage index, the “comparison among hospitals would remain meaningful and would remove any disparity among hospitals related to the issue.”

Response: We agree with the first commenter that it is important for CMS' policies and instructions to be implemented uniformly by the MACs across all jurisdictions. We provide updated and uniform instructions to the MACs each year prior to the start of the annual wage index desk review process, and also communicate with the MACs through various media throughout each annual wage index cycle, including instructions on how to estimate wages and hours for contract dietary and housekeeping services in the absence of documentable wages and hours for these categories. We do not agree with the second commenter's request that CMS eliminate entirely all wages and hours associated with dietary and housekeeping services, both for hospital employees and contract labor. The IPPS wage index is a relative measure of the value of all types of labor provided to a typical hospital in a particular labor market area, not just the labor with high average hourly wages. We believe it would be inappropriate to agree to selectively include, or exclude, certain categories of labor from the wage index because doing so would result in a less accurate measure of labor costs and would undermine the relativity of the wage index as whole. We believe that hospitals have had adequate notice and time to structure their contracts so that the wages and hours of contract employees can be determined and included in the cost reports. We expect hospitals to provide accurate data on their cost reports, and the accuracy of the wages and hours of contract labor will continue to be reviewed by the MACs as part of the annual desk review process. As we stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28065 through 28066), to deter hospitals from not reporting this information and to ensure that the wage index more accurately reflects the labor costs in an area, we believe that it is both necessary and appropriate for MACs to estimate such salaries, wages, and hours in the rare instance where a hospital cannot provide such information for its dietary and housekeeping services under contract. We will continue to instruct the MACs to use reasonable estimates for these services, in the absence of documentable wages and hours for contract housekeeping and dietary services.

E. Method for Computing the FY 2015 Unadjusted Wage Index

The method used to compute the FY 2015 wage index without an occupational mix adjustment follows the same methodology that we used to compute the FY 2012, FY 2013, and FY 2014 final wage indexes without an occupational mix adjustment (76 FR 51591 through 51593, 77 FR 53366 through 53367, and 78 FR 50587 through 50588, respectively).

As discussed in the FY 2012 final rule, in “Step 5,” for each hospital, we adjust 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 estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2010, through April 15, 2012, for private industry hospital workers from the BLS' Compensation and Working Conditions. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we did not propose any changes to the usage for FY 2015 (79 FR 28066). The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated in the following table.

For example, the midpoint of a cost reporting period beginning January 1, 2011, and ending December 31, 2011, is June 30, 2011. An adjustment factor of 1.01084 would be applied to the wages of a hospital with such a cost reporting period.

Using the data as described above and in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50587 through 50588), the FY 2015 national average hourly wage (unadjusted for occupational mix) is $39.2971. The FY 2015 Puerto Rico overall average hourly wage (unadjusted for occupational mix) is $16.9893.

F. Occupational Mix Adjustment to the FY 2015 Wage Index

As stated earlier, section 1886(d)(3)(E) of the Act provides for the collection of data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index, for application beginning October 1, 2004 (the FY 2005 wage index). The purpose of the occupational mix adjustment is to control for the effect of hospitals' employment choices on the wage index. For example, hospitals may choose to employ different combinations of registered nurses, licensed practical nurses, nursing aides, and medical assistants for the purpose of providing nursing care to their patients. The varying labor costs associated with these choices reflect hospital management decisions rather than geographic differences in the costs of labor.

1. Development of Data for the FY 2015 Occupational Mix Adjustment Based on the 2010 Occupational Mix Survey

As provided for under section 1886(d)(3)(E) of the Act, we collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program.

As discussed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50588), the occupational mix adjustment to the FY 2014 wage index was based on data collected on the 2010 Medicare Wage Index Occupational Mix Survey (Form CMS-10079 (2010)). For the FY 2015 wage index, we proposed to use the occupational mix data collected on the 2010 survey to compute the occupational mix adjustment for FY 2015. We did not receive any public comments on this proposal; therefore, we are finalizing our policy to use the occupational mix data collected on the 2010 survey to compute the occupational mix adjustment for FY 2015. We are including data for 3,183 hospitals that also have wage data included in the FY 2015 wage index.

2. New 2013 Occupational Mix Survey for the FY 2016 Wage Index

As stated earlier, section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program. We used occupational mix data collected on the 2010 survey to compute the occupational mix adjustment for FY 2013, FY 2014, and the FY 2015 wage index associated with this final rule. Therefore, a new measurement of occupational mix is required for FY 2016.

On December 7, 2012, we published in the Federal Register a notice soliciting comments on the proposed 2013 Medicare Wage Index Occupational Mix Survey (77 FR 73032 through 73033). The new 2013 survey, which will be applied to the FY 2016 wage index, includes the same data elements and definitions as the 2010 survey and provides for the collection of hospital-specific wages and hours data for nursing employees for calendar year 2013 (that is, payroll periods ending between January 1, 2013 and December 31, 2013). The comment period for the notice ended on February 5, 2013. After considering the public comments that we received on the December 2012 notice, we made a few minor editorial changes and published the 2013 survey in the Federal Register on February 28, 2013 (78 FR 13679). This survey was approved by OMB on May 14, 2013, and is available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/WAGE-INDEX-OCCUPATIONAL-MIX-SURVEY2013.pdf.

The 2013 Occupational Mix Survey Hospital Reporting Form CMS-10079 for the Wage Index Beginning FY 2016 (in excel format) is available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/Medicare-Wage-Index-Occupational-Mix-Survey2013.html?DLPage=1&DLSort=1&DLSortDir=descending. Hospitals were required to submit their completed 2013 surveys to their MACs by July 1, 2014. The preliminary, unaudited 2013 survey data was posted on the CMS Web site afterward, on July 11, 2014. The FY 2012 Worksheet S-3 wage data for the FY 2016 wage index review and correction process was posted on the CMS Web site in May 2014. Both the preliminary FY 2016 wage data and occupational mix survey data can be found on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2016-Wage-Index-Home-Page.html?DLPage=1&DLSort=1&DLSortDir=descending.

3. Calculation of the Occupational Mix Adjustment for FY 2015

For FY 2015, we proposed to calculate the occupational mix adjustment factor using the same methodology that we used for the FY 2012, FY 2013, and FY 2014 wage indexes (76 FR 51582 through 51586, 77 FR 53367 through 53368, and 78 FR 50588 through 50589, respectively). As a result of applying this methodology, the proposed FY 2015 occupational mix adjusted national average hourly wage (based on the proposed new OMB labor market area delineations) was $39.1177. The proposed FY 2015 occupational mix adjusted Puerto Rico-specific average hourly wage (based on the proposed new OMB labor market area delineations) was $17.0526.

Because the occupational mix adjustment is required by statute, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the FY 2015 wage index. For the proposed FY 2015 wage index, because we are using the Worksheet S-3, Parts II and III wage data of 3,400 hospitals, and we are using the occupational mix surveys of 3,165 hospitals for which we also have Worksheet S-3 wage data, that represents a “response” rate of 93.1 percent (3,165/3,400). In the proposed FY 2015 wage index established in the FY 2015 IPPS/LTCH PPS proposed rule, we applied proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586).

In the FY 2011 IPPS/LTCH PPS proposed rule and final rule (75 FR 23943 and 75 FR 50167, respectively), we stated that, in order to gain a better understanding of why some hospitals are not submitting the occupational mix data, we will require hospitals that do not submit occupational mix data to provide an explanation for not complying. This requirement was effective beginning with the 2010 occupational mix survey. We instructed MACs to continue gathering this information as part of the FY 2014 and FY 2015 wage index desk review process. We stated that we would review these data for future analysis and consideration of potential penalties for noncompliant hospitals.

Comment: One commenter stated that all hospitals should be obligated to submit the occupational mix survey because failure to complete the survey jeopardizes the accuracy of the wage index. The commenter added that a penalty should be instituted for nonsubmitters. The commenter also stated that pending CMS' analysis of the Commuting Based Wage Index and the Institute of Medicine's study on geographic variation in hospital wage costs, CMS should eliminate the occupational mix survey and the significant reporting burden it creates.

Response: We appreciate the commenter's concern for the accuracy of the wage index, and we have continually exhorted all hospitals to complete and submit the occupational mix surveys. We did not propose a particular penalty for hospitals that do not submit the CY 2013 occupational mix survey, but we are continuing to consider for future rulemaking various options for ensuring full compliance. Examples include applying a hospital's occupational mix survey data from a previous survey period to the current wage index of a given fiscal year; including the occupational mix survey as part of the cost report, and if not completed, the cost report would be rejected by the MAC; or application of a State-specific minimum or reduced occupational mix adjustment. Regarding the commenter's request that CMS should eliminate the survey due to the burden it creates, section 1886(d)(3)(E) of the Act requires us to measure the earnings and paid hours of employment by occupational category. As long as the requirement to apply an occupational mix adjustment to the wage index remains in place in the statute, there may be some amount of administrative burden involved in reporting that data.

After consideration of the public comments we received, for FY 2015, we are finalizing our proposal to calculate the occupational mix adjustment factor using the same methodology that we used for the FY 2012, FY 2013, and FY 2014 wage indexes (76 FR 51582 through 51586, 77 FR 53367 through 53368, and 78 FR 50588 through 50589, respectively). As a result of applying this methodology, the FY 2015 occupational mix adjusted national average hourly wage (based on the new OMB labor market area delineations) is $39.2591. The FY 2015 occupational mix adjusted Puerto Rico-specific average hourly wage (based on the new OMB labor market area delineations) is $17.0410. For the FY 2015 wage index, because we are using the Worksheet S-3, Parts II and III wage data of 3,416 hospitals, and we are using the occupational mix surveys of 3,183 hospitals for which we also have Worksheet S-3 wage data, that represents a “response” rate of 93.2 percent (3,183/3,416).

G. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2015 Occupational Mix Adjusted Wage Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix Adjusted Wage Index

As discussed in section III.F. of the preamble of this final rule, for FY 2015, we apply the occupational mix adjustment to 100 percent of the FY 2015 wage index. We calculated the occupational mix adjustment using data from the 2010 occupational mix survey data, using the methodology described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582 through 51586).

Using the occupational mix survey data and applying the occupational mix adjustment to 100 percent of the FY 2015 wage index results in a national average hourly wage (based on the new OMB labor market area delineations) of $39.2591 and a Puerto-Rico specific average hourly wage of $17.0410. After excluding data of hospitals that either submitted aberrant data that failed critical edits, or that do not have FY 2011 Worksheet S-3, Parts II and III, cost report data for use in calculating the FY 2015 wage index, we calculated the FY 2015 wage index using the occupational mix survey data from 3,183 hospitals. For the FY 2015 wage index, because we are using the Worksheet S-3, Parts II and III wage data of 3,416 hospitals, and we are using the occupational mix survey data of 3,183 hospitals for which we also have Worksheet S-3 wage data, those data represent a “response” rate of 93.2 percent (3,183/3,416). The FY 2015 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows:

The national average hourly wage for the entire nurse category as computed in Step 5 of the occupational mix calculation is $31.769556957. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0.

Based on the 2010 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) that the national percentage of hospital employees in the nurse category is 43.46 percent, and the national percentage of hospital employees in the all other occupations category is 56.54 percent. At the CBSA level, using the new OMB delineations for FY 2015, the percentage of hospital employees in the nurse category ranged from a low of 21.88 percent in one CBSA to a high of 62.04 percent in another CBSA.

We compared the FY 2015 occupational mix adjusted wage indexes for each CBSA to the unadjusted wage indexes for each CBSA. We used the FY 2015 new OMB delineations for this analysis. As a result of applying the occupational mix adjustment to the wage data, the wage index values for 219 (53.8 percent) urban areas and 29 (61.7 percent) rural areas increased. One hundred and nineteen (29.2 percent) urban areas will increase by 1 percent but less than 5 percent, and 4 (1.0 percent) urban areas will increase by 5 percent or more. Fourteen (29.8 percent) rural areas will increase by 1 percent but less than 5 percent, and no rural areas will increase by 5 percent or more. However, the wage index values for 186 (45.7 percent) urban areas and 18 (38.3 percent) rural areas decreased. Seventy nine (19.4 percent) urban areas will decrease by 1 percent but less than 5 percent, and 1 (0.2 percent) urban area will decrease by 5 percent or more. Seven (14.9 percent) rural areas will decrease by 1 percent and less than 5 percent, and no rural areas will decrease by 5 percent or more. The largest positive impacts will be 6.58 percent for an urban area and 3.36 percent for a rural area. The largest negative impacts will be 5.32 percent for an urban area and 1.73 percent for a rural area. Two urban areas' wage indexes, but no rural area wage indexes, will remain unchanged by application of the occupational mix adjustment. These results indicate that a larger percentage of rural areas (61.7 percent) will benefit from the occupational mix adjustment than will urban areas (53.8 percent). However, approximately one-third (38.3 percent) of rural CBSAs will still experience a decrease in their wage indexes as a result of the occupational mix adjustment.

2. Application of the Rural, Imputed, and Frontier Floors

a. Rural Floor

Section 4410(a) of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. This provision is referred to as the “rural floor.” Section 3141 of Public Law 111-148 also requires that a national budget neutrality adjustment be applied in implementing the rural floor. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28068), based on the proposed FY 2015 wage index associated with the proposed rule and based on the proposed implementation of the new OMB delineations discussed in section III.B. of the preamble of the proposed rule, we estimated that 441 hospitals would receive an increase in their FY 2015 proposed wage index due to the application of the rural floor.

Based on the final FY 2015 wage index associated with this final rule and available on the CMS Web site and based on the implementation of the new OMB delineations, 422 hospitals are receiving an increase in their FY 2015 wage index due to application of the rural floor.

We received some public comments concerning the application of the rural floor. We respond to these public comments in Appendix A of this final rule.

b. Imputed Floor for FY 2015

In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we adopted the “imputed floor” policy as a temporary 3-year regulatory measure to address concerns from hospitals in all-urban States that have argued that they are disadvantaged by the absence of rural hospitals to set a wage index floor for those States. Since its initial implementation, we have extended the imputed floor policy four times, the last of which was adopted in the FY 2014 IPPS/LTCH PPS final rule and is set to expire on September 30, 2014. (We refer readers to further discussion of the imputed floor in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50589 through 50590) and to our regulations at 42 CFR 412.64(h)(4).) Currently, there are two all-urban States, New Jersey and Rhode Island, that have a range of wage indexes assigned to hospitals in these States, including through reclassification or redesignation (we refer readers to discussions of geographic reclassifications and redesignations in section III.H. of the preamble of the proposed rule and this final rule). However, as we explain below, the method as of FY 2012 for computing the imputed floor (the original methodology) benefitted only New Jersey, and not Rhode Island.

In computing the imputed floor for an all-urban State under the original methodology, we calculated the ratio of the lowest-to-highest CBSA wage index for each all-urban State as well as the average of the ratios of lowest-to-highest CBSA wage indexes of those all-urban States. We then compared the State's own ratio to the average ratio for all-urban States and whichever is higher is multiplied by the highest CBSA wage index value in the State—the product of which established the imputed floor for the State. Under the current OMB labor market area delineations that we used for the FY 2014 wage index, Rhode Island has only one CBSA (Providence-New Bedford-Fall River, RI-MA) and New Jersey has 10 CBSAs. Therefore, under the original methodology, Rhode Island's own ratio equaled 1.0, and its imputed floor was equal to its original CBSA wage index value. However, because the average ratio of New Jersey and Rhode Island was higher than New Jersey's own ratio, this methodology provided a benefit for New Jersey, but not for Rhode Island.

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 53369), we retained the imputed floor calculated under the original methodology as discussed above, and established an alternative methodology for computing the imputed floor wage index to address the concern that the original imputed floor methodology guaranteed a benefit for one all-urban State with multiple wage indexes (New Jersey) but could not benefit the other all-urban State (Rhode Island). The alternative methodology for calculating the imputed floor was established using data from the application of the rural floor policy for FY 2013. Under the alternative methodology, we first determined the average percentage difference between the post-reclassified, pre-floor area wage index and the post-reclassified, rural floor wage index (without rural floor budget neutrality applied) for all CBSAs receiving the rural floor. (Table 4D associated with the FY 2013 IPPS/LTCH PPS final rule (which is available on the CMS Web site) included the CBSAs receiving a State's rural floor wage index.) The lowest post-reclassified wage index assigned to a hospital in an all-urban State having a range of such values then is increased by this factor, the result of which establishes the State's alternative imputed floor. We amended § 412.64(h)(4) of the regulations to add new paragraphs to incorporate the finalized alternative methodology, and to make reference and date changes.

In summary, for the FY 2013 wage index, we did not make any changes to the original imputed floor methodology at § 412.64(h)(4) and, therefore, made no changes to the New Jersey imputed floor computation for FY 2013. Instead, for FY 2013, we adopted a second, alternative methodology for use in cases where an all-urban State has a range of wage indexes assigned to its hospitals, but the State cannot benefit from the methodology in existing § 412.64(h)(4).

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50589 through 50590), we extended the imputed floor policy (both the original methodology and the alternative methodology) for 1 additional year, through September 30, 2014, while we continued to explore potential wage index reforms.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28068 through 28069), for FY 2015, we proposed to continue the extension of the imputed floor policy (both the original methodology and alternative methodology) for another year, through September 30, 2015, as we continue to explore potential wage index reforms. As discussed in section III.B. of the preamble of the proposed rule, we proposed to adopt the new OMB labor market area delineations beginning in FY 2015. Under OMB's new labor market area delineations based on Census 2010 data, Delaware would become an all-urban State, along with New Jersey and Rhode Island. Under the new OMB delineations, Delaware would have three CBSAs, New Jersey would have seven CBSAs, and Rhode Island would continue to have only one CBSA (Providence-Warwick, RI-MA). We referred readers to a detailed discussion of our proposal to adopt the new OMB labor market area delineations in section III.B. of the preamble of the proposed rule. We proposed to revise the regulations at § 412.64(h)(4) and (h)(4)(vi) to reflect the proposed 1-year extension of the imputed floor. We invited public comments on our proposal regarding the 1-year extension of the imputed floor.

