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CFR Citation: 42 CFR Parts 411, 412, 413, 422, and 489

RIN ID: RIN 0938-AP15; RIN 0938-AO35; RIN 0938-AO65

CMS ID: [CMS-1390-F; CMS-1531-IFC1; CMS-1531-IFC2; CMS-1385-F4]

NOTICE: Part II

DOCUMENT ACTION: Final rules.

SUBJECT CATEGORY: Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2009 Rates; Payments for Graduate Medical Education in Certain Emergency Situations; Changes to Disclosure of Physician Ownership in Hospitals and Physician Self- Referral Rules; Updates to the Long-Term Care Prospective Payment System; Updates to Certain IPPS-Excluded Hospitals; and Collection of Information Regarding Financial Relationships Between Hospitals

DATES: Effective Dates: This final rule is effective on October 1, 2008, with the following exceptions: Amendments to Sec. Sec. 412.230, 412.232, and 412.234 are effective on September 2, 2008. Amendments to Sec. Sec. 411.357(a)(5)(ii), (b)(4)(ii), (1)(3)(i) and (ii), and (p)(1)(i)(A) and (B) and the definition of entity in Sec. 411.351 are effective on October 1, 2009.

Applicability Dates: The provisions of Sec. 412.78 relating to payments to SCHs are applicable for cost reporting periods beginning on or after January 1, 2009. Our process for allowing certain hospitals to opt out of decisions made on behalf of hospitals (as discussed in section III.I.7. of this preamble) are applicable on August 19, 2008.

DOCUMENT SUMMARY: We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capitalrelated costs to implement changes arising from our continuing experience with these systems, and to implement certain provisions made by the Deficit Reduction Act of 2005, the Medicare Improvements and Extension Act, Division B, Title I of the Tax Relief and Health Care Act of 2006, the TMA, Abstinence Education, and QI Programs Extension Act of 2007, and the Medicare Improvements for Patients and Providers Act of 2008. In addition, in the Addendum to this final rule, we describe the changes to the amounts and factors used to determine the rates for Medicare hospital inpatient services for operating costs and capitalrelated costs. These changes are generally applicable to discharges occurring on or after October 1, 2008. We also are setting forth the update to the rateofincrease limits for certain hospitals and hospital units excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The updated rateofincrease limits are effective for cost reporting periods beginning on or after October 1, 2008.

In addition to the changes for hospitals paid under the IPPS, this document contains revisions to the patient classifications and relative weights used under the longterm care hospital prospective payment system (LTCH PPS). This document also contains policy changes relating to the requirements for furnishing hospital emergency services under the Emergency Medical Treatment and Labor Act of 1986 (EMTALA).

In this document, we are responding to public comments and finalizing the policies contained in two interim final rules relating to payments for Medicare graduate medical education to affiliated teaching hospitals in certain emergency situations.

We are revising the regulatory requirements relating to disclosure to patients of physician ownership or investment interests in hospitals and responding to public comments on a collection of information regarding financial relationships between hospitals and physicians. In addition, we are responding to public comments on proposals made in two separate rulemakings related to policies on physician selfreferrals and finalizing these policies.

SUMMARY: Health and Human Services Department, Centers for Medicare & Medicaid Services,

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Acronyms
AARP American Association of Retired Persons
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AF Artrial fibrillation
AHA American Hospital Association
AICD Automatic implantable cardioverter defibrillator
AHIMA American Health Information Management Association
AHIC American Health Information Community
AHRQ Agency for Healthcare Research and Quality
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
ASC Ambulatory surgical center
ASITN American Society of Interventional and Therapeutic
Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 10533
BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Public Law 106113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Public Law 106554
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BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation
[Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Corebased statistical areas
CC Complication or comorbidity
CCR Costtocharge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficileassociated disease
CIPI Capital input price index
CMI Casemix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law 99272
CoP [Hospital] condition of participation
CPI Consumer price index
CY Calendar year
DFRR Disclosure of financial relationship report
DRA Deficit Reduction Act of 2005, Public Law 109171
DRG Diagnosisrelated group
DSH Disproportionate share hospital
DVT Deep vein thrombosis
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law 99272
ESRD Endstage renal disease
FAH Federation of Hospitals
FDA Food and Drug Administration
FHA Federal Health Architecture
FIPS Federal information processing standards
FQHC Federally qualified health center
FTE Fulltime equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HACs Hospitalacquired conditions
HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems
HCFA Health Care Financing Administration
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HIC Health insurance card
HIPAA Health Insurance Portability and Accountability Act of 1996, Public Law 104191
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 Hospitalspecific relative value
HSRVcc Hospitalspecific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
HWH Hospitalwithina hospital
ICD9CM International Classification of Diseases, Ninth Revision, Clinical Modification
ICD10PCS International Classification of Diseases, Tenth Edition, Procedure Coding System
ICR Information collection requirement
IHS Indian Health Service
IME Indirect medical education
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system IRF Inpatient rehabilitation facility
LAMCs Large area metropolitan counties
LTCDRG Longterm care diagnosisrelated group
LTCH Longterm care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicaredependent, 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
MIEATRHCA Medicare Improvements and Extension Act, Division B of the Tax Relief and Health Care Act of 2006, Public Law 109432 MIPPA Medicare Improvements for Patients and Providers Act of 2008, Public Law 110275
MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public Law 110173
MPN Medicare provider number
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillinresistant Staphylococcus aureus
MSA Metropolitan Statistical Area
MSDRG Medicare severity diagnosisrelated group
MSLTCDRG Medicare severity longterm care diagnosisrelated group NAICS North American Industrial Classification System
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NQF National Quality Forum
NTIS National Technical Information Service
NVHRI National Voluntary Hospital Reporting Initiative
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PE Pulmonary embolism
PMS As 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
PSF ProviderSpecific File
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RAPS Risk Adjustment Processing System
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update RNHCI Religious nonmedical health care institution
RRC Rural referral center
RUCAs Ruralurban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97248
TMA TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law. 11009
TJA Total joint arthroplasty
UHDDS Uniform hospital discharge data set
VAP Ventilatorassociated pneumonia
VBP Valuebased purchasing
Table of Contents
I. Background