Comment: Several commenters supported the CMS proposal to extend the imputed floor for 1 year, stating that it establishes an approach to remedy the competitive disadvantage suffered by all-urban States in the absence of an imputed wage index floor; and that the imputed wage index floor policy creates a climate of symmetry, equity and consistency in the Medicare reimbursement process. One commenter suggested that the industry have an opportunity to provide input to CMS prior to finalizing any decisions regarding the imputed floor policy. The commenter also suggested that if CMS decides to finalize a policy that would result in the expiration of the imputed floor, CMS afford hospitals a multiyear phase-out in order to offset their lost revenue.

One commenter stated that CMS should reconsider the extension of the imputed floor policy, and questioned what statutory authority CMS has to extend the imputed floor policy and declare new States eligible. Another commenter objected to the proposal and stated that it does not support the policy behind the imputed floor. The commenter recommended that CMS not finalize the proposal to extend the imputed floor, and stated it agreed with the rationale that CMS previously provided in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25878 through 25879) for not proposing to extend the imputed floor policy, and urged CMS to let the policy expire.

Response: We appreciate the commenters' support for our proposal to extend the imputed floor for 1 year and are finalizing this proposal. In response to the commenters who objected to the proposed policy and made other recommendations, we will give further consideration to those comments as we continue to explore potential wage index reforms. As we have done every year since the proposal of the imputed floor, we provide and will continue to provide the industry with the opportunity to provide input on our proposals prior to finalizing any decisions regarding the imputed floor policy. We will take the commenters' recommendation to afford hospitals a multiyear phase-out into consideration should we propose not to extend the imputed floor policy in future years.

In response to the commenter who questioned what statutory authority CMS has to extend the imputed floor policy and declare new States eligible, as we stated in the FY 2005 IPPS final rule (69 FR 49110), we note that the Secretary has broad authority under section 1886(d)(3)(E) of the Act to “adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs of the DRG prospective payment rates . . . for area differences in hospital wage levels by a factor (established by the Secretary) . . .” Therefore, we believe that we do have the discretion to adopt a policy that would adjust area wage indexes in the stated manner. We adopted the imputed floor policy and subsequently extended it through notice-and-comment rulemaking to address concerns from hospitals in all-urban states. Under the new OMB delineations discussed in section III.B. of the preamble of this final rule, Delaware becomes an all-urban State and, therefore, is subject to an imputed floor as well.

After consideration of the public comments we received, we are finalizing our proposal without modification to extend the imputed floor policy under both the original methodology and the alternative methodology for an additional year, through September 30, 2015, while we continue to explore potential wage index reform. We also are adopting as final the proposed revisions to § 412.64(h)(4) and (h)(4)(vi) to reflect the 1-year extension of the imputed floor.

The wage index and impact tables associated with this FY 2015 IPPS/LTCH PPS final rule that are available on the CMS Web site reflect the continued application of the imputed floor policy at § 412.64(h)(4) and a national budget neutrality adjustment for the imputed floor for FY 2015. There are 15 providers in New Jersey, and no providers in Delaware that will receive an increase in their FY 2015 wage index due to the continued application of the imputed floor policy under the original methodology. The wage index and impact tables for this FY 2015 final rule also reflect the application of the alternative methodology for computing the imputed floor, which will benefit four hospitals in Rhode Island.

c. State Frontier Floor

Section 10324 of Public Law 111-148 requires that hospitals in frontier States cannot be assigned a wage index of less than 1.0000 (we refer readers to regulations at 42 CFR 412.64(m) and to a discussion of the implementation of this provision in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160 through 50161)). Based on the implementation of the new OMB delineations discussed in section III.B. of the preamble of this final rule, 46 hospitals will receive the frontier floor value of 1.0000 for their FY 2015 wage index in this final rule. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. Although Nevada also is defined as a frontier State, its FY 2015 rural floor value of 1.1373 is greater than 1.0000, and therefore, no Nevada hospitals will receive a frontier floor value for their FY 2015 wage index.

We did not propose any changes to the frontier floor policy for FY 2015, and we did not receive any public comments on the issue.

The areas affected by the rural, imputed, and frontier floor policies for the FY 2015 wage index are identified in Table 4D associated with this final rule, which is available via the Internet on the CMS Web site.

3. FY 2015 Wage Index Tables

The wage index values for FY 2015 (except those for hospitals receiving wage index adjustments under section 1886(d)(13) of the Act), included in Tables 4A, 4B, 4C, and 4F, available on the CMS Web site, include the occupational mix adjustment, geographic reclassification or redesignation as discussed in section III.H. of the preamble of this final rule, and the application of the rural, imputed, and frontier State floors as discussed in section III.G.2. of the preamble of this final rule. We note that because we are adopting the new OMB labor market area delineations for FY 2015, these tables have additional tabulations to account for wage index calculations computed under the previous and the new OMB delineations.

Tables 3A and 3B, available on the CMS Web site, list the 3-year average hourly wage for each labor market area before the redesignation or reclassification of hospitals based on FYs 2009, 2010, and 2011 cost reporting periods. Table 3A lists these data for urban areas, and Table 3B lists these data for rural areas. In addition, Table 2, which is available on the CMS Web site, includes the adjusted average hourly wage for each hospital from the FY 2009 and FY 2010 cost reporting periods, as well as the FY 2011 period used to calculate the FY 2015 wage index. The 3-year averages are calculated by dividing the sum of the dollars (adjusted to a common reporting period using the method described in Step 5 in section III.G. of the preamble of this final rule) across all 3 years, by the sum of the hours. If a hospital is missing data for any of the previous years, its average hourly wage for the 3-year period is calculated based on the data available during that period. The average hourly wages in Tables 2, 3A, and 3B, which are available on the CMS Web site, include the occupational mix adjustment. The wage index values in Tables 4A, 4B, 4C, and 4D also include the national rural floor budget neutrality adjustment (which includes the imputed floor). The wage index values in Table 2 also include the out-migration adjustment for eligible hospitals. As stated above, because we are adopting the new OMB labor market area delineations for FY 2015, these tables have additional tabulations to account for wage index calculations computed under the current labor market area definitions and the new OMB labor market area delineations. In addition, for certain applicable hospitals, the wage index values included in Table 2 are computed to reflect the transitional wage index or the 50/50 blended wage index discussed in detail in section III.B.2.e. of the preamble of this final rule.

H. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications

1. General Policies and Effects of Reclassification and Redesignation

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the start of the fiscal year for which reclassification is sought (generally by September 1). Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions by the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in 42 CFR 412.230 through 412.280. (We refer readers to a discussion in the FY 2002 IPPS final rule (66 FR 39874 and 39875) regarding how the MGCRB defines mileage for purposes of the proximity requirements.) The general policies for reclassifications and redesignations that we proposed for FY 2015, and the policies for the effects of hospitals' reclassifications and redesignations on the wage index, are the same as those discussed in the FY 2012 IPPS/LTCH PPS final rule for the FY 2012 final wage index (76 FR 51595 and 51596). Also, in the FY 2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage index of urban hospitals reclassifying to rural areas under 42 CFR 412.103. Hospitals that are geographically located in States without any rural areas are ineligible to apply for rural reclassification in accordance with the provisions of 42 CFR 412.103. While our general policies on geographic reclassification, redesignations under section 1886(d)(8)(B) of the Act, and urban hospitals reclassifying to rural under 42 CFR 412.103 will remain unchanged for FY 2015, we note that, due to our adoption of the new OMB labor market area delineations for FY 2015, there are numerous unique classification considerations for FY 2015 that are discussed in more detail in section III.H. of the preamble of this final rule. For a discussion of the new CBSA changes based on the new OMB labor market area delineations and our implementation of those changes, we refer readers to sections III.B. and VI.C. of the preamble of this final rule.

Comment: One commenter stated that because the new OMB labor market area delineations will be effective October 1, 2014, for FY 2015, hospitals should have been given an opportunity to apply for reclassification to these new labor market areas a year ago. The commenter suggested that CMS provide a one-time expedited MGCRB application and approval process to be effective October 1, 2014.

Similarly, another commenter stated that a hospital would not have had an adequate opportunity to assess reclassification options for FY 2015 because CMS did not publish 3-year average hourly wage data based on the new OMB labor market area delineations with the FY 2014 IPPS/LTCH PPS final rule. The commenter therefore suggested that either the effective date of the implementation of the new OMB labor market areas delineations be postponed until FY 2016, or a new period be opened to allow hospitals to reclassify for FY 2015.

Response: We do not agree with these comments. We did not propose to adopt the new OMB labor market area delineations in the FY 2014 IPPS/LTCH PPS proposed rule and, therefore, did not finalize the new OMB delineations in the FY 2014 IPPS/LTCH PPS final rule. Instead, we notified hospitals of our intention to propose changes to the wage index based on the new OMB delineations in the FY 2015 IPPS/LTCH proposed and final rules (78 FR 27552 through 27553; 78 FR 50586). Therefore, hospitals could not apply for reclassification on the basis of the new OMB labor market area delineations a year ago because they had not yet been implemented. Because we had not implemented the new OMB delineations, we were unable to release data, including average hourly wage data, based on these new delineations last year.

Section 1886(d)(10)(C) of the Act mandates that hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the start of the fiscal year for which reclassification is sought (generally by September 1), and the MGCRB must issue its decision within 180 days after the first day of the 13-month period preceding the fiscal year for which a hospital has filed its application. Therefore, we believe we have balanced our obligation to implement the reclassification decisions of the MGCRB with our responsibility to implement the most accurate labor market areas through the new OMB delineations in as uniform a manner as possible.

However, we recognized that the new OMB delineations could affect reclassification decisions. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28073), we stated that hospitals that wished to be reassigned to an alternate CBSA (other than the CBSA to which their reclassification would be reassigned in this proposed rule) for which they meet the applicable proximity criteria could request reassignment within 45 days from the publication of the proposed rule. We also stated that if, for whatever reason, a hospital still finds itself assigned to a labor market area that would provide a wage index for FY 2015 that is lower than the wage index the hospital would have received under the FY 2014 CBSA delineations, we proposed a 50/50 blended wage index adjustment in FY 2015 for all hospitals that would experience a decrease in their FY 2015 wage index value due to the implementation of the new OMB delineations and are finalizing this transition adjustment in this rule. This transitional adjustment will mitigate negative payment impacts for FY 2015, while providing hospitals additional time to fully assess any additional reclassification options available to them under the new OMB delineations for FY 2016. Therefore, we do not believe it is necessary to implement a one-time expedited MGCRB application and approval process, postpone the effective date of the implementation of the new OMB delineations until FY 2016, or open a new period to allow hospitals to reclassify for FY 2015.

Comment: A few commenters stated that, in cases where a countywide (group) reclassification had been previously approved by the MGCRB, a new hospital is not able to obtain the same reclassified wage index until the first year that individual hospital's wage index data match one of the 3 years' data used by the MGCRB and a new 3-year countywide reclassification is requested by the county's hospitals (which can be a 4-year delay). The commenters stated that the hospital will have a wage index lower than the hospitals with which it competes for skilled labor. The commenter suggested that CMS change its policy to allow for a timelier competitive wage index for new hospitals.

Two commenters suggested that the proximity rule for countywide reclassifications for hospitals in an urban county be modified to permit adjacent county reclassifications, regardless of whether they are in the same CSA or CBSA, or at a minimum, create an exception that would allow this in the event that half of the hospitals in the county are seeking to reclassify.

Another commenter suggested that a county be permitted to apply for designation as a “core county” if its 3-year average hourly wage is at least 108 percent of the 3-year average hourly wage of its CBSA, excluding the core county. The commenter also suggested that other counties within the same CBSA that are either adjacent to or within the same city as the core county, and whose 3-year average hourly wage is at least 85 percent of the core county's average hourly wage, be permitted to join the core county to form a “core area” if the resulting wage index is beneficial to all hospitals in the core area.

Response: We thank the commenters for their comments. We already have established criteria and processes for MGCRB reclassification, which are specified in 42 CFR 412.230 et. seq, and we did not propose any changes to these provisions for FY 2015. Consequently, we are not making any changes to address the commenter's concerns at this time. We refer the commenters to these regulations for complete details on wage index reclassifications.

2. FY 2015 MGCRB Reclassifications

a. FY 2015 Reclassification Requirements and Approvals

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic reclassification process are outlined in regulations under 42 CFR 412.230 through 412.280.

At the time this final rule was constructed, the MGCRB had completed its review of FY 2015 reclassification requests. Based on such reviews, there were 309 hospitals approved for wage index reclassifications by the MGCRB starting in FY 2015 that did not withdraw or terminate their reclassifications within 45 days of the publication of the proposed rule. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2015, hospitals reclassified beginning during FY 2013 or FY 2014 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications for the remainder of their 3-year period. There were 155 hospitals approved for wage index reclassifications in FY 2013 that continue for FY 2015, and 270 hospitals approved for wage index reclassifications in FY 2014 that continue for FY 2015. Of all the hospitals approved for reclassification for FY 2013, FY 2014, and FY 2015, based upon the review at the time of this final rule, 734 hospitals are in a reclassification status for FY 2015.

Under the regulations at 42 CFR 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications within 45 days of the publication of a proposed rule. For information about withdrawing, terminating, or canceling a previous withdrawal or termination of a 3-year reclassification for wage index purposes, we refer readers to 42 CFR 412.273, as well as the FY 2002 IPPS final rule (66 FR 39887 through 39888) and the FY 2003 IPPS final rule (67 FR 50065 through 50066). Additional discussion on withdrawals and terminations, and clarifications regarding reinstating reclassifications and “fallback” reclassifications, were included in the FY 2008 IPPS final rule (72 FR 47333).

Changes to the wage index that result from withdrawals of requests for reclassification, terminations, wage index corrections, appeals, and the Administrator's review process for FY 2015 are incorporated into the wage index values published in this FY 2015 IPPS/LTCH PPS final rule. These changes affect not only the wage index value for specific geographic areas, but also the wage index value redesignated/reclassified hospitals receive; that is, whether they receive the wage index that includes the data for both the hospitals already in the area and the redesignated/reclassified hospitals. Further, the wage index value for the area from which the hospitals are redesignated/reclassified may be affected.

Comment: One commenter stated that CMS' policy that hospitals must request to withdraw or terminate MGCRB reclassifications within 45 days of the proposed rule is problematic because a hospital could terminate a reclassification based on information in the proposed rule, and with the publication of the final rule, discover that its original reclassified status was more desirable. The commenter stated that hospitals cannot make informed decisions concerning their reclassification status based on values in a proposed rule that are likely to change and, therefore, recommended that CMS revise its existing policy to permit hospitals to withdraw or terminate their reclassification status within 45 days of the publication of the final rule. Similarly, another commenter stated that the requirement for withdrawal of an existing reclassification is unnecessary and unfair because it requires that a hospital give up the certain benefit of the existing reclassification for the uncertain benefit of a proposal. The commenter stated that it is possible that CMS could modify the reclassification rules, and suggested that hospitals be allowed 30 days after the publication of the final rule to withdraw their reclassification requests or to reverse a withdrawal that was made based on the proposed rule in situations where data corrections could result in the hospital no longer benefiting by the alternative they selected.