A. Summary

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

2. Hospitals and Hospital Units Excluded From the IPPS

a. Inpatient Rehabilitation Facilities (IRFs)

b. LongTerm Care Hospitals (LTCHs)

c. Inpatient Psychiatric Facilities (IPFs)

3. Critical Access Hospitals (CAHs)

4. Payments for Graduate Medical Education (GME)

B. Provisions of the Deficit Reduction Act of 2005 (DRA)

C. Provisions of the Medicare Improvements and Extension Act Under Division B, Title I of the Tax Relief and Health Care Act of 2006 (MIEATRHCA)

D. Provision of the TMA, Abstinence Education, and QI Programs Extension Act of 2007

E. Issuance of a Notice of Proposed Rulemaking

1. Proposed Changes to MSDRG Classifications and Recalibrations of Relative Weights

2. Proposed Changes to the Hospital Wage Index

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

4. Proposed Changes to the IPPS for CapitalRelated Costs

5. Proposed Changes to the Payment Rates for Excluded Hospitals and Hospital Units

6. Proposed Changes Relating to Disclosure of Physician Ownership in Hospitals

7. Proposed Changes and Solicitation of Comments on Physician SelfReferral Provisions

8. Proposed Collection of Information Regarding Financial Relationships Between Hospitals and Physicians

9. Determining Proposed Prospective Payment Operating and Capital Rates and RateofIncrease Limits

10. Impact Analysis

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

12. Disclosure of Financial Relationships Report (DFRR) Form

13. Discussion of Medicare Payment Advisory Commission Recommendations

F. Public Comments Received on the FY 2009 IPPS Proposed Rule and Issues in Related Rules

1. Comments on the FY 2009 IPPS Proposed Rule

2. Comments on PhaseOut of the Capital Teaching Adjustment Under the IPPS Included in the FY 2008 IPPS Final Rule With Comment Period

3. Comments on Policy Revisions Related to Payment to Medicare GME Affiliated Hospitals in Certain Declared Emergency Areas Included in Two Interim Final Rules With Comment Period

4. Comments on Proposed Policy Revisions Related to Physician SelfReferrals Included in the CY 2008 Physician Fee Schedule Proposed Rule

G. Provisions of the Medicare Improvements for Patients and Providers Act of 2008
II. Changes to Medicare Severity DRG (MSDRG) Classifications and Relative Weights

A. Background

B. MSDRG Reclassifications

1. General

2. Yearly Review for Making MSDRG Changes

C. Adoption of the MSDRGs in FY 2008

D. MSDRG Documentation and Coding Adjustment, Including the Applicability to the HospitalSpecific Rates and the Puerto Rico Specific Standardized Amount

1. MSDRG Documentation and Coding Adjustment

2. Application of the Documentation and Coding Adjustment to the HospitalSpecific Rates

3. Application of the Documentation and Coding Adjustment to the Puerto RicoSpecific Standardized Amount

4. Potential Additional Payment Adjustments in FYs 2010 Through 2012

E. Refinement of the MSDRG Relative Weight Calculation

1. Background

2. Summary of RTI's Report on Charge Compression

3. Summary of RAND's Study of Alternative Relative Weight Methodologies

4. Refining the Medicare Cost Report

5. Timeline for Revising the Medicare Cost Report

6. Revenue Codes Used in the MedPAR File

F. Preventable HospitalAcquired Conditions (HACs), Including Infections

1. General Background

2. Statutory Authority

3. Public Input

4. Collaborative Process

5. Selection Criteria for HACs

6. HACs Selected During FY 2008 IPPS Rulemaking and Changes to Certain Codes

a. Foreign Object Retained After Surgery

b. Pressure Ulcers: Changes in Code Assignments

7. Candidate HACs

a. Manifestations of Poor Glycemic Control

b. Surgical Site Infections

c. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)

d. Delirium

e. VentilatorAssociated Pneumonia (VAP)

f. Staphylococcus aureus Septicemia

g. Clostridium difficileAssociated Disease (CDAD)

h. Legionnaires' Disease

i. Iatrogenic Pneumothorax

j. Methicillinresistant Staphylococcus aureus (MRSA)