Response: We did not make any proposals to change any of the reclassification processes or criteria for FY 2015. Any changes to the reclassification processes or criteria would first need to be proposed in a separate rulemaking. Consequently, we are not making any changes to address the commenters' concerns at this time. We maintain that information provided in the proposed rule constitutes the best available data to assist hospitals in making reclassification decisions. The values published in the final rule represent the final wage index values reflective of reclassification decisions.

b. Effects of Implementation of New OMB Labor Market Area Delineations on Reclassified Hospitals

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28070 through 28074), we indicated that because hospitals that have been reclassified beginning in FY 2013, 2014, or 2015 were reclassified based on the current labor market delineations, if we adopted the new OMB labor market area delineations beginning in FY 2015, the areas to which they have been reclassified, or the areas where they are located, may change. Under the new OMB delineations, we stated that many existing CBSAs would be reconfigured. We encouraged hospitals with current reclassifications to verify area wage indexes on Tables 4A-2 and 4B-2 associated with the proposed rule (which are available via the Internet on the CMS Web site), and confirm that the areas to which they have been reclassified for FY 2015 would continue to provide a higher wage index than their geographic area wage index. We stated that hospitals may withdraw their FY 2015 reclassifications by contacting the MGCRB within 45 days from the publication of the proposed rule.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28070), we stated that, in some cases, adopting the new OMB delineations would result in counties splitting apart from CBSAs to form new CBSAs, or counties shifting from one CBSA designation to another CBSA. Reclassifications granted under section 1886(d)(10) of the Act are effective for 3 fiscal years so that a hospital or county group of hospitals would be assigned a wage index based upon the wage data of hospitals in a nearby labor market area for a 3-year period. If CBSAs are split apart, or if counties shift from one CBSA to another under the new OMB delineations, it raises the question of how to continue a hospital's reclassification for the remainder of its 3-year reclassification period, if that area to which the hospital reclassified no longer exists, in whole or in part. We dealt with this question in FY 2005 as well when CMS adopted the current OMB labor market area definitions. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28071), we indicated that, consistent with the policy CMS implemented in the FY 2005 IPPS final rule (69 FR 49054 through 49056), if a CBSA would be reconfigured due to the new OMB delineations and it would not be possible for the reclassification to continue seamlessly to the reconfigured CBSA, we believe it is appropriate for us to determine the best alternative location to reassign current reclassifications for the remaining 3 years. Therefore, to maintain the integrity of a hospital's 3-year reclassification period, we proposed a policy to assure that current geographic reclassifications (applications approved for FY 2013, FY 2014, or FY 2015) that would be affected by CBSAs that are split apart or counties that shift to another CBSA under the new OMB delineations, would ultimately be assigned to a CBSA under the new OMB delineations that contains at least one county from the reclassified CBSA under the current FY 2014 OMB definitions, and would be generally consistent with rules that govern geographic reclassification. That is, consistent with the policy finalized in FY 2005 (69 FR 49054 and 49055), we proposed a general policy that affected reclassified hospitals would be assigned to a CBSA that (1) would contain the most proximate county that is located outside of the hospital's proposed FY 2015 geographic labor market area, and (2) is part of the original FY 2014 CBSA to which the hospital is reclassified. We stated our belief that by assigning reclassifications to the CBSA that contains the nearest eligible county (as described above) satisfies the statutory requirement at section 1886(d)(10)(v) of the Act by maintaining reclassification status for a period of 3 fiscal years, while generally respecting the longstanding principle of geographic proximity in the labor market reclassification process. The hospitals that we proposed to reassign to a different CBSA based on our proposed policy above were listed in a special Table 9A-2 for the proposed rule, which is available via the Internet on the CMS Web site. In addition, we proposed to allow a hospital, or county group of hospitals, to request reassignment to another CBSA that would contain a county that is part of the current FY 2014 CBSA to which they are reclassified, if the hospital or county group of hospitals can demonstrate compliance with applicable reclassification proximity rules, as described later in this section.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28071), we stated that we recognize that this proposed reclassification reassignment described for hospitals that are reclassified to CBSAs that would split apart or to counties that would shift to another CBSA under the new OMB delineations may result in the reassignment of the hospital for the remainder of its 3-year reclassification period to a CBSA having a lower wage index than the wage index that would have been assigned for the reclassified hospital in the absence of the proposed adoption of the new OMB delineations. Therefore, as discussed in section III.B.2.e.(4) of the preamble of the proposed rule, we proposed (and are finalizing in this final rule) that all hospitals that would experience a decrease in their FY 2015 wage index value due to the proposed implementation of the new OMB delineations would receive a 50/50 blended wage index adjustment in FY 2015. For FY 2015, we proposed to calculate a wage index value based on the current FY 2014 OMB definitions, and a wage index value based upon the proposed new OMB delineations (including reclassification assignments discussed in this section). If the wage index under the proposed new OMB delineations would be lower than the wage index calculated with the current (FY 2014) OMB definitions, we proposed that the hospital would be assigned a blended wage index (50 percent of the current; 50 percent of the proposed). We stated our belief that this proposed transitional adjustment would mitigate negative payment impacts for FY 2015, and would afford hospitals additional time to fully assess any additional reclassification options available to them under the new OMB delineations.

We are including the following descriptions of specific situations where we have determined that reassignment of reclassification areas is appropriate.

(1) Reclassifications to CBSAs That Are Subsumed by Other CBSAs

For the proposed rule (79 FR 28070), we identified 66 counties that are currently located in CBSAs that would be subsumed by another CBSA under the new OMB labor market area delineations. As a result, hospitals reclassifying to those CBSAs would now find that their reclassifications are to a CBSA that no longer exists. For these hospitals, we proposed to reassign reclassifications to the newly configured CBSA to which all of the original constituent counties in the FY 2014 CBSA are transferred. For example, CBSA 11300 (Anderson, IN) would no longer exist under the proposed FY 2015 delineations. The only constituent county in CBSA 11300, Madison County, IN, would be moving to CBSA 26900 (Indianapolis-Carmel-Anderson, IN). Because the original Anderson, IN labor market area no longer exists, we proposed to reassign reclassifications from the original Anderson, IN labor market area to a newly configured CBSA where the original constituent county or counties are transferred, which is Indianapolis-Carmel-Anderson, IN. For hospitals reclassified to a CBSA that would be subsumed by another CBSA, we included a table in the proposed rule that reflected the hospitals' current reclassified CBSA, and the CBSA to which we proposed to assign them for FY 2015 (79 FR 28071).

We did not receive any public comments regarding this proposal to reassign hospitals reclassified to CBSAs that were subsumed by another CBSA. Therefore, we are finalizing this provision as proposed. For any hospital that is reclassified to a CBSA that no longer exists, and all of the CBSA's constituent counties moved to another CBSA under the new OMB delineations, we assigned that hospital's reclassification to the subsuming CBSA to which all of the original constituent counties in the FY 2014 CBSA are transferred.

The following table lists 63 hospitals that are currently located in CBSAs that will be subsumed by another CBSA under the new OMB labor market area delineations and reflects the hospitals' current reclassified CBSA and the CBSA to which we are assigning them for FY 2015. We note that three hospitals have terminated their reclassification since publication of the proposed rule and have been omitted.

(2) Reclassification to CBSAs Where the CBSA Number or Name Changed or to CBSAs Containing Counties That Moved to Another CBSA

For the proposed rule (79 FR 28072), we identified six CBSAs with current reclassifications that would maintain the same constituent counties, but the CBSA number or name would change if we adopted the new OMB delineations. For example, CBSA 29140 (Lafayette, IN) currently contains three counties (Benton, Carroll, and Tippecanoe Counties). The CBSA name and number for these counties would change to CBSA 29200 (Lafayette-West Lafayette, IN) under the new OMB delineations. Because the constituent counties in these CBSAs would not change under the new delineations, we would consider these CBSAs to be unchanged, and we did not propose any reassignment for hospitals reclassified to those labor market areas.

In the proposed rule, we identified eight CBSAs with current reclassifications that have one or more counties that would split off and move to a new CBSA or to a different existing CBSA under the new OMB delineations. These CBSAs are shown in the following table.

In the proposed rule, we determined that 69 hospitals had current reclassifications to one of these CBSAs. Similar to the methodology finalized in the FY 2005 IPPS final rule (69 FR 49054 through 49055), we proposed to follow the general policy discussed in section III.H.2.b. of the preamble of the proposed rule. Specifically, we proposed that affected reclassified hospitals would be assigned to a CBSA (under the new OMB delineations) that would contain the most proximate county that is (1) located outside of the hospital's proposed FY 2015 geographic labor market area; and (2) is included in the current CBSA to which they are reclassified. For each of the 69 hospitals, we conducted a mapping analysis and determined driving distances from their geographic location to the borders of each county that is in the reclassified CBSA under the FY 2014 delineations and is also included in a CBSA under the new OMB delineations, excluding any counties that would be located in the hospital's proposed FY 2015 geographic labor market area. Following the general reassignment principle that we proposed, we proposed to reassign those reclassified hospitals to the CBSA which contains the geographically closest county. For example, there are hospitals that currently are reclassified to CBSA 39100 (Poughkeepsie-Newburgh-Middletown, NY) under the FY 2014 delineations, which is comprised of Dutchess County and Orange County, NY. Under the new OMB delineations, Dutchess County would become part of new CBSA 20524 (Dutchess County-Putnam County, NY), while Orange County would join CBSA 35614 (New York-Jersey City-White Plains, NY-NJ Metropolitan Division). Therefore, we mapped the distances from one reclassified hospital to the border of Dutchess County and Orange County, NY (the two counties that were part of CBSA 39100 under the FY 2014 delineations). Our analysis showed that the hospital is 2.2 miles from Dutchess County, and 25.9 miles from Orange County. Therefore, we proposed to reassign this hospital's reclassification from the FY 2014 CBSA 39100 to the new CBSA 20524.

For the proposed rule, we also identified affected county group reclassifications. For these reclassifications, we proposed that we would follow our proposed policy discussed above, except that, for county group reclassifications, we proposed to reassign hospitals in a county group reclassification to the CBSA under the new OMB delineations to which the majority of hospitals in the group reclassification are geographically closest. Because hospitals in a county group applied as a group, we believe the reassignment should also be applied to the whole group. For example, the hospitals of Fairfield County, CT are reclassified as a group to CBSA 35644 under the FY 2014 delineations. Under the new OMB delineations, CBSA 35644 would no longer exist and would be split into the following two new CBSAs: 20524 (Dutchess County-Putnam County, NY) and 35614 (New York-Jersey City-White Plains, NY-NJ). Of the six hospitals in the group reclassification, all but one would be closer to an eligible county (Westchester, NY) in CBSA 35614 than to an eligible county (Putnam, NY) in CBSA 20524. Because these hospitals in Fairfield, CT applied as a group, we believe the reassignment should also be applied to the whole group. Therefore, we proposed to assign the hospitals in this group reclassification to CBSA 35614, the reconfigured CBSA to which the majority of the hospitals in the group reclassification are geographically closest.

To summarize, of the 69 hospitals identified in the proposed rule as reclassified to 1 of the 8 CBSAs in the preceding table that have counties that would split off and move to a new CBSA or a different existing CBSA under the new OMB delineations, there are 27 hospitals that would maintain the same reclassified CBSA number under our proposals. Another 28 hospitals would be reassigned to a reconfigured CBSA that would contain a similar number of counties from their current reclassified CBSA. For the remaining 14 reclassified hospitals, we proposed to assign them to a CBSA (under the new OMB delineations) that would have a different CBSA number from the labor market area to which they are currently reclassified (under the current FY 2014 delineations). This is because if the original CBSA to which the hospitals are reclassified is losing counties to another urban CBSA, it may be that the original reclassification determination would not be reflective of the new delineations. In addition, because proximity to a CBSA is a requirement of reclassifications approved under section 1886(d)(10) of the Act, we stated our belief that it is appropriate to propose to reassign reclassification status to an urban CBSA that contains the county (from the hospital's current CBSA reclassification) that is closest to the hospital. We stated our belief that this would more accurately reflect the geographic labor market area of the reclassified hospital.

Consistent with refinements implemented in the FY 2005 IPPS final rule (69 FR 49055), we proposed to allow hospitals that reclassified under section 1886(d)(10) of the Act to one of the eight CBSAs that split (that is, current FY 2014 CBSAs 16620, 16974, 20764, 31140, 35644, 37964, 39100, 48900) to be reclassified to any CBSA containing a county from their original reclassification labor market area, provided that the hospital demonstrates that it meets the applicable proximity requirements under 42 CFR 412.230(b) and (c) (for individual hospitals), 42 CFR 412.232(a)(1) (for a rural group), and 42 CFR 412.234(a)(2) and (a)(3) (for an urban group) to that CBSA. We stated that hospitals that wished to be reassigned to an alternate CBSA (other than the CBSA to which their reclassification would be reassigned in this proposed rule) for which they meet the applicable proximity criteria could request reassignment within 45 days from the publication of the proposed rule. Hospitals had to send a request to WageIndex@cms.hhs.gov and provide documentation certifying that they meet the requisite proximity criteria for reassignment to an alternate CBSA, as described above. We stated our belief that this option of allowing hospitals to submit a request to CMS would provide hospitals with greater flexibility with respect to their reclassification reassignment, while ensuring that the proximity requirements are met. We believe that where the proximity requirements are met, the reclassified wage index would be consistent with the labor market area to which the hospitals were originally approved for reclassification. Under this proposed policy, a hospital could request to be assigned a reclassification to any CBSA that contains any county from the CBSA to which it is currently reclassified. However, to be reassigned to an area that is not the most proximate to the hospital (or the majority of hospitals in a county group), we believe it is necessary that the hospital demonstrates that it complies with the applicable proximity criteria. If a hospital cannot demonstrate proximity to an alternate CBSA, the hospital would not be considered for reclassification to that labor market area, and reassignment would remain with the closest eligible (new) CBSA.

In the proposed rule (79 FR 28073), we included a table showing proposed hospital reclassification assignments for hospitals reclassified to CBSAs from which counties would be split off and moved to a different CBSA under the new OMB delineations. The table showed the current reclassified CBSA and the CBSA to which CMS proposed reassignment.

We proposed that hospitals that disagreed with our determination of the most proximate county had to provide an alternative method for determining proximity to CMS within 45 days from the publication of the proposed rule. We stated that changes to a hospital's CBSA assignment on the basis of a hospital's disagreement with our determination of closest county, or on the basis of being granted a reassignment due to meeting applicable proximity criteria to an eligible CBSA would be announced in this FY 2015 IPPS/LTCH PPS final rule.

Comment: Commenters were generally supportive of our proposal to adopt the new OMB delineations. Commenters did not specifically address the proposed assignment of reclassification status for hospitals that are reclassified to labor market areas where the CBSA number or name changed or to CBSAs containing counties that moved to another CBSA.

Response: We thank the commenters for their support of our proposal to implement the new OMB delineations for the hospital wage index.

After consideration of the public comments we received, we are finalizing the reassignment methodology as proposed. Hospitals that were reclassified to a CBSA that had one or more counties that split off and moved to another CBSA under the new OMB delineations are reclassified to a CBSA that will contain the most proximate county that (1) is located outside of the hospital's FY 2015 geographic labor market area; and (2) is included in the current CBSA to which they are reclassified. Group reclassifications are assigned to the CBSA under the new OMB delineations to which the majority of hospitals in that group reclassification are geographically closest and that (1) is located outside of the hospital's FY 2015 geographic labor market area; and (2) is included in the current CBSA to which they are reclassified.

We also allowed hospitals that reclassified under section 1886(d)(10) of the Act to one of the eight CBSAs that split (that is, current FY 2014 CBSAs 16620, 16974, 20764, 31140, 35644, 37964, 39100, 48900) to be reclassified to any CBSA containing a county from their original reclassification labor market area, provided that the hospital demonstrates that it meets the applicable proximity requirements under 42 CFR 412.230(b) and (c) (for individual hospitals), 42 CFR 412.232(a)(1) (for a rural group), and 42 CFR 412.234(a)(2) and (a)(3) (for an urban group) to that CBSA. Hospitals that wished to be reassigned to an alternate CBSA (other than the CBSA to which their reclassification would be reassigned in this proposed rule) for which they meet the applicable proximity criteria needed to request reassignment within 45 days from the publication of the proposed rule. We received one request in the WageIndex@cms.hhs.gov mailbox to request reassignment to another eligible labor market area. A rural hospital in North Carolina was originally reclassified to CBSA 48900 (Wilmington, NC). This CBSA had more than one county that was split off and moved to another CBSA under the new OMB delineations. Thus, under our proposed policy (which we are finalizing in this final rule), we reclassified this hospital to a CBSA that contained the most proximate county that is located outside of the hospital's FY 2015 geographic labor market area and is included in the current CBSA to which it is reclassified. Of all the former constituent counties of CBSA 48900, the hospital is geographically closest to Brunswick County, NC, which is outside of the hospital's FY 2015 geographic labor market area and is included in the current CBSA to which the hospital is reclassified. However, under the new OMB delineations, Brunswick County is moved from CBSA 48900 to CBSA 34820 (Myrtle Beach-Conway-North Myrtle Beach, SC-NC). Therefore, we assigned this hospital's reclassification to CBSA 34820 in the proposed rule. The hospital provided adequate evidence to demonstrate that it is located within 35-miles from Pender County, NC, which remains part of CBSA 48900. Because the proximity criteria limit for MGCRB reclassification of an individual rural hospital is 35 miles (§ 412.230(b)(1)), we are approving the hospital's request for reassignment back to CBSA 48900. The change is reflected in the proceeding table.

The following table shows hospital reclassification assignments for hospitals reclassified to CBSAs from which counties were split off and moved to a different CBSA under the new OMB delineations. The following table shows the current reclassified CBSA and the CBSA to which CMS is making reassignments. We note that 23 hospitals terminated their reclassification status since the proposed rule was published and have been omitted.

Table 9A-2 for this final rule (which is available via the Internet on the CMS Web site) reflects all reassignments of hospital reclassifications for FY 2015.

(3) Reclassifications to CBSAs That Contain Hospital's Geographic County

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28074), we identified 14 reclassified hospitals that would be geographically located in their reclassified labor market area under the new OMB delineations. For example, hospital 34-0015 is located in Rowan County, NC. Rowan County is currently a Micropolitan Statistical Area in NC, and treated as rural. The hospital is reclassified to CBSA 16740 (Charlotte-Concord-Rock Hill, NC-SC). Under the new OMB delineations, CBSA 16740 (Charlotte-Concord-Gastonia, NC-SC) would include Rowan County. Therefore, the current reclassification would become redundant. CBSA 16740 did not lose any counties to another labor market area; therefore, assignment to another alternate CBSA would not be an option under our proposed methodology. Because, by definition, a hospital would not be “reclassified” to its own geographic labor market area, and maintaining that “reclassified” status to its own geographic labor market area would serve no beneficial purpose for a hospital, we expected that all such affected hospitals would wish to terminate their reclassification status. Therefore, we assumed, for purposes of the proposed rule, that the affected hospitals would be terminating their reclassification status for the remaining years of their 3-year reclassification period, and for FY 2015, we proposed to assign them the wage index of the CBSA in which they are geographically located. We stated that affected hospitals should inform CMS if they wish to retain their current reclassification by sending notice to CMS within 45 days from the publication of the proposed rule. If an affected hospital did not inform us that they wished to retain their current reclassification, we assumed that the hospital had elected to terminate the reclassification. For purposes of the proposed rule, we presented tables under the presumption that all 14 hospitals would opt to cancel their reclassification status. We proposed to assign these hospitals the wage index value of their home area from Table 4A-2 for the proposed rule (which is available via the Internet on the CMS Web site), and not include them as reclassified hospitals in Table 9A-2 for the proposed rule (which is available via the Internet on the CMS Web site).