8. Present on Admission Indicator Reporting (POA)

9. Enhancement and Future Issues

a. RiskAdjustment of Payments Related to HACs

b. RiskBased Measurement of HACs

c. Use of POA Information

d. Transition to ICD10

e. HealthcareAssociated Conditions in Other Payment Settings

f. Relationship to NQF's Serious Reportable Adverse Events

g. Additional Potential Candidate HACs, Suggested Through Comment

10. HAC Coding

a. Foreign Object Retained After Surgery

b. MRSA

c. POA

11. HACs Selected for Implementation on October 1, 2008

G. Changes to Specific MSDRG Classifications

1. PreMDCs: Artificial Heart Devices

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

a. Transferred Stroke Patients Receiving Tissue Plasminogen Activator (tPA)

b. Intractable Epilepsy With Video Electroencephalogram (EEG)

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

a. Automatic Implantable CardioverterDefibrillators (AICD) Lead and Generator Procedures

b. Left Atrial Appendage Device

4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Hip and Knee Replacements and Revisions

a. Brief History of Development of Hip and Knee Replacement Codes

b. Prior Recommendations of the AAHKS

c. Adoption of MSDRGs for Hip and Knee Replacements for FY 2008 and AAHKS' Recommendations

d. AAHKS' Recommendations for FY 2009

e. CMS' Response to AAHKS' Recommendations

f. Conclusion

5. MDC 18 (Infections and Parasitic Diseases (Systemic or Unspecified Sites): Severe Sepsis

6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): Traumatic Compartment Syndrome

7. Medicare Code Editor (MCE) Changes

a. List of Unacceptable Principal Diagnoses in MCE

b. Diagnoses Allowed for Males Only Edit

c. Limited Coverage Edit

8. Surgical Hierarchies

9. CC Exclusions List

a. Background

b. CC Exclusions List for FY 2009

10. Review of Procedure Codes in MSDRGs 981, 982, and 983; 984, 985, and 986; and 987, 988, and 989

a. Moving Procedure Codes From MSDRGs 981 Through 983 or MS DRGs 987 Through 989 to MDCs

b. Reassignment of Procedures Among MSDRGs 981 Through 983, 984 Through 986, and 987 Through 989

c. Adding Diagnosis or Procedure Codes to MDCs

11. Changes to the ICD9CM Coding System

12. Other MSDRG Issues

a. Heart Transplants or Implants of Heart Assist System and Liver Transplants

b. New Codes for Pressure Ulcers

c. Coronary Artery Stents

d. TherOx (Downstream(r) System)

e. Spinal Disc Devices

f. Spinal Fusion

g. Special Treatment for Hospitals With High Percentages of ESRD Discharges

H. Recalibration of MSDRG Weights

I. Medicare Severity LongTerm Care Diagnosis Related Group (MS LTCDRG) Reclassifications and Relative Weights for LTCHs for FY 2009

1. Background

2. Changes in the MSLTCDRG Classifications

a. Background

b. Patient Classifications Into MSLTCDRGs

3. Development of the FY 2009 MSLTCDRG Relative Weights

a. General Overview of Development of the MSLTCDRG Relative Weights

b. Data

c. HospitalSpecific Relative Value (HSRV) Methodology

d. Treatment of Severity Levels in Developing Relative Weights

e. LowVolume MSLTCDRGs

4. Steps for Determining the FY 2009 MSLTCDRG Relative Weights

5. Other Comments

J. AddOn Payments for New Services and Technologies

1. Background

2. Public Input Before Publication of a Notice of Proposed Rulemaking on AddOn Payments

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3. FY 2009 Status of Technologies Approved for FY 2008 AddOn Payments