We did not receive any public comments on this proposal, nor did any hospital contact CMS through the WageIndex@cms.hhs.gov mailbox. Therefore, we are finalizing the proposal without any modifications. The following hospitals' reclassifications are terminated, and they are assigned the wage index of the CBSA to which they are geographically located under the new OMB delineations.

c. Applications for Reclassifications for FY 2016

Applications for FY 2016 reclassifications are due to the MGCRB by September 2, 2014 (the first working day of September 2014). We note that this is also the deadline for canceling a previous wage index reclassification withdrawal or termination under 42 CFR 412.273(d). As discussed in section III.B. of the preamble of this final rule, we are adopting the new OMB labor market area delineations announced on February 28, 2013. Therefore, hospitals should apply for reclassifications based on the new OMB delineations we are using for FY 2015. Applications and other information about MGCRB reclassifications may be obtained via the Internet on the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Review-Boards/MGCRB/index.html,, or by calling the MGCRB at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.3.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28074, 28075, and 28304), we proposed changes to the regulations at § 412.232(b)(2) and § 412.234(a)(3)(iv) to include reference to the most recent OMB standards for delineating statistical areas (using the most recent Census Bureau data and estimates) that were adopted by CMS. For rural groups, the group of hospitals must demonstrate that the county in which the hospitals are located meets the standards for redesignation to an MSA as an “outlying county.” For urban groups, hospitals located in counties that are in the same combined statistical area or CBSA as the urban area to which they seek redesignation qualify as meeting the proximity requirements for reclassification to the urban area to which they seek redesignation. We did not propose any changes to the reclassification policy, but included language in the regulations to reflect use of the most recent OMB standards for delineating statistical areas (using the most recent Census Bureau data and estimates) that are adopted by CMS in consideration of group reclassification applications submitted for review in FY 2015 (that is submitted by September 2, 2014 (this date was erroneously stated in the proposed rule as September 30, 2014), reviewed by the MGCRB in FY 2015, to be effective in FY 2016) and future years.

We did not receive any public comments on our proposed changes to the regulations at § 412.232(b)(2) and § 412.234(a)(3)(iv) to include a reference to the most recent OMB standards for delineating statistical areas (using the most recent Census Bureau data and estimates) that are adopted by CMS. Therefore, we are adopting as final the proposed changes to § 412.232(b)(2) and § 412.234(a)(3)(iv).

3. Redesignation of Hospitals Under Section 1886(d)(8)(B) of the Act

Section 1886(d)(8)(B)(i) of the Act requires the Secretary to “treat a hospital located in a rural county adjacent to one or more urban areas as being located in the urban metropolitan statistical area to which the greatest number of workers in the county commute” if certain adjacency and commuting criteria are met. The criteria utilize standards for designating Metropolitan Statistical Areas published in the Federal Register by the Director of the Office of Management and Budget (OMB) based on the most recently available decennial population data. Effective beginning FY 2005, we used OMB's CBSA standards based on the 2000 Census and the 2000 Census data to identify counties in which hospitals qualify under section 1886(d)(8)(B) of the Act to receive the wage index of the urban area. Hospitals located in these counties have been known as “Lugar” hospitals and the counties themselves are often referred to as “Lugar” counties.

As discussed in section III.B. of the preamble to the proposed rule, we proposed to implement OMB's revised labor market area delineations based on the Census 2010 data for purposes of determining applicable wage indexes for acute care hospitals beginning in FY 2015. As we have done in the past, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28075 through 28078), we also proposed to use the new OMB delineations to identify rural counties that would qualify as “Lugar” under section 1886(d)(8)(B) of the Act and, therefore, would be redesignated to urban areas for FY 2015. We proposed to revise the regulations at § 412.64(b)(3)(i) to reflect the most recent OMB standards for delineating statistical areas adopted by CMS. In the FY 2015 IPPS/LTCH PPS proposed rule, we stated that, by applying the new OMB delineations, the number of qualifying counties would increase from 98 in FY 2014 to 127 in FY 2015, as reflected in a chart published in the proposed rule. Since publication of the proposed rule, we have discovered a mistake where we inadvertently did not account for Davidson County, NC (which was a Lugar county in FY 2014 but is in a rural county no longer qualifying to be Lugar under the new OMB delineations, as discussed in section III.H.3.c. of the preamble of this final rule). Therefore, the number of qualifying counties increases from 99 in FY 2014 to 127 in FY 2015, and we are correcting this oversight in the preamble of this final rule. After evaluating and analyzing the 2010 Census commuting data, we proposed that, effective for discharges on or after October 1, 2014, in accordance with section 1886(d)(8)(B) of the Act, hospitals located in the rural counties listed in the first column of the table in the proposed rule would be designated as part of the urban area listed in the second column based on the criteria discussed above.

Comment: One commenter suggested that Lugar hospitals be considered rural for all Medicare IPPS purposes other than receiving the urban wage index.

Response: Lugar status is a deemed status, and there are only two provisions under the Medicare statute that would allow a Lugar hospital to be treated as a rural provider: (1) if the hospital is eligible for an out-migration adjustment under section 1886(d)(13) of the Act; or (2) if the hospital applies for an urban to rural reclassification under section 1886(d)(8)(E) of the Act. In either case, the hospital would be treated as rural for all IPPS purposes, which includes the wage index.

We did not receive any other specific comments with regard to our proposal to use the new OMB delineations to identify rural counties that would qualify as “Lugar” under section 1886(d)(8)(B) of the Act. Therefore, we are finalizing the policy as proposed. We also are finalizing our proposed revision of the regulations at § 412.64(b)(3)(i) to reflect the most recent OMB standards for delineating statistical areas adopted by CMS.

In addition, since publication of the proposed rule we discovered that, in the FY 2015 IPPS/LTCH proposed rule, for five of the Lugar counties, we had erroneously printed the names and codes of the entire Metropolitan Statistical Areas rather than the Metropolitan Division names and codes. Because we recognize Metropolitan Divisions as CBSAs, we should have printed the division names and codes for the following counties: Starke County, IN; Fannin County, TX; Hill County, TX; Van Zandt County, TX; and Island County, WA. The table below contains the corrected listing of the rural counties designated as urban under section 1886(d)(8)(B) of the Act. We note that this error was made only in the chart; that is, the wage index tables and data associated the FY 2015 IPPS/LTCH PPS proposed rule (available via the Internet on the CMS Web site) properly captured the Metropolitan Divisions for hospitals in these five counties. We are finalizing that, effective for discharges on or after October 1, 2014, in accordance with section 1886(d)(8)(B) of the Act, hospitals located in the rural counties listed in the first column of the chart below will be designated as part of the urban area listed in the second column based on the finalized criteria discussed above.

We note that rural counties that no longer meet the qualifying criteria to be Lugar are discussed in section III.H.3.c. of the preamble of this final rule.

a. New Lugar Areas for FY 2015

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28077), we stated that of the 127 qualifying counties identified as Lugar counties based on the new OMB delineations, 58 counties would be newly designated as Lugar for FY 2015 if we finalize our proposed adoption of the new OMB delineations. Hospitals in these counties, with at least 25 percent of their workers commuting to a higher wage area, effective October 1, 2014, would be deemed to be located in the CBSA to which the highest number of their workers commute (which is identified in the column titled “Lugar Designated CBSA” in the table above). Hospitals in these counties would receive the reclassified urban wage index of the corresponding Lugar Designated CBSA, unless they choose to waive their Lugar status, as discussed later in this section.

In the proposed rule (79 FR 28077), we stated that some areas that are currently urban counties would be geographically rural if we adopted the new OMB delineations and would meet the requirements for redesignation as Lugar areas. As described in section III.B.2.e.(2) of the preamble of the proposed rule, we proposed a 3-year hold harmless transitional wage index adjustment for hospitals located in urban counties that become rural under the new OMB delineations. Because Lugar status is a form of redesignation, hospitals that currently are located in urban counties that would become rural under the new OMB delineations and are also considered Lugar areas under the new OMB delineations would not be eligible for the 3-year transition wage index adjustment unless they chose to waive Lugar status for FY 2015 (as discussed later in this section) and sought no other form of wage index reclassification.

As discussed above, we did not receive any public comments with regard to our proposal to use the new OMB delineations to identify rural counties that would qualify as “Lugar” under section 1886(d)(8)(B) of the Act, and we are finalizing the policy as proposed. We refer readers to the summary of public comments and our responses regarding the proposed transition policies for the wage index as a result of adoption of the OMB delineations for FY 2015 in section III.B.2.e. of the preamble of this final rule.

b. Hospitals Redesignated Under Section 1886(d)(8)(B) of the Act Seeking Reclassification by the MGCRB

As in the past, hospitals redesignated under section 1886(d)(8)(B) of the Act are also eligible to be reclassified to a different area by the MGCRB. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28077), we stated that by using Table 4C associated with the proposed rule (which is available via the Internet on the CMS Web site), affected hospitals could compare the reclassified wage index for the labor market area into which they would be reclassified by the MGCRB to the reclassified wage index for the area to which they are redesignated under section 1886(d)(8)(B) of the Act. We stated that hospitals may withdraw from an MGCRB reclassification within 45 days of the publication of the FY 2015 proposed rule. (We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51598 through 51599) for the procedural rules and requirements for a hospital that is redesignated under section 1886(d)(8)(B) of the Act and seeking reclassification under the MGCRB, as well as our policy of measuring the urban area, exclusive of the Lugar County, for purposes of meeting proximity requirements.)

We treat New England deemed counties in a manner consistent with how we treat Lugar counties. (We refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47337 through 47338) for a discussion of this policy.)

Since publication of the proposed rule, we discovered that there are four hospitals in rural counties that are newly deemed Lugar areas for FY 2015 that also have MGCRB reclassifications to the same CBSAs to which they are redesignated as Lugar. Lugar hospitals are treated like reclassified hospitals for purposes of determining their applicable wage index and receive the reclassified wage index for the urban area to which they have been redesignated. Because the Lugar redesignated CBSA is now the same as the MGCRB reclassified CBSA, the MGCRB reclassification becomes redundant. We note that hospitals with Lugar redesignations and hospitals with MGCRB reclassifications receive the wage index for hospitals that are reclassified as provided in Table 4C-2 associated with this final rule (which is available via the Internet on the CMS Web site). Table 9A-2 associated with this final rule (which is available via the Internet on the CMS Web site) reflects the reclassified and redesignated hospitals. Hospitals that are redesignated as Lugar are indicated as such when the “Lugar” column is populated. Although we did indicate in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28077) that hospitals redesignated as Lugar that also had an MGCRB reclassification may compare the reclassified wage index for the labor market area into which they would be reclassified by the MGCRB to the reclassified wage index for the area to which they are redesignated under section 1886(d)(8)(B) of the Act, and terminate or withdraw from an MGCRB reclassification within 45 days of the publication of the proposed rule, we acknowledge that we did not highlight these four hospitals that also are Lugar that would have redundant reclassifications. We also note that these hospitals did not send requests to the MGCRB to terminate their reclassifications. Because the new Lugar status would deem these hospitals redesignated to the same area to which they have an approved MGCRB reclassification, the reclassified wage index would be the same for these four hospitals in either scenario. We realize that, for this reason, the hospitals may not have seen a need to withdraw the MGCRB reclassification. Because we did not state in the proposed rule that we would expect that these affected hospitals would be terminating the remaining years of their 3-year reclassification period, for FY 2015 we are not updating the Lugar column on Table 9A-2 for this final rule. However, we have indicated in a footnote that, under the new OMB delineations, these providers are now redesignated as Lugar to the same area to which they have an existing MGCRB reclassification that they did not terminate. We emphasize that the effect on the wage index of these four hospitals is immaterial because hospitals redesignated as Lugar as well as hospitals with approved MGCRB reclassifications both receive the reclassified wage index for the urban area to which they have been redesignated or reclassified.

c. Rural Counties No Longer Meeting the Criteria To Be Redesignated as Lugar

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28077 through 28078), we discussed that if we adopted the new OMB delineations, 29 rural counties would no longer meet the qualifying criteria to be redesignated as Lugar effective October 1, 2014, either because they would be geographically located in an urban area, or they would fail to meet the 25 percent cumulative out-migration threshold with application of the new 2010 Census commuting data. Since the publication of the proposed rule, we have discovered a mistake where we inadvertently did not account for Davidson County, NC. Therefore, the number of rural counties that will no longer meet the qualifying criteria to be redesignated as Lugar effective October 1, 2014, as indicated above, is 30 as opposed to 29. We are correcting this oversight in the preamble of this final rule.

Counties that were deemed urban under section 1886(d)(8)(B) of the Act in FY 2014, but would be geographically located in an urban area under the new OMB delineations for FY 2015 are:

Windham County, CT

Flagler County, FL

Walton County, FL

Morgan County, GA

Peach County, GA

De Witt County, IL

Allen County, KY

St. James Parrish, LA

Montcalm County, MI

Fillmore County, MN

Davidson County, NC

Lincoln County, NC

Cotton County, OK

Linn County, OR

Adams County, PA

Monroe County, PA

Falls County, TX

Buckingham County, VA

Floyd County, VA

Green County, WI

Counties that would fail to meet the 25-percent threshold in FY 2015 are:

Banks County, GA

Hendry County, FL

Bingham County, ID

Oceana County, MI

Columbia County, NY

Sullivan County, NY

Wyoming County, NY

Oconee County, SC

Middlesex County, VA

Wahkiakum County, WA

In section III.B.2.e.(2) of the preamble of the proposed rule, to help ease dramatic negative impacts in payment for hospitals designated as urban under the current FY 2014 OMB delineations, but would be classified as rural under the new OMB delineations, for FYs 2015, 2016, and 2017, assuming no other form of wage index reclassification or redesignation is granted, we proposed to assign these hospitals the FY 2015 area wage index value of the urban CBSA to which they geographically belonged in FY 2014 (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied to the area wage index). (For purposes of the wage index computation, the wage data of these hospitals would remain assigned to the statewide rural area in which they are located.) Similarly, we proposed that the same 3-year transition apply to hospitals located in those counties that would lose their deemed urban designation under section 1886(d)(8)(B) of the Act and would become rural if we adopt the new OMB delineations. Because these hospitals would, in fact, lose their designated urban status, we proposed to extend the 3-year hold harmless transitional wage index adjustment to these hospitals located in counties formerly designated as urban under section 1886(d)(8)(B) of the Act. That is, for FYs 2015, 2016, and 2017, assuming no other form of wage index reclassification or redesignation is granted, we proposed to assign these hospitals the FY 2015 area wage index value of the urban CBSA to which they were designated as urban in FY 2014 (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied). We proposed to use the wage data from these hospitals as part of computing the rural wage index. In addition, during this 3-year transition period, these hospitals would be eligible to apply for reclassification by the MGCRB. As discussed in section III.B.2.e.(3) of the preamble of the proposed rule, we proposed that if a hospital is currently located in an urban county that would become rural for FY 2015 under the new OMB delineations, and such hospital seeks and is granted any reclassification or redesignation during FYs 2015, 2016, or 2017, the hospital would permanently lose its 3-year transitional assigned wage index, and would not be able to reinstate it. Similarly, we proposed that this policy also apply to hospitals located in those counties that would lose their deemed urban designation under section 1886(d)(8)(B) of the Act and would become rural if we adopt the new OMB delineations. In FY 2018, we proposed that these hospitals would receive their statewide rural wage index.

As indicated earlier, we did not receive any public comments with regard to our proposal to use the new OMB delineations to identify rural counties that would qualify as “Lugar” under section 1886(d)(8)(B) of the Act. Therefore, we are finalizing the policy and designations as proposed. As discussed previously, for FYs 2015, 2016, and 2017, assuming no other form of wage index reclassification or redesignation is granted, we are assigning hospitals that are in urban counties that will become rural under the new OMB delineations to the FY 2015 area wage index value of the urban CBSA to which they geographically belonged in FY 2014 (with the rural and imputed floors applied and with the rural floor budget neutrality adjustment applied to the area wage index). (For purposes of the wage index computation, the wage data of these hospitals will remain assigned to the statewide rural area in which they are located.) Similarly, the same 3-year transition will apply to hospitals located in those counties that will lose their deemed urban designation under section 1886(d)(8)(B) of the Act and will become rural under the new OMB delineations. We will use the wage data from these hospitals as part of computing the rural wage index. In FY 2018, these hospitals will receive their statewide rural wage index. Furthermore, if any such hospital seeks and is granted any reclassification or redesignation during FYs 2015, 2016, or 2017, the hospital will permanently lose its 3-year transitional assigned wage index and will not be able to reinstate it. We refer readers to summaries of public comments and our responses regarding proposed transition policies for the wage index in section III.B.2.e. of the preamble of this final rule.

4. Waiving Lugar Redesignation for the Out-Migration Adjustment

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), we adopted the policy that, beginning with FY 2012, an eligible hospital that waives its Lugar status in order to receive the out-migration adjustment has effectively waived its deemed urban status and, thus, is rural for all purposes under the IPPS, including being considered rural for the DSH payment adjustment, effective for the fiscal year in which the hospital receives the out-migration adjustment. (We refer readers to a discussion of DSH payment adjustment under section IV.F. of the preamble of this final rule.)

In addition, we adopted a minor procedural change in that rule that would allow a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within 45 days from the publication of the proposed rule) to waive its urban status for the full 3-year period for which its out-migration adjustment is effective. By doing so, such a Lugar hospital would no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the out-migration adjustment. Therefore, under the procedural change, a Lugar hospital that requests to waive its urban status in order to receive the rural wage index in addition to the out-migration adjustment would be deemed to have accepted the out-migration adjustment and agrees to be treated as rural for the duration of its 3-year eligibility period, unless, prior to its second or third year of eligibility, the hospital explicitly notifies CMS in writing, within the required period (generally 45 days from the publication of the proposed rule), that it instead elects to return to its deemed urban status and no longer wishes to accept the out-migration adjustment. If the hospital does notify CMS that it is electing to return to its deemed urban status, it would again be treated as urban for all IPPS payment purposes.

We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600) for a detailed discussion of the policy and process for waiving Lugar status for the out-migration adjustment.

Comment: One commenter sought clarification about whether a hospital can waive Lugar status in other instances, such as to retain a special rural status such as CAH, SCH, or MDH, and not just when a hospital is eligible for the out-migration adjustment.

Response: As stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600, the statute provides two methods for a Lugar hospital to be treated as rural for Medicare payment purposes: (1) If the hospital is eligible for an out-migration adjustment under section 1886(d)(13) of the Act; or (2) if the hospital applies for an urban to rural reclassification under section 1886(d)(8)(E) of the Act. There are no other provisions under the Medicare statute that would allow a Lugar hospital to be treated as a rural provider.

5. Update of Application of Urban to Rural Reclassification Criteria

Section 401(a) of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), which amended section 1886(d)(8) of the Act by adding a new paragraph (E), directed the Secretary to treat any subsection (d) hospital located in an urban area as being located in the rural area of the State in which the hospital is located, providing that the hospital applied for reclassification in a manner determined by the Secretary and met certain criteria. As discussed in the FY 2001 interim final rule (65 FR 47029 through 47031), we codified in regulation at § 412.103 the application process and the qualifying criteria for any hospital seeking rural reclassification.

In order to be approved for a rural reclassification, a hospital that is located in an urban area must meet one of the following four criteria under section 1886(d)(8)(E)(ii) of the Act (codified at § 412.103): (1) The hospital is located in a rural census tract of an MSA, as determined under the most recent version of the Goldsmith Modification, the Rural-Urban Commuting Area (RUCA) codes; (2) the hospital is located in an area designated by any law or regulation of such State as a rural area or is designated by such State as a rural hospital; (3) the hospital would qualify as a RRC or SCH if the hospital were located in an urban area; and (4) the hospital meets such other criteria as the Secretary may specify.

On February 28, 2013, OMB issued OMB Bulletin No. 13-01, which established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of the delineations of these statistical areas. These delineations are based on 2010 decennial Census data. Several modifications of RUCA codes were necessary to take into account updated commuting data and revised OMB delineations. We refer readers to the U.S. Department of Agriculture's Economic Research Service Web site for a detailed listing of updated RUCA codes found at: http://www.ers.usda.gov/data-products/rural-urban-commuting-area-codes.aspx. The updated RUCA code definitions were introduced in late 2013.

As discussed at § 412.103(f), the duration of an approved rural reclassification remains in effect without need for reapproval unless there is a change in the circumstances under which the classification was approved. If a hospital located in an urban area was approved for a rural reclassification under § 412.103(a)(1), that reclassification would no longer be valid if the hospital is no longer located within a rural census tract of an MSA defined as an RUCA. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28078), we encouraged all hospitals with active rural reclassifications under section 1886(d)(8)(E) of the Act to review their original reclassification application and determine whether the reclassification status would still apply. As discussed in section VI.C.2. of the preamble of the proposed rule, we proposed a 2-year grace period allowing affected CAHs additional time to seek a new rural reclassification without the threat of losing its CAH status. As discussed in section VI.C.2. of the preamble of the proposed rule, we did not propose a grace period for other types of hospitals to seek a new rural reclassification. We noted that rural reclassification status under § 412.103 is effective as of the filing date of the application. Therefore, if the change in RUCA codes invalidates any hospital's rural reclassification status, we believe hospitals will have adequate time to apply for a new reclassification using an alternative qualification criterion specified at either § 412.103(a)(2) or § 412.103(a)(3). A rural referral center (RRC) or a sole community hospital (SCH) that continues to meet the appropriate qualification criteria would, in itself, qualify for a rural reclassification. If a complete application is received before October 1, 2014, and is approved by the CMS Regional Office, the hospital would experience no interruption in its rural status.

Comment: Several commenters requested that additional provider types (SCHs and MDHs) be afforded the 2-year transition period of deemed rural status that was granted to CAHs. Commenters stated the critical role these hospitals serve in their communities, and cited the administrative burden that would be required to obtain rural status in order to maintain their provider type. Commenters asserted that hospitals that obtain an urban to rural reclassification are not entitled to receive an outmigration adjustment and would require additional time to assess their appropriate options.

Response: We thank commenters for sharing their concerns. However, we do not believe that extending a 2-year transition period of deemed rural status is necessary for additional provider types. While it is true that there are potential payment consequences for a CAH, SCH, or MDH currently located in a rural area that becomes urban under the new OMB delineations, the payment consequences for CAHs are generally greater, because, unlike SCHs and MDHs, CAHs are entirely excluded from the IPPS and would face an end to payments based on 101 percent of their reasonable costs. In addition, given the different Conditions of Participation (CoPs) for CAHs, and that it would be generally more difficult for a CAH to have to meet the hospital CoPs instead of the CAH CoPs, only a CAH also faces the potential loss of its ability to continue to participate in the Medicare and Medicaid programs. Specifically, to avoid termination not only of its CAH status (and associated cost-based reimbursement), but of its Medicare agreement in its entirety, the CAH would have to convert back to a hospital, including demonstrating via a survey that it complies with the hospital CoPs, which are generally more stringent than those for CAHs. We believe that the combination of the generally greater payment consequences for CAHs relative to other provider types combined with the unique consequences for CAHs with respect to the CoPs make it appropriate for CAHs to be afforded a 2-year transition period in which to reclassify not afforded to other provider types.

SCHs and MDHs that were located in rural areas that became urban under the new OMB delineations could have known of the upcoming change since February 2013 (when OMB published the new delineations); thus, these hospitals have had adequate time to assess options. SCHs and MDHs still can seek approval for rural reclassification for FY 2015 under § 412.103 if they meet the requirements of this section, provided that they apply before the beginning of FY 2015. This approval of rural status would be effective as of the date of the application. If any hospital's wage index is negatively affected due to the adoption of the new OMB delineations, the hospital will receive a 50/50 blended wage index for FY 2015 (as discussed previously).

With respect to the out-migration adjustment, commenters noted correctly that hospitals reclassified rural under section 412.103 are not eligible to receive an out-migration adjustment. Section 1886(d)(13)(G) of the Act specifies that a hospital is not eligible to receive an out-migration adjustment if it is granted any form of wage index reclassification, including urban to rural reclassification. We believe that a hospital that chooses to reclassify to a particular labor market area should not also receive an additional payment benefit to reflect commuting patterns within its home area.

After consideration of the public comments we received, we are not implementing any additional changes to grant other provider types a transition period during which to reclassify as rural similar to that being adopted for CAHs. We refer readers to section VI.C.2. of the preamble of this final rule for a discussion of the CAH transition period policy.

I. FY 2015 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

In accordance with section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the “out-migration” adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index.

When this provision was implemented for the FY 2005 wage index, we analyzed commuting data compiled by the U.S. Census Bureau which was derived from a special tabulation of the 2000 Census journey-to-work data for all industries (CMS extracted data applicable to hospitals). These data were compiled from responses to the “long-form” survey, which the Census Bureau used at the time, and it contained questions on where residents in each county worked (69 FR 49062). However, the 2010 Census was “short form” only; therefore, this information was not collected as part of the 2010 Census. The Census Bureau is working with CMS to provide an alternative dataset based on the latest available data that is expected to meet our needs for developing a new out-migration adjustment. We believe we will have the necessary time to obtain, review and analyze the data in order to propose new out-migration adjustments based on new commuting patterns developed from the 2010 Census data beginning with FY 2016. Section 1886(d)(13)(B) of the Act requires the Secretary to use data the Secretary determines to be appropriate to establish the qualifying counties. The data used for the FY 2014 out-migration adjustment are the most recent data that have been analyzed, and we believe that these data are appropriate to establish the qualifying counties. Therefore, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28079 through 28080), we proposed that the FY 2015 out-migration adjustments continue to be based on the 2000 Census data. We also proposed that the FY 2015 out-migration adjustments continue to be based on the policies, procedures, and computation that were used for the FY 2014 out-migration adjustment.

We did not receive any public comments with regard to the out-migration adjustment for FY 2015. Therefore, for FY 2015, we are finalizing our proposal that the FY 2015 out-migration adjustment continue to be based on the 2000 Census data used for the FY 2014 out-migration adjustment. We also are finalizing our proposal that the out-migration adjustment be based on the policies, procedures, and computation that were used for the FY 2014 out-migration adjustment. (We refer readers to a full discussion of the adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or section 1886(d)(10) of the Act to have waived the out-migration adjustment, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602)). Table 4J, which is available via the Internet on the CMS Web site, lists the out-migration adjustments for the FY 2015 wage index.

Section 1886(d)(13)(F) of the Act states that “[a] wage index increase under this paragraph shall be effective for a period of 3 fiscal years, except that the Secretary shall establish procedures under which a subsection (d) hospital may elect to waive the application of such wage index increase.” Therefore, for FY 2015, because we are continuing to use the out-migration adjustment data used for FY 2014, consistent with the statute, we also proposed to allow hospitals that qualified in FY 2013 or FY 2014 to receive the out-migration adjustment based on the commuting data and the CBSA delineations used for FY 2014 to continue to receive the same out-migration adjustment for the remainder of their 3-year qualification period. Similarly, if a hospital qualifies for and opts to receive the out-migration adjustment for the first time in FY 2015, we also proposed to allow that hospital to receive the out-migration adjustment based on the data used for FY 2014 for FYs 2015, 2016, and 2017. Accordingly, even if we propose to adopt new out-migration adjustment data for FY 2016, as we believe we will be able to do, hospitals that are already receiving an out-migration adjustment beginning with a fiscal year prior to FY 2016 would still receive their out-migration adjustment based on the data used for FY 2014 for the years that remain of their 3-year qualification period in FY 2016 and after.

We did not receive any public comments with regard to our proposals. Therefore, we are finalizing our proposal that hospitals that qualified in FY 2013 or FY 2014 to receive the out-migration adjustment based on the commuting data and the CBSA delineations used for FY 2014 will continue to receive the same out-migration adjustment for the remainder of their 3-year qualification period. If a hospital qualifies for and opts to receive the out-migration adjustment for the first time in FY 2015, we will allow that hospital to receive the out-migration adjustment based on the data used for FY 2014 for FYs 2015, 2016, and 2017.

We intend to address application of the FY 2016 out-migration adjustment in greater detail in the FY 2016 proposed rule. However, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28079), we solicited public comments on how to implement the new out-migration adjustment data for FY 2016, given the statutory requirement at section 1886(d)(13)(F) of the Act that an out-migration adjustment be effective for 3 fiscal years. We did not receive any public comments on how to implement the new out-migration adjustment data for FY 2016.

As discussed in section III.B. of the preamble of this final rule, we are using OMB's new labor market area delineations based on the 2010 Census data to identify counties qualifying as Lugar counties for FY 2015. In section III.H.3 of the preamble of this final rule, we discuss hospitals located in rural counties that are deemed to be urban under section 1886(d)(8)(B) of the Act. These rural counties are known as “Lugar” counties. Under the new OMB delineations, there are counties newly qualifying as Lugar as well as counties that were previously Lugar counties that will no longer meet the criteria to be redesignated as Lugar. As discussed in section III.H.4. of the preamble of this final rule, if a Lugar hospital qualifies for and accepts the out-migration adjustment, it must waive its deemed urban status and can do so for the 3-year period for which the out-migration adjustment is effective. Therefore, hospitals located in counties newly designated as Lugar due to the new OMB delineations will have the choice to either maintain their Lugar status or waive it in order to receive the out-migration adjustment in FY 2015 based on the out-migration adjustment data used for FY 2014.

On the other hand, there are hospitals in counties deemed to be Lugar under the current OMB delineations that waived their Lugar status for the out-migration adjustment, but are not Lugar under the new OMB delineations. These hospitals will continue to receive the out-migration adjustment for the 3-year eligibility period through FY 2015 or FY 2016. However, these hospitals that are located in urban counties under the new OMB delineations, and wish to continue to maintain their rural status effective October 1, 2014, must do so by reclassifying from urban to rural under § 412.103. Section 1886(d)(13)(G) of the Act states that a hospital cannot simultaneously receive the out-migration adjustment and be subject to a reclassification under section 1886(d)(8) or 1886(d)(10) of the Act. Therefore, if such hospital is not located in a geographically rural area under the new OMB delineations, and reclassifies under § 412.103 of the regulations in order to be treated as rural for IPPS purposes, the hospital is ineligible to receive an out-migration adjustment, even if the 3-year eligibility period has not expired.

As discussed in section III.B.5. of the preamble of this final rule, we are finalizing our proposal to apply a 1-year blended wage index for any provider that experiences a decrease in wage index value due to the implementation of the new OMB labor market area delineations. This policy creates a wage index that is 50 percent of the wage index derived using the current FY 2014 OMB delineations, and 50 percent of the wage index based on the new OMB delineations. As discussed in section III.B.2.e.(4) of the preamble of this final rule, as we proposed, we are applying this blended wage index value to any affected hospital in a budget neutral manner. However, we proposed that hospitals receiving the out-migration adjustment would have it added to the result of the 50/50 blended wage index, after budget neutrality is applied. We established the blended wage index transition adjustment specifically to address any negative impact that may be caused by the adoption of the new OMB delineations in FY 2015. To specifically identify and address any such negative payment impact, we proposed to apply the out-migration adjustment independent of the blended wage index and other wage index adjustments (for example, the rural floor) and related budget neutrality adjustments. This is consistent with our current policy to apply the out-migration adjustment after all other wage index adjustments and related budget neutrality adjustments have been applied. Therefore, we believe the out-migration adjustment would be properly applied as a supplemental addition to a hospital's final wage index value, similar to our treatment of hospitals receiving the frontier State floor value of 1.00, as described under 42 CFR 412.64(m), that also qualify for an out-migration adjustment and would receive that adjustment.

One group of commenters suggested CMS made an error in calculating the rural wage index for Connecticut under the old OMB delineations (as discussed in section III.B.2.e.(4) of the preamble of this final rule) for the purpose of applying the proposed transition blend. We respond to this comment in section III.B.2.e.(4) of the preamble of this final rule, and we refer readers to this section for further discussion.

After consideration of the public comments we received, we are finalizing our proposal without modification that we will add the out-migration adjustment for hospitals receiving such adjustment to the result of the 50/50 blended wage index, after budget neutrality is applied. Therefore, we will apply the out-migration adjustment independent of the blended wage index and other wage index adjustments (for example, the rural floor) and related budget neutrality adjustments.

J. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data and occupational mix survey data files for the proposed FY 2015 wage index were made available on September 13, 2013, through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2015-Wage-Index-Home-Page.html.

In the interest of meeting the data needs of the public, beginning with the proposed FY 2009 wage index, we post an additional public use file on our Web site that reflects the actual data that are used in computing the proposed wage index. The release of this file does not alter the current wage index process or schedule. We notify the hospital community of the availability of these data as we do with the current public use wage data files through our Hospital Open Door forum. We encourage hospitals to sign up for automatic notifications of information about hospital issues and the scheduling of the Hospital Open Door forums at the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/index.html.

In a memorandum dated September 16, 2013, we instructed all MACs to inform the IPPS hospitals they service of the availability of the wage index data files and the process and timeframe for requesting revisions (including the specific deadlines listed below). We also instructed the MACs to advise hospitals that these data were also made available directly through their representative hospital organizations.

If a hospital wished to request a change to its data as shown in the September 13, 2013 wage and occupational mix data files, the hospital was to submit corrections along with complete, detailed supporting documentation to its MAC by November 21, 2013. Hospitals were notified of this deadline and of all other deadlines and requirements, including the requirement to review and verify their data as posted in the preliminary wage index data files on the Internet, through the September 16, 2013 memorandum referenced above.

In the September 16, 2013 memorandum, we also specified that a hospital requesting revisions to its occupational mix survey data was to copy its record(s) from the CY 2010 occupational mix preliminary files posted to the CMS Web site in September, highlight the revised cells on its spreadsheet, and submit its spreadsheet(s) and complete documentation to its MAC no later than November 21, 2013.

The MACs notified the hospitals by early-February 2014 of any changes to the wage index data as a result of the desk reviews and the resolution of the hospitals' late-November revision requests. The MACs also submitted the revised data to CMS by late January 2014. CMS published the proposed wage index public use files that included hospitals' revised wage index data on February 20, 2014. Hospitals had until March 3, 2014, to submit requests to the MACs for reconsideration of adjustments made by the MACs as a result of the desk review, and to correct errors due to CMS' or the MAC's mishandling of the wage index data. Hospitals also were required to submit sufficient documentation to support their requests.

After reviewing requested changes submitted by hospitals, MACs were required to transmit to CMS any additional revisions resulting from the hospitals' reconsideration requests by April 9, 2014. The deadline for a hospital to request CMS intervention in cases where the hospital disagreed with the MAC's policy interpretations was April 16, 2014. We note that, beginning with the FY 2015 wage index, in accordance with the FY 2015 wage index timeline posted on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf,, the April appeals had to be sent via mail and email. We refer readers to the wage index timeline for complete details.

Hospitals were given the opportunity to examine Table 2, which was listed in section VI. of the Addendum to the proposed rule and available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2015-Wage-Index-Home-Page.html. Table 2 contained each hospital's proposed adjusted average hourly wage used to construct the wage index values for the past 3 years, including the FY 2011 data used to construct the proposed FY 2015 wage index. We noted that the proposed hospital average hourly wages shown in Table 2 only reflected changes made to a hospital's data that were transmitted to CMS by February 26, 2014.