4. FY 2009 Applications for New Technology AddOn Payments

a. CardioWest\TM\ Temporary Total Artificial Heart System (CardioWest\TM\ TAHt)

b. Emphasys Medical Zephyr[supreg] Endobronchial Valve (Zephyr[supreg] EBV)

c. Oxiplex[supreg]

d. TherOx Downstream[supreg] System

5. Regulatory Changes
III. Changes to the Hospital Wage Index

A. Background

B. Requirements of Section 106 of the MIEATRHCA

1. Wage Index Study Required Under the MIEATRHCA

a. Legislative Requirement

b. MedPAC's Recommendations

c. CMS Contract for Impact Analysis and Study of Wage Index Reform

d. Public Comments Received on the MedPAC Recommendations and the CMS/Acumen Wage Index Study and Analysis

e. Impact Analysis of Using MedPAC's Recommended Wage Index

2. CMS Proposals and Final Policy Changes in Response to Requirements Under Section 106(b) of the MIEATRHCA

a. Proposed and Final Revision of the Reclassification Average Hourly Wage Comparison Criteria

b. WithinState Budget Neutrality Adjustment for the Rural and Imputed Floors

c. WithinState Budget Neutrality Adjustment for Geographic Reclassification

C. CoreBased Statistical Areas for the Hospital Wage Index

D. Occupational Mix Adjustment to the FY 2009 Wage Index

1. Development of Data for the FY 2009 Occupational Mix Adjustment

2. Calculation of the Occupational Mix Adjustment for FY 2009

3. 20072008 Occupational Mix Survey for the FY 2010 Wage Index

E. Worksheet S3 Wage Data for the FY 2009 Wage Index

1. Included Categories of Costs

2. Excluded Categories of Costs

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

F. Verification of Worksheet S3 Wage Data

1. Wage Data for Multicampus Hospitals

2. New Orleans' PostKatrina Wage Index

G. Method for Computing the FY 2009 Unadjusted Wage Index

H. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2009 Occupational Mix Adjusted Wage Index

I. Revisions to the Wage Index Based on Hospital Redesignations

1. General

2. Effects of Reclassification/Redesignation

3. FY 2009 MGCRB Reclassifications

4. FY 2008 Policy Clarifications and Revisions

5. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act

6. Reclassifications Under Section 1886(d)(8)(B) of the Act

7. Reclassifications Under Section 508 of Public Law 108173

J. FY 2009 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

K. Process for Requests for Wage Index Data Corrections

L. LaborRelated Share for the Wage Index for FY 2009 IV. Other Decisions and Changes to the IPPS for Operating Costs and GME Costs

A. Changes to the Postacute Care Transfer Policy

1. Background

2. Policy Change Relating to Transfers to Home With a Written Plan for the Provision of Home Health Services

3. Evaluation of MSDRGs Under Postacute Care Transfer Policy for FY 2009

B. Reporting of Hospital Quality Data for Annual Hospital Payment Update 1. Background

a. Overview

b. Voluntary Hospital Quality Data Reporting

c. Hospital Quality Data Reporting Under Section 501(b) of Public Law 108173

d. Hospital Quality Data Reporting Under Section 5001(a) of Public Law 109171

2. Quality Measures for the FY 2010 Payment Determination and Subsequent Years

a. Quality Measures for the FY 2010 Payment Determination

b. Possible New Quality Measures, Measure Sets, and Program Requirements for the FY 2011 Payment Determination and Subsequent Years

c. Considerations in Expanding and Updating Quality Measures Under the RHQDAPU Program

3. Form and Manner and Timing of Quality Data Submission

4. RHQDAPU Program Procedures for FY 2009 and FY 2010

a. RHQDAPU Program Procedures for FY 2009

b. RHQDAPU Program Procedures for FY 2010

5. HCAHPS Requirements for FY 2009 and FY 2010

a. FY 2009 HCAHPS Requirements

b. FY 2010 HCAHPS Requirements

6. Chart Validation Requirements for FY 2009 and FY 2010

a. Chart Validation Requirements for FY 2009

b. Chart Validation Requirements for FY 2010

c. Chart Validation Methods and Requirements Under Consideration for FY 2011 and Subsequent Years

7. Data Attestation Requirements for FY 2009 and FY 2010

a. Data Attestation Requirements for FY 2009

b. Data Attestation Requirements for FY 2010

8. Public Display Requirements

9. Reconsideration and Appeal Procedures

10. RHQDAPU Program Withdrawal Deadlines for FY 2009 and FY 2010

11. Requirements for New Hospitals

12. Electronic Medical Records

13. RHQDAPU Data Infrastructure

C. Medicare Hospital ValueBased Purchasing (VBP) Plan

1. Medicare Hospital VBP Plan Report to Congress

2. Testing and Further Development of the Medicare Hospital VBP Plan

D. Sole Community Hospitals (SCHs) and MedicareDependent, Small Rural Hospitals (MDHs)

1. Background

2. Rebasing of Payments to SCHs

3. Volume Decrease Adjustment for SCHs and MDHs: Data Sources for Determining Core Staff Values

E. Rural Referral Centers (RRCs)

1. CaseMix Index

2. Discharges

F. Indirect Medical Education (IME) Adjustment

1. Background

2. IME Adjustment Factor for FY 2009

G. Payments for Direct Graduate Medical Education (GME)

1. Background

2. Medicare GME Affiliation Provisions for Teaching Hospitals in Certain Emergency Situations

a. Legislative Authority

b. Regulatory Changes Issued in 2006 to Address Certain Emergency Situations

c. Additional Regulatory Changes Issued in 2007 To Address Certain Emergency Situations