The final wage index data public use files were posted on May 2, 2014 on the Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2015-Wage-Index-Home-Page.html. The May 2014 public use files are made available solely for the limited purpose of identifying any potential errors made by CMS or the MAC in the entry of the final wage index data that resulted from the correction process described above (revisions submitted to CMS by the MACs by April 9, 2014).

After the release of the May 2014 wage index data files, changes to the wage and occupational mix data could only be made in those very limited situations involving an error by the MAC or CMS that the hospital could not have known about before its review of the final wage index data files. Specifically, neither the MAC nor CMS will approve the following types of requests:

• Requests for wage index data corrections that were submitted too late to be included in the data transmitted to CMS by the MACs on or before April 9, 2014.
• Requests for correction of errors that were not, but could have been, identified during the hospital's review of the February 20, 2014 wage index public use files.
• Requests to revisit factual determinations or policy interpretations made by the MAC or CMS during the wage index data correction process.

If, after reviewing the May 2014 final public use files, a hospital believed that its wage or occupational mix data were incorrect due to a MAC or CMS error in the entry or tabulation of the final data, the hospital was given the opportunity to notify both its MAC and CMS regarding why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). The hospital was required to send its request to CMS and to the MAC no later than June 2, 2014. Similar to the April appeals, beginning with the FY 2015 wage index, in accordance with the FY 2015 wage index timeline posted on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf,, the June appeals were required to be sent via mail and email to CMS and the MACs. We refer readers to the wage index timeline for complete details. (We refer readers to section II.K. of the preamble to this final rule where we are making revisions to the wage index timetable.)

Verified corrections to the wage index data received timely by CMS and the MACs (that is, by June 2, 2014) were incorporated into the final wage index in this FY 2015 IPPS/LTCH PPS final rule, which will be effective October 1, 2014.

We created the processes described above to resolve all substantive wage index data correction disputes before we finalize the wage and occupational mix data for the FY 2015 payment rates. Accordingly, hospitals that did not meet the procedural deadlines set forth above will not be afforded a later opportunity to submit wage index data corrections or to dispute the MAC's decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines set forth above will not be permitted to challenge later, before the PRRB, the failure of CMS to make a requested data revision. We refer readers also to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of the parameters for appeals to the PRRB for wage index data corrections.

Again, we believe the wage index data correction process described above provides hospitals with sufficient opportunity to bring errors in their wage and occupational mix data to the MAC's attention. Moreover, because hospitals had access to the final wage index data by early May 2014, they had the opportunity to detect any data entry or tabulation errors made by the MAC or CMS before the development and publication of the final FY 2015 wage index by August 2014, and the implementation of the FY 2015 wage index on October 1, 2014. Given these processes, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified by hospitals and brought to our attention after June 2, 2014, we retain the right to make midyear changes to the wage index under very limited circumstances.

Specifically, in accordance with 42 CFR 412.64(k)(1) of our existing regulations, we make midyear corrections to the wage index for an area only if a hospital can show that: (1) the MAC or CMS made an error in tabulating its data; and (2) the requesting hospital could not have known about the error or did not have an opportunity to correct the error, before the beginning of the fiscal year. For purposes of this provision, “before the beginning of the fiscal year” means by the June deadline for making corrections to the wage data for the following fiscal year's wage index (for example, June 2, 2014, for the FY 2015 wage index). This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS Web site prior to publishing both the proposed and final IPPS rules, and the MACs notify hospitals directly of any wage index data changes after completing their desk reviews, we do not expect that midyear corrections will be necessary. However, under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made.

In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and 47485), we revised 42 CFR 412.64(k)(2) to specify that, effective on October 1, 2005, that is, beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when CMS determines all of the following: (1) the MAC or CMS made an error in tabulating data used for the wage index calculation; (2) the hospital knew about the error and requested that the MAC and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the June 2, 2014 deadline for the FY 2015 wage index); and (3) CMS agreed before October 1 that the MAC or CMS made an error in tabulating the hospital's wage index data and the wage index should be corrected.

In those circumstances where a hospital requested a correction to its wage index data before CMS calculated the final wage index (that is, by the June 2, 2014 deadline for the FY 2015 wage index), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS' or the MAC's mishandling of the data, we believe that the hospital should not be penalized by our delay in publishing or implementing the correction. As with our current policy, we indicated that the provision is not available to a hospital seeking to revise another hospital's data. In addition, the provision cannot be used to correct prior years' wage index data; and it can only be used for the current Federal fiscal year. In situations where our policies would allow midyear corrections other than those specified in 42 CFR 412.64(k)(2)(ii), we continue to believe that it is appropriate to make prospective-only corrections to the wage index.

We note that, as with prospective changes to the wage index, the final retroactive correction will be made irrespective of whether the change increases or decreases a hospital's payment rate. In addition, we note that the policy of retroactive adjustment will still apply in those instances where a final judicial decision reverses a CMS denial of a hospital's wage index data revision request.

K. Notice of Change to Wage Index Development Timetable

As explained in section III.J. of the preamble of this final rule, the preliminary, unaudited Worksheet S-3 wage data and occupational mix survey data files for the proposed FY 2015 wage index were made available on September 13, 2013, through the Internet on the CMS Web site. The posting of these preliminary files initiates what is virtually a year-long cycle for developing the wage index associated with the following IPPS fiscal year. This lengthy, almost year-long cycle is unique to the development of the IPPS wage index, and occurs independently from the development of the IPPS proposed and final rules, which typically are published in the spring and summer each year. In addition, the wage index, which is based on hospitals' wage data reported on Worksheets S-3, Parts II and III of Form CMS-2552-10 of the Medicare cost report and occupational mix data, is the only portion of the IPPS that historically has been subject to its own annual review process, first by the MACs, and then by CMS, followed by distinct opportunities for hospitals to appeal decisions made by the MACs or CMS. This process is separate and independent from the standard cost report settlement and appeals processes established under the regulations at 42 CFR 405.1800 through 405.1889.

Although this unique wage index development timetable has been in place since the early days of the IPPS, the current timetable is rooted in changes adopted in the FY 1998 IPPS final rule with comment period (62 FR 45990 through 45993). However, with numerous legislative and regulatory changes made to the IPPS since FY 1998, the demands on hospitals, MACs, and CMS have increased substantially. As a result, it has become increasingly challenging for wage index stakeholders to manage the wage index timetable with competing priorities. For the FY 2015 wage index, CMS made slight changes to the wage index development timetable, by posting the preliminary public use file (PUF) in September 2013 rather than in October 2013, which, in turn, moved back the deadline for hospitals to request revisions to the data displayed in that preliminary PUF to November 2013, instead of December 2013. In addition, the date for the MACs to complete desk reviews on that data was similarly moved to a slightly earlier deadline in early CY 2014. The FY 2015 Wage Index Development Timetable, which is posted on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf,, shows that hospitals have a little more than 2 months to request revisions to their data displayed in the September 13, 2013 preliminary PUF, until the commencement of the desk review process by the MACs on November 21, 2013. The MACs also have a little more than 2 months to complete the desk reviews and submit revised cost report data to CMS by January 29, 2014. Less than a month later, on February 20, 2014, the revised FY 2015 wage index and occupational mix PUFs were posted on the CMS Web site. Ensuring the accuracy of the February PUF is extremely important and beneficial to hospitals because, as the timetable shows, it is the basis for hospitals to appeal data that are incorrect, with March 3, 2014 being the last date that hospitals can request revisions to errors in the February 20, 2014 PUF.

Therefore, we want to take steps to improve the accuracy of the February PUF, most importantly by proposing changes to the wage index timetables for future IPPS fiscal years that are much more significant and fundamental than the slight revisions to the timetable implemented for FY 2015. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28082), we stated that we believe that the changes we proposed in that proposed rule would not only improve the accuracy of the February PUF, but also would reduce the number of hospital appeals based on the February PUF. For example, as specified below, instead of the current timetable which only provides CMS with less than a month to review the MACs' desk reviews and prepare the February PUF, we proposed approximately 3 months between the date that the MACs' desk reviews would end and the date that CMS would post the subsequent PUF. To allow hospitals and MACs adequate time to prepare for the changes to the wage index development timetable, we proposed to make significant changes beginning with the FY 2017 wage index cycle. We listed the proposed changes for FY 2017 in a table in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28082) shown below side by side with the existing timetable so that commenters could read the proposed changes in the context of the existing timetable. Under the proposed changes for FY 2017, although we did not provide exact dates for the FY 2017 wage index timetable, we noted that, with every change listed, we intend to provide hospitals and MACs with the same or somewhat more time than under the current timetable to complete reviews and request revisions. We stated that the proposed revisions would not reduce the amount of time that either hospitals or MACs have to review wage data. Therefore, the proposed changes would not result in additional work on the part of the hospitals or MACs; in fact, in shifting the various dates, we expect that more time would be provided to hospitals, MACs, and CMS to ensure an even more accurate wage index.

With regard to the FY 2016 wage index cycle, we believe it can serve as a transition to the more significant changes we proposed for the FY 2017 wage index cycle. We believe that there are steps we can take to improve the accuracy of the February 2016 PUF by building in more time to the FY 2016 wage index review process as well. Specifically, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28083), we stated that we were notifying hospitals of changes to the deadlines only in the beginning of the FY 2016 wage index timetable, as a transition to the more significant proposed changes for the entire FY 2017 wage index timetable. That is, for FY 2016, we were only changing the following four dates: The posting of the preliminary wage index PUF; the posting of the CY 2013 occupational mix survey data preliminary PUF; the deadline for hospitals to request revisions to the wage data and occupational mix data preliminary PUFs; and the deadline for MACs to complete the desk reviews. We stated that we were not changing the remainder of the FY 2016 timetable at this time. We stated that we expect that making these changes for the FY 2016 timetable will improve the accuracy of the February 2016 PUF, and also mitigate the number of hospital appeals based on the February 2016 PUF. In addition, we believe these changes will help hospitals, MACs, and CMS adjust to the more significant timeline changes proposed for FY 2017. We listed only the changes for FY 2016 in the table shown below side by side with the existing FY 2015 timetable so that commenters could read the FY 2016 changes in the context of the existing timetable. We stated that we were not listing dates that would remain unchanged for FY 2016.

Typically, the preliminary PUF initiating the start of an IPPS wage index fiscal year contains one spreadsheet with the Worksheet S-3 wage data for the applicable fiscal year on one tab, and another tab with the preliminary occupational mix data for that fiscal year. For the FY 2016 wage index, new occupational mix survey data will be available for use, based on the CY 2013 occupational mix survey. Hospitals were required to submit their CY 2013 occupational mix surveys to their MACs no later than July 1, 2014. Therefore, we did not have the preliminary CY 2013 occupational mix survey data in time to post it simultaneously in late May 2014 with the preliminary FY 2016 wage data. Accordingly, as the table above indicates, we posted the preliminary FY 2016 wage data by itself first in late May 2014, followed by a separate posting of the preliminary CY 2013 occupational mix survey data when the data became available, in mid-July 2014.

We invited public comments on our proposals set forth above to make revisions to the wage index timetables for FY 2017.

Comment: Numerous commenters were supportive of the general concept of changing the wage index timeline, and that the overall accuracy of the wage index could be improved by altering the timing of the process. Commenters generally agreed with CMS' adjusted FY 2016 timetable, which specified that the preliminary PUF would be posted in May 2014, and hospitals would request revisions to the preliminary PUF by early October, 2014. Commenters believed the extra time between the posting of the preliminary PUF and the desk review program would allow hospitals more time to “scrub” their data. However, commenters also asked that CMS work with its MACs to ensure that the MACs also are meeting their respective deadlines, as some hospitals have noticed that their MACs missed deadlines to submit revisions to CMS.

With respect to the adjustments to the FY 2017 timetable, the commenters believed that an early August 2015 deadline for hospitals to request revisions to the May 2015 preliminary PUFs was too ambitious because it would not provide sufficient time for hospitals to review their data, particularly when key personnel may be on vacation during the summer months. The commenters added that an August deadline would leave less time to compare the preliminary wage index information to the prior year's wage index data, given that the prior year's data are not even finalized and available to the public before August 1. Some commenters recommended an early October deadline, while others stated that an early September, mid-September, or a late September deadline would be feasible. One commenter believed that a December deadline would be best for hospitals with June 30 fiscal year ends, while another commenter stated that a late September or early October deadline would be acceptable for such hospitals. One commenter stated that the proposed FY 2017 deadline does not provide enough time for hospitals to incorporate their pension data into the desk review process because the Internal Revenue Service (IRS) Form 5500 (used as the basis for reporting pension contributions for defined benefit plans) is due 7 months after the end of the plan year (July 31), with possible extensions through mid-September. The commenter recommended that CMS either move the proposed deadline to October, or allow hospitals to submit their revisions for pension data during the MAC desk review process.

Response: We appreciate the commenters' general support for our proposed revisions to the wage index timetable. We listed general timeframes in the FY 2016 timetable but will communicate the exact dates for the FY 2016 timetable to hospitals through their MACs after issuance of this FY 2015 final rule. Regarding the FY 2017 Wage Index Timetable, we understand the commenters' concerns that an August deadline for hospitals to submit revisions to their preliminary wage data may be too challenging to meet. However, while almost all of the commenters believed that an August deadline was too ambitious, there was no consensus from the commenters regarding when the deadline should be, with recommendations ranging from early September to December. We also partially agree with the commenter who raised the point that hospitals may not be able to provide their pension data until October, as further discussed below. In addition, we noted that commenters requested that CMS work with the MACs to ensure that the MACs are meeting their respective deadlines. We understand that the MACs have also faced pressure to accurately complete desk reviews and submit to CMS the appropriate revisions on behalf of hospitals in a timely fashion. The longer the time that hospitals have to submit revisions to their preliminary wage data, the less time the MACs have to conduct their desk reviews. Therefore, we believe that it is important to accommodate both the hospitals' and MACs' need for more time to adequately review the wage and occupational mix data. Because the earliest deadline that commenters stated would be feasible is early September, we are finalizing a date within the first week of September 2015 (rather than early August) as the deadline for hospitals to request revisions to their FY 2017 preliminary wage and occupational mix data. A deadline in early September would be manageable for hospitals, yet also provide the MACs with the most amount of time possible to complete their desk reviews. In addition to a general deadline of early September, we are providing a limited exception for submission of a certain hospital's pension data. Specifically, we are only providing an extension for hospitals that have a fiscal year begin date on or after August 15 of a year to submit their pension data by mid-October because hospitals with fiscal year begin dates prior to August 15 would have already made their 3-year pension contributions by the end of September. We believe that the majority of hospitals, which do have fiscal year begin dates prior to August 15 of a year, would be able to submit their pension data, along with the remainder of their wage index documentation, to their MACs by the beginning of September each year. In this final rule, we are changing our wage index timetable for FY 2016 and after so that hospitals with fiscal years that begin on or after August 15 may submit their pension data to their MACs by mid-October. However, in future rulemaking, we may consider revisions to the 3-year average pension policy, which would allow all hospitals to submit their pension data at the same time. For FY 2017, the MACs would work on the desk reviews until mid-November 2015 (instead of mid October, as proposed). Following are the revised FY 2016 and FY 2017 Wage Index Timetables that we are finalizing:

Comment: Commenters asked that CMS instruct MACs to notify State hospital associations of aberrant data, in addition to the current practice of notifying State hospital associations about hospitals that do not respond to requests for data. In addition, commenters recommended that CMS provide more instructions to MACs and hospitals regarding how to correct errors and the timeframe for correcting errors. They believed that this action is necessary because the notification to hospital associations would be after the deadline for hospitals to request data adjustments. Another commenter suggested that accuracy and consistency in wage index verification would be improved if CMS would assign a single MAC to review all wage index data.

Response: We will take these comments into consideration as we develop the details of the Wage Index Timetables and the desk review instructions that we provide to the MACs.

L. Labor-Related Share for the FY 2015 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related: “The Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs of the DRG prospective payment rates. . . .” We refer to the portion of hospital costs attributable to wages and wage-related costs as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index.

Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this “would result in lower payments to a hospital than would otherwise be made.” However, this provision of Public Law 108-173 did not change the legal requirement that the Secretary estimate “from time to time” the proportion of hospitals' costs that are “attributable to wages and wage-related costs.” Thus, hospitals receive payment based on either a 62-percent labor-related share, or the labor-related share estimated from time to time by the Secretary, depending on which labor-related share resulted in a higher payment.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50596 through 50607), we rebased and revised the hospital market basket. We established a FY 2010-based IPPS hospital market basket to replace the FY 2006-based IPPS hospital market basket, effective October 1, 2013. In that final rule, we presented our analysis and conclusions regarding the frequency and methodology for updating the labor-related share for FY 2014. Using the FY 2010-based IPPS market basket, we finalized a labor-related share for FY 2014 of 69.6 percent. In addition, we implemented this revised and rebased labor-related share in a budget neutral manner. However, consistent with section 1886(d)(3)(E) of the Act, we did not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0000 being paid using a labor-related share lower than the labor-related share of hospitals with a wage index greater than 1.0000.

The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28083), for FY 2015, we did not propose to not make any further changes to the national average proportion of operating costs that are attributable to wages and salaries, employee benefits, contract labor, the labor-related portion of professional fees, administrative and facilities support services, and all other labor-related services. Therefore, for FY 2015, we proposed to continue to use a labor-related share of 69.6 percent for discharges occurring on or after October 1, 2014.