d. Public Comments Received on the April 12, 2006 and November 27, 2007 Interim Final Rules With Comment Period

e. Provisions of the Final Rule

f. Technical Correction

H. Payments to Medicare Advantage Organizations: Collection of Risk Adjustment Data

I. Hospital Emergency Services Under EMTALA

1. Background

2. EMTALA Technical Advisory Group (TAG) Recommendations

3. Changes Relating to Applicability of EMTALA Requirements to Hospital Inpatients

4. Changes to the EMTALA Physician OnCall Requirements

a. Relocation of Regulatory Provisions

b. Shared/Community Call

5. Technical Change to Regulations

J. Application of Incentives To Reduce Avoidable Readmissions to Hospitals

1. Overview

2. Measurement

3. Shared Accountability

4. VBP Incentives

5. Direct Payment Adjustment

6. PerformanceBased Payment Adjustment

7. Public Reporting of Readmission Rates

8. Potential Unintended Consequences of VBP Incentives

K. Rural Community Hospital Demonstration Program V. Changes to the IPPS for CapitalRelated Costs

A. Background

1. Exception Payments

2. New Hospitals

3. Hospitals Located in Puerto Rico

B. Revisions to the Capital IPPS Based on Data on Hospital Medicare Capital Margins

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1. Elimination of the Large AddOn Payment Adjustment

2. Changes to the Capital IME Adjustment

a. Background and Changes Made for FY 2008

b. Public Comments Received on Phase Out of Capital IPPS Teaching Adjustment Provisions Included in the FY 2008 IPPS Final Rule With Comment Period and on the FY 2009 IPPS Proposed Rule VI. Changes for Hospitals and Hospital Units Excluded From the IPPS

A. Payments to Excluded Hospitals and Hospital Units

B. IRF PPS

C. LTCH PPS

D. IPF PPS

E. Determining LTCH CosttoCharge Ratios (CCRs) Under the LTCH PPS

F. Change to the Regulations Governing HospitalsWithin Hospitals

G. Report of Adjustment (Exceptions) Payments
VII. Disclosure Required of Certain Hospitals and Critical Access Hospitals (CAHs) Regarding Physician Ownership
VIII. Physician SelfReferral Provisions

A. General Overview

1. Statutory Framework and Regulatory History

2. Physician SelfReferral Provisions Finalized in this FY 2009 IPPS Final Rule

B. ``Stand in the Shoes'' Provisions

1. Background

a. Regulatory History of the Physician ``Stand in the Shoes'' Rules

b. Summary of Proposed Revisions to the Physician ``Stand in the Shoes'' Rules

c. Summary of Proposed DHS Entity ``Stand in the Shoes'' Rules

2. Physician ``Stand in the Shoes'' Provisions

3. DHS Entity ``Stand in the Shoes'' Provisions

4. Application of the Physician ``Stand in the Shoes'' and the DHS Entity ``Stand in the Shoes'' Provisions (``Conventions'')

5. Definitions: ``Physician'' and ``Physician Organization''

C. Period of Disallowance

D. Alternative Method for Compliance With Signature Requirements in Certain Exceptions

E. PercentageBased Compensation Formulae

F. Unit of Service (Per Click) Payments in Lease Arrangements

1. General Support for Proposal

2. Authority

3. Hospitals as RiskAverse and Access to Care

4. Evidence of Overutilization: Therapeutic Versus Diagnostic

5. PerClick Payments as Best Measure of Fair Market Value

6. Lithotripsy as Not DHS

7. TimeBased Rental Arrangements

8. Physician Entities as Lessors

9. Physicians and Physician Entities as Lessees

G. Services Provided ``Under Arrangements'' (Services Performed by an Entity Other Than the Entity That Submits the Claim)

1. Support for Proposal

2. MedPAC Approach

3. Authority for Proposal

4. Community Benefit and Access to Care

5. Hospitals as RiskAverse

6. Proposal Based on Anecdotal Evidence

7. Cardiac Catheterization

8. Therapeutic Versus Diagnostic

9. Professional Fee Greater Than Incremental Return for Technical Component

10. Existing Exceptions Are Sufficient Potection

11. Suggested Changes to Definitions

12. Cause Claim To Be Submitted

13. PhysicianOwned Implant Companies

14. Procedures Must Be Done in a Hospital Setting Because the ASC Does Not Pay Enough

15. Lithotripsy as Not DHS

16. Procedures That Are DHS Only When Furnished in a Hospital

17. Exceptions

18. Personally Performed Services

19. Outpatient Services Treated Differently Than Inpatient Services

20. Sleep Centers

21. Dialysis

22. Effective Date

H. Exceptions for Obstetrical Malpractice Insurance Subsidies

I. Ownership or Investment Interest in Retirement Plans

J. Burden of Proof
IX. Financial Relationships Between Hospitals and Physicians X. MedPAC Recommendations
XI. Other Required Information

A. Requests for Data From the Public

B. Collection of Information Requirements

1. Legislative Requirement for Solicitation of Comments

2. Requirements in Regulatory Text

a. ICRs Regarding Physician Reporting Requirements

b. ICRs Regarding Risk Adjustment Data

c. ICRs Regarding Basic Commitments of Providers

3. Associated Information Collections Not Specified in Regulatory Text

a. Present on Admission (POA) Indicator Reporting

b. AddOn Payments for New Services and Technologies

c. Reporting of Hospital Quality Data for Annual Hospital Payment Update

d. Occupational Mix Adjustment to the FY 2009 Index (Hospital Wage Index Occupational Mix Survey)

C. Waiver of Proposed Rulemaking, Waiver of Delay in Effective Date, and Retroactive Effective Date

1. Requirements for Waivers and Retroactive Rulemaking

2. FY 2008 Puerto RicoSpecific Rates

3. Rebasing of Payments to SCHs

4. Technical Change to Regulations Governing Payments to Hospitals With High Percentage of ESRD Discharges
Regulation Text
AddendumSchedule of Standardized Amounts, Update Factors, and Rate ofIncrease Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2008
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for FY 2009

A. Calculation of the Tentative Adjusted Standardized Amount

B. Tentative Adjustments for Area Wage Levels and CostofLiving

C. MSDRG Relative Weights

D. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient CapitalRelated Costs for FY 2009

A. Determination of Federal Hospital Inpatient CapitalRelated Prospective Payment Rate Update

B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY 2009

C. Capital Input Price Index
IV. Changes to Payment Rates for Excluded Hospitals and Hospital Units: RateofIncrease Percentages

V. Tables

Table 1A.National Adjusted Operating Standardized Amounts, Labor/Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share If Wage Index Is Greater Than 1)

Table 1B.National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage Index Is Less Than or Equal to 1)

Table 1C.Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor

Table 1D.Capital Standard Federal Payment Rate

Table 2.Hospital CaseMix Indexes for Discharges Occurring in Federal Fiscal Year 2007; Hospital Average Hourly Wages for Federal Fiscal Years 2007 (2003 Wage Data), 2008 (2004 Wage Data), and 2009 (2005 Wage Data); and 3Year Average of Hospital Average Hourly Wages

Table 3A.FY 2009 and 3Year Average Hourly Wage for Urban Areas by CBSA

Table 3B.FY 2009 and 3Year Average Hourly Wage for Rural Areas by CBSA

Table 4J.OutMigration Wage AdjustmentFY 2009

Table 5.List of Medicare Severity DiagnosisRelated Groups (MSDRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay

Table 6A.New Diagnosis Codes

Table 6B.New Procedure Codes

Table 6C.Invalid Diagnosis Codes

Table 6D.Invalid Procedure Codes

Table 6E.Revised Diagnosis Code Titles

Table 6F.Revised Procedure Code Titles

Table 6G.Additions to the CC Exclusions List (Available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/ AcuteInpatientPPS/)

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Table 6H.Deletions from the CC Exclusions List (Available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/ AcuteInpatientPPS/)

Table 6I.Complete List of Complication and Comorbidity (CC) Exclusions (Available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)

Table 6J.Major Complication and Comorbidity (MCC) List (Available Through the Internet on the CMS Web site at: http:// www.cms.hhs.gov/AcuteInpatientPPS/)

Table 6K.Complication and Comorbidity (CC) List (Available Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/ AcuteInpatientPPS/)

Table 7A.Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2007 MedPAR UpdateMarch 2008 GROUPER V25.0 MSDRGs

Table 7B.Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2007 MedPAR UpdateMarch 2008 GROUPER V26.0 MSDRGs

Table 8A.Statewide Average Operating CosttoCharge Ratios July 2008

Table 8B.Statewide Average Capital CosttoCharge RatiosJuly 2008

Table 8C.Statewide Average Total CosttoCharge Ratios for LTCHsJuly 2008

Table 9A.Hospital Reclassifications and RedesignationsFY 2009

Table 9B.Hospitals Redesignated as Rural Under Section 1886(d)(8)(E) of the ActFY 2009

Table 10.Tentative Geometric Mean Plus the Lesser of .75 of the National Adjusted Operating Standardized Payment Amount (Increased To Reflect the Difference Between Costs and Charges) or .75 of One Standard Deviation of Mean Charges by Medicare Severity DiagnosisRelated Groups (MSDRGs)July 2008