Tables 1A and 1B, which were published in section VI. of the Addendum to the FY 2015 IPPS/LTCH PPS proposed rule and available via the Internet on the CMS Web site, reflected this proposed labor-related share. For FY 2015, for all IPPS hospitals whose wage indexes are less than or equal to 1.0000, we proposed to apply the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals whose wage indexes are greater than 1.0000, for FY 2015, we proposed to apply the wage index to a proposed labor-related share of 69.6 percent of the national standardized amount. We note that, for Puerto Rico hospitals, the national labor-related share is 62 percent because the national wage index for all Puerto Rico hospitals is less than 1.0000.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50601 through 50603), we also rebased and revised the labor-related share for the Puerto Rico-specific standardized amounts using FY 2010 as a base year. We finalized a labor-related share for the Puerto Rico-specific standardized amounts for FY 2014 of 63.2 percent. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28084), for FY 2015, we did not propose to make any further changes to the Puerto Rico specific average proportion of operating costs that are attributable to wages and salaries, employee benefits, contract labor, the labor-related portion of professional fees, administrative and facilities support services, and all other labor-related services. For FY 2015, we proposed to continue to use a labor-related share for the Puerto Rico-specific standardized amounts of 63.2 percent for discharges occurring on or after October 1, 2014. Puerto Rico hospitals are paid based on 75 percent of the national standardized amounts and 25 percent of the Puerto Rico-specific standardized amounts. For FY 2015, we proposed that the labor-related share of a hospital's Puerto Rico-specific rate would be either the Puerto Rico-specific labor-related share of 63.2 percent or 62 percent, depending on which results in higher payments to the hospital. If the hospital has a Puerto Rico-specific wage index greater than 1.000 for FY 2015, we proposed to set the hospital's rates using a labor-related share of 63.2 percent for the 25 percent portion of the hospital's payment determined by the Puerto Rico standardized amounts because this amount would result in higher payments. Conversely, a hospital with a Puerto Rico-specific wage index of less than or equal to 1.000 for FY 2015 would be paid using the Puerto Rico-specific labor-related share of 62 percent of the Puerto Rico-specific rates because the lower labor-related share would result in higher payments. The proposed Puerto Rico labor-related share of 63.2 percent for FY 2015 is reflected in Table 1C, which was published in section VI. of the Addendum to the FY 2015 IPPS/LTCH PPS proposed rule and available via the Internet on the CMS Web site.

Comment: One commenter believed that CMS has provided incentives for hospitals to reduce costs through a declining wage index. The commenter stated that CMS has not kept pace by adjusting the labor-related share of 62 percent for hospitals with a wage index below 1.0000. The commenter noted that current law requires a labor-related share of 62 percent for hospitals with a wage index less than or equal to 1.0000. However, the commenter requested that, despite current law, in consideration of its comments, CMS lower the labor-related share from 62 percent to 42 percent for hospitals with a wage index below 1.0000.

One commenter recommended that CMS compute an alternative labor and nonlabor-related share percentage under the national standardized amount for hospitals in Puerto Rico. The commenter explained that the current labor-related share percentage of 62 percent under the national standardized amounts meets the statutory definition in section 1886(d)(3)(E) of the Act, resulting in lower payments for providers in Puerto Rico. Therefore, the commenter believed that CMS should calculate an alternative national labor-related share percentage for hospitals in Puerto Rico that is lower than 62 percent.

Response: As mentioned by the commenter, current law requires that the labor-related share be set at 62 percent for hospitals with a wage index less than or equal to 1.0000. Specifically, as discussed above, section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this “would result in lower payments to a hospital than would otherwise be made.” Therefore, we are unable to change the labor-related share of 62 percent. In addition, the commenters did not provide any empirical data to demonstrate why a lower labor-related share percentage is justified. Therefore, we are unable to verify the commenters' statement.

After consideration of public comments received, we are finalizing our proposals without modification. For FY 2015, we are continuing to use a labor-related share of 69.6 percent for discharges occurring on or after October 1, 2014. Tables 1A and 1B, which are published in section VI. of the Addendum to this final rule and available via the Internet on the CMS Web site, reflect this labor-related share. For FY 2015, for all IPPS hospitals whose wage indexes are less than or equal to 1.0000, we are applying the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals whose wage indexes are greater than 1.0000, for FY 2015, we are applying the wage index to a labor-related share of 69.6 percent of the national standardized amount. For Puerto Rico hospitals, the national labor-related share is 62 percent because the national wage index for all Puerto Rico hospitals is less than 1.0000. For FY 2015, we also are continuing to use a labor-related share for the Puerto Rico-specific standardized amounts of 63.2 percent for discharges occurring on or after October 1, 2014. Puerto Rico hospitals are paid based on 75 percent of the national standardized amounts and 25 percent of the Puerto Rico-specific standardized amounts. For FY 2015, the labor-related share of a hospital's Puerto Rico-specific rate will be either the Puerto Rico-specific labor-related share of 63.2 percent or 62 percent, depending on which results in higher payments to the hospital. If the hospital has a Puerto Rico-specific wage index greater than 1.000 for FY 2015, we will set the hospital's rates using a labor-related share of 63.2 percent for the 25-percent portion of the hospital's payment determined by the Puerto Rico standardized amounts because this amount will result in higher payments. The Puerto Rico labor-related share of 63.2 percent for FY 2015 is reflected in Table 1C, which is published in section VI. of the Addendum to this final rule and available via the Internet on the CMS Web site.

IV. Other Decisions and Changes to the IPPS for Operating Costs and Graduate Medical Education (GME) Costs

A. Changes to MS-DRGs Subject to the Postacute Care Transfer Policy (§ 412.4)

1. Background

Existing regulations at § 412.4(a) define discharges under the IPPS as situations in which a patient is formally released from an acute care hospital or dies in the hospital. Section 412.4(b) defines acute care transfers, and § 412.4(c) defines postacute care transfers. Our policy, set forth in § 412.4(f), provides that when a patient is transferred and his or her length of stay is less than the geometric mean length of stay for the MS-DRG to which the case is assigned, the transferring hospital is generally paid based on a graduated per diem rate for each day of stay, not to exceed the full MS-DRG payment that would have been made if the patient had been discharged without being transferred.

The per diem rate paid to a transferring hospital is calculated by dividing the full DRG payment by the geometric mean length of stay for the MS-DRG. Based on an analysis that showed that the first day of hospitalization is the most expensive (60 FR 45804), our policy generally provides for payment that is twice the per diem amount for the first day, with each subsequent day paid at the per diem amount up to the full MS-DRG payment (§ 412.4(f)(1)). Transfer cases are also eligible for outlier payments. In general, the outlier threshold for transfer cases, as described in § 412.80(b), is equal to the fixed-loss outlier threshold for nontransfer cases (adjusted for geographic variations in costs), divided by the geometric mean length of stay for the MS-DRG, and multiplied by the length of stay for the case, plus one day.

We established the criteria set forth in § 412.4(d) for determining which DRGs qualify for postacute care transfer payments in the FY 2006 IPPS final rule (70 FR 47419 through 47420). The determination of whether a DRG is subject to the postacute care transfer policy was initially based on the Medicare Version 23.0 GROUPER (FY 2006) and data from the FY 2004 MedPAR file. However, if a DRG did not exist in Version 23.0 or a DRG included in Version 23.0 is revised, we use the current version of the Medicare GROUPER and the most recent complete year of MedPAR data to determine if the DRG is subject to the postacute care transfer policy. Specifically, if the MS-DRG's total number of discharges to postacute care equals or exceeds the 55th percentile for all MS-DRGs and the proportion of short-stay discharges to postacute care to total discharges in the MS-DRG exceeds the 55th percentile for all MS-DRGs, CMS will apply the postacute care transfer policy to that MS-DRG and to any other MS-DRG that shares the same base MS-DRG. In the preamble to the FY 2006 IPPS final rule (70 FR 47419), we stated that “we will not revise the list of DRGs subject to the postacute care transfer policy annually unless we are making a change to a specific DRG.”

To account for MS-DRGs subject to the postacute care transfer policy that exhibit exceptionally higher shares of costs very early in the hospital stay, § 412.4(f) also includes a special payment methodology. For these MS-DRGs, hospitals receive 50 percent of the full MS-DRG payment, plus the single per diem payment, for the first day of the stay, as well as a per diem payment for subsequent days (up to the full MS-DRG payment (§ 412.4(f)(6)). For an MS-DRG to qualify for the special payment methodology, the geometric mean length of stay must be greater than 4 days, and the average charges of 1-day discharge cases in the MS-DRG must be at least 50 percent of the average charges for all cases within the MS-DRG. MS-DRGs that are part of an MS-DRG group will qualify under the DRG special payment policy if any one of the MS-DRGs that share that same base MS-DRG qualifies (§ 412.4(f)(6)).

2. Changes to the Postacute Care Transfer MS-DRGs

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28084 through 28086), we discussed that, based on our annual review of MS-DRGs, we had identified a number of MS-DRGs that should be included on the list of MS-DRGs subject to the postacute care transfer policy. In response to public comments and based on our analysis of FY 2013 MedPAR claims data, we proposed to make several changes to MS-DRGs to better capture certain severity of illness levels, to be effective for FY 2015. Specifically, we proposed to modify the assignment of endovascular cardiac valve replacements currently assigned to MS-DRGs 216 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC), 217 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization with CC), 218 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization without CC/MCC), 219 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC), 220 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization with CC), and 221 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization without CC/MCC) to MS-DRGs 266 and 267 (Endovascular Cardiac Valve Replacement with and without MCC, respectively) to better reflect the differences in patients receiving endovascular cardiac valve replacements from patients who undergo an open chest cardiac valve replacement. We also proposed to further refine back and neck procedures currently assigned to MS-DRGs 490 and 491 (Back & Neck Procedure Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator and without CC/MCC or Disc Device/Neurostimulator, respectively) into additional severity levels, now identified as MS-DRGs 518, 519, and 520 (Back & Neck Procedure Except Spinal Fusion with MCC or Disc Device/Neurostimulator, with CC, and without MCC/CC, respectively). Finally, we proposed to remove the severity levels for reverse shoulder replacements, merging MS-DRGs 483 and 484 (Major Joint & Limb Reattachment Procedure of Upper Extremity with CC/MCC and without CC/MCC, respectively) into MS-DRG 483 (Major Joint/Limb Reattachment Procedure of Upper Extremities). A discussion of these proposed changes can be found in section II.G.4.c., II.G.5.c. and II.G.5.a., respectively, of the preamble of the proposed rule.

In light of these proposed changes to the MS-DRGs according to the regulations under § 412.4(c), we evaluated these proposed FY 2015 MS-DRGs against the general postacute care transfer policy criteria using the FY 2013 MedPAR data. If an MS-DRG qualified for the postacute care transfer policy, we also evaluated that MS-DRG under the special payment methodology criteria according to regulations at § 412.4(f)(6). We continue believe it is appropriate to reassess MS-DRGs when proposing reassignment of diagnostic codes that would result in material changes to an MS-DRG. As a result of our review, we found that MS-DRGs 216 through 221 would require no revisions in postacute care transfer or special payment policy status. However, we proposed to update the list of MS-DRGs that are subject to the postacute care transfer policy to include the proposed new MS-DRGs 266, 267, 518, 519, and 520. (These MS-DRGs are reflected in Table 5, which is listed in section VI. of the Addendum to this final rule and available via the Internet on the CMS Web site, and also are listed in the charts at the end of this section.)

In addition, based on our evaluation of the proposed FY 2015 MS-DRGs using the FY 2013 Med PAR data, we determined that proposed revised MS-DRG 483 would no longer meet the postacute care transfer criteria. Therefore, we proposed that it be removed from the list of MS-DRGs subject to the postacute care transfer policy, effective FY 2015. We refer readers to the asterisk (*) bolded text in the following table for which criterion was not met in our analysis for each MS-DRG removed from the postacute care transfer policy list.

Finally, we determined that MS-DRGs 266, 267, 518, 519, and 520 also would meet the criteria for the special payment methodology. Therefore, we proposed that they would be subject to the MS-DRG special payment methodology, effective FY 2015.

We did not receive any public comments regarding our proposals to change the postacute care transfer and the special payment policy status for the identified MS-DRGs. Therefore, we are adopting the proposed changes as final for FY 2015.

B. Changes in the Inpatient Hospital Update for FY 2015 (§ 412.64(d))

1. FY 2015 Inpatient Hospital Update

In accordance with section 1886(b)(3)(B)(i) of the Act, each year we update the national standardized amount for inpatient operating costs by a factor called the “applicable percentage increase.” In FY 2014, consistent with section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we set the applicable percentage increase under the IPPS by applying the following adjustments in the following sequence. Specifically, the applicable percentage increase under the IPPS is equal to the rate-of-increase in the hospital market basket for IPPS hospitals in all areas, subject to a reduction of 2.0 percentage points if the hospital fails to submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act, and then subject to an adjustment based on changes in economy-wide productivity (the multifactor productivity (MFP) adjustment), and an additional reduction of 0.3 percentage point as required by section 1886(b)(3)(B)(xii) of the Act. Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added by section 3401(a) of the Affordable Care Act, state that application of the MFP adjustment and the additional FY 2014 adjustment of 0.3 percentage point may result in the applicable percentage increase being less than zero.

For FY 2015, there are three statutory changes to the applicable percentage increase compared to FY 2014. First, under section 1886(b)(3)(B)(viii) of the Act, beginning with FY 2015, the reduction in the applicable percentage increase for hospitals that fail to submit quality information under rules established by the Secretary is one-quarter of the applicable percentage increase (prior to the application of statutory adjustments under sections 1886(b)(3)(B)(ix), 1886(b)(3)(B)(xi), and 1886(b)(3)(B)(xii) of the Act) or one-quarter of the applicable market basket update. For FY 2014, the reduction to the applicable percentage increase for hospitals that failed to submit quality information under rules established by the Secretary was 2.0 percentage points. Second, beginning with FY 2015, section 1886(b)(3)(B)(ix) of the Act requires that any hospital that is not a meaningful electronic health record (EHR) user (as defined in section 1886(n)(3) of the Act and not subject to an exception under section 1886(b)(3)(B)(ix) of the Act)) will have “three-quarters” of the applicable percentage increase (prior to the application of statutory adjustments under sections 1886(b)(3)(B)(viii), 1886(b)(3)(B)(xi), and 1886(b)(3)(B)(xii) of the Act), or three-quarters of the applicable market basket update, reduced by 331/3 percent. The reduction to three-quarters of the applicable percentage increase for those hospitals that are not meaningful EHR users increases to 662/3 percent for FY 2016, and, for FY 2017 and subsequent fiscal years, to 100 percent. Third, for FY 2015, section 1886(b)(3)(B)(xii) of the Act applies an additional reduction of 0.2 percentage point compared to 0.3 percentage point for FY 2014.

To summarize, for FY 2015, consistent with section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we are setting the applicable percentage increase by applying the following adjustments in the following sequence. Specifically, the applicable percentage increase under the IPPS is equal to the rate-of-increase in the hospital market basket for IPPS hospitals in all areas, subject to a reduction of one-quarter of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals that fail to submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act and a 331/3 percent reduction to three-fourths of the applicable percentage increase (prior to the application of other statutory adjustments; also referred to as the market basket update or rate-of-increase (with no adjustments)) for hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act, and then subject to an adjustment based on changes in economy-wide productivity (the multifactor productivity (MFP) adjustment), and an additional reduction of 0.2 percentage point as required by section 1886(b)(3)(B)(xii) of the Act. As noted previously, sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added by section 3401(a) of the Affordable Care Act, state that application of the MFP adjustment and the additional FY 2015 adjustment of 0.2 percentage point may result in the applicable percentage increase being less than zero.

We note that, in compliance with section 404 of the MMA, in the FY 2014 IPPS/LTCH PPS final rule, we replaced the FY 2006-based IPPS operating and capital market baskets with the revised and rebased FY 2010-based IPPS operating and capital market baskets for FY 2014. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28086), we proposed to continue to use the FY 2010-based IPPS operating and capital market baskets for FY 2015. We also proposed to continue to use a labor-related share that is reflective of the FY 2010 base year. For FY 2015, we proposed to continue using the labor-related share of 69.6 percent, which is based on the FY 2010-based IPPS market basket. We did not receive any public comments on this proposal and, therefore, for FY 2015, we will continue to use the FY 2010-based IPPS operating and capital market baskets and the labor-related share of 69.6 percent.

Based on the most recent data available for the FY 2015 proposed rule, in accordance with section 1886(b)(3)(B) of the Act, we proposed in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28087) to base the proposed FY 2015 market basket update used to determine the applicable percentage increase for the IPPS on IHS Global Insight, Inc.'s (IGI's) first quarter 2014 forecast of the FY 2010-based IPPS market basket rate-of-increase with historical data through fourth quarter 2013, which was estimated to be 2.7 percent. We proposed that if more recent data became subsequently available (for example, a more recent estimate of the market basket and the MFP adjustment), we would use such data, if appropriate, to determine the FY 2015 market basket update and MFP adjustment in the final rule.

Based on updated data for this FY 2015 IPPS/LTCH PPS final rule, that is, the IGI's second quarter 2014 forecast of the FY 2010-based IPPS market basket rate-of-increase with historical data through first quarter 2014, we estimate that the FY 2015 market basket update used to determine the applicable percentage increase for the IPPS is 2.9 percent.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we finalized our methodology for calculating and applying the MFP adjustment. For FY 2015, we did not propose to make any change in our methodology for calculating and applying the MFP adjustment. For FY 2015, we proposed a MFP adjustment of −0.4 percentage point. Similar to the market basket adjustment, for the proposed rule, we used the most recent data available to compute the MFP adjustment.

Based on updated data for this final rule, we computed an MFP adjustment is 0.5 percentage point for FY 2015.

Comment: One commenter stated that the FY 2015 update factor is understated, as the productivity adjustment should be 0.4 (as projected in the proposed rule), not 0.5. The commenter stated that, as a result, instead of a 1.2 percent update factor, the projection should use a 1.3 percent update factor.