Table 11.FY 2009 MSLTCDRGs, Relative Weights, Geometric Average Length of Stay, and ShortStay Outlier (SSO) Threshold Appendix A: Regulatory Impact Analysis

I. Overall Impact

II. Objectives

III. Limitations of Our Analysis

IV. Hospitals Included in and Excluded From the IPPS

V. Effects on Excluded Hospitals and Hospital Units

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

A. Basis and Methodology of Estimates

B. Analysis of Table I

C. Effects of the Changes to the MSDRG Reclassifications and Relative CostBased Weights (Column 2)

D. Effects of Wage Index Changes (Column 3)

E. Combined Effects of MSDRG and Wage Index Changes (Column 4)

F. Effects of MGCRB Reclassifications (Column 5)

G. Effects of the Rural Floor and Imputed Rural Floor, Including the Transition To Apply Budget Neutrality at the State Level (Column 6)

H. Effects of the Wage Index Adjustment for OutMigration (Column 7)

I. Effects of All Changes With CMI Adjustment Prior to Estimated Growth (Column 8)

J. Effects of All Changes With CMI Adjustment and Estimated Growth (Column 9)

K. Effects of Policy on Payment Adjustments for LowVolume Hospitals

L. Impact Analysis of Table II

VII. Effects of Other Policy Changes

A. Effects of Policy on HACs, Including Infections

B. Effects of MSLTCDRG Reclassifications and Relative Weights for LTCHs

C. Effects of Policy Change Relating to New Medical Service and Technology AddOn Payments

D. Effects of Requirements for Hospital Reporting of Quality Data for Annual Hospital Payment Update

E. Effects of Policy Change to Methodology for Computing Core Staffing Factors for Volume Decrease Adjustment for SCHs and MDHs

F. Impact of the Policy Revisions Related to Payment to Hospitals for Direct Graduate Medical Education (GME)

G. Effects of Clarification of Policy for Collection of Risk Adjustment Data From MA Organizations

H. Effects of Policy Changes Relating to Hospital Emergency Services Under EMTALA

I. Effects of Implementation of Rural Community Hospital Demonstration Program

J. Effects of Policy Changes Relating to Payments to Hospitals WithinHospitals

K. Effects of Policy Changes Relating to Requirements for Disclosure of Physician Ownership in Hospitals

L. Effects of Policy Changes Relating to Physician SelfReferral Provisions

M. Effects of Changes Relating to Reporting of Financial Relationships Between Hospitals and Physicians
VIII. Effects of Changes in the Capital IPPS

A. General Considerations

B. Results
IX. Alternatives Considered
X. Overall Conclusion
XI. Accounting Statement
XII. Executive Order 12866
Appendix B: Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services

I. Background

II. Inpatient Hospital Update for FY 2009

III. Secretary's Final Recommendation

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating Payments in Traditional Medicare
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)

Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to pay for the capitalrelated costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs, Medicare payment for hospital inpatient operating and capitalrelated 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 laborrelated share and a nonlaborrelated share. The laborrelated 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 nonlaborrelated share is adjusted by a costof living adjustment factor. This base payment rate is multiplied by the DRG relative weight.

If the hospital treats a high percentage of lowincome patients, it receives a percentage addon payment applied to the DRGadjusted base payment rate. This addon 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 lowincome patients. For qualifying hospitals, the amount of this adjustment may vary based on the outcome of the statutory calculations.

If the hospital is an approved teaching hospital, it receives a percentage addon 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 addon payments. To qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add on payment, it would be inadequately paid under the regular DRG payment.

The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any outlier payment due is added to the DRGadjusted base payment rate, plus
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any DSH, IME, and new technology or medical service addon 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 hospitalspecific rate based on their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospitalspecific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or the IPPS rate based on the standardized amount. (We note that, as discussed in section IV.D.2. of this preamble, effective for cost reporting periods beginning on or after January 1, 2009, an SCH's hospitalspecific rate will be based on their costs per discharge in FY 2006 if greater than the hospitalspecific rates based on its costs in FY 1982, FY 1987, or FY 1996, or the IPPS rate based on the standardized amount.) Until FY 2007, a Medicaredependent, small rural hospital (MDH) has received the IPPS rate plus 50 percent of the difference between the IPPS rate and its hospitalspecific rate if the hospitalspecific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 2002) is higher than the IPPS rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2011, an MDH will receive the IPPS rate plus 75 percent of the difference between the IPPS rate and its hospital specific rate, if the hospitalspecific rate is higher than the IPPS rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.

Section 1886(g) of the Act requires the Secretary to pay for the capitalrelated 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. However, as discussed in section V.B.2. of this preamble, the capital IME adjustment will be reduced by 50 percent in FY 2009 (as established in the FY 2008 IPPS final rule with comment period). In addition, hospitals may receive outlier payments for those cases that have unusually high costs.

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

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain specialty hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; longterm care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (Pub. L. 10533), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)), as discussed below. Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable costbased system.

The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413. a. Inpatient Rehabilitation Facilities (IRFs)

Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospitalspecific annual limit under section 1886(b) of the Act and the adjusted facility Federal prospective payment rate for cost reporting periods beginning on or after January 1, 2002 through September 30, 2002, to payment at 100 percent of the Federal rate effective for cost reporting periods beginning on or after October 1, 2002. IRFs subject to the blend were also permitted to elect payment based on 100 percent of the Federal rate. The existing regulations governing payments under the IRF PPS are located in 42 CFR Part 412, Subpart P.

b. LongTerm Care Hospitals (LTCHs)

Under the authority of sections 123(a) and (c) of Public Law 106 113 and section 307(b)(1) of Public Law 106554, the LTCH PPS was effective for a LTCH's first cost reporting period beginning on or after October 1, 2002. LTCHs that do not meet the definition of ``new'' under Sec. 412.23(e)(4) are paid, during a 5year transition period, a LTCH prospective payment that is comprised of an increasing proportion of the LTCH Federal rate and a decreasing proportion based on reasonable cost principles. Those LTCHs that did not meet the definition of ``new'' under Sec. 412.23(e)(4) could elect to be paid based on 100 percent of the Federal prospective payment rate instead of a blended payment in any year during the 5year transition. For cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O.

c. Inpatient Psychiatric Facilities (IPFs)

Under the authority of sections 124(a) and (c) of Public Law 106 113, inpatient psychiatric facilities (IPFs) (formerly psychiatric hospitals and psychiatric units of acute care hospitals) are paid under the IPF PPS. For cost reporting periods beginning on or after January 1, 2008, all IPFs are paid 100 percent of the Federal per diem payment amount established under the IPF PPS. (For cost reporting periods beginning on or after January 1, 2005, and ending on or before December 31, 2007, some IPFs received transitioned payments for inpatient hospital services based on a blend of reasonable costbased payment and a Federal per diem payment rate.) The existing regulations governing payment under the IPF PPS are located in 42 CFR 412, Subpart N. 3. Critical Access Hospitals (CAHs)

Under sections 1814, 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 413 and 415.

4. Payments for Graduate Medical Education (GME)

Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs [[Page 48441]]
for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413.

B. Provisions of the Deficit Reduction Act of 2005 (DRA)

Section 5001(b) of the Deficit Reduction Act of 2005 (DRA), Public Law 109171, requires the Secretary to develop a plan to implement, beginning with FY 2009, a valuebased purchasing plan for section 1886(d) hospitals defined in the Act. In section IV.C. of the preamble of this proposed rule, we discuss the report to Congress on the Medicare valuebased purchasing plan and the current testing of the plan.
C. Provisions of the Medicare Improvements and Extension Act Under Division B, Title I of the Tax Relief and Health Care Act of 2006 (MIEATRHCA)

Section 106(b)(2) of the MIEATRHCA instructed the Secretary of Health and Human Services to include in the FY 2009 IPPS proposed rule one or more proposals to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS. The Secretary was also instructed to consider MedPAC's recommendations on the Medicare wage index classification system in developing these proposals. In section III. of the preamble of this final rule, we summarize Acumen's comparative and impact analysis of the MedPAC and CMS wage indices.
D. Provision of the TMA, Abstinence Education, and QI Programs Extension Act of 2007

Section 7 of the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 11090) provides for a 0.9 percent prospective documentation and coding adjustment in the determination of standardized amounts under the IPPS (except for MDHs, SCHs, and Puerto Rico hospitals) for discharges occurring during FY 2009. The prospective documentation and coding adjustment was established in FY 2008 in response to the implementation of an MSDRG system under the IPPS that resulted in changes in coding and classification that did not reflect real changes in casemix under section 1886(d) of the Act. We discuss our implementation of this provision in section II.D. of the preamble of this final rule and in the Addendum and in Appendix A to this final rule.

E. Issuance of a Notice of Proposed Rulemaking

On April 30, 2008, we issued in the Federal Register (73 FR 23528) a notice of proposed rulemaking that set forth proposed changes to the Medicare IPPS for operating costs and for capitalrelated costs in FY 2009. We also set forth proposed changes relating to payments for GME and IME costs and payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis that would be effective for discharges occurring on or after October 1, 2008. In addition, we presented proposed changes relating to disclosure to patients of physician ownership and investment interests in hospitals, proposed changes to our physician selfreferral regulations, and a solicitation of public comments on a proposed collection of information regarding financial relationships between hospitals and physicians.

Below is a summary of the major changes that we proposed to make: 1. Proposed Changes to MSDRG Classifications and Recalibrations of Relative Weights In section II. of the Preamble to the Proposed Rule, We Included