Response: As stated in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28087), the proposed productivity adjustment for FY 2015 was 0.4 percent. Furthermore, we proposed to make a 1.3 percent update to the national standardized amount (79 FR 28355), which reflects a proposed 2.7 percent market basket update, the proposed reduction of 0.4 percentage point for the multifactor productivity adjustment, the 0.2 percentage point reduction in accordance with the Affordable Care Act and the proposed FY 2015 documentation and coding recoupment adjustment of −0.8 percent on the national standardized amount as part of the recoupment required by section 631 of the ATRA.

As stated in the proposed rule, we proposed to use more recently available data to determine the final market basket and multifactor productivity adjustment. We did not receive any public comments on this proposal. Therefore, for this final rule, we are finalizing a market basket update of 2.9 percent and an MFP adjustment of 0.5 percent based on more recently available data.

For FY 2015, depending on whether a hospital submits quality data under the rules established in accordance with section 1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital that submits quality data) and is a meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that is a meaningful EHR user), we discussed in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28087) that there are four possible applicable percentage increases that can be applied to the standardized amount. As noted above, we proposed that if more recent data became subsequently available (for example, a more recent estimate of the market basket and the MFP adjustment), we would use such data, if appropriate, to determine the FY 2015 market basket update and MFP adjustment in the final rule.

We did not receive any public comments on the four applicable percentage increases and our finalizing our proposal. Based on the more recent data described earlier, we have determined final applicable percentage increases to the standardized amount for FY 2015, as specified below.

• For a hospital that submits quality data and is a meaningful EHR user, we are finalizing an applicable percentage increase to the FY 2015 operating standardized amount of 2.2 percent (that is, the FY 2015 estimate of the market basket rate-of-increase of 2.9 percent less an adjustment of 0.5 percentage point for economy-wide productivity (that is, the MFP adjustment) and less 0.2 percentage point).
• For a hospital that submits quality data and is not a meaningful EHR user, we are finalizing an applicable percentage increase to the operating standardized amount of 1.475 percent (that is, the FY 2015 estimate of the market basket rate-of-increase of 2.9 percent, less an adjustment of 0.725 percentage point (the market basket rate-of-increase of 2.9 percent × 0.75)/3) for failure to be a meaningful EHR user, less an adjustment of 0.5 percentage point for the MFP adjustment, and less an additional adjustment of 0.2 percentage point).
• For a hospital that does not submit quality data and is a meaningful EHR user, we are finalizing an applicable percentage increase to the operating standardized amount of 1.475 percent (that is, the FY 2015 estimate of the market basket rate-of-increase of 2.9 percent, less an adjustment of 0.725 percentage point (the market basket rate-of-increase of 2.9 percent/4) for failure to submit quality data, less an adjustment of 0.5 percentage point for the MFP adjustment, and less an additional adjustment of 0.2 percentage point).
• For a hospital that does not submit quality data and is not a meaningful EHR user, we are finalizing an applicable percentage increase to the operating standardized amount of 0.75 percent (that is, the FY 2015 estimate of the market basket rate-of-increase of 2.9 percent, less an adjustment of 0.725 percentage point (the market basket rate-of-increase of 2.9 percent/4) for failure to submit quality data, less an adjustment of 0.725 percentage point (the market basket rate-of-increase of 2.9 percent × 0.75)/3) for failure to be a meaningful EHR user, less an adjustment of 0.5 percentage point for the MFP adjustment, and less an additional adjustment of 0.2 percentage point). Below we provide a table summarizing the four final applicable percentage increases.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28087), we proposed to revise the existing regulations at 42 CFR 412.64(d) to reflect the current law for the FY 2015 update. Specifically, in accordance with section 1886(b)(3)(B) of the Act, we proposed to add a new paragraph (vi) to § 412.64(d)(1) to reflect the applicable percentage increase to the FY 2015 operating standardized amount as the percentage increase in the market basket index, subject to a reduction of one-fourth of the applicable percentage increase (prior to the application of other statutory adjustments) if the hospital fails to submit quality information (under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act) and a 331/3 percent reduction to three-fourths of the applicable percentage increase (prior to the application of other statutory adjustments) for a hospital that is not a meaningful EHR user in accordance with section 1886(b)(3)(B)(ix) of the Act, less an MFP adjustment and less an additional reduction of 0.2 percentage point.

In addition, we proposed to make technical changes to §§ 412.64(d)(1), (d)(1)(i) through (d)(1)(v), (d)(2)(i), (d)(2)(ii), and (d)(3) introductory text to reflect the order in which CMS applies the statutory adjustments to the applicable percentage increase under section 1886(b)(3)(B) of the Act. As mentioned above, consistent with section 1886(b)(3)(B) of the Act, CMS sets the applicable percentage increase under the IPPS by applying the following adjustments in the following sequence. Specifically, we set the applicable percentage increase under the IPPS equal to the rate-of-increase in the hospital market basket for IPPS hospitals in all areas subject to a reduction for hospitals that fail to submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act and, beginning in FY 2015, a reduction for hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act; and then subject to an adjustment based on changes in economy-wide productivity (the MFP adjustment), and an additional reduction as required by section 1886(b)(3)(B)(xii) of the Act.

The existing regulation text at § 412.64(d)(2) and (d)(3) describes the reductions for hospitals that fail to submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act and hospitals not considered to be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act as reductions to “the applicable percentage change specified in paragraph (d)(1) of this section.” Section 412.64(d)(1) describes the applicable percentage change for the applicable fiscal year as the percentage increase in the market basket index less the MFP adjustment and less the additional reduction required by section 1886(b)(3)(B)(xii) of the Act. This text suggests that CMS applies the reduction for hospitals that fail to submit quality information and, beginning in FY 2015, the reduction for hospitals not considered to be meaningful EHR users, after it applies the MFP adjustment and the additional reduction under section 1886(b)(3)(B)(xii) of the Act. Therefore, we proposed to revise the regulations in § 412.64(d) to reflect the order in which CMS applies the adjustments to the applicable percentage increase under section 1886(b)(3)(B) of the Act. We note that we also proposed clarifying amendments to the regulatory text for prior fiscal years under §§ 412.64(d)(1)(i) through (d)(1)(v) to reflect the determination of the applicable percentage change for those prior years as well as other technical changes for readability.

We did not receive any public comments on our proposed changes to the regulations at §§ 412.64(d)(1), (d)(1)(i) through (d)(1)(v), (d)(2)(i), (d)(2)(ii), and (d)(3) introductory text and therefore are finalizing these proposed changes without modification.

Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage increase to the hospital-specific rates for SCHs and MDHs equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all other hospitals subject to the IPPS). Therefore, the update to the hospital-specific rates for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act. Accordingly, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28088), for FY 2015, we proposed the following updates to the hospital-specific rates applicable to SCHs and MDHs: An update of 2.1 percent for a hospital that submits quality data and is a meaningful EHR user; an update of 1.425 percent for a hospital that fails to submit quality data and is a meaningful EHR user; an update of 1.425 percent for a hospital that submits quality data and is not a meaningful EHR user; an update of 0.75 percent for a hospital that fails to submit quality data and is not a meaningful EHR user. (As noted below, under current law, the MDH program is effective for discharges occurring on or before March 31, 2015.) For FY 2015, the existing regulations in §§ 412.73(c)(16), 412.75(d), 412.77(e), 412.78(e), and 412.79(d) contain provisions that set the update factor for SCHs and MDHs equal to the update factor applied to the national standardized amount for all IPPS hospitals. Therefore, we did not propose to make any further changes to these five regulatory provisions to reflect the FY 2015 update factor for the hospital-specific rates of SCHs and MDHs. As mentioned above, for the proposed rule, we used IGI's first quarter 2014 forecast of the FY 2010-based IPPS market basket update with historical data through fourth quarter 2013. Similarly, we used IGI's first quarter 2014 forecast of the MFP adjustment. For the final rule, we proposed to use the most recent data available. We did not receive any public comments on these proposals and therefore our finalizing them as proposed to set the update for SCHs and MDHs in this final rule using the most recent data available.

As discussed above, based on the more recent data for IGI's second quarter 2014 forecast of the FY 2010-based IPPS market basket update with historical data through first quarter 2014, we estimate that the FY 2015 market basket update used to determine the update factor for this final rule for the hospital-specific rates of SCHs and MDHs is 2.9 percent. Similarly, for this final rule, we used IGI's second quarter 2014 forecast of the MFP adjustment, which is estimated at 0.5 percentage point for FY 2015. Accordingly, we are finalizing the following updates to the hospital-specific rates applicable to SCHs and MDHs: An update of 2.2 percent for a hospital that submits quality data and is a meaningful EHR user; an update of 1.475 percent for a hospital that fails to submit quality data and is a meaningful EHR user; an update of 1.475 percent for a hospital that submits quality data and is not a meaningful EHR user; an update of 0.75 percent for a hospital that fails to submit quality data and is not a meaningful EHR user.

We note that, as discussed in section IV.G. of the preamble of this final rule, section 1106 of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), enacted on December 26, 2013, extended the MDH program from the end of FY 2013 through the first half of FY 2014 (that is, for discharges occurring before April 1, 2014). Subsequently, section 106 of the Protecting Access to Medicare Act of 2014, Public Law 113-93, enacted on April 1, 2014, further extended the MDH program through the first half of FY 2015 (that is, for discharges occurring before April l, 2015). Prior to the enactment of Public Law 113-67, the MDH program was to be in effect through the end of FY 2013 only. The MDH program expires for discharges beginning on April 1, 2015 under current law. Accordingly, the update of the hospital-specific rates for FY 2015 for MDHs will apply in determining payments for FY 2015 discharges occurring before April 1, 2015.

2. FY 2015 Puerto Rico Hospital Update

Puerto Rico hospitals are paid a blended rate for their inpatient operating costs based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. Section 1886(d)(9)(C)(i) of the Act is the basis for determining the applicable percentage increase applied to the Puerto Rico-specific standardized amount. Section 401(c) of Public Law 108-173 amended section 1886(d)(9)(C)(i) of the Act, which states that, for discharges occurring in a fiscal year (beginning with FY 2004), the Secretary shall compute an average standardized amount for hospitals located in any area of Puerto Rico that is equal to the average standardized amount computed under subclause (I) for fiscal year 2003 for hospitals in a large urban area (or, beginning with FY 2005, for all hospitals in the previous fiscal year) increased by the applicable percentage increase under subsection (b)(3)(B) for the fiscal year involved. Therefore, the update to the Puerto Rico-specific operating standardized amount equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act (that is, the same update factor as for all other hospitals subject to the IPPS). Accordingly, in the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28088), we proposed an applicable percentage increase to the Puerto Rico-specific operating standardized amount of 2.1 percent for FY 2015. We also proposed, for the final rule, to use the most recent data available to determine the FY 2015 applicable percentage increase. We note that the provisions of section 1886(b)(3)(B)(viii) of the Act, which specify the adjustments to the applicable percentage increase for “subsection (d)” hospitals that do not submit quality data under the rules established by the Secretary, and the provisions of section 1886(b)(3)(B)(ix) of the Act, which specify the adjustments to the applicable percentage increase for “subsection (d)” hospitals that are not meaningful EHR users, are not applicable to hospitals located in Puerto Rico.

We did not receive any public comments concerning our proposal. Therefore, using the most recent data available, we are finalizing an applicable percentage increase to the Puerto Rico-specific operating amount of 2.2 percent for FY 2015. As we noted above, for the proposed rule, we used the first quarter 2014 forecast of the FY 2010-based IPPS market basket update with historical data through fourth quarter 2013. For this final rule, we used the most recent data available, which is IGI's second quarter 2014 forecast of the FY 2010-based IPPS market basket update with historical data through first quarter 2014. Similarly, for the proposed rule, we used IGI's first quarter 2014 forecast of the MFP adjustment. For this final rule, we used the most recent data available, which was IGI's second quarter 2014 forecast of the MFP adjustment.

For FY 2015, the existing regulations in § 412.211(c) set the update factor for Puerto Rico-specific standardized amount equal to the update factor applied to the national standardized amount for all IPPS hospitals. Therefore, we are not making any further changes to this regulatory provision to reflect the FY 2015 update factor for the Puerto Rico-specific standardized amount.

Comment: One commenter indicated that the nonlabor costs in Puerto Rico are closer or equal to those in the United States. It is unclear what the commenter was requesting. Based on our interpretation of the comment, it appears that the commenter may be requesting that CMS make equal the nonlabor payment amount of the Puerto Rico-specific standardized amount to the nonlabor payment amount of the national standardized amount.

Response: The commenter did not provide any empirical data to demonstrate how the nonlabor costs in Puerto Rico are equal to those in the United States. Therefore, we are unable to verify the commenter's statement. In addition, we did not propose to make any updates to the national or Puerto Rico-specific standardized amounts aside from applying the statutory updates as discussed earlier. We will continue to work with Puerto Rico and other stakeholders to ensure we are using appropriate data for ratesettting.

C. Rural Referral Centers (RRCs): Annual Updates to Case-Mix Index and Discharge Criteria (§ 412.96)

Under the authority of section 1886(d)(5)(C)(i) of the Act, the regulations at § 412.96 set forth the criteria that a hospital must meet in order to qualify under the IPPS as a rural referral center (RRC). RRCs receive some special treatment under both the DSH payment adjustment and the criteria for geographic reclassification.

Section 402 of Public Law 108-173 raised the DSH payment adjustment for RRCs such that they are not subject to the 12-percent cap on DSH payments that is applicable to other rural hospitals. RRCs are also not subject to the proximity criteria when applying for geographic reclassification. In addition, they do not have to meet the requirement that a hospital's average hourly wage must exceed, by a certain percentage, the average hourly wage of the labor market area where the hospital is located.

Section 4202(b) of Public Law 105-33 states, in part, “[a]ny hospital classified as an RRC by the Secretary . . . for fiscal year 1991 shall be classified as such an RRC for fiscal year 1998 and each subsequent year.” In the August 29, 1997 IPPS final rule with comment period (62 FR 45999), CMS reinstated RRC status for all hospitals that lost the status due to triennial review or MGCRB reclassification. However, CMS did not reinstate the status of hospitals that lost RRC status because they were now urban for all purposes because of the OMB designation of their geographic area as urban. Subsequently, in the August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were revisiting that decision. Specifically, we stated that we would permit hospitals that previously qualified as an RRC and lost their status due to OMB redesignation of the county in which they are located from rural to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC status must satisfy all of the other applicable criteria. We use the definitions of “urban” and “rural” specified in Subpart D of 42 CFR Part 412. One of the criteria under which a hospital may qualify as an RRC is to have 275 or more beds available for use (§ 412.96(b)(1)(ii)). A rural hospital that does not meet the bed size requirement can qualify as an RRC if the hospital meets two mandatory prerequisites (a minimum CMI and a minimum number of discharges), and at least one of three optional criteria (relating to specialty composition of medical staff, source of inpatients, or referral volume). (We refer readers to § 412.96(c)(1) through (c)(5) and the September 30, 1988 Federal Register (53 FR 38513).) With respect to the two mandatory prerequisites, a hospital may be classified as an RRC if—

• The hospital's CMI is at least equal to the lower of the median CMI for urban hospitals in its census region, excluding hospitals with approved teaching programs, or the median CMI for all urban hospitals nationally; and
• The hospital's number of discharges is at least 5,000 per year, or, if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located. (The number of discharges criterion for an osteopathic hospital is at least 3,000 discharges per year, as specified in section 1886(d)(5)(C)(i) of the Act.)

1. Case-Mix Index (CMI)

Section 412.96(c)(1) provides that CMS establish updated national and regional CMI values in each year's annual notice of prospective payment rates for purposes of determining RRC status. The methodology we used to determine the national and regional CMI values is set forth in the regulations at § 412.96(c)(1)(ii). The national median CMI value for FY 2015 is based on the CMI values of all urban hospitals nationwide, and the regional median CMI values for FY 2015 are based on the CMI values of all urban hospitals within each census region, excluding those hospitals with approved teaching programs (that is, those hospitals that train residents in an approved GME program as provided in § 413.75). These values are based on discharges occurring during FY 2013 (October 1, 2012 through September 30, 2013), and include bills posted to CMS' records through March 2014.

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28089), we proposed that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2014, they must have a CMI value for FY 2013 that is at least—

• 1.5730; or
• The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in § 413.75) calculated by CMS for the census region in which the hospital is located. (We refer readers to the table set forth in the FY 2015 IPPS/LTCH PPS proposed rule at 79 FR 28089.)

The final CMI values for FY 2015 are based on the latest available data (FY 2013 bills received through March 2014). In addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2014, they must have a CMI value for FY 2013 that is at least—

• 1.5723; or
• The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in § 413.75) calculated by CMS for the census region in which the hospital is located.

The final CMI values by region are set forth in the following table:

A hospital seeking to qualify as an RRC should obtain its hospital-specific CMI value (not transfer-adjusted) from its fiscal intermediary or MAC. Data are available on the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy on discharges, the CMI values are computed based on all Medicare patient discharges subject to the IPPS MS-DRG-based payment.

2. Discharges

Section 412.96(c)(2)(i) provides that CMS set forth the national and regional numbers of discharges in each year's annual notice of prospective payment rates for purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28090), we proposed to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2012 (that is October 1, 2011 through September 30, 2012), which are the latest cost report data available at the time the proposed rule was developed.

We proposed that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2014, must have, as the number of discharges for its cost reporting period that began during FY 2012, at least—

• 5,000 (3,000 for an osteopathic hospital); or
• The median number of discharges for urban hospitals in the census region in which the hospital is located. (We refer readers to the table set forth in the FY 2015 IPPS/LTCH PPS proposed rule at 79 FR 28090.)

Based on the latest discharge data available at this time (that is, based on FY 2012 cost report data), the final median number of discharges for urban hospitals by census region are set forth in the following table: