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Friday,

August 18, 2006

Part II

Department of
Health and Human
Services
Centers for Medicare & Medicaid Services

42 CFR Parts 409, 410, 412, et al.


Revision to Hospital Inpatient Prospective
Payment Systems—2007 FY Occupational
Mix Adjustment to Wage Index;
Implementation; Final Rule
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47870 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

DEPARTMENT OF HEALTH AND Among the other policy changes that a major rule as defined in 5 U.S.C.
HUMAN SERVICES we are making are those changes related 804(2). Pursuant to 5 U.S.C.
to: limited revisions of the 801(a)(1)(A), we are submitting a report
Centers for Medicare & Medicaid reclassification of cases to DRGs; the to the Congress on this rule on August
Services long-term care (LTC)–DRGs and relative 1, 2006.
weights; the wage data, including the Comment Date: We will consider
42 CFR Parts 409, 410, 412, 413, 414, occupational mix data, used to compute comments on the exclusion of CAP
424, 485, 489, and 505 the wage index; applications for new drugs from the ASP calculation
[CMS–1488–F; CMS–1287–F; CMS–1320–F; technologies and medical services add- (§ 414.802) as discussed in section XII.
and CMS–1325–IFC4] on payments; payments to hospitals for of the preamble of this final rule, if we
the direct and indirect costs of graduate receive them at one of the addresses
RINs 0938–AO12; 0938–AO03; 0938–AN93;
medical education; submission of provided below, no later than 5 p.m. on
and 0938–AN58
hospital quality data; payments to sole October 2, 2006.
Medicare Program; Changes to the community hospitals and Medicare- ADDRESSES: In commenting, on section
Hospital Inpatient Prospective dependent, small rural hospitals; and XII. of this rule, please refer to file code
Payment Systems and Fiscal Year 2007 provisions governing emergency CMS–1325–IFC4.
Rates; Fiscal Year 2007 Occupational services under the Emergency Medical Because of staff and resource
Mix Adjustment to Wage Index; Health Treatment and Labor Act of 1986 limitations, we cannot accept comments
Care Infrastructure Improvement (EMTALA). by facsimile (FAX) transmission.
Program; Selection Criteria of Loan We are responding to requested You may submit comments in one of
Program for Qualifying Hospitals public comments on a number of other four ways (no duplicates, please):
Engaged in Cancer-Related Health issues that include performance-based 1. Electronically. You may submit
Care and Forgiveness of hospital payments for services and electronic comments on specific issues
Indebtedness; and Exclusion of health information technology, as well in this regulation to http://
Vendor Purchases Made Under the as how to improve health data www.cms.hhs.gov/eRulemaking. Click
Competitive Acquisition Program transparency for consumers. on the link ‘‘Submit electronic
(CAP) for Outpatient Drugs and In addition, we are responding to comments on CMS regulations with an
Biologicals Under Part B for the public comments received on a open comment period.’’ (Attachments
Purpose of Calculating the Average proposed rule issued in the Federal should be in Microsoft Word,
Sales Price (ASP) Register on May 17, 2006 that proposed WordPerfect, or Excel; however, we
to revise the methodology for prefer Microsoft Word.)
AGENCY: Centers for Medicare and calculating the occupational mix
Medicaid Services (CMS), HHS. 2. By regular mail. You may mail
adjustment to the wage index for the FY written comments (one original and two
ACTION: Final rules and interim final 2007 hospital inpatient prospective copies) to the following address ONLY:
rule with comment period. payment system by applying an Centers for Medicare & Medicaid
SUMMARY: We are revising the Medicare adjustment to 100 percent of the wage Services, Department of Health and
hospital inpatient prospective payment index using new 2006 occupational mix Human Services, Attention: CMS–1325–
systems (IPPS) for operating and capital- survey data collected from hospitals. IFC4, P.O. Box 8011, Baltimore, MD
related costs to implement changes We are finalizing two policy 21244–1850.
arising from our continuing experience documents published in the Federal Please allow sufficient time for mailed
with these systems, and to implement a Register relating to the implementation comments to be received before the
number of changes made by the Deficit of the Health Care Infrastructure close of the comment period.
Reduction Act of 2005 (Pub. L. 109– Improvement Program, a hospital loan 3. By express or overnight mail. You
171). In addition, in the Addendum to program for cancer research, established may send written comments (one
this final rule, we describe the changes under the Medicare Prescription Drug, original and two copies) to the following
to the amounts and factors used to Improvement, and Modernization Act of address ONLY: Centers for Medicare &
determine the rates for Medicare 2003. Medicaid Services, Department of
hospital inpatient services for operating This final rule also revises the Health and Human Services, Attention:
costs and capital-related costs. We also definition of the term ‘‘unit’’ to specify CMS–1325–IFC4, Mail Stop C4–26–05,
are setting forth rate-of-increase limits the exclusion of units of drugs sold to 7500 Security Boulevard, Baltimore, MD
as well as policy changes for hospitals approved Medicare Competitive 21244–1850.
and hospital units excluded from the Acquisition Program (CAP) vendors for 4. By hand or courier. If you prefer,
IPPS that are paid in full or in part on use under the CAP from average sales you may deliver (by hand or courier)
a reasonable cost basis subject to these price (ASP) calculations for a period of your written comments (one original
limits. These changes are applicable to up to 3 years, at which time we will and two copies) before the close of the
discharges occurring on or after October reevaluate our policy. comment period to one of the following
1, 2006. DATES: Effective Dates: The provisions addresses. If you intend to deliver your
In this final rule, we discuss public of these final rules are effective on comments to the Baltimore address,
comments we received on our proposals October 1, 2006, with the exception of please call telephone number (410) 786–
to refine the diagnosis-related group the provisions in § 412.8, § 414.802, and 7195 in advance to schedule your
(DRG) system under the IPPS to better the procedures for withdrawing or arrival with one of our staff members.
recognize severity of illness among terminating reclassifications established Room 445-G, Hubert H. Humphrey
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patients—to use a hospital-specific in section III.H.4. of the preamble. The Building, 200 Independence Avenue,
relative value (HSRV) cost center provisions of § 412.8, § 414.802, and the SW., Washington, DC 20201; or 7500
weighting methodology to adjust DRG procedures for withdrawing or Security Boulevard, Baltimore, MD
relative weights; and to implement terminating reclassifications established 21244–1850.
consolidated severity-adjusted DRGs or in section II.H.4. of the preamble are (Because access to the interior of the
alternative severity adjustment methods. effective August 18, 2006. This rule is HHH Building is not readily available to

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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 47871

persons without Federal Government the comment period are available for Program] Benefits Improvement and
identification, commenters are viewing by the public, including any Protection Act of 2000, Pub. L. 106–
encouraged to leave their comments in personally identifiable or confidential 554
the CMS drop slots located in the main business information that is included in BLS Bureau of Labor Statistics
lobby of the building. A stamp-in clock a comment. We post all comments AH Critical access hospital
is available for persons wishing to retain received before the close of the AP Competitive Acquisition Program
a proof of filing by stamping in and comment period on a public Web site as CART CMS Abstraction & Reporting
retaining an extra copy of the comments soon as possible after they are received: Tool
being filed.) http://www.cms.hhs.gov/eRulemaking. CBSAs Core-based statistical areas
Comments mailed to the addresses Clink on the link ‘‘Electronic Comments CC Complication or comorbidity
indicated as appropriate for hand or on CMS Regulations’’ on that Web site CDAC Clinical Data Abstraction Center
courier delivery may be delayed and to view public comments. CIPI Capital input price index
received after the comment period. Comments received timely will also CPI Consumer price index
For information on viewing public be available for public inspection as CMI Case-mix index
comments, see the beginning of the they are received, generally beginning CMS Centers for Medicare & Medicaid
SUPPLEMENTARY INFORMATION section. approximately 3 weeks after publication Services
FOR FURTHER INFORMATION CONTACT: of a document, at the headquarters of CMSA Consolidated Metropolitan
Marc Hartstein, (410) 786–4548, the Centers for Medicare & Medicaid Statistical Area
Operating Prospective Payment, Services, 7500 Security Boulevard, COBRA Consolidated Omnibus
Diagnosis-Related Groups (DRGs), Baltimore, Maryland 21244, Monday Reconciliation Act of 1985, Pub. L.
Wage Index, Occupational Mix through Friday of each week from 8:30 99–272
Adjustment, New Medical Services a.m. to 4 p.m. To schedule an CPI Consumer price index
and Technology Add-On Payments, appointment to view public comments, CRNA Certified registered nurse
Hospital Geographic Reclassifications, phone 1–800–743–3951. anesthetist
Sole Community Hospital, CY Calendar year
Electronic Access DRA Deficit Reduction Act of 2005,
Disproportionate Share Hospital, and
Medicare-Dependent, Small Rural This Federal Register document is Pub. L. 109–171
Hospital Issues. also available from the Federal Register DRG Diagnosis-related group
Tzvi Hefter, (410) 786–4487, Capital online database through GPO Access, a DSH Disproportionate share hospital
Prospective Payment, Excluded service of the U.S. Government Printing ECI Employment cost index
Hospitals, Graduate Medical Office. Free public access is available on EMR Electronic medical record
Education, Critical Access Hospitals, a Wide Area Information Server (WAIS) EMTALA Emergency Medical
Long-Term Care (LTC)-DRGs, and through the Internet and via Treatment and Labor Act of 1986,
Terms of Hospital Loans under Health asynchronous dial-in. Internet users can Pub. L. 99–272
Care Infrastructure Improvement access the database by using the World FDA Food and Drug Administration
Program Issues. Wide Web; the Superintendent of FFY Federal fiscal year
Siddhartha Mazumdar, (410) 786–6673, Documents’ home page address is FIPS Federal information processing
Rural Community Hospital http://www.gpoaccess.gov/, by using standards
Demonstration Issues. local WAIS client software, or by telnet FQHC Federally qualified health
Sheila Blackstock, (410) 786–3502, to swais.access.gpo.gov, then login as center
Quality Data for Annual Payment guest (no password required). Dial-in FTE Full-time equivalent
Update Issues. users should use communications FY Fiscal year
Thomas Valuck, (410) 786–7479, software and modem to call (202) 512– GAAP Generally Accepted Accounting
Hospital Value-Based Purchasing 1661; type swais, then login as guest (no Principles
Issues. password required). GAF Geographic Adjustment Factor
Frederick Grabau, (410) 786–0206, GME Graduate medical education
Services in Foreign Hospitals Issues. Acronyms HCAHPS Hospital Consumer
Brian Reitz, (410) 786–5001, Obsolete AHA American Hospital Association Assessment of Healthcare Providers
Paper Claims Forms Issues. AHIMA American Health Information and Systems
Melinda Jones, (410) 786–7069, Loan Management Association HCFA Health Care Financing
Forgiveness Criteria for Health Care AHRO Agency for Health Care Administration
Infrastructure Improvement Program. Research and Quality HCRIS Hospital Cost Report
Corinne Axelrod, (410) 786–5620, AMI Acute myocardial infarction Information System
Competitive Acquisition Program AOA American Osteopathic HHA Home health agency
(CAP) for Part B Drugs Issues. Association HHS Department of Health and
Angela Mason, (410) 786–7452, APR DRG All Patient Refined Human Services
Payment for Covered Outpatient Diagnosis-Related Group System HIC Health insurance card
Drugs and Biologicals Issues. ASC Ambulatory surgical center HIPAA Health Insurance Portability
Submitting Comments: We welcome ASP Average sales price and Accountability Act of 1996, Pub.
comments from the public on all issues AWP Average wholesale price L. 104–191
set forth in this rule to assist us in fully BBA Balanced Budget Act of 1997, HIPC Health Information Policy
considering issues and developing Pub. L. 105–33 Council
policies. You can assist us by BBRA Medicare, Medicaid, and SCHIP HIS Health information system
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referencing the file code CMS–1325– [State Children’s Health Insurance HIT Health information technology
IFC4 and the specific ‘‘issue identifier’’ Program] Balanced Budget HMO Health maintenance
that precedes the section on which you Refinement Act of 1999, Pub. L. 106– organization
choose to comment. 113 HSA Health savings account
Inspection of Public Comments: All BIPA Medicare, Medicaid, and SCHIP HSCRC Maryland Health Services Cost
comments received before the close of [State Children’s Health Insurance Review Commission

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47872 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

HSRV Hospital-specific relative value O.R. Operating room 5. Changes for Hospitals and Hospital
HSRVcc Hospital-specific relative OSCAR Online Survey Certification Units Excluded from the IPPS
value cost center and Reporting (System) 6. Payments for Services Furnished
HQA Hospital Quality Alliance Outside the United States
PRM Provider Reimbursement Manual
7. Payment for Blood Clotting Factor
HQI Hospital Quality Initiative PPI Producer price index Administered to Inpatients with
HwH Hospital-within-a-hospital PMSAs Primary metropolitan Hemophilia
ICD–9–CM International Classification statistical areas 8. Limitation on Payments to Skilled
of Diseases, Ninth Revision, Clinical PPS Prospective payment system Nursing Facilities for Bad Debt
Modification PRA Per resident amount 9. Determining Prospective Payment
ICD–10–PCS International ProPAC Prospective Payment Operating and Capital Rates and Rate-of-
Classification of Diseases, Tenth Assessment Commission Increase Limits
Edition, Procedure Coding System PRRB Provider Reimbursement 10. Impact Analysis
ICU Intensive care unit 11. Recommendation of Update Factors for
Review Board
IHS Indian Health Service Operating Cost Rates of Payment for
PS&R Provider Statistical and Inpatient Hospital Services
IME Indirect medical education Reimbursement (System) 12. Discussion of Medicare Payment
IOM Institute of Medicine QIG Quality Improvement Group, CMS Advisory Commission Recommendations
IPF Inpatient psychiatric facility QIO Quality Improvement 13. Appendix C and Appendix D
IPPS Acute care hospital inpatient Organization D. Public Comments Received in Response
prospective payment system RHC Rural health clinic to the FY 2007 IPPS and FY 2007
IRF Inpatient rehabilitation facility RHQDAPU Reporting hospital quality Occupational Mix Adjustment to the
IRP Initial residency period data for annual payment update Wage Index Proposed Rules
JCAHO Joint Commission on E. Interim Final Rule on Selection Criteria
RNHCI Religious Nonmedical Health of Loan Program for Qualifying Hospitals
Accreditation of Healthcare Care Institution Engaged in Cancer-Related Health Care
Organizations RRC Rural referral center F. Proposed Rule on Forgiveness of
LAMCs Large area metropolitan RUCAs Rural-urban commuting area Indebtedness under the Health Care
counties codes Infrastructure Improvement Program
LTC-DRG Long-term care diagnosis- RY Rate year G. Interim Final Rule on the Exclusion of
related group SAF Standard Analytic File Vendor Purchases Made Under the
LTCH Long-term care hospital SCH Sole community hospital Competitive Acquisition Program for
MCE Medicare Code Editor SFY State fiscal year Part B Outpatient Drugs and Biologicals
MCO Managed care organization for the Purpose of Calculating the
SIC Standard Industrial Classification Average Sales Price
MCV Major cardiovascular condition SNF Skilled nursing facility
MDC Major diagnostic category II. Changes to DRG Classifications and
SOCs Standard occupational Relative Weights
MDH Medicare-dependent, small rural classifications A. Background
hospital SOM State Operations Manual B. DRG Reclassifications
MedPAC Medicare Payment Advisory SSA Social Security Administration 1. General
Commission SSI Supplemental Security Income 2. Yearly Review for Making DRG Changes
MedPAR Medicare Provider Analysis TAG Technical Advisory Group C. Revisions to the DRG System Used
and Review File TEFRA Tax Equity and Fiscal Under the IPPS
MEI Medicare Economic Index Responsibility Act of 1982, Pub. L. 1. MedPAC Recommendations
MGCRB Medicare Geographic 2. Refinement of the Relative Weight
97–248 Calculation
Classification Review Board UHDDS Uniform hospital discharge
MMA Medicare Prescription Drug, 3. Refinement of DRGs Based on Severity
data set of Illness
Improvement, and Modernization Act
Table of Contents a. Comparison of the CMS DRG System and
of 2003, Pub. L. 108–173 the APR DRG System
MRHFP Medicare Rural Hospital I. Background b. CS DRGs for Use in the IPPS
Flexibility Program A. Summary c. Changes to CMI from a New DRG System
MSA Metropolitan Statistical Area 1. Acute Care Hospital Inpatient 4. Effect of CS DRGs on the Outlier
NAICS North American Industrial Prospective Payment System (IPPS) Threshold
Classification System 2. Hospitals and Hospital Units Excluded 5. Impact of Refinement of DRG System on
NCD National coverage determination from the IPPS Payments
a. Inpatient Rehabilitation Facilities (IRFs) 6. Conclusions
NCHS National Center for Health
b. Long-Term Care Hospitals (LTCHs) 7. Severity Refinement to CMS DRGs
Statistics c. Inpatient Psychiatric Facilities (IPFs)
NCQA National Committee for Quality a. MDC 1 (Diseases and Disorders of the
3. Critical Access Hospitals (CAHs) Nervous System)
Assurance 4. Payments for Graduate Medical b. MDC 4 (Diseases and Disorders of the
NCVHS National Committee on Vital Education (GME) Respiratory System): Respiratory System
and Health Statistics B. Provisions of the Deficit Reduction Act Diagnosis with Ventilator Support
NECMA New England County of 2005 (DRA) c. MDC 6 (Diseases and Disorders of the
Metropolitan Areas C. Summary of the Provisions of the FY Digestive System)
NICU Neonatal intensive care unit 2007 IPPS and FY 2007 Occupational d. MDC 11 (Diseases and Disorders of the
NQF National Quality Forum Mix Adjustment to the Wage Index Kidney and Urinary Tract): Major
NTIS National Technical Information Proposed Rules Bladder Procedures
Service 1. DRG Reclassifications and Recalibrations e. MDC 16 (Diseases and Disorders of the
of Relative Weights Blood and Blood Forming Organs and
NVHRI National Voluntary Hospital
2. Changes to the Hospital Wage Index Immunological Disorders): Major
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Reporting Initiative 3. Other Decisions and Changes to the IPPS Hematological and Immunological
OES Occupational employment for Operating Costs, GME Costs, and Diagnoses
statistics Promoting Hospitals’ Effective Use of f. MDC 18 (Infectious and Parasitic
OIG Office of the Inspector General Health Information Technology Diseases (Systemic or Unspecified
OMB Executive Office of Management 4. Changes to the PPS for Capital-Related Sites)): O.R. Procedure for Patients with
and Budget Costs Infectious and Parasitic Diseases

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g. Severe Sepsis 2. Changes in the LTC–DRG Classifications I. FY 2007 Wage Index Adjustment Based
D. Changes to Specific DRG Classifications a. Background on Commuting Patterns of Hospital
1. Pre-MDCs b. Patient Classifications into DRGs Employees
a. Heart Transplant or Implant of Heart 3. Development of the FY 2007 LTC–DRG J. Process for Requests for Wage Index Data
Assist System: Addition of Procedure to Relative Weights Corrections
DRG 103 a. General Overview of Development of the K. Labor-Related Share for the Wage Index
b. Pancreas Transplants LTC–DRG Relative Weights for FY 2007
2. MDC 1 (Diseases and Disorders of the b. Data L. Proxy for the Hospital Market Basket
Nervous System) c. Hospital-Specific Relative Value IV. Other Decisions and Changes to the IPPS
a. Implantation of Intracranial Methodology for Operating Costs and GME Costs
Neurostimulator System for Deep Brain d. Low-Volume LTC–DRGs A. Reporting of Hospital Quality Data for
Stimulation (DBS) 4. Steps for Determining the FY 2007 LTC– Annual Hospital Payment Update
b. Carotid Artery Stents DRG Relative Weights 1. Background
3. MDC 5 (Diseases and Disorders of the 5. Summary of Public Comments and 2. New Procedures for Hospital Reporting
Circulatory System) of Quality Data
Departmental Responses
a. Insertion of Epicardial Leads for a. Two Percentage Point Reduction
G. Add-On Payments for New Services and
Defibrillator Devices b. New Procedures
Technologies c. Expanded Quality Measures
b. Application of Major Cardiovascular 1. Background
Diagnoses (MCVs) List to Defibrillator d. HCAHPS Survey
2. Public Input Before Publication of a e. Data Submission
DRGs Notice of Proposed Rulemaking on Add-
4. MDC 8 (Diseases and Disorders of the f. RHQDAPU Program Withdrawal and
On Payments Chart Validation Requirements
Musculoskeletal System and Connective
3. FY 2007 Status of Technologies g. Data Validation and Attestation
Tissue)
Approved for FY 2006 Add-On Payments h. Public Display and Reconsideration
a. Hip and Knee Replacements
a. Kinetra Implantable Neurostimulator Procedures
b. Spinal Fusion
(Kinetra) for Deep Brain Stimulation i. Conclusion
c. CHARITETM Spinal Disc Replacement
b. Endovascular Graft Repair of the 3. Electronic Medical Records
Device
Thoracic Aorta B. Value-Based Purchasing
5. MDC 18 (Infectious and Parasitic
c. Restore Rechargeable Implantable 1. Introduction
Diseases (Systemic or Unspecified
Neurostimulator 2. Premier Hospital Quality Incentive
Sites)): Severe Sepsis
4. FY 2007 Applications for New Demonstration
6. Medicare Code Editor (MCE) Changes
Technology Add-On Payments 3. RHQDAPU Program
a. Edit: Newborn Diagnoses
b. Edit: Diagnoses for Pediatric—Age 0–17 a. C-Port Distal Anastomosis System a. Section 501(b) of Pub. L. 108–173
Years Old b. NovoSeven for Intracerebral (MMA)
Hemorrhage b. Section 5001(a) of Pub. L. 109–171
c. Edit: Maternity Diagnoses—Age 12
c. X STOP Interspinous Process (DRA)
through 55 4. Plan for Implementing Hospital Value-
d. Edit: Diagnoses Allowed for Females Decompression System
5. Interim and Final Cost Threshold Tables Based Purchasing Beginning with FY
Only 2009
e. Edit: Diagnoses Allowed for Males Only Due to Changes to Wage Index and
Budget Neutrality Factors a. Measure Development and Refinement
f. Edit: Procedures Allowed for Females b. Data Infrastructure
Only III. Changes to the Hospital Wage Index
A. Background c. Incentive Methodology
g. Edit: Manifestations Not Allowed as d. Public Reporting
Principal Diagnosis B. Core-Based Statistical Areas for the
Hospital Wage Index 5. Considerations Related to Certain
h. Edit: Nonspecific Principal Diagnosis Conditions, Including Hospital-Acquired
i. Edit: Unacceptable Principal Diagnosis C. Occupational Mix Adjustment to the FY
2007 Wage Index Infections
j. Edit: Nonspecific O.R. Procedures 6. Promoting Effective Use of Health
k. Edit: Noncovered Procedures 1. Development of Data for the FY 2007
Occupational Mix Adjustment Information Technology
l. Edit: Bilateral Procedure C. Sole Community Hospitals (SCHs) and
7. Surgical Hierarchies 2. Timeline for the Collection, Review, and
Medicare-Dependent, Small Rural
8. Refinement of Complications and Correction of the Occupational Mix Data
Hospitals (MDHs)
Comorbidities (CC) List 3. Calculation of the Occupational Mix
1. Background
a. Background Adjustment
2. Volume Decrease Adjustment for SCHs
b. Comprehensive Review of the CC List D. Worksheet S–3 Wage Data for the FY
and MDHs
c. CC Exclusions List for FY 2007 2007 Wage Index Update
a. HAS/Monitrend Data
9. Review of Procedure Codes in DRGs 468, E. Verification of Worksheet S–3 Wage b. HAS/Monitrend Data Book Replacement
476, and 477 Data Alternative
a. Moving Procedure Codes from DRG 468 F. Computation of the FY 2007 Unadjusted 3. Mandatory Reporting Requirements for
or DRG 477 to MDCs Wage Index Any Changes in the Circumstances
b. Reassignment of Procedures among G. Implementation of the FY 2007 Under Which a Hospital Was Designated
DRGs 468, 476, and 477 Occupational Mix Adjustment to the as an SCH or MDH
c. Adding Diagnosis or Procedure Codes to Wage Index 4. Payment Changes for MDHs under the
MDCs H. Revisions to the Wage Index Based on DRA of 2005
10. Changes to the ICD–9–CM Coding Hospital Redesignations a. Background
System 1. General b. Regulation Changes
11. Other Issues 2. Effects of Reclassification/Redesignation 5. Technical Change
a. Chronic Kidney Disease 3. FY 2007 MGCRB Reclassifications D. Rural Referral Centers
b. Bronchial Valve 4. Procedures for Hospitals Applying for 1. Case-Mix Index
c. Female Reproductive System Reclassification Effective in FY 2008 and 2. Discharges
Reconstruction Procedures Reinstating Reclassifications in FY 2008 E. Indirect Medical Education (IME)
d. Devices That are Replaced Without Cost 5. FY 2007 Redesignations Under Section Adjustment
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or Where Credit for a Replaced Device is 1886(d)(8)(B) of the Act 1. Background


Furnished to the Hospital 6. Reclassifications Under Section 508 of 2. IME Adjustment Factor for FY 2007
E. Recalibration of DRG Weights Pub. L. 108–173 3. Technical Change to Revise Cross-
F. LTC–DRG Reclassifications and Relative 7. Wage Indices for Reclassified Hospitals Reference
Weights for LTCHs for FY 2007 and Reclassification Budget Neutrality F. Payment Adjustment for
1. Background Factor Disproportionate Share Hospitals (DSHs)

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1. Background A. Payments to Excluded Hospitals and Biologicals Under Part B for the Purpose
2. Technical Corrections Hospital Units of Calculating the Average Sales Price
3. Reinstatement of Inadvertently Deleted 1. Payments to Existing Excluded and New (ASP)
Provisions on DSH Payment Adjustment Hospitals and Hospital Units A. Background
Factors 2. Separate PPS for IRFs 1. Average Sales Price (ASP)
4. Enhanced DSH Adjustment for MDHs 3. Separate PPS for LTCHs 2. Competitive Acquisition Program (CAP)
G. Geographic Reclassifications 4. Separate PPS for IPFs 3. Regulatory History
1. Background 5. Grandfathering of Hospitals-Within- B. Regulation Change
2. Reclassifications under Section 508 of Hospitals (HwHs) and Satellite Facilities XIII. Other Required Information
Pub. L. 108–173 6. Changes to the Methodology for A. Requests for Data from the Public
3. Multicampus Hospitals Determining LTCH Cost-to-Charge Ratios B. Collection of Information Requirements
4. Urban Group Hospital Reclassifications (CCRs) and the Reconciliation of High- C. Waiver of Proposed Rulemaking and
5. Effect of Change of Ownership on Urban Cost and Short-Stay Outlier Payments Delay in the Effective Date
County Group Reclassifications under the LTCH PPS D. Response to Comments
6. Requested Reclassification for Hospitals a. Background
Located in a Single Hospital MSA b. High-Cost Outliers Regulation Text
Surrounded by Rural Counties c. Short-Stay Outliers Addendum—Schedule of Tentative
7. Special Adjustment for the Hospital d. CCR Ceiling Standardized Amounts, Tentative
Group Reclassification Denied on the e. Statewide Average CCRs Update Factors and Rate-of-Increase
Basis of Incomplete CSA Listing f. Data Used to Determine a CCR Percentages Effective With Cost
H. Payment for Direct Graduate Medical g. Reconciliation of Outlier Payments Upon Reporting Periods Beginning On or After
Education Cost report Settlement October 1, 2006
1. Background 7. Technical Corrections Relating to LTCHs I. Summary and Background
2. Determination of Weighted Average Per 8. Cross-Reference Correction in Authority II. Changes to Prospective Payment Rates for
Resident Amounts (PRAs) for Merged Citations for 42 CFR 412 and 413 Hospital Inpatient Operating Costs
Teaching Hospitals 9. Report of Adjustment (Exceptions) A. Calculation of the Tentative Adjusted
3. Determination of Per Resident Amounts Payments Standardized Amount
(PRAs) for New Teaching Hospitals B. Critical Access Hospitals (CAHs) 1. Standardization of Base-Year Costs or
4. Requirements for Counting and 1. Background Target Amounts
Appropriate Documentation of FTE 2. Sunset of Designation of CAHs as 2. Computing the Tentative Average
Residents: Clarification Necessary Providers: Technical Standardized Amount
5. Resident Time Spent in Nonpatient Care Correction 3. Updating the Tentative Average
Activities as Part of Approved Residency VII. Payment for Services Furnished Outside Standardized Amount
Programs the United States 4. Other Adjustments to the Average
6. Medicare GME Affiliated Groups: A. Background Standardized Amount
Technical Changes to Regulations B. Proposed Clarification of Regulations a. Recalibration of DRG Weights and
I. Payment for the Costs of Nursing and VIII. Payment for Blood Clotting Factor Updated Wage Index—Budget Neutrality
Allied Health Education Activities: Administered to Inpatients with Adjustment
Clarification Hemophilia b. Reclassified Hospitals—Tentative
J. Hospital Emergency Services under IX. Limitation on Payments to Skilled Budget Neutrality Adjustment
EMTALA Nursing Facilities for Bad Debt c. Outliers
1. Background A. Background d. Tentative Rural Community Hospital
2. Role of the EMTALA Technical B. Changes Made by Section 5004 of Pub. Demonstration Program Adjustment
Advisory Group (TAG) L. 109–171 (Section 410A of Pub. L. 108–173)
3. Definition of ‘‘Labor’’ C. Proposed Regulation Changes 5. Tentative FY 2007 Standardized Amount
4. Application of EMTALA Requirements X. MedPAC Recommendations B. Tentative Adjustments for Area Wage
to Hospitals Without Dedicated XI. Health Care Infrastructure Improvement Levels and Cost-of-Living
Emergency Departments Program: Selection Criteria for Loan 1. Tentative Adjustment for Area Wage
5. Clarification of Reference to ‘‘Referral Program for Qualifying Hospitals Levels
Centers’’ Engaged in Cancer-Related Health Care 2. Final Adjustment for Cost-of-Living in
K. Other Technical Changes and Forgiveness of Indebtedness Alaska and Hawaii
1. Cross-Reference Correction in A. Background C. DRG Relative Weights
Regulations on Limitations on B. Issuance of an Interim Final Rule with D. Calculation of the Prospective Payment
Beneficiary Charges Comment Period and a Proposed Rates
2. Cross-Reference Corrections in Regulation 1. Federal Rate
Regulations on Payment Denials Based C. Provisions of the Interim Final Rule 2. Hospital-Specific Rate (Applicable Only
on Admissions and Quality Reviews With Comment Period to SCHs and MDHs)
3. Cross-Reference Correction in 1. Loan Qualifying Criteria a. Calculation of Hospital-Specific Rate
Regulations on Outlier Payments 2. Selection Criteria b. Updating the FY 1982, FY 1987, FY
4. Removing References to Two Paper 3. Terms of the Loan 1996, and FY 2002 Hospital-Specific
Claims Forms 4. Public Comments Received on the Rates for FY 2007
L. Rural Community Hospital Interim Final Rule With Comment Period 3. General Formula for Calculation of
Demonstration Program 5. Provisions of this Final Rule Prospective Payment Rates for Hospitals
M. Health Care Information Transparency D. Proposed Rule on Forgiveness of Located in Puerto Rico Beginning On or
Initiative Indebtedness After October 1, 2006, and Before
V. Changes to the PPS for Capital-Related 1. Conditions for Loan Forgiveness October 1, 2007
Costs 2. Plan Criteria for Meeting the Conditions a. Puerto Rico Rate
A. Background for Loan Forgiveness b. National Rate
B. Treatment of Certain Urban Hospitals 3. Public Comments Received on the III. Changes to Payment Rates for Acute Care
Reclassified as Rural Hospitals Under Proposed Rule and Our Responses Hospital Inpatient Capital-Related Costs
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§ 412.103 4. Provisions of the Final Rule for FY 2007


C. Other Technical Corrections Relating to E. Statutory Requirements for Issuance of A. Determination of Federal Hospital
the Capital PPS Geographic Adjustment Regulations Inpatient Capital-Related Prospective
Factors XII. Exclusion of Vendor Purchases Made Payment Rate Update
VI. Changes for Hospitals and Hospital Units Under the Competitive Acquisition 1. Projected Capital Standard Federal Rate
Excluded from the IPPS Program (CAP) for Outpatient Drugs and Update

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a. Description of the Update Framework Table 9A—Hospital Reclassifications and 1. Determination of Weighted Average
b. Comparison of CMS and MedPAC Redesignations by Individual Hospital GME PRAs for Merged Teaching
Update Recommendation and CBSA for FY 2007 (Tentative) Hospitals
2. Outlier Payment Adjustment Factor Table 9B—Hospital Reclassifications and 2. Determination of PRAs for New
3. Budget Neutrality Adjustment Factor for Redesignation by Individual Hospital Teaching Hospitals
Changes in DRG Classifications and Under Section 508 of Pub. L. 108–173 for 3. Requirements for Counting and
Weights and the GAF FY 2007 (Tentative) Appropriate Documentation of FTE
4. Exceptions Payment Adjustment Factor Table 9C—Hospitals Redesignated as Rural Residents
5. Capital Standard Federal Rate for FY under Section 1886(d)(8)(E) of the Act 4. Resident Time Spent in Nonpatient Care
2007 for FY 2007 (Tentative) Activities as Part of an Approved
6. Special Capital Rate for Puerto Rico Table 10—Geometric Mean Plus the Lesser of Residency Program
Hospitals .75 of the National Adjusted Operating F. Effects of Policy Changes Relating to
B. Calculation of the Inpatient Capital- Standardized Payment Amount Emergency Services under EMTALA
Related Prospective Payments for FY (Increased to Reflect the Difference G. Effects of Policy on Rural Community
2007 Between Costs and Charges) or .75 of Hospital Demonstration Program
C. Capital Input Price Index One Standard Deviation of Mean Charges H. Effects of Policy on Hospitals-within-
1. Background by Diagnosis-Related Group (DRG)—July Hospitals and Satellite Facilities
2. Forecast of the CIPI for FY 2007 2006 (Tentative) I. Effects of Policy Changes to the
IV. Payment Rates for Excluded Hospitals Table 11—FY 2007 LTC–DRGs, Relative Methodology for Determining LTCH
and Hospital Units: Rate-of-Increase Weights, Geometric Average Length of CCRs and the Reconciliation of LTCH
Percentages Stay, and 5⁄6ths of the Geometric Average PPS Outlier Payments
A. Payments to Existing Excluded Length of Stay J. Effects of Policy on Payment for Services
Hospitals and Units Appendix A—Regulatory Impact Analysis Furnished Outside the United States
B. New Excluded Hospitals and Units I. Overall Impact K. Effects of Final Policy on Limitation on
V. Payment for Blood Clotting Factor II. Objectives Payments to SNFs
Administered to Inpatients with III. Limitations on Our Analysis L. Effects of Policy on CAP for Outpatient
Hemophilia IV. Hospitals Included In and Excluded From Drugs and Biologicals under Part B for
the IPPS the Purpose of Calculating the ASP
Tables V. Effects on Excluded Hospitals and VIII. Impact of Changes in the Capital PPS
The following tables are included as part of Hospital Units A. General Considerations
this final rule: VI. Quantitative Effects of the Policy Changes B. Results
Table 1A—National Adjusted Operating Under the IPPS for Operating Costs IX. Impact of Changes Relating to the Loan
Standardized Amounts, Labor/Nonlabor A. Basis and Methodology of Estimates Program for Capital Cost under the
(69.7 Percent Labor Share/30.3 Percent B. Analysis of Table I Health Care Infrastructure Improvement
Nonlabor Share If Wage Index Is Greater C. Effects on the Hospitals that Failed the Program
Than 1) (Tentative) Quality Data Submission Process A. Effects on Hospitals
Table 1B—National Adjusted Operating (Column 2) B. Effects on the Medicare and Medicaid
Standardized Amounts, Labor/Nonlabor D. Effects of the DRA Provision Related to Programs
(62 Percent Labor Share/38 Percent MDHs (Column 3) X. Alternatives Considered
Nonlabor Share If Wage Index Is Less E. Effects of the Changes to the DRG XI. Overall Conclusion
Than or Equal to 1) (Tentative) Reclassifications and Relative Cost-Based XII. Accounting Statement
Table 1C—Adjusted Operating Standardized Weights (Column 4) XIII. Executive Order 12866
Amounts for Puerto Rico, Labor/ F. Effects of Wage Index Changes (Column Appendix B—Recommendation of Update
Nonlabor (Tentative) 5) Factors for Operating Cost Rates of
Table 1D—Capital Standard Federal Payment G. Combined Effects of DRG and Wage Payment for Inpatient Hospital Services
Rate (Tentative) Index Changes, Including Budget I. Background
Table 4J—Out-Migration Wage Adjustment— Neutrality Adjustment (Column 6) II. Secretary’s Final Recommendation for
FY 2007 (Tentative) H. Effects of the 3-Year Provision Allowing Updating the Prospective Payment
Table 5—List of Diagnosis-Related Groups Urban Hospitals that Were Converted to System Standardized Amounts
(DRGs), Relative Weighting Factors, and Rural as a Result of the FY 2005 Labor III. Secretary’s Final Recommendation for
Geometric and Arithmetic Mean Length Market Area Changes to Maintain the Updating the Rate-of-Increase Limits for
of Stay (LOS) (Tentative) Wage Index of the Urban Labor Market Excluded Hospitals and Hospital Units
Table 6A—New Diagnosis Codes Area in Which They Were Formerly IV. Secretary’s Recommendation for
Table 6B—New Procedure Codes Located (Column 7) Updating the Capital Prospective
Table 6C—Invalid Diagnosis Codes I. Effects of MGCRB Reclassifications Payment Amounts
Table 6D—Invalid Procedure Codes (Column 8)
Table 6E—Revised Diagnosis Code Titles J. Effects of the Wage Index Adjustment for I. Background
Table 6F—Revised Procedure Code Titles Out-Migration (Column 9) A. Summary
Table 6G—Additions to the CC Exclusions K. Effects of All Changes (Column 10)
List L. Effects of Policy on Payment 1. Acute Care Hospital Inpatient
Table 6H—Deletions from the CC Exclusions Adjustments for Low-Volume Hospitals Prospective Payment System (IPPS)
List M. Impact Analysis of Table II
Table 7A—Medicare Prospective Payment VII. Effects of Other Policy Changes Section 1886(d) of the Social Security
System Selected Percentile Lengths of A. Effects of LTC–DRG Reclassifications Act (the Act) sets forth a system of
Stay: FY 2005 MedPAR Update March and Relative Weights for LTCHs payment for the operating costs of acute
2006 GROUPER V23.0 B. Effects of New Technology Add-On care hospital inpatient stays under
Table 7B—Medicare Prospective Payment Payments Medicare Part A (Hospital Insurance)
System Selected Percentile Lengths of C. Effects of Requirements for Hospital based on prospectively set rates. Section
Stay: FY 2005 MedPAR Update March Reporting of Quality Data for Annual 1886(g) of the Act requires the Secretary
2006 GROUPER V24.0 Hospital Payment Update
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to pay for the capital-related costs of


Table 8A—Statewide Average Operating D. Effects of Other Policy Changes
Cost-to-Charge Ratios—July 2006 Affecting Sole Community Hospitals hospital inpatient stays under a
Table 8B—Statewide Average Capital Cost-to- (SCHs) and Medicare-Dependent, Small prospective payment system (PPS).
Charge Ratios—July 2006 Rural Hospitals (MDHs) Under these PPSs, Medicare payment
Table 8C— Statewide Average Total Cost-to- E. Effects of Policy on Payment for Direct for hospital inpatient operating and
Charge Ratios for LTCHs—July 2006 Costs of Graduate Medical Education capital-related costs is made at

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47876 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

predetermined, specific rates for each standardized amount. For example, sole Budget Refinement Act of 1999 (Pub. L.
hospital discharge. Discharges are community hospitals (SCHs) are the sole 106–113), and the Medicare, Medicaid,
classified according to a list of source of care in their areas, and and SCHIP Benefits Improvement and
diagnosis-related groups (DRGs). Medicare-dependent, small rural Protection Act of 2000 (Pub. L. 106–554)
The base payment rate is comprised of hospitals (MDHs) are a major source of provide for the implementation of PPSs
a standardized amount that is divided care for Medicare beneficiaries in their for IRFs, LTCHs, and IPFs, as discussed
into a labor-related share and a areas. Both of these categories of below. Children’s hospitals, cancer
nonlabor-related share. The labor- hospitals are afforded special payment hospitals, and RNHCIs continue to be
related share is adjusted by the wage protection in order to maintain access to paid solely under a reasonable cost-
index applicable to the area where the services for beneficiaries. (Through FY based system.
hospital is located; and if the hospital is 2007, an MDH receives the IPPS rate The existing regulations governing
located in Alaska or Hawaii, the plus 50 percent of the difference payments to excluded hospitals and
nonlabor-related share is adjusted by a between the IPPS rate and its hospital- hospital units are located in 42 CFR
cost-of-living adjustment factor. This specific rate if the hospital-specific rate Parts 412 and 413.
base payment rate is multiplied by the is higher than the IPPS rate. In addition, a. Inpatient Rehabilitation Facilities
DRG relative weight. an MDH may not use FY 1996 as its base
If the hospital treats a high percentage (IRFs)
year for the hospital-specific rate. As
of low-income patients, it receives a discussed below, for discharges Under section 1886(j) of the Act, IRFs
percentage add-on payment applied to occurring on or after October 1, 2007, have been transitioned from payment
the DRG-adjusted base payment rate. but before October 1, 2011, an MDH will based on a blend of reasonable cost
This add-on payment, known as the receive the IPPS rate plus 75 percent of reimbursement and the adjusted IRF
disproportionate share hospital (DSH) the difference between the IPPS rate and Federal prospective payment rate for
adjustment, provides for a percentage its hospital-specific rate, if the hospital- cost reporting periods beginning on or
increase in Medicare payments to specific rate is higher than the IPPS after January 1, 2002, through
hospitals that qualify under either of rate.) September 30, 2002, to payment at 100
two statutory formulas designed to Section 1886(g) of the Act requires the percent of the Federal rate effective for
identify hospitals that serve a Secretary to pay for the capital-related cost reporting periods beginning on or
disproportionate share of low-income costs of inpatient hospital services ‘‘in after October 1, 2002. IRFs subject to the
patients. For qualifying hospitals, the accordance with a prospective payment blend were also permitted to elect
amount of this adjustment may vary system established by the Secretary.’’ payment based on 100 percent of the
based on the outcome of the statutory The basic methodology for determining Federal rate. The existing regulations
calculations. capital prospective payments is set forth governing payments under the IRF PPS
If the hospital is an approved teaching in our regulations at 42 CFR 412.308 are located in 42 CFR Part 412, Subpart
hospital, it receives a percentage add-on and 412.312. Under the capital PPS, P.
payment for each case paid under the payments are adjusted by the same DRG
IPPS, known as the indirect medical b. Long-Term Care Hospitals (LTCHs)
for the case as they are under the
education (IME) adjustment. This operating IPPS. Capital PPS payments Under the authority of sections 123(a)
percentage varies, depending on the are also adjusted for IME and DSH, and (c) of Pub. L. 106–113 and section
ratio of residents to beds. similar to the adjustments made under 307(b)(1) of Pub. L. 106–554, LTCHs
Additional payments may be made for the operating IPPS. In addition, that do not meet the definition of ‘‘new’’
cases that involve new technologies or hospitals may receive outlier payments under § 412.23(e)(4) are being
medical services that have been for those cases that have unusually high transitioned from being paid for
approved for special add-on payments. costs. inpatient hospital services based on a
To qualify, a new technology or medical The existing regulations governing blend of reasonable cost-based
service must demonstrate that it is a payments to hospitals under the IPPS reimbursement under section 1886(b) of
substantial clinical improvement over are located in 42 CFR Part 412, Subparts the Act to 100 percent of the Federal
technologies or services otherwise A through M. rate during a 5-year period with cost
available, and that, absent an add-on reporting periods beginning on or after
2. Hospitals and Hospital Units
payment, it would be inadequately paid October 1, 2002. Those LTCHs that do
Excluded From the IPPS
under the regular DRG payment. not meet the definition of ‘‘new’’ may
The costs incurred by the hospital for Under section 1886(d)(1)(B) of the elect to be paid based on 100 percent of
a case are evaluated to determine Act, as amended, certain specialty the Federal prospective payment rate
whether the hospital is eligible for an hospitals and hospital units are instead of a blended payment in any
additional payment as an outlier case. excluded from the IPPS. These hospitals year during the 5-year transition. For
This additional payment is designed to and units are: inpatient rehabilitation cost reporting periods beginning on or
protect the hospital from large financial hospitals and units (commonly referred after October 1, 2006, LTCHs will be
losses due to unusually expensive cases. to as inpatient rehabilitation facilities paid 100 percent of the Federal rate. The
Any outlier payment due is added to the (IRFs); long-term care hospitals existing regulations governing payment
DRG-adjusted base payment rate, plus (LTCHs); inpatient psychiatric hospitals under the LTCH PPS are located in 42
any DSH, IME, and new technology or and units (commonly referred to as CFR Part 412, Subpart O.
medical service add-on adjustments. inpatient psychiatric facilities (IPFs);
Although payments to most hospitals children’s hospitals; and cancer c. Inpatient Psychiatric Facilities (IPFs)
under the IPPS are made on the basis of hospitals. Religious nonmedical health Under the authority of sections 124(a)
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the standardized amounts, some care institutions (RNHCIs) are also and (c) of Pub. L. 106–113, IPFs are paid
categories of hospitals are paid the excluded from the IPPS. Various under the IPF PPS. Under the IPF PPS,
higher of a hospital-specific rate based sections of the Balanced Budget Act of some IPFs are transitioning from being
on their costs in a base year (the higher 1997 (Pub. L. 105–33), the Medicare, paid for inpatient hospital services
of FY 1982, FY 1987, FY 1996, or FY Medicaid and SCHIP [State Children’s based on a blend of reasonable cost-
2002) or the IPPS rate based on the Health Insurance Program] Balanced based payment to a Federal per diem

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payment rate, effective for cost reporting results in higher payments), and 2007, hospital-specific relative values
periods beginning on or after January 1, removes the application of the 12- (HSRVs) for 10 cost centers to compute
2005 (November 15, 2004 IPF PPS final percent cap on the DSH payment DRG relative weights. In addition, we
rule (69 FR 66922) and May 9, 2006 IPF adjustment factor for MDHs. proposed to use consolidated severity-
PPS final rule (71 FR 27040)). For cost • Section 5004, which reduces certain adjusted DRGs or alternative severity
reporting periods beginning on or after allowable SNF bad debt payments by 30 adjustment methods in FY 2008 (if not
January 1, 2008, all IPFs will be paid percent. Payments for the bad debts of earlier).
100 percent of the Federal per diem full-benefit, dual eligible individuals are We presented our reevaluation of
payment amount. The existing not reduced. certain FY 2006 applicants for add-on
regulations governing payment under In this final rule, we also discuss the payments for high-cost new medical
the IPF PPS are located in 42 CFR 412, provisions of section 5001(b) of Pub. L. services and technologies, and our
Subpart N. 109–171, which require us to develop a analysis of FY 2007 applicants
plan to implement, beginning with FY (including public input, as directed by
3. Critical Access Hospitals (CAHs) 2009, a value-based purchasing plan for Pub. L. 108–173, obtained in a town hall
Under sections 1814, 1820, and section 1886(d) hospitals and meeting).
1834(g) of the Act, payments are made summarize the public comments We proposed the annual update of the
to critical access hospitals (CAHs) (that received in response to our invitation long-term care diagnosis-related group
is, rural hospitals or facilities that meet for public comments. This discussion (LTC–DRG) classifications and relative
certain statutory requirements) for also includes the provisions of section weights for use under the LTCH PPS for
inpatient and outpatient services based 5001(c) of Pub. L. 109–171, which FY 2007.
on 101 percent of reasonable cost. requires a quality adjustment in DRG
2. Changes to the Hospital Wage Index
Reasonable cost is determined under the payments for certain hospital-acquired
provisions of section 1861(v)(1)(A) of conditions, effective for FY 2008. We proposed revisions to the wage
the Act and existing regulations under index and the annual update of the
C. Summary of the Provisions of the FY wage data. Specific issues addressed
42 CFR Parts 413 and 415. 2007 IPPS and FY 2007 Occupational include the following:
4. Payments for Graduate Medical Mix Adjustment to the Wage Index • The FY 2007 wage index update,
Education (GME) Proposed Rules using wage data from cost reporting
Under section 1886(a)(4) of the Act, In the FY 2007 IPPS proposed rule, periods that began during FY 2003.
costs of approved educational activities we set forth proposed changes to the • The FY 2007 occupational mix
are excluded from the operating costs of Medicare IPPS for operating costs and adjustment to the wage index (discussed
inpatient hospital services. Hospitals for capital-related costs in FY 2007. We inthe May 17, 2006 proposed rule).
with approved graduate medical also set forth proposed changes relating • The revisions to the wage index
education (GME) programs are paid for to payments for GME costs, payments to based on hospital redesignations and
the direct costs of GME in accordance certain hospitals and units that continue reclassifications.
to be excluded from the IPPS and paid • The adjustment to the wage index
with section 1886(h) of the Act; the
on a reasonable cost basis, and for FY 2007 based on commuting
amount of payment for direct GME costs
payments for SCHs and MDHs. The patterns of hospital employees who
for a cost reporting period is based on
reside in a county and work in a
the hospital’s number of residents in changes were proposed to be effective
different area with a higher wage index.
that period and the hospital’s costs per for discharges occurring on or after
• The timetable for reviewing and
resident in a base year. The existing October 1, 2006, unless otherwise noted. verifying the wage data that will be in
regulations governing payments to the After publication of the FY 2007 IPPS
effect for the proposed FY 2007 wage
various types of hospitals are located in proposed rule, the United States Court
index.
42 CFR Part 413. of Appeals for the Second Circuit issued • The special timetable that will
a decision in the Bellevue case that apply in FY 2007 in order to allow us
B. Provisions of the Deficit Reduction caused us to modify our proposals on
Act of 2005 (DRA) to make presumptive reclassification
the implementation of the occupational withdrawal or termination decisions on
On February 8, 2006, the Deficit mix adjustment. As a result, we behalf of affected hospitals which will
Reduction Act of 2005 (DRA), Pub. L. published a second proposed rule in the then become final unless reversed or
109–171, was enacted. Pub. L. 109–171 May 17, 2006 Federal Register that modified by the affected hospitals in
made a number of changes to the Act superseded the occupational mix accordance with CMS procedural rules.
relating to prospective payments to proposals that had been made in the FY • The labor-related share for the FY
hospitals and other providers for 2007 IPPS proposed rule (published 2007 wage index, including the labor-
inpatient services. This final rule April 25, 2006). The following is a related share for Puerto Rico.
implements amendments made by the summary of the major changes that we
following sections of Pub. L. 109–171: proposed to make and the issues that we 3. Other Decisions and Changes to the
• Section 5001(a), which, effective for addressed in the FY 2007 IPPS and FY IPPS for Operating Costs, GME Costs,
FY 2007 and subsequent years, allows 2007 Occupational Mix Adjustment to and Promoting Hospitals’ Effective Use
for expansion of the requirements for the Wage Index proposed rules: of Health Information Technology
hospital quality data reporting. In the proposed rule, we discussed a
• Section 5003, which makes several 1. DRG Reclassifications and
number of provisions of the regulations
changes to the MDH program. It extends Recalibrations of Relative Weights
in 42 CFR Parts 412 and 413 and related
special payment provisions, requires As required by section 1886(d)(4)(C) proposed changes, including the
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MDHs to use FY 2002 as their base year of the Act, we proposed limited annual following:
for determining whether use of their revisions to the DRG classifications • The reporting of hospital quality
hospital-specific rate enhances payment structure. In this section, we responded data as a condition for receiving the full
(but permits them to continue to use to several recommendations made by annual payment update increase.
either their 1982 or 1987 hospital- MedPAC intended to improve the DRG • Changes in payments to SCHs and
specific rate if using either of those rates system. We also proposed to use, for FY MDHs.

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• Updated national and regional case- 7. Payment for Blood Clotting Factor policies addressed the update factor for
mix values and discharges for purposes Administered to Inpatients With inpatient hospital operating costs and
of determining rural referral center Hemophilia capital-related costs under the IPPS and
status. In the proposed rule, we discussed for hospitals and distinct part hospital
• The statutorily-required IME the proposed changes in payment for units excluded from the IPPS. This
adjustment factor for FY 2007. blood clotting factor administered to recommendation was addressed in
• Changes relating to hospitals’ Medicare beneficiaries with hemophilia Appendix B of the proposed rule. For
geographic classifications, including for FY 2007. further information relating specifically
reclassifications under section 508 of 8. Limitation on Payments to Skilled to the MedPAC reports or to obtain a
Pub. L. 108–173, multicampus Nursing Facilities for Bad Debt copy of the reports, contact MedPAC at
hospitals, urban group hospital In the proposed rule, we proposed to (202) 220–3700 or visit MedPAC’s Web
reclassification and the effect of change implement section 5004 of Pub. L. 109– site at: www.medpac.gov.
in ownership on urban county group 171 relating to reduction in payments to 13. Appendix C and Appendix D
reclassifications. SNFs for bad debt.
• Changes and clarifications relating In Appendix C of the proposed rule,
to GME that address determining the per 9. Determining Prospective Payment we listed the combinations of the
resident amounts (PRAs) for merged Operating and Capital Rates and Rate-of- consolidated severity-adjusted DRGs
hospitals and new teaching hospitals, Increase Limits that we proposed to implement on FY
counting and appropriate In the Addendum to the proposed 2008 (if not earlier), as discussed in
documentation of FTE residents, and rule, we set forth proposed changes to section II.C. of the preamble of the
counting of resident time spent in the amounts and factors for determining proposed rule. In Appendix D of the
nonpatient care activities as part of the FY 2007 prospective payment rates proposed rule, we provided a crosswalk
approved residency programs. for operating costs and capital-related of the proposed consolidated severity-
• Changes relating to payment for costs. We also proposed to establish the adjusted DRG system to the respective
costs of nursing and allied health threshold amounts for outlier cases. In All Patient Related Diagnosis-Related
education programs. addition, we addressed the proposed Group (APR DRG) system.
• Changes relating to requirements for update factors for determining the rate- D. Public Comments Received in
emergency services for hospitals under of-increase limits for cost reporting Response to the FY 2007 IPPS and FY
EMTALA. periods beginning in FY 2007 for 2007 Occupational Mix Adjustment to
• Discussion of the third year of hospitals and hospital units excluded the Wage Index Proposed Rules
implementation of the Rural from the PPS.
Community Hospital Demonstration We received over 2,300 timely items
Program. 10. Impact Analysis of correspondence containing multiple
We also invited comments on In Appendix A of the proposed rule, comments on the FY 2007 IPPS
promoting hospitals’ effective use of we set forth an analysis of the impact proposed rule. We also received over
health information technology. that the proposed changes would have 100 timely items of correspondence on
on affected hospitals. the FY 2007 Occupational Mix
4. Changes to the PPS for Capital- Adjustment to the Wage Index proposed
Related Costs 11. Recommendation of Update Factors rule. Summaries of the public comments
In the proposed rule, we discussed for Operating Cost Rates of Payment for and our responses to those comments
the payment policy requirements for Inpatient Hospital Services are set forth under the appropriate
capital-related costs and capital In Appendix B of the proposed rule, heading.
payments to hospitals and proposed as required by sections 1886(e)(4) and E. Interim Final Rule on Selection
several technical corrections to the (e)(5) of the Act, we provided our Criteria of Loan Program for Qualifying
regulations. recommendations of the appropriate Hospitals Engaged in Cancer-Related
5. Changes for Hospitals and Hospital percentage changes for FY 2007 for the Health Care
Units Excluded From the IPPS following:
• A single average standardized On September 30, 2005, we published
In the proposed rule, we discussed amount for all areas for hospital in the Federal Register (70 FR 57368) an
payments made to excluded hospitals inpatient services paid under the IPPS interim final rule with comment period
and hospital units, proposed policy for operating costs (and hospital-specific (CMS–1287–IFC) that set forth the
changes regarding decreases in square rates applicable to SCHs and MDHs). criteria for implementing a loan
footage or decreases in the number of • Target rate-of-increase limits to the program for qualifying hospitals
beds of the ‘‘grandfathering’’ HwHs and allowable operating costs of hospital engaged in research in the causes,
satellite facilities, and proposed changes inpatient services furnished by hospitals prevention, and treatment of cancer, as
to the methodology for determining and hospital units excluded from the specified in section 1016 of the
LTCH CCRs and the reconciliation of IPPS. Medicare Prescription Drug,
high-cost and short-stay outlier Improvement, and Modernization Act of
12. Discussion of Medicare Payment 2003 (Pub. L. 108–173). Specifically,
payments under the LTCH PPS. In
Advisory Commission this interim final rule established a loan
addition, we proposed a technical
Recommendations application process by which qualifying
change relating to the designation of
CAHs as necessary providers. Under section 1805(b) of the Act, hospitals, including specified entities,
MedPAC is required to submit a report may apply for a loan for the capital costs
6. Payments for Services Furnished
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to the Congress, no later than March 1 of health care infrastructure


Outside the United States of each year, in which MedPAC reviews improvement projects. The interim final
In the proposed rule, we set forth and makes recommendations on rule was effective on November 29,
proposed changes to clarify what is Medicare payment policies. MedPAC’s 2005.
considered ‘‘outside the United States’’ March 2006 recommendation We received seven timely items of
for Medicare payment purposes. concerning hospital inpatient payment correspondence on the interim final

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rule. In section XI. of the preamble to II. Changes to DRG Classifications and we are focusing our efforts on
this final rule, we are finalizing this Relative Weights addressing the recommendations made
interim final rule with comment period. last year by MedPAC to refine the entire
A. Background
In that section, we discuss the CMS DRG system by taking into account
provisions of the program, the public Section 1886(d) of the Act specifies severity of illness and applying
comments received, our responses to that the Secretary shall establish a hospital-specific relative value (HSRV)
those comments, and the final policy. classification system (referred to as weights to DRGs.
DRGs) for inpatient discharges and Currently, cases are classified into
F. Proposed Rule on Forgiveness of
adjust payments under the IPPS based CMS DRGs for payment under the IPPS
Indebtedness under the Health Care
on appropriate weighting factors based on the principal diagnosis, up to
Infrastructure Improvement Program
assigned to each DRG. Therefore, under eight additional diagnoses, and up to six
On September 30, 2005, we published the IPPS, we pay for inpatient hospital procedures performed during the stay.
in the Federal Register (70 FR 57376) a services on a rate per discharge basis In a small number of DRGs,
proposed rule (CMS–1320–P) to that varies according to the DRG to classification is also based on the age,
establish the loan forgiveness criteria for which a beneficiary’s stay is assigned. sex, and discharge status of the patient.
qualifying hospitals who receive loans The formula used to calculate payment The diagnosis and procedure
under the Health Care Infrastructure for a specific case multiplies an information is reported by the hospital
Improvement Program that was individual hospital’s payment rate per using codes from the International
established under section 1016 of Pub. case by the weight of the DRG to which Classification of Diseases, Ninth
L. 108–173. the case is assigned. Each DRG weight Revision, Clinical Modification (ICD–9–
We received one timely item of represents the average resources CM).
correspondence on this proposed rule. required to care for cases in that
We address the provisions of the The process of forming the DRGs was
particular DRG, relative to the average
proposed rule, a summary of the public begun by dividing all possible principal
resources used to treat cases in all
comments received and our responses, diagnoses into mutually exclusive
DRGs.
and the provisions of the final rule in principal diagnosis areas, referred to as
Congress recognized that it would be
section XI. of the preamble of this final Major Diagnostic Categories (MDCs).
necessary to recalculate the DRG
rule. The MDCs were formed by physician
relative weights periodically to account
panels as the first step toward ensuring
G. Interim Final Rule on the Exclusion for changes in resource consumption.
that the DRGs would be clinically
of Vendor Purchases Made Under the Accordingly, section 1886(d)(4)(C) of
coherent. The diagnoses in each MDC
Competitive Acquisition Program for the Act requires that the Secretary
correspond to a single organ system or
Part B Outpatient Drugs and Biologicals adjust the DRG classifications and
etiology and, in general, are associated
for the Purpose of Calculating the relative weights at least annually. These
with a particular medical specialty.
Average Sales Price adjustments are made to reflect changes
Thus, in order to maintain the
in treatment patterns, technology, and
In November 21, 2005 Federal requirement of clinical coherence, no
any other factors that may change the
Register (70 FR 70748), we published an final DRG could contain patients in
relative use of hospital resources.
interim final rule with comment period different MDCs. Most MDCs are based
(CMS–1325–IFC3) to clarify and solicit B. DRG Reclassifications on a particular organ system of the
comments on the relationship between body. For example, MDC 6 is Diseases
1. General
drugs supplied under the CAP for Part and Disorders of the Digestive System.
B Drugs and Biologicals and the As discussed in section II.D. of the This approach is used because clinical
calculation of the ASP. preamble to the FY 2007 IPPS proposed care is generally organized in
We did not receive any timely items rule (71 FR 24030), for FY 2007, we are accordance with the organ system
of correspondence on this interim final making only limited changes to the affected. However, some MDCs are not
rule with comment period. We current DRG classifications that will be constructed on this basis because they
summarize the provisions of the July 6, applicable to discharges occurring on or involve multiple organ systems (for
2005 and the November 21, 2005 after October 1, 2006. We are limiting example, MDC 22 (Burns)). For FY 2006,
interim final rules and the current our changes because, as discussed in cases are assigned to one of 526 DRGs
interim final provisions in section XII. detail in section II.C. of the preamble to in 25 MDCs. The table below lists the 25
of the preamble of this final rule. the proposed rule and to this final rule, MDCs.

MAJOR DIAGNOSTIC CATEGORIES (MDCS)

1 ........ Diseases and Disorders of the Nervous System.


2 ........ Diseases and Disorders of the Eye.
3 ........ Diseases and Disorders of the Ear, Nose, Mouth, and Throat.
4 ........ Diseases and Disorders of the Respiratory System.
5 ........ Diseases and Disorders of the Circulatory System.
6 ........ Diseases and Disorders of the Digestive System.
7 ........ Diseases and Disorders of the Hepatobiliary System and Pancreas.
8 ........ Diseases and Disorders of the Musculoskeletal System and Connective Tissue.
9 ........ Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast.
10 ...... Endocrine, Nutritional and Metabolic Diseases and Disorders.
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11 ...... Diseases and Disorders of the Kidney and Urinary Tract.


12 ...... Diseases and Disorders of the Male Reproductive System.
13 ...... Diseases and Disorders of the Female Reproductive System.
14 ...... Pregnancy, Childbirth, and the Puerperium.
15 ...... Newborns and Other Neonates with Conditions Originating in the Perinatal Period.
16 ...... Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders.

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MAJOR DIAGNOSTIC CATEGORIES (MDCS)—Continued


17 ...... Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms.
18 ...... Infectious and Parasitic Diseases (Systemic or Unspecified Sites).
19 ...... Mental Diseases and Disorders.
20 ...... Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders.
21 ...... Injuries, Poisonings, and Toxic Effects of Drugs.
22 ...... Burns.
23 ...... Factors Influencing Health Status and Other Contacts with Health Services.
24 ...... Multiple Significant Trauma.
25 ...... Human Immunodeficiency Virus Infections.

In general, cases are assigned to an procedure codes. These DRGs are for transplants, and for tracheostomies.
MDC based on the patient’s principal heart transplant or implant of heart Cases are assigned to these DRGs before
diagnosis before assignment to a DRG. assist systems, liver and/or intestinal they are classified to an MDC. The table
However, for FY 2006, there are nine transplants, bone marrow transplants, below lists the nine current pre-MDCs.
DRGs to which cases are directly lung transplants, simultaneous
assigned on the basis of ICD–9–CM pancreas/kidney transplants, pancreas

PRE-MAJOR DIAGNOSTIC CATEGORIES (PRE-MDCS)


DRG 103 ...... Heart Transplant or Implant of Heart Assist System.
DRG 480 ...... Liver Transplant and/or Intestinal Transplant.
DRG 481 ...... Bone Marrow Transplant.
DRG 482 ...... Tracheostomy for Face, Mouth, and Neck Diagnoses.
DRG 495 ...... Lung Transplant.
DRG 512 ...... Simultaneous Pancreas/Kidney Transplant.
DRG 513 ...... Pancreas Transplant.
DRG 541 ...... ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diag-
nosis with Major O.R.
DRG 542 ...... Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with-
out Major O.R.

Once the MDCs were defined, each complications, comorbidities, or the DRG on the basis of the diagnosis and
MDC was evaluated to identify those patient’s age would consistently affect procedure codes and, for a limited
additional patient characteristics that the consumption of hospital resources. number of DRGs, demographic
would have a consistent effect on the Physician panels classified each information (that is, sex, age, and
consumption of hospital resources. diagnosis code based on whether the discharge status).
Because the presence of a surgical diagnosis, when present as a secondary After cases are screened through the
procedure that required the use of the condition, would be considered a MCE and assigned to a DRG by the
operating room would have a significant substantial CC. A substantial CC was GROUPER, the PRICER software
effect on the type of hospital resources defined as a condition which, because calculates a base DRG payment. The
used by a patient, most MDCs were of its presence with a specific principal PRICER calculates the payment for each
initially divided into surgical DRGs and diagnosis, would cause an increase in case covered by the IPPS based on the
medical DRGs. Surgical DRGs are based the length of stay by at least one day in DRG relative weight and additional
on a hierarchy that orders operating at least 75 percent of the patients. Each factors associated with each hospital,
room (O.R.) procedures or groups of medical and surgical class within an such as IME and DSH adjustments.
O.R. procedures by resource intensity. MDC was tested to determine if the These additional factors increase the
Medical DRGs generally are presence of any substantial CC would payment amount to hospitals above the
differentiated on the basis of diagnosis consistently affect the consumption of base DRG payment.
and age (0 to 17 years of age or greater hospital resources. The records for all Medicare hospital
than 17 years of age). Some surgical and A patient’s diagnosis, procedure, inpatient discharges are maintained in
medical DRGs are further differentiated discharge status, and demographic the Medicare Provider Analysis and
based on the presence or absence of a information is fed into the Medicare Review (MedPAR) file. The data in this
complication or a comorbidity (CC). claims processing systems and subjected file are used to evaluate possible DRG
Generally, nonsurgical procedures to a series of automated screens called classification changes and to recalibrate
and minor surgical procedures that are the Medicare Code Editor (MCE). The the DRG weights. However, in the July
not usually performed in an operating MCE screens are designed to identify 30, 1999 IPPS final rule (64 FR 41500),
room are not treated as O.R. procedures. cases that require further review before we discussed a process for considering
However, there are a few non-O.R. classification into a DRG. non-MedPAR data in the recalibration
procedures that do affect DRG After patient information is screened process. In order for us to consider
assignment for certain principal through the MCE and any further using particular non-MedPAR data, we
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diagnoses. An example is extracorporeal development of the claim is conducted, must have sufficient time to evaluate
shock wave lithotripsy for patients with the cases are classified into the and test the data. The time necessary to
a principal diagnosis of urinary stones. appropriate DRG by the Medicare do so depends upon the nature and
Once the medical and surgical classes GROUPER software program. The quality of the non-MedPAR data
for an MDC were formed, each class of GROUPER program was developed as a submitted. Generally, however, a
diagnoses was evaluated to determine if means of classifying each case into a significant sample of the non-MedPAR

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data should be submitted by mid- costs using average charges and lengths FY 2006 IPPS final rule, we contracted
October for consideration in of stay as proxies for costs and rely on with 3M Health Information Systems to
conjunction with the next year’s the judgment of our medical officers to assist us in performing this analysis.
proposed rule. This allows us time to decide whether patients are clinically Beginning with MedPAC’s relative
test the data and make a preliminary distinct or similar to other patients in weight recommendations, we analyzed
assessment as to the feasibility of using the DRG. In evaluating resource costs, MedPAC’s recommendations to move to
the data. Subsequently, a complete we consider both the absolute and a cost-based HSRV weighting
database should be submitted by early percentage differences in average methodology. In performing this portion
December for consideration in charges between the cases we are of the analysis, we studied hospital cost
conjunction with the next year’s selecting for review and the remainder report data, departmental cost-to-charge
proposed rule. of cases in the DRG. We also consider ratios (CCRs), MedPAR claims data, and
In the FY 2007 IPPS proposed rule, variation in charges within these HSRV weighting methodology. Our
we proposed limited changes to the groups; that is, whether observed intention in undertaking this portion of
DRG classification system for FY 2007 average differences are consistent across the analysis was to find an
for the FY 2007 GROUPER, Version 24.0 patients or attributable to cases that are administratively feasible approach to
and to the methodology used to extreme in terms of charges or length of improving the accuracy of the DRG
recalibrate the DRG weights. The stay, or both. Further, we also consider weights. As we described in the
changes we proposed, the public the number of patients who will have a proposed rule, we believe some changes
comments we received concerning the given set of characteristics and generally can be made to MedPAC’s methodology
proposed changes, the final DRG prefer not to create a new DRG unless for determining the relative weights that
changes, and the methodology used to it will include a substantial number of will make it more feasible to replicate
calculate the DRG weights are set forth cases. on an annual basis but will result in
below. The changes we are similar impacts.
implementing in this final rule will be C. Revisions to the DRG System Used In conjunction with analyzing
reflected in the FY 2007 GROUPER, Under the IPPS MedPAC’s relative weight
Version 24.0, and are effective for 1. MedPAC Recommendations recommendations, we looked at refining
discharges occurring on or after October the current DRG system to better
1, 2006. Unless otherwise noted in this In the FY 2006 IPPS final rule, we recognize severity of illness. Starting
final rule, our DRG analysis is based on discussed a number of with the APR DRG GROUPER used by
data from the March 2006 update of the recommendations made by MedPAC MedPAC in its analysis, we studied
FY 2005 MedPAR file, which contains regarding revisions to the DRG system Medicare claims data. Based on this
hospital bills received through March used under the IPPS (70 FR 47473 analysis, we developed a CS DRG
31, 2006, for discharges occurring in FY through 47482). GROUPER that we believe could be a
2005. In Recommendation 1–3 in the 2005 better alternative for recognizing
Report to Congress on Physician-Owned severity of illness among the Medicare
2. Yearly Review for Making DRG Specialty Hospitals, MedPAC population. We note that MedPAC’s
Changes recommended that CMS refine the recommendations with regard to
Many of the changes to the DRG current DRGs to more fully capture revising the DRGs to better recognize
classifications are the result of specific differences in severity of illness among severity of illness may have
issues brought to our attention by patients, including: implications for the outlier threshold,
interested parties. We encourage • Base the DRG relative weights on the measurement of real case-mix versus
individuals with concerns about DRG the estimated cost of providing care. apparent case-mix, and the IME and the
classifications to bring those concerns to • Base the weights on the national DSH adjustments. We discuss these
our attention in a timely manner so they average of the hospital-specific relative implications in more detail in the
can be carefully considered for possible values (HSRVs) for each DRG (using following sections.
inclusion in the annual proposed rule hospital-specific costs to derive the As we present below, we believe that
Therefore, similar to the timetable for HSRVs). the recommendations made by
interested parties to submit non- • Adjust the DRG relative weights to MedPAC, or some variants of them,
MedPAR data for consideration in the account for differences in the have significant promise to improve the
DRG recalibration process, concerns prevalence of high-cost outlier cases. accuracy of the payment rates in the
about DRG classification issues should • Implement the case-mix IPPS. We agree with MedPAC about
be brought to our attention no later than measurement and outlier policies over a exploring possible refinements to our
early December in order to be transitional period. payment methodology even in the
considered and possibly included in the As we noted in the FY 2006 IPPS final absence of concerns about the
next annual proposed rule updating the rule, we had insufficient time to proliferation of specialty hospitals. In
IPPS. complete a thorough evaluation of these the FY 2006 final rule, we indicated that
The actual process of forming the recommendations for full until we had completed further analysis
DRGs was, and continues to be, highly implementation in FY 2006. However, of the options and their effects, we
iterative, involving a combination of we did adopt severity-weighted cardiac could not predict the extent to which
statistical results from test data DRGs in FY 2006 to address public changing to APR DRGs would provide
combined with clinical judgment. For comments on this issue and the specific payment equity between specialty and
purposes of this final rule, in deciding concerns of MedPAC regarding cardiac general hospitals. In fact, we cautioned
whether to create a separate DRG, we surgery DRGs. We also indicated that we that any system that groups cases will
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consider whether the resource planned to further consider all of always present some opportunities for
consumption and clinical characteristics MedPAC’s recommendations and providers to specialize in cases they
of the patients with a given set of thoroughly analyze options and their believe to have higher margins. We
conditions are significantly different impacts on the various types of believe that improving payment
than the remaining patients in the hospitals in the FY 2007 IPPS proposed accuracy should reduce these
existing DRG. We evaluate patient care rule. Following the publication of the opportunities and potentially reduce the

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incentives that Medicare payments may cases. MedPAC suggested a hospital- period. This methodology required
provide for the further development of specific relative value (HSRV) matching cost report data to claims data,
specialty hospitals. methodology which MedPAC believed and because cost report data take longer
We considered MedPAC’s would reduce the effect of cost to compile and file, the method
recommendation to adjust the relative differences among hospitals that may be necessitates using older claims data to
weights to account for differences in the present in the national relative weights set relative weights. The most recent
prevalence of outlier cases. However, due to differences in case-mix adjusted complete set of Medicare cost reports
we placed most of our attention and costs. available to us is from FY 2003. Thus,
resources on the recommendations Under the HSRV methodology if we were to model the exact approach
related to refinement of the current recommended by MedPAC, charges are used by MedPAC and use claims data
DRGs to more fully capture differences standardized for each provider by for a matching year, we would be using
in severity of illness among patients, as converting its charges for each case to claims data from FY 2003 instead of
we do not have the statutory authority hospital-specific relative charge values using FY 2005 claims data, as we would
to make the specific changes to our and then adjusting those values for the if we were to continue with our current
outlier policy that MedPAC hospital’s case-mix. The first step in this methodology. In addition, MedPAC’s
recommended. While we have not made process involves dividing the charge for hospital-specific approach required
MedPAC’s recommendation regarding each case at the hospital by the average detailed cost center distinctions for each
outliers a central focus of our analysis, charge for all cases at the hospital in hospital that are difficult to define, map,
we do intend to examine this issue in which the case was treated. The and apply. This approach also required
more detail in the future. In sections hospital-specific relative charge value, the use of the Standard Analytic File
II.C.2. through C.6. of the FY 2007 by definition, averages 1.0 for each (SAF) because MedPAR data that we
proposed rule, we discussed a number hospital. The resulting ratio is then currently use to set DRG weights did not
of issues related to the MedPAC multiplied by the hospital’s case-mix have the necessary level of detail. Using
recommendations. We also presented index (CMI). In this way, each hospital’s the SAF increases processing time and
our analysis and specific proposals for relative charge value is adjusted by its adds further complexity to the process
FY 2007 and FY 2008 including their case-mix to an average that reflects the of setting the relative weights.
estimated impacts. In this final rule, we complexity of the cases it treats relative Second, because MedPAC applied
present the public comments received to the complexity of the cases treated by these CCRs at the individual claim level,
on the proposed rule, our responses to all other hospitals. We discuss this issue missing or invalid data resulted in
those comments, our final decisions for in further detail below. MedPAC deleting a large number of
FY 2007 and our intended actions for Our analysis of departmental-level claims (approximately 10 percent) from
FY 2008. CCRs from the Medicare cost report data the relative weight calculation. Lastly,
has shown that charges for routine days, MedPAC acknowledged that its method
2. Refinement of the Relative Weight intensive care days, and various was too difficult to replicate on an
Calculation ancillary services are not marked up by annual basis and suggested that the
MedPAC made two recommendations a consistent amount. For example, the weights be recalculated once every 5
with respect to the DRG relative weight markup amounts for cardiology services years with other adjustments based on
calculation. First, MedPAC are higher than average. Because charges charges during the intervening years.
recommended that CMS base the DRG are the current basis for the DRG relative As we explained in the FY 2007 IPPS
relative weights on the estimated cost of weights, the practice of differential proposed rule, we developed an
providing care. Second, MedPAC markups can lead to bias in the DRG alternative to MedPAC’s approach that
recommended that CMS base the weights because various DRGs use, on we believe achieves similar results in a
weights on the national average of average, more or less of particular more administratively feasible manner.
hospitals’ relative values in each DRG. ancillary services. MedPAC believes This method involves developing
Because both of these recommendations that the bias in the national DRG hospital-specific charge relative weights
address the relative weight calculation, relative weights that may arise as a at the cost center level and then scaling
we are addressing them together. The result of differential markups across the weights to costs using the national
work we have done to address these various cost centers can be removed by cost center charge ratios developed from
recommendations was discussed in moving from charge-based to cost-based the cost report data. After studying
detail in the proposed rule (71 FR weights. Based on the analysis we have Medicare cost report data, we
24006–24011). conducted, we agree that it is established 10 cost center categories
MedPAC recommended that CMS appropriate to adjust the DRG relative based upon broad hospital accounting
replace its charge-based relative weight weights to account for the differences in definitions. In our cost center categories,
methodology with cost-based weights, charge markups across cost centers. there are 8 ancillary cost groups in
as it believed that the charge-based In the proposed rule, we indicated addition to routine day costs and
relative weight methodology that CMS several concerns about the methodology intensive care day costs, and each
has utilized since 1985 has introduced used by MedPAC. MedPAC’s category represents at least 5 percent of
bias into the weights due to differential methodology to reduce hospital charges the charges in the claims data. The
markups for ancillary services among to cost is administratively burdensome, specific cost report lines that contribute
the DRGs. In analyzing claims data, it is not only to develop, but also to to each category and the corresponding
evident to us that some hospital types maintain. First, MedPAC developed charge lines from the MedPAR claims
(for example, teaching hospitals) are CCRs for individual hospitals at the data are itemized in Table A below.
systematically more expensive overall most detailed department level. In the proposed rule, we stated that
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than the average hospital and certain Specifically, in calculating costs as the this alternative approach, which we
case types are more commonly treated at basis for the relative weights, MedPAC labeled as the HSRV cost center
these more expensive facilities. Higher applied hospital-specific CCRs from (HSRVcc) methodology, has several
average charges for cases that are treated each provider’s cost report to the line advantages. First, the use of national
at more expensive hospitals may result item charges on the claims that the average rather than hospital-specific
in higher weights for these types of hospital submitted during the same time CCRs avoids the complexity

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encountered with cost center CCRs at addition, the commenters indicated that charges improperly overstated the
the hospital level and allows us to retain CMS needs to provide hospitals with transplant DRG HSRVcc weights.
more data for use in the relative weight more lead-time before implementing Commenters recommended that CMS
calculation. In addition, the changes so they can budget accurately. remove the organ acquisition charges
methodology eliminates the need to They urged CMS to use the current from the computation of the DRG
match claims to the time period of the standardized charge-based approach in weights if the HSRVcc methodology is
CCRs, resulting in the ability to use FY 2007 until these issues can be to be adopted.
more timely claims data. Furthermore, addressed. At a minimum, they believed Second, commenters believe CMS
the alternative approach makes it more CMS should address what were made questionable methodological
feasible to update the relative weights characterized as methodological flaws decisions when calculating the national
annually using a single methodology. and publish revised relative weights CCRs. Under the proposed
We do not have to replicate the along with hospital impacts for public methodology, CMS calculated hospital-
methodology once every 5 years and comment prior to implementation. weighted rather than charge-weighted
make adjustments based on changes in Response: We appreciate the CCRs for each of the 10 cost centers
charges in the intervening years. The commenters’ concerns with regard to a used to scale the charge-based weights.
HSRVcc methodology is described in rapid and full implementation of the Because the averages are unweighted,
detail in the proposed rule (71 FR 24008 changes we proposed to the relative the commenters stated that the CCRs do
through 24011). weight methodology. However, based on not account for the differential
Comment: Several commenters our analysis and study of the MedPAC contribution of each hospital to total
supported CMS’ effort to restructure the recommendations that we presented in charges. The commenters asserted that,
DRG relative weights based on cost. our proposed rule, it has come to our mathematically, the only correct way to
They stated that using charges as a attention that differential markups get from total hospital charges to total
proxy for hospital costs in determining between routine and ancillary cost hospital costs is to use a charge-
resource utilization under the current centers have introduced significant bias weighted average of hospital CCRs.
system is inappropriate and encouraged into the relative weights. In order to Failure to use charge-weighted averages
CMS to implement a cost-based system reduce the bias in weights and make overestimates routine and ICU costs and
consistent with the agency’s original more appropriate payments under the underestimates ancillary costs, which
intent without delay. IPPS, we believe it is necessary to ultimately exaggerates the shift in
Response: We appreciate the initiate the transition to a cost-based payments, according to the commenters.
commenters’ support of our proposal to relative weight methodology in FY Therefore, commenters believed CMS
implement a cost-based weighting 2007. However, we have considered the should recalculate the mean national
methodology. We believe that adopting commenters’ requests to further review CCRs using a charge-weighted method.
cost-based weights will result in the HSRV methodology. Therefore, in Third, commenters believed CMS
significant improvements to Medicare’s this final rule, we are not adopting our applied questionable trimming criteria
IPPS payments. MedPAC concluded proposal to standardize charges using in computing the cost center CCRs.
after an extensive analysis of Medicare the HSRV methodology. However, we They stated that trimming the cost
hospital inpatient claims and cost data are adopting our proposal to reduce center CCRs at 1.96 standard deviations
that the IPPS payment rates are badly charges to estimated costs prior to (rather than 3 standard deviations) from
distorted, resulting in Medicare paying setting DRG weights. We will undertake the geometric mean inappropriately
too much for some types of patients and further analysis of the HSRV excluded over 200 large hospitals that
too little for others. As indicated below, methodology during the next year. account for 25 percent of routine
we are making some modifications to Based on this analysis, we will consider accommodation charges. They noted
our proposals in response to the public proposing further changes to adopt the that the CCRs for these hospitals appear
comments. However, we are adopting a HSRV methodology for FY 2008. to be predominantly correct. In
system of cost-based weights for FY Comment: Many commenters addition, the commenters noted that
2007 to address the concerns raised by disagreed with CMS’ assertion that the CMS applied the CCRs to the charge
MedPAC. As a result, all hospitals, more administratively feasible HSRVcc data for hospitals that were excluded
including specialty hospitals, will be approach achieves similar results to the from the national average CCR
paid more appropriately. In addition, MedPAC methodology. While they calculation. Thus, the commenters
based on our analysis, we concur with supported CMS’ efforts to ensure the argued there is a significant mismatch
MedPAC that the current DRG system DRG weights are updated annually to between the hospital data that was
needs to be changed to better account reflect the most recent trends in included in the CCR and HSRVcc
for severity of illness among patients. inpatient care, they expressed concern calculations. These commenters
This issue is discussed in more detail in with the specifics of the HSRVcc recommended that CMS exclude
the next section of this final rule. methodology. hospital data from the CCRs if it is more
Comment: A majority of commenters First, they noted that CMS stated in than 3 standard deviations (rather than
supported CMS’ efforts to improve the the proposed rule that organ acquisition 1.96) from the mean CCR. Many
accuracy of the DRG weights, and better costs were eliminated from hospital commenters characterized these
reflect variations in patients’ severity of charges before the HSRVcc weights were methodological decisions as errors and
illness. However, many commenters calculated. However, it had come to indicated that their combined impact is
viewed the HSRVcc proposal as flawed their attention that organ acquisition significant. If CMS is to use the HSRVcc
from both a methodological and policy charges were actually included in the methodology, the commenters indicated
perspective, and believed the proposal calculation of DRG weights under the that these issues should be addressed.
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to implement cost-based weights should proposed methodology. They stated that A few commenters stated that we
be delayed for at least a year. They organ acquisition is reimbursed by made incorrect assumptions that may
believed that CMS needs to further Medicare on a cost basis and should not have resulted in new distortions to the
consider a number of issues raised in be included in the weight calculation. relative weights. Specifically, the
the public comments before such Furthermore, the commenters asserted commenters stated that we were
sweeping changes are implemented. In that the inclusion of organ acquisition incorrect in applying the same CCR

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across all hospitals for a given cost variation that is not otherwise explained the implementation of the HSRV
center and applying the same percent with IPPS payment factors. In the methodology until we can study this
mix of services by cost center to all standardization approach employed by comment further. Instead, as suggested
DRGs. The commenters recommended OPPS, any variation in hospital costs by many commenters, we are using an
that we first convert charges to costs for that is not explained by CMS payment approach to calculating the IPPS relative
each hospital and DRG, and then factors affects the calibration of DRG weights that is more similar to the
compute hospital-specific relative weights. They stated that the HSRV approach used in the OPPS. That is,
values. They stated that the reversal of approach proposed by CMS, by contrast, rather than using a hospital-specific
the calculations in the HSRVcc ignores any hospital level variation in relative weighting methodology, we are
methodology accommodates cost center charges that is not explained by the case standardizing charges to remove
mix and charge markup differences mix index. Many commenters added relevant payment factor adjustments
across hospitals and across DRGs. that CMS could propose to remove other and then adjusting those charges to
Many commenters argued that the sources of cost variation beyond its costs using national cost center CCRs.
hospital-specific relative value current practice of standardizing for As we stated in the proposed rule, it is
methodology is unnecessary and wage index, DSH, and IME. They not administratively feasible to adjust
compresses the DRG weights. believed a factor-specific approach to charges to cost using hospital-specific
Commenters cited past research standardization would lead to more cost to charge ratios. Therefore, while
indicating that HSRV has a precise and valid adjustments than we are standardizing charges for the
disproportionate impact on certain those recognized under the HSRV IPPS cost-based weights using a similar
types of hospitals and types of care, and methodology, which eliminates all process to the OPPS, we are still
reduces the range of DRG weights sources of charge variation irrespective utilizing national average CCRs to
between the lowest and highest weight of whether there are legitimate determine cost. Specifically, we are
DRGs.1 Commenters noted that the differences among hospitals in costs that standardizing the charges for each DRG
HSRV methodology ‘‘produces more are not taken into account in the by cost center to remove differences in
compressed DRG weights’’ than the payment system. wage index, indirect medical education
existing standardization methodology Response: In preparing the FY 2007 and disproportionate share adjustments
and that ‘‘the greater compression of the relative weights, the costs of organ and are then reducing the standardized
HSRV weights is counter balanced by acquisition were inadvertently included charges to cost using the national
the fact that more high-weighted cases in the relative weight for the calculation average CCRs. The relative weights we
qualify as [high cost] outlier cases.’’ A of ‘‘other services.’’ The costs of organ are adopting in this final rule are
few commenters expressed concern that acquisition are paid by Medicare on a calculated based on the average total
adopting MedPAC’s recommendation to cost basis and should not be included in cost for a DRG in relation to the national
exclude high-cost outliers in addition to setting the IPPS relative weights. These average total cost.
statistical outliers from the computation costs have been excluded from the IPPS
relative weights calculated for this final Comment: Many commenters
of the DRG weights so that the weights expressed concern that CMS collapsed
reflect the average cost only of inlier rule.
In response to the concerns expressed the full set of at least 37 cost centers into
cases would compound the DRG weight only 10. They believed this approach
compression caused by the HSRV regarding the CCR calculation, we
proposed to establish the geometric eliminates detail that is available on the
methodology because high-cost outlier cost report. The commenters requested
cases occur most frequently in high- mean CCRs using a hospital-weighted
methodology because we believed that it that CMS elaborate on the process it
weighted DRGs. The commenters went through to derive the 10 cost
indicated that the finding raises the served as an acceptable measure of
central tendency. In addition, we centers used to calculate the HSRVcc
concern of patient access to care for weights. Some commenters stated CMS
services in higher cost DRGs. proposed to trim the CCRs on the basis
of 1.96 standard deviations since we should use all 37 cost centers that are
Commenters also believed that the
were using national averages and used in calculating the OPPS relative
HSRV methodology fails to take into
thought a more stringent statistical trim weights for the IPPS. Other commenters
account legitimate variation in costs that
would be appropriate. In response to suggested that CMS expand the number
occur between hospitals. Therefore, any
comments, however, we have of cost centers used in the calculation.
hospital-level variation in cost that is
reconsidered our approach and have MedPAC found that the CCRs within the
not explained by the IPPS case mix
implemented the 3 standard deviation proposed 10 cost centers varied
index is simply ignored, according to
statistical trim supported by significantly in some areas and
the commenters. To the extent that
commenters. Further, we are also recommended that CMS expand the
certain services are provided most
adopting the charge-weighted method of number to 13 by distinguishing
frequently in hospitals with higher than
calculating CCRs, as we now believe it anesthesia and labor and delivery from
average cost, the commenters believed
may be more appropriate to apply CCRs the operating room cost center and
that the HSRV methodology will result
based on aggregate costs and charges distinguishing inhalation therapy from
in inappropriately lower DRG weights
among hospitals to the charges that are the therapy services cost center. Several
for these services.
aggregated by DRG and used to set the commenters supported MedPAC’s
Therefore, commenters strongly
relative weights. recommendation. Further, MedPAC
recommended that the HSRV
Although commenters asserted that recommended that the CCRs be based
methodology be eliminated in favor of
the HSRV methodology exacerbates the on Medicare-specific costs and charges
the cost-based weighting methodology
effect of charge compression on the rather than on the costs and charges for
adopted under the OPPS. They stated
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relative weights, we have not had the entire facility. Some commenters
that the main difference between these
sufficient time between the close of the advocated that a separate cost center be
two approaches is the treatment of cost
comment period and the publication of added for implantable devices. They
1 Carter, Grace ‘‘How recalibration method, this final rule to analyze this assertion. believed this additional cost center
pricing, and coding affect DRG weights,’’ Health Therefore, in response to comments would better identify the mark-up for
Care Financing Review, Winter 1992. (and as stated above), we are postponing high cost technological devices than

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using the average for all supplies and significantly different CCRs. Upon (h) MedPAR lists (29) ESRD Revenue
equipment. further examination of the data, in this Setting Charges where the cost reporting
Several commenters encouraged CMS final rule, we are expanding the number form lists Clinic;
to specifically incorporate nursing costs of cost centers from 10 to 13 by creating (i) MedPAR lists (30) Clinic Visit
into the weighting methodology. They separate cost centers for anesthesia, Charges where the cost reporting form
stated that nursing care represents labor and delivery, and inhalation lists Other Outpatient Services, Other
approximately 30 percent of all hospital therapy. We also agree with MedPAC Ancillary, Home Program Dialysis and
expenditures and nearly half of all that it would be more appropriate to set Ambulance Services;
direct care costs and have been the CCRs based on Medicare-specific (j) Ambulance Services appear to be
essentially ignored in the payment charges and costs rather than on the included twice, once in (30) Clinic Visit
formula. Specifically, these commenters costs and charges for the entire facility. Charges and once in (25) Emergency
urged CMS to create a unique Nursing Therefore, in this final rule, we are Room Charges;
Cost Center that identifies the inpatient modifying our CCR calculations to (k) Lithotripsy is included in
direct and indirect costs for registered incorporate Medicare-specific charge Radiology Services;
nurses, licensed practical nurses, and data from Worksheet D Part 4 in (l) Line 62 ‘‘Observation Beds’’ is not
unlicensed assistive personnel. They addition to the cost and charge data reflected separately in Table A; and
defined direct nursing costs as those (m) Line 68 ‘‘Other reimbursement’’ of
from Worksheet C Part I that we used in
associated with licensed and assistive the cost report is not listed in Table A.
the proposed rule. In addition, commenters were unclear
nursing personnel assigned to care for Other commenters suggested that we
an individual patient. Indirect nursing as to whether CMS accounted for
also create separate cost centers for subscripted lines in the cost report
costs are all other salary and benefits implantable devices and nursing. As
related to licensed and assistive nursing when calculating CCRs. The
noted in the comments, the MedPAR commenters noted that subscripted lines
personnel not directly assigned to care file does not contain the necessary
for individual patients. They suggested did not appear in Table A. Commenters
detail to identify a separate cost center believed this inconsistency in reporting
that the routine and intensive care cost for implantable devices or nursing. In
centers in the proposed HSRVcc may lead to distorted DRG weights.
addition, we did not have enough time Therefore, commenters recommended
methodology be replaced with a nursing to evaluate whether it would be
cost center and a separate facility cost that CMS examine this issue thoroughly
reasonable to utilize a nursing cost before implementing cost-based
center to identify the non-nursing cost center in the methodology in the future.
component of care. They urged CMS to weights. Several commenters requested
However, we anticipate undertaking that CMS publish a crosswalk of the
set aside funds to study and implement further analysis of the relative weight
the above recommendation using revenue codes that are used for each
methodology over the next year in MedPAR charge data group and require
methodologically sound research and conjunction with the research we are
demonstration projects. intermediaries to review cost report data
doing on charge compression to to ensure that providers have reported
Response: As we stated in the
determine if additional cost centers are data consistent with the mapping to the
proposed rule, we established 10 cost
necessary. MedPAR data.
center categories based upon broad
hospital accounting definitions. These Comment: Commenters, referring to Response: We wish to clarify to the
10 cost center categories consist of 8 Table A, ‘‘Charge Line Items from commenters that the charge description
ancillary cost groups, a routine days MedPAR Included in Cost Center titles shown in the MedPAR charge
cost group, and an intensive care days Charge Group,’’ noted that MedPAR description column in Table A were not
cost group. These cost centers were charge descriptions do not match the meant to also be interpreted as the title
selected because each category Form CMS–2552–96 Cost Center for each of the cost report line items.
represents at least 5 percent of the description(s) for several cost centers. That is, we were simply using Table A
charges in the claims data. For example: to illustrate the MedPAR charge groups
We thoroughly reviewed the (a) MedPAR lists (18) Lithotripsy and the cost report line numbers that
comments advocating that we expand Charges where the cost reporting form were used to create the 10 proposed cost
the number of cost centers used in the lists Radioisotopes; centers. To alleviate this confusion, we
calculation. We currently use the (b) MedPAR lists (6) Other Services are revising Table A to show both the
MedPAR data set for charge detail. The where the cost reporting form lists MedPAR charge titles and the titles of
MedPAR file does not provide enough Whole Blood and Packed Red Blood the cost report line items. In response to
granularity in the charge detail to Cells; comments (j) and (l), we note that the
support 37 different cost centers. In (c) MedPAR lists (19) Cardiology cost report line item number 65 for
addition, in the proposed methodology, Charges as including line 54 of the cost ambulance was inadvertently listed
we eliminated claims for providers that report, which is twice in the proposed rule; line item 62,
did not have costs greater than zero for Electroencephalography; observation beds, was used in
at least 8 of the 10 cost centers. At least (d) MedPAR lists (16) Blood establishing the CCR for the other
96 percent of the providers in the Administration Charges where the cost services category. Line 65 for ambulance
MedPAR file had charges for at least 8 reporting form lists ASC (Non-Distinct was only used once in the actual other
of the 10 cost centers. We believe that Part); services CCR calculation. Line item 62
if we were to expand to the full set of (e) MedPAR lists (24) Outpatient should have appeared in the ‘‘other
37 cost centers outlined in the cost Services Charges where the cost services’’ cost center grouping printed
report, we would eliminate a greater reporting form lists Emergency; in Table A in the proposed rule. We
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number of claims in the calculation of (f) MedPAR lists (25) Emergency have corrected this error in the final
the DRG relative weights. Room Charges where the cost reporting version of Table A. In addition, in
While we do not believe expanding to form lists Ambulance Services; regards to comment (k) above, we have
37 cost centers is feasible, we agree with (g) MedPAR lists (26) Ambulance moved the lithotripsy charges from
MedPAC that we may have consolidated Charges where the cost reporting form MedPAR to the ‘‘other services’’ cost
a few revenue centers that have lists Renal Dialysis; center grouping and we have also

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revised the CCR for ‘‘other services’’ to CCR calculations. However, some decision to admit a patient to the
include the cost report line item 43 for subscripted line items are not rolled up hospital. Further, we are now including
radioisotopes, which was formerly and continue to have their own field on the cost report line item 68 for other
included in the radiology CCR. the HCRIS data set that we used to reimbursement in the other services
In response to the commenters’ calculate the CCRs. Therefore, we are CCR, and we are including professional
question regarding the inclusion of now including the cost report line item services charges from MedPAR in the
subscripted lines, when we calculated 6201 for observation beds, the cost other services charge grouping. In
the CCRs for the proposed rule and report line item 6350 for Rural Health response to the commenters’ requests
subsequently for this final rule, we clinics and the cost report line item that we show the revenue codes that
relied on a HCRIS data set that contains 6360 for Federally Qualified Health comprise the MedPAR charges, we have
rolled-up cost report fields such that clinics in the other services CCR. Cost also inserted an additional column in
line items which are subscripted report line items 6350 and 6360 are only Table A that lists the revenue codes
contain the total value for the line item reported by provider-based Rural Health MedPAR groups into each charge field
and any subscripted lines below. clinics and Federally Qualified Health that we are using in the final 13 cost
Therefore, most subscripted lines were clinics and are necessary in order to centers. The final version of Table A
included in the proposed rule CCRs and identify all incurred costs applicable to appears below:
continue to be included in the final rule furnishing an observation bed prior to a BILLING CODE 4120-01-P
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Comment: Many commenters warned payment between the IPPS and the IPF determine costs accurately at a DRG
that the redistribution of payments from PPS, we do not believe that the DRG level since such data lack specific cost
the surgical to the medical DRGs under relative weights we are adopting in this data on individual items and services.
the proposed methodology may create final rule will provide increased They reiterated that the Medicare cost
unintended consequences. Several of incentive for IPFs to decertify units. reports, which serve as the primary
these commenters stated that this Whereas under the IPF PPS, hospitals source of data under the proposed
redistribution poses a threat to patients’ receive a daily base rate and system, were not designed to be used in
access to the latest medical advances adjustments to account for certain a prospective payment system and have
and highest quality care. They feared patient and facility characteristics, not been used to establish hospital rates
that hospitals will invest less in new hospitals paid under the IPPS are paid for inpatient services for some time.
medical technologies because Medicare a specified amount based on the DRG They noted several limitations in using
would not pay sufficiently for the DRGs for the same cases, regardless of the the cost reports to derive estimated costs
that use them. Another commenter length of the hospital stay. Our analysis utilized in the DRG relative weight
stated that the increased reimbursement suggests that even though the average calculations that should be carefully
for psychiatric DRGs may create an payment per day (total payment divided examined and addressed before moving
incentive for IPFs to decertify and by average length of stay) for the forward with the proposed system of
become inpatient units. psychiatric DRGs in the IPPS proposed hospital-specific cost weights.
Response: We appreciate the rule may be higher than under the IPF
commenters’ concern that payment First, the commenters believed that
PPS, the total average payment per CMS should address cost report
redistribution may create the potential episode of care remains lower (product
for unintended consequences. However, accuracy. The commenters stated that
of the average IPF payment per day and because the cost reports have only been
we wish to emphasize that the the average length of stay). Thus,
redistribution of payments among DRGs used for payment in limited
because payments per episode of care circumstances (DSH, IME, outlier
is necessary to improve payment remain lower under the IPPS than under
accuracy and eliminate the distortions policy), hospitals have had little
the IPF PPS, we are not concerned that incentive to report accurately and
in the current IPPS payment rates. IPFs will decertify to get paid using the
Under the methodology in this final completely for the services provided to
IPPS. In addition, as indicated above, Medicare beneficiaries. In addition, they
rule, we will increase payment for we are making some modifications to
relatively underpaid cases and reduce claimed the cost reports do not contain
our methodology in response to the the level of detail necessary to
payment for relatively overpaid cases. public comments. Based on these
We are adopting a methodology that accurately determine costs at the DRG
changes, the increase in the relative level. Instead, the cost report provides
will realign payments with costs to pay
weights for the psychiatric DRGs payments, costs, and some
more appropriately for services
presented in this final rule will not be reimbursement totals by department or
rendered by hospitals. Therefore, we do
not believe altering the DRG relative as significant as those contained in the cost center. The commenters also
weighting methodology will affect proposed rule. advised that CMS perform additional
patients’ access to quality medical care. Comment: Commenters expressed auditing of the cost reports to ensure
Patients should have continued and concern that because hospitals often accuracy. The commenters were
uninterrupted access to new, innovative allocate charges on the cost reports concerned that if CMS implements a
technologies. differently than charges on the claims, cost-based weighting methodology, the
We have analyzed the impact of the the cost-center level CCRs are calculated DRG weights will be based on largely
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increased reimbursement for psychiatric based on a different set of charges than un-audited cost reports since
DRGs in response to the commenter’s the charges on the claims to which the approximately 15 percent of hospital
concern that increased reimbursement CCRs are later applied. Commenters cost reports are audited each year. They
may provide incentives for IPFs to expressed concern that Medicare cost noted that MedPAC estimated that a
decertify their units and be paid under report data are not detailed enough or full-scale audit could require 1,000 to
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as well as additional time and resources Emergency Room are included in line recommended basis. This approach
from the hospital. In addition, a few 61 of the cost report). The commenters creates internal consistency between a
commenters stated that CMS should suggested that more specific cost report hospital’s accounting system and the
only use final settled cost report data, instructions may be necessary to ensure cost report but cannot guarantee the
not as-submitted data, in calculating that hospitals report the information precise comparability of costs and
DRG weights. correctly and consistently. Some charges for individual cost centers
Second, some commenters contended commenters believed that cost report across institutions.
that CMS should evaluate the overall data were not intended or designed to However, we believe that achieving
timeliness of cost report data. They be used to develop accurate payment greater uniformity by, for example,
stated that cost report data used to rates and suggested developing a proxy specifying the exact components of
recalibrate the DRG weights are to more accurately allocate costs at the individual cost centers, would be very
outdated and significantly older than DRG level, such as collecting data from burdensome for hospitals and auditors.
the charge-based data currently used to hospitals that utilize ‘‘sophisticated cost Hospitals would need to tailor their
determine DRG weights under the IPPS. accounting tools that provide more internal accounting systems to reflect a
Under the proposed methodology, CMS accurate allocation of costs.’’ national definition of a cost center. It is
used hospital claims data from FY 2005 Some commenters also recommended not clear that the marginal improvement
and hospital cost reports from FY 2003. that CMS convene an expert panel to in precision created here is worth the
The commenters were concerned that explore ways to address the current additional administrative burden. The
because a lag between the cost report limitations of the cost report. They current hospital practice of matching
year and the payment year exists, the stated that this effort should identify costs to the generally intended meaning
proposed methodology would rely on methods to better use or improve of a cost center ensures that most
older data that does not reflect the costs hospital cost reports for use in setting services in the cost center will be
of many newer technologies. The the inpatient and outpatient relative comparable across providers, even if the
commenters supported an approach that weights. The expert panel should aim to precise composition of a cost center
uses more recent claims and cost report identify changes to the cost report that among hospitals differs. Further, every
data and also urge CMS to explore reduce the net information burden on hospital provides a different mix of
options for using alternative data hospitals, while improving overall services. Even if CMS specified the
sources that include current information payment accuracy. The panel should components of each cost center, costs
on the costs of inpatient care. report its recommendations by April and charges on the cost report would
Third, the commenters stated that 2007 to enable CMS enough time to continue to reflect each hospital’s mix
CMS should examine the comparability consider the recommendations in of services. At the same time, internal
of cost reports due to variability in how setting the relative weights for FY 2008. consistency is very important to the
hospitals allocate costs. Commenters Other commenters advocated that CMS IPPS. Costs are estimated on claims by
explained that a cost allocation initiate a national project to correct any matching CCRs for a given hospital to
methodology must be used to estimate misalignments between cost and charges their own claims data through a cost
the cost of individual items and services in cost reports and on the MedPAR center-to-revenue code crosswalk.
from the aggregate costs reported for claims. Other commenters suggested Despite the concerns raised in the
each cost-center on the cost-report. They that CMS postpone the adoption of the comments, we believe that costs and
stated that the proposed methodology proposed HSRVcc methodology until charges are reported through the cost
assumes that all hospitals consistently such time that providers improve the report with sufficient specificity to
allocate costs to the same cost centers. accuracy of the source data used in the support CMS’ use of cost report data to
However, hospitals may have determination of the DRG weights. develop cost-based weights. The
inconsistent cost accounting practices or Response: With respect to the information we obtained from the cost
use different cost allocation methods commenters’ recommendation regarding report on the differing level of charge
(for example, utilization or square- the reporting of costs and charges for markups occurring between routine and
footage) according to the commenters. services, CMS requires hospitals to ancillary hospital departments supports
The commenters suggested these factors report their costs and charges through MedPAC’s conclusions that the most
and the compression of charges both the cost report with sufficient specificity profitable DRGs that are leading to the
within and across cost-centers, limits to support CMS’ use of cost report data development of specialty hospitals are
the usefulness of cost report data to for monitoring and payment. Within those that require a lot of ancillary
accurately estimate costs. According to generally accepted principles of cost services with high markups and low
the commenters, each hospital uses its accounting, CMS allows providers CCRs. To the extent that charge markups
own method to allocate costs among flexibility to accommodate the unique vary significantly between the various
cost centers, often resulting in cost attributes of each institution’s routine and ancillary hospital
assignments that do not reflect the accounting systems. For example, departments, we believe that there is a
departments to which charges are providers must match the generally need to adjust charges to cost prior to
assigned in the MedPAR data. For intended meaning of the line-item cost setting the relative weights. We will
example, some commenters indicated centers, both standard and non- continue to rely on the cost report to
that they included cardiac standard, to the unique configuration of establish the CCRs that we are finalizing
catheterization in lines other than 53 department and service categories used to use to adjust the DRG charges to
and 54 that group to the cardiac cost by each hospital’s accounting system. costs.
center. In addition, several commenters Also, while the cost report provides a However, we continue to be interested
noted that hospitals report medical recommended basis of allocation for the in receiving suggestions on ways that
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supply costs inconsistently. While some general service cost centers, a provider hospitals can uniformly and
report them in the supply cost center, is permitted, within specified consistently report charges and costs
others report the medical supply cost in guidelines, to use an alternative basis related to all cost centers that also
the cost center for the procedure in for a general service cost if it can acknowledge the ubiquitous tradeoff
which the device was used (that is, support to its intermediary that the between greater precision in developing
medical supplies specific to the alternative is more accurate than the CCRs and administrative burden

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coupled with reduced flexibility in accomplish the goal of improving believe that the changes to the IPPS
hospital accounting practices. Another payment accuracy. should be evaluated based on whether
issue to consider is the potential These commenters emphasized that they represent an improvement to the
changes to the relative weights from while measuring improved payment current system. MedPAC has studied
undertaking efforts of this magnitude accuracy is difficult, the large degree to the IPPS extensively and found that
that will be costly for both CMS, its which the weights fluctuate given the improvement can be found in payment
fiscal intermediaries and costly and methodological changes alone indicates accuracy from adopting its
burdensome to hospitals. Although we the need for further analysis and study. recommendations that are similar to
are not modifying the cost report or our The commenters believed CMS should those we proposed.2
cost report instructions at this time, we publish reliable indicators that While we acknowledge the need for
would be open to making improvements demonstrate how the goal of payment further study and evaluation of the
in the future. accuracy is achieved. One commenter HSRVcc methodology, we continue to
Comment: Several commenters requested that CMS produce and believe that the differential markups
applauded CMS’ efforts to find ‘‘an publish estimates of payment-to-cost among departmental CCRs have
administratively feasible approach to ratios and the relative profitability by introduced distortion into the charge-
improving the accuracy of the DRG DRG to determine the effectiveness of based relative weights. We note that
weights.’’ However, they expressed different weight-setting and patient MedPAC found that ‘‘the current
serious concerns about whether the classification methodologies in payment system encourages community
proposed approach achieves that goal. improving overall payment accuracy. hospitals to allocate capital to profitable
Many commenters asserted that CMS The commenter emphasized that such services such as cardiology and
proposes to move to a new cost-based estimates must be adjusted to account stimulates the formation of specialty
methodology without offering any for the cost of providing services that hospitals that often focus on providing
evidence that the proposed method include high-technology devices that are profitable services and tend to care for
actually improves payment accuracy. understated in the cost reports. Another low-severity patients.’’ 3 The
commenter recommended that CMS information we obtained from the cost
A few commenters submitted analyses
construct a process to test the sensitivity reports on the differing level of charge
that suggest that the impact of the
of weights to various methodological markups occurring between routine and
proposed HSRVcc methodology is
assumptions and publicly share the ancillary hospital departments supports
substantially different than the MedPAC results, including: a comparison of the MedPAC’s conclusions that the most
recommendations, and may even CMS weights to MedPAC’s HSRV cost profitable DRGs that are leading to the
decrease payment accuracy relative to approach; a comparison of CMS weights development of cardiac specialty
the charge-based weights. A few to an approach using standardized costs hospitals are those that require a lot of
commenters specifically noted that (as opposed to HSRV); comparison of ancillary services with high markups
cardiac procedures are more adversely CMS weights to weights calculated by and low CCRs. We note that the
impacted by the HSRVcc methodology. estimating costs at the claim level using proposed rule showed that these
The proposed methodology reduces the 10 cost center approach; evaluation hospitals are almost exclusively affected
relative weights for the three major of other alternative methodologies for by changes to the relative weight
implantable cardioverter defibrillator estimating costs; and an evaluation of methodology providing further evidence
(ICD) DRGs (515, 535, and 536) by 25 the stability of weights over time. of bias and distortion in the relative
percent or more. While these proposed Response: We appreciate the weights by setting them using hospital
reductions imply that the weights based commenters concerns regarding the charges. To the extent that charge
on the existing charge-based HSRVcc relative weight setting markups vary significantly between the
methodology overstate the costs of ICD methodology we proposed and the large various routine and ancillary hospital
procedures and therefore overpay them, change in the relative weights that result departments, we believe that there is a
the commenters presented analyses from the application of this need to adjust charges to cost prior to
suggesting that these cases are actually methodology. As we stated in the FY setting the relative weights. Although it
underpaid. One such analysis by 2006 IPPS final rule, given the potential suggested refinements to CMS’ proposal
MedPAC, in its report on physician- for significant redistribution in (all of which we have adopted in this
owned specialty hospitals, found ICD payments, the MedPAC final rule), we note that MedPAC found
procedures to have ‘‘lower marginal’’ recommendations should be studied that the CMS proposals made great
profitability or ‘‘possibly a loss’’ for extensively before any broad strides toward achieving the goal of
hospitals, based on calculation of fundamental changes are made to the improvements in payment accuracy.4
payment-to-cost ratios and surveys of current system. In the proposed rule, we Therefore, as discussed in section II. C.,
specialty hospitals. They also indicated provided the results of such an we are using the national average CCRs
that CMS, in approving cardiac extensive analysis and concluded that to adjust the cost center charges for each
resynchronization therapy defibrillators changes can be made to the relative DRG to cost prior to setting the relative
(CRT–D) for new technology add-on weight methodology and the DRG weights. While we acknowledge that no
payments, found the device to be system to improve payment accuracy. payment methodology can be perfect
inadequately paid and granted the add- Although we agree that adopting a because DRG-specific costs cannot be
on payments to defray the costs of the methodology that results in large determined, we believe the cost-based
therapy. Given that payment rates under changes in payment should not be methodology we are finalizing in this
the charge-based weights appear to be adopted without careful study, we do rule represents a significant
inadequate in many of the not believe that the mere presence of
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cardiovascular DRGs, the commenters such significant impacts invalidates the 2 Medicare Payment Advisory Commission:

believed the severe reductions resulting methodology. On the contrary, we Report to Congress on Physician-Owned Specialty
Hospitals, March 2005, p. 37–38.
from the proposed HSRVcc believe large payment impacts may 3 Hackbarth, Glenn, MedPAC Comments on the
methodology appear to be unjustified suggest there is a significant degree of IPS Rule, June 12, 2006, page 2.
and provide ample reason to believe distortion present in the current 4 Hackbarth, Glenn, MedPAC Comments on the

that the proposed methodology does not payment system. In our view, we IPPS Rule, June 12, 2006, page 2.

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improvement over the current charge- commenter believed that we have published for CS DRGs included using
based methodology for all of the reasons violated these data quality standards, the transfer-adjusted charges prior to
we specified above. Under the cost- the public was deprived of the calculating weights.
based methodology in this final rule, we opportunity to submit meaningful Response: We used the hospital’s
will increase payment for relatively comments, as required by the charge on the claim in the HSRVcc
underpaid cases and reduce payment for Administrative Procedure Act (APA). methodology. We presume the
relatively overpaid cases. We believe The commenter urged CMS to take the commenter is asking whether we
this reform is badly needed to reduce appropriate steps that would result in adjusted the number of cases in setting
the bias in the weights and make more the withdrawal of the FY 2007 IPPS the relative weights to reflect early
appropriate payments for both medical proposed rule and the publication of a transfer to either a post-acute or other
and surgical DRGs. new proposed rule. acute care setting. We did use transfer-
In order to mitigate the impact of the Response: We disagree with the adjusted case counts when we applied
changes in the relative weights, we are commenter’s claims that the data the HSRVcc methodology for the
implementing the new cost-based utilized in the development of the FY relative weights that were shown in
weight methodology in a 3-year 2007 IPPS proposed rule were Table 5 of the IPPS proposed rule (71 FR
transition, where the weights in the first materially flawed, did not comply with 24272) and the ‘‘Consolidated severity
year will be set based on 33 percent of the Federal Data Quality Act, and did adjusted DRG HSRVcc relative weights’’
the cost-based weight and 67 percent of not meet established OMB, Department provided on the CMS Web site at:
the charge based weight. We will and CMS guidelines for data quality. http://www.cms.hhs.gov/
continue to study the HSRVcc The data sources used in estimating the AcuteInpatientPPS/FFD/list.asp
methodology, the potential effects of payment impacts from policy changes #TopOfPage. The case mix index that
charge compression and ways in which proposed in the FY 2007 IPPS proposed we use to iterate the proposed FY 2007
we can better account for severity of rule were the HCRIS files that contain HSRVcc weights did not reflect a
illness within the DRG system in the Medicare cost report data, the MedPAR transfer-adjusted case count. That is, we
coming year. files that contain Medicare claims data, used the sum of all the case weights
With respect to the changes in the the OSCAR database, and the PSF divided by the total number of cases
new patient classification system, the (which is maintained by the fiscal unadjusted for transfers to post-acute or
proposed rule noted that we modeled intermediaries and used in paying other acute care settings.
the CS DRGs and observed a 12-percent Medicare claims). These are the best and Comment: Many commenters stated
increase in the explanatory power (or R- most reliable data sources available to
that once a cost-based system is
quare statistic) of the DRG system to CMS for modeling the impacts of policy
implemented, CMS should provide at
explain hospital charges. That is, we changes. We note that these same
found more uniformity among hospital least a three-year transition. They stated
databases are used in modeling payment
total charges within the CS DRGs than that a three-year transition is consistent
impacts under the LTCH PPS, the OPPS,
we did with Medicare’s current DRG with MedPAC’s recommendation to
the IRF PPS, and the IPF PPS, as well
system (71 FR 24027). Thus, we believe implement the changes to the weights
as other payment systems. We also note
that there is clear evidence that and DRG system over a transitional
that the comment period to the FY 2007
improvements can be made to the period. Commenters recommended that
IPPS proposed rule provided
current DRG system that will reduce payments be made based on a blend of
commenters with an opportunity to
heterogeneity among patients within a bring to our attention specific examples charge and cost-based weights
given DRG. While this statistic indicates of incorrect or inaccurate data. In culminating with full cost-based
that the current CMS DRG system can be addition to our posting the impact files weights at the completion of the
refined to improve payment accuracy, from the FY 2007 IPPS proposed rule on transition period.
we agree that it does not necessarily the CMS Web site, as always, Response: We have in the past
mean we should adopt the system we commenters had access to the same provided for transition periods when
proposed. For a variety of reasons CMS data files that we utilized through adopting changes that have significant
explained further below, we believe that communication with our Office of payment implications. Given the
a number of factors must be considered Information Services (OIS). significant payment impacts upon some
in deciding how to revise the DRG The fact that the data we used in the hospitals because of these changes to
system to better recognize severity of development of the FY 2007 IPPS the DRG weighting methodology, we
illness. proposed rule were available and considered options to transition to cost-
Comment: One commenter asserted transparent to the public was attested by based weights. We believe the potential
that CMS published incorrect and the detailed data analyses included with payment effects from the changes to the
deficient information about the HSRVcc a significant number of the public DRG relative weights can be mitigated
methodology, its impact on hospitals, comments we received on the FY 2007 by adopting a 3-year transition of the
and the underlying data utilized in IPPS proposed rule. Therefore, for the relative weights. During the first year of
developing the proposed rule. reasons stated above, we disagree with the transition, the relative weights will
Specifically, the commenter believed the commenter’s assertion that the data be based on a blend of 33 percent of the
the HSRVcc methodology was flawed used by CMS in the FY 2007 IPPS cost-based weights and 67 percent of the
and therefore stated that the published proposed rule does not meet the charge weights. In the second year of the
impacts were inaccurate. The transparency and reproducibility transition, the relative weights will be
commenter believed that we failed to standards. As is the case with any based on a blend of 33 percent of the
comply with the Federal Data Quality change in policy, we do not base policy charge weights and 67 percent of the
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Act, and OMB, HHS, and CMS decisions on mere assumptions, but cost-based weights. In the third year of
Guidelines which address the quality of rather we analyze the relevant data and the transition, the relative weights will
the data used for policy development, in any comments submitted in response to be based on 100 percent of the cost-
particular, meeting standards of utility, a proposed rule. based weights.
objectivity, integrity, and transparency Comment: One commenter stated that Comment: One commenter asserted
and reproducibility. Because the it was unclear whether the weights that the proposed changes to improve

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payment accuracy and to provide new provider numbers to physician- consequently, Medicare beneficiaries’
payment equity between specialty and owned, limited service hospitals until access to care may be diminished.
general hospitals do not address many the agency’s strategic plan has been Therefore, the commenters stated that if
of the differences between specialty and developed and the Congress has had the CMS adopts a cost-based DRG weighting
full-service hospitals. The commenter opportunity to consider the agency’s methodology, a more accurate measure
stated that hospitals should be final report on the topic. of determining hospitals’ actual costs
reimbursed for the additional services Response: We are in the process of must be developed.
that are required to operate a full-service completing the Final Report to Congress Many commenters believed that
hospital which are often unnecessary in and the Strategic and Implementing ‘‘charge compression’’ is a concern
a specialty hospital setting. The Plan on Specialty Hospitals, as required because the proposed HSRVcc
commenter acknowledged that CMS by section 5006 of the DRA. Section methodology uses a single CCR for a
already provides some support to 5006 of the DRA requires us to consider, variety of items and services in a
hospitals that serve a high percentage of among other things, issues of bona fide department. Specifically, under the
Medicaid patients through investment and proportionality of proposed HSRVcc methodology, we
disproportionate share payments. investment with respect to physician proposed to aggregate hospital-level
However, the commenter suggested that investment in specialty (that is, cardiac, departmental charges into 10 cost
CMS also make add-on payments to the orthopedic or surgical) hospitals. centers for each DRG, and then apply
base DRG payment for expenses such as: Section 5006 of the DRA also provides national average cost-center level CCRs
operation of a full-service, 24-hour that the suspension on enrollment of to determine estimated costs. The
emergency department; operation of a new specialty hospitals that we commenters asserted that because most
trauma service, a burn unit, or other administratively instituted on June 9, hospitals do not apply the same uniform
high cost medically necessary services; 2005, shall expire upon the date we percentage mark-up when setting the
sponsoring ground and helicopter issue the final report, or, if the report is charges of each item in the department,
ambulance services; operation of 24- issued after August 8, 2006, it shall the proposed HSRVcc methodology
hour diagnostic services; provision of expire on October 8, 2006. We note that underestimates the cost of relatively
round the clock nursing services; and Congress has provided for a date certain more expensive items (particularly
provision of other support services such for the end of the suspension on devices and implants) and overestimates
as clinical pharmacists, nutritionists, enrollment of new specialty hospitals. the cost of relatively less expensive
case managers, and medical social Furthermore, we have not identified a items. The commenters believed that the
workers. The commenter believed these need at this time to continue the use of a single CCR for a variety of
add-on payments will encourage suspension beyond that date. different items results in a systematic
hospitals to maintain these services Comment: Many commenters stated distortion of the estimated costs, and
rather than promote specialty hospitals that CMS’s proposed HSRVcc consequently the DRG relative weights
that may be able to operate at a lesser methodology presented in the FY 2007 that are used in determining the IPPS
cost without some or all of these IPPS proposed rule failed to address payment rates. Specifically, many
services. issues of ‘‘charge compression.’’ The commenters stated that the HSRVcc
Response: Medicare does pay for all of commenters explained that ‘‘charge methodology has a disproportionate
these services through either the IPPS or compression’’ describes the common adverse impact on DRGs that include
OPPS payment. We disagree that add-on billing practice of hospitals applying implantable technologies and devices,
payments are necessary for services that higher percentage markups on lower and in some cases would result in
are commonly provided at many cost items and lower percentage Medicare reimbursement that is less
hospitals. The costs of these services markups on higher cost items. The than the actual cost of the device.
will be incorporated in the IPPS or commenters noted that MedPAC Some commenters discussed cost data
OPPS relative weights. Rather, we explained that hospitals may reduce the research that has been performed since
continue to believe that Medicare’s IPPS mark-ups for higher-cost items to avoid the implementation of the OPPS to
payment system needs to be changed to ‘‘sticker shock.’’ 5 As discussed below, determine the causes and effects of
make more equitable payment across all many commenters believed that, to the ‘‘charge compression.’’ The commenters
hospitals and decrease the incentive to extent ‘‘charge compression’’ exists, the asserted that OPPS payment rates are
profit from patient and DRG selection. proposed HSRVcc methodology would also affected by charge compression.
Comment: A few commenters stated lead to systematic differences between Specifically, one commenter recently
that although the DRG payment changes estimates of costs and Medicare’s commissioned research to investigate
proposed by CMS seek to address the payments. Therefore, the commenters whether Medicare claims data provided
proliferation of physician-owned, believed that the proposal failed to statistical evidence of ‘‘charge
limited service hospitals in response to accomplish CMS’s stated goal of setting compression.’’ (This research was
recommendations by MedPAC, they do the DRG weights based on accurate cost summarized in an executive summary
not believe that these payment changes determinations. If the proposed by Christopher Hogan of Direct
alone will remove the inappropriate methodology is implemented, several Research, LLC. entitled ‘‘A Proposed
incentives created by physician self- commenters believed hospitals that Solution for Charge Compression.’’)
referral to limited-service hospitals. perform a large volume of procedures Many other commenters cited this
They stated that physicians will still requiring relatively costly supplies/ recent research in their own comments,
have the ability and incentive to refer procedures would be severely and and recommended that the results of
financially attractive patients to unfairly penalized through this research be used to develop an
facilities they own, avoid serving low- inappropriately reduced Medicare DRG adjustment under the proposed HSRVcc
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income patients, and encourage payments. The treatments they provide methodology to account for ‘‘charge
utilization of profitable services. The would be less likely to be provided, and compression.’’ This analysis utilized the
commenters urged CMS to examine the detailed coding of charges for supplies
investment structures of physician- 5 Medicare Payment Advisory Commission, by revenue center on the Medicare
owned, limited service hospitals and to ‘‘Meeting Brief: Study of Hospital Charge-Setting claims data in the Standard Analytical
continue the moratorium on issuing Practices, ’’ September 9–10, 2004. Files (SAF) to divide the single cost-

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center CCR for ‘‘supplies and weighting methodology under the IPPS a study on charge compression and
equipment’’ used under the proposed must address the distortion caused by review the statistical models provided
HSRVcc methodology into separate cost- ‘‘charge compression’’ and must ensure to us by the commenters. To the extent
center CCRs for 5 supplies subcategories that the methodology utilizes accurate that we find ‘‘charge compression’’
(general supplies; implantables; sterile cost determinations. Consequently, exists, we will further study potential
supplies; pacemakers and defibrillators; some commenters requested a delay in models that could adjust for it so we can
and all other supplies) based on a the implementation of the cost-based develop more accurate systems of cost-
‘‘strong statistical association between DRG weighting methodology until an based weights to better reflect the
mix of charges for supplies (by revenue adjustment for ‘‘charge compression’’ relative costs of the different types of
center) in a hospital and the [overall] can be incorporated. In addition, some services provided under the IPPS. As
supplies CCR in a hospital.’’ Using these commenters stated that such an suggested in the comments, we plan to
data from all hospitals, a regression adjustment should also be used to fully involve appropriate stakeholders
analysis yielded a single ‘‘set of CCR address ‘‘charge compression’’ under in future analysis of this issue to the
adjustments reflecting national average the OPPS. Several commenters extent feasible. Before implementing
CCRs for [each of] the [five supplies] recommended that, in addition to such an adjustment, we would fully
sub-categories.’’ This national-average including an adjustment for ‘‘charge describe our analysis and a potential
set of adjustments is applied to each compression,’’ the methodology for proposed adjustment as part of the IPPS
hospital (and combined with each determining the cost-based DRG relative proposed rule for FY 2008.
hospital’s actual supplies CCR) to weights be developed without Further, we intend to use the charge
determine an adjusted estimate of cost employing the HSRV methodology. compression study that we will conduct
on each hospital’s claim in the MedPAR However, a few other commenters over the next year as an opportunity to
file. The results of this research showed endorsed the proposed HSRVcc better understand the costs of medical
that this variation in CCRs across the methodology, stating that the ‘‘HSRVcc devices. The United States faces a
supplies subcategories would result in methodology more closely represents dilemna in health care. Although the
weights for some DRGs being the cost of providing services than the rate-of-increase in health care spending
significantly different than under the current charge-based system.’’ slowed last year, costs are still growing
HSRVcc methodology. In particular, the Several commenters referenced at an unsustainable rate. One reason
methodology advocated by Hogan various research studies on this issue health care costs are rising so quickly is
would increase the relative weights ‘‘for undertaken over the past 5 to 6 years. that most consumers of health care are
DRGs with substantial charges in the These commenters asserted that the frequently not aware of the actual cost
implantable devices and pacemaker/ research supports the existence of of their care due to lack of transparency.
defibrillator revenue centers.’’ ‘‘charge compression’’ and its systemic We believe that cost, quality, and
The commenters pointed out that the distortion in payment rates. The patient satisfaction information should
results of this research are consistent commenters also stated that ‘‘although be available across the spectrum of care.
with previous analyses demonstrating evidence of the effect of charge Transparency of device pricing is a
‘‘charge compression’’ in hospitals’ compression is not new,’’ research that key aspect of consumer understanding
billing patterns. The commenters also could support an adjustment to offset of the cost of health care. We believe
noted that this research was conducted charge compression was not available. that the enhanced understanding of
exclusively on Medicare claims data, However, according to the commenters, device pricing that will be brought
without supplementation with any ‘‘research just completed now presents about as part of our charge compression
external data. The commenters believed a solution.’’ study will help accelerate the public
that this research demonstrates that an Response: We appreciate the release, in a consumer friendly fashion,
adjustment for ‘‘charge compression’’ is commenters’ concerns regarding charge of pricing information of medical
possible. They further asserted that the compression and its impact on the devices. The public release of device
research provides a solid analytical relative weight calculations under the pricing will help augment our overall
basis for a specific adjustment. The proposed HSRVcc methodology. We are efforts to empower consumers with
commenters advocated that we use the interested in further studying the better information on the health care
coefficients from this regression analysis analytic technique suggested in the they require.
to develop a ‘‘data-driven’’ adjustment comments of using a regression analysis In addition, we note that in order to
to the CCRs for the supplies and to identify adjustments that could be mitigate the impact of adopting a
equipment to address the distortion made to the CCRs to account for charge revised methodology for calculating
caused by ‘‘charge compression.’’ compression. We note that the Hogan DRG weights, we are standardizing
Another commenter supported the study’s regression model was only charges for MedPAR claims using the
idea of a ‘‘charge compression’’ applied to expensive medical supplies same methodology we have used in past
adjustment but suggested that CMS and devices and was not applied years, rather than using the HSRV
should ensure appropriate stakeholder uniformly to develop potential methodology. However, as discussed in
involvement before applying such a adjustments that could be made to costs detail in section II.E. of this preamble to
policy. Other commenters also and charges across all revenue and cost the final rule, we are adopting our
advocated for the use of data from the centers that could potentially be subject proposal to adjust charges to account for
SAF to analyze the relationship between to charge compression. If such a model costs prior to establishing DRG weights.
costs and charges for non-implantable were to be applied, we believe further However, we anticipate undertaking
supplies and equipment to determine analysis would have to be undertaken to further analysis of the hospital-specific
whether an adjustment to the medical- determine whether it should apply to all methodology over the next year in
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surgical supplies cost center on the costs and revenue centers. At this time, conjunction with the research we are
MedPAR files to account for ‘‘charge we intend to research whether a doing on charge compression. If our
compression’’ is also warranted. rigorous model should allow an analysis suggests that an adjustment for
As a result of the concerns discussed adjustment for ‘‘charge compression’’ to charge compression should be applied
above, many commenters stated that any the extent it exists. Accordingly, we and/or that the hospital-specific
change toward a cost-based DRG have engaged a contractor to undertake methodology will result in relative

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weights that more closely approximate substantial effect on all hospitals. There surgical patients, the base DRG is
the relative costs of care, we will was insufficient time between the defined based on the type of procedure
propose further changes for FY 2008. In release of the MedPAC report in March performed. For medical patients, the
the interim, we are further mitigating 2005 and the publication of the FY 2006 base DRG is defined based on the
the potential payment effects from the IPPS final rule for us to analyze fully a principal diagnosis. In Version 23.0 of
changes to the DRG relative weights by change of this magnitude. Instead, we the CMS DRG system, there are 367 base
adopting a 3-year transition of the adopted a more limited policy by DRGs and 526 total DRGs. In Version 23
relative weights. During the first year of implementing severity-adjusted cardiac of the APR DRG system, there are 314
the transition, the relative weights will DRGs. base DRGs and 1,258 total APR DRGs.
be based on a blend of 33 percent of the After publication of the FY 2006 IPPS Some of the base DRGs in the two
cost-based weights and 67 percent of the final rule, CMS contracted with 3M systems are virtually identical. For
charge weights. In the second year of the Health Information Systems to further example, there is no significant
transition, the relative weights will be analyze the MedPAC recommendations difference between the base DRG under
based on a blend of 33 percent of the in support of our consideration of both systems for medical treatment of
charge weights and 67 percent of the possible changes to the IPPS for FY congestive heart failure. For other base
cost-based weights. In the third year of 2007. Under one task of this contract, DRGs, there are substantial differences.
the transition, the relative weights will 3M Health Information Systems For example, in the CMS DRG system,
be based on 100 percent of the cost- analyzed the feasibility of using a there are two base DRGs for
based weights. revised DRG system under the IPPS that appendectomy (simple and complex); in
is modeled on the APR DRGs Version 23 the APR DRG system, there is only one
3. Refinement of DRGs Based on to better recognize severity of illness. base DRG for appendectomy (the
Severity of Illness The APR DRGs have been used relative complexity of the patient is
For purposes of the following successfully as the basis of Belgium’s addressed in the subsequent subdivision
discussions, the term ‘‘CMS DRGs’’ hospital prospective global budgeting of the base DRG into severity of illness
means the DRG system we currently use system since 2002. The State of subclasses).
under the IPPS; the term ‘‘APR DRGs’’ Maryland began using APR DRGs as the The focus of the CMS DRGs is on
means the severity DRG system basis of its all-payer hospital payment complexity. Complexity is defined as
designed by 3M Health Information system in July 2005. More than a third the relative volume and types of
Systems that currently is used by the of the hospitals in the United States are diagnostic, therapeutic, and bed services
State of Maryland; and the term already using APR DRG software to required for the treatment of a particular
‘‘consolidated severity-adjusted DRGs analyze comparative hospital illness. Thus, the focus of payment in
(CS DRGs)’’ means the DRG system performance. Many major health the CMS DRG system reflects the
based on a consolidated version of the information system vendors have relative resource use needed by the
APR DRGs (as described in detail integrated this system into their patient in one DRG group compared to
below). We discussed the CS DRGs in products. Several State agencies utilize another. Resource use is generally
the FY 2007 IPPS proposed rule and the APR DRGs for the public correlated with severity of illness but
solicited public comments on whether dissemination of comparative hospital intensive resource use does not
there are alternative DRG systems that performance reports. APR DRGs have necessarily indicate a high level of
could result in better recognition of been widely applied in policy and severity in every case. It is possible that
severity than the CS DRGs we were health services research. In addition to some patients will be resource-intensive
proposing. As we made clear in the being used in research by MedPAC, the and require high-cost services even
proposed rule, there are still further APR DRGs also contain a separate though they are less severely ill than
changes that are important to make to measure of risk of mortality that is used other patients. The CMS DRG system
the CS DRG system before it is ready for in the Quality Indicators of the Agency subdivides the base DRGs using age and
adoption. In the remainder of this final for Healthcare Research and Quality, the the presence of a secondary diagnosis
rule, ‘‘CS DRGs’’ refers to the DRG Premier Hospital Quality Incentive that represents a CC. The age
system we analyzed and proposed for Demonstration discussed in section subdivisions primarily relate to
adoption in FY 2008. However, as we IV.B. of this preamble, and the Joint pediatric patients (those who are less
indicate below, we received a number of Commission on Accreditation of than 18 years of age). Patients are
public comments about the proposed CS Healthcare Organizations (JCAHO) assigned to the CC subgroup if they have
DRGs, potential alternatives, and a hospital accreditation survey process at least one secondary diagnosis that is
number of other issues related to our (Shared Visions-New Pathways). considered a CC. The diagnoses that are
proposal. Below we summarize those Below we present a comparison of the designated as CCs are the same across
comments, respond to the comments, CMS DRG system and the APR DRG all base DRGs. The subdivisions of the
and present our plans for adopting a system. base CMS DRGs are not uniform: Some
severity-adjusted DRG system for FY base DRGs have no subdivision; some
2008. a. Comparison of the CMS DRG System
base DRGs have a two-way subdivision
In the FY 2006 IPPS final rule (70 FR and the APR DRG System
based on the presence of a CC; and other
47474), we stated that we would The CMS DRG and APR DRG systems base DRGs have a three-way subdivision
consider making changes to the CMS have a similar basic structure. There are based on a pediatric subdivision
DRGs to better reflect severity of illness 25 MDCs in both systems. The DRG followed by a CC subdivision of the
among patients. We indicated that we assignments for both systems are based adult patients. In addition, some base
would conduct a comprehensive review on the reporting of ICD–9–CM diagnosis DRGs in MDC 5 (Diseases and Disorders
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of the CC list as well as consider the and procedure codes. Both DRG systems of the Circulatory System) have a
possibility of using the APR DRGs for are composed of a base DRG that subdivision based on the presence of a
FY 2007. We did not adopt APR DRGs describes the reason for hospital major cardiovascular condition or
for FY 2006 because such an adoption admission and a subdivision of the base complex diagnosis.
would represent a significant DRG based on other patient attributes The APR DRG system subdivides the
undertaking that could have a that affect the care of the patient. For base DRGs by adding four severity of

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illness subclasses to each DRG. Under involving multiple organ systems are For example, an infection is considered
the APR DRG system, severity of illness assigned to the higher severity of illness more significant for an immune-
is defined as the extent of physiologic subclasses. The four severity of illness suppressed patient than for a patient
decompensation or organ system loss of subclasses under the APR DRG system with a broken arm. The logic of the CC
function. The underlying clinical are numbered sequentially from 1 to 4, subdivision in the CMS DRG system is
principle of APR DRGs is that the indicating minor (1), moderate (2), a simple binary split for the presence or
severity of illness of a patient is highly major (3), and extreme (4) severity of absence of a CC. In the APR DRG
dependent on the patient’s underlying illness. system, the determination of the
problem and that patients with high The APR DRG system does not severity subclass is based on an 18-step
severity of illness are usually subdivide base DRGs based on the age process that takes into account
characterized by multiple serious of the patient. Instead, patient age is secondary diagnoses, principal
diseases or illnesses. The assessment of used in the determination of the severity diagnosis, age, and procedures. The 18
the severity of illness of a patient is of illness subclass. In the CMS DRG steps are divided into three phases.
specific to the base APR DRG to which system, the CC list is generally the same There are six steps in Phase I, three
a patient is assigned. In other words, the across all base DRGs. However, there are steps in Phase II, and nine steps in
determination of the severity of illness CC list exclusions for secondary Phase III.
is disease-specific. High severity of diagnoses that are related to the The diagram below illustrates the
illness is primarily determined by the principal diagnosis. In the APR DRG three-phase process for determining
interaction of multiple diseases. Patients system, the significance of a secondary patient severity of illness subclass.
with multiple comorbid conditions diagnosis is dependent on the base DRG. BILLING CODE 4120–01–P
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Under the CMS DRG system, a patient present that is a CC. There is no severity of illness is primarily
is assigned to the DRG with CC if there recognition of the impact of multiple determined by the interaction of
ER18AU06.006</GPH>

is at least one secondary diagnosis CCs. Under the APR DRG system, high multiple diseases. Under the CMS DRG

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system, patients are assigned to an MDC coronary angioplasty with or without less than optimal quality. Although
based on their principal diagnosis. insertion of stents. The APR DRGs do there is no direct recognition of the
While the principal diagnosis is not make such a differentiation. The codes under the 996 category, the
generally used to assign the patient to insertion of the stent makes the patient’s precise complication, in general, can be
an MDC in the APR DRG system, there case more complex but does not mean coded separately and could contribute
is a rerouting step that assigns some the patient is more severely ill. to the severity of illness subclass
patients to another MDC. For example, However, the inability to insert a stent assignment.
lower leg amputations can be performed may be indicative of a patient’s more Comment: Some commenters strongly
for circulatory, endocrine, or advanced coronary artery disease. supported including the complication
musculoskeletal principal diagnoses. Although such conflicts are relatively codes (996.00–999.9) when assigning a
Instead of having three separate few in number, they do represent an patient to a severity-adjusted DRG
amputation base DRGs in different underlying difference between the two because the codes represent pre-existing
MDCs as is done in the CMS DRG systems. If Medicare were to adopt a or predictably higher risks upon
system, the APR DRG system reroutes severity DRG system based on the APR admission for difficult patients who are
all of these amputation patients into a DRG logic but assign cases based on typically referred to regional centers.
single base APR DRG in the complexity as well as severity as we do The commenters stated that failure to do
musculoskeletal MDC. The CMS DRG under the current Medicare DRG so will create new incentives for adverse
system uses death as a variable in the system, such a distinction would admission selection and underpay
DRG definitions but the APR DRG represent a departure from the exclusive hospitals that treat difficult patients.
system does not. Both DRG systems are focus on severity of illness that The commenters stated that the 996
based on the information contained in currently forms the basis of assigning codes include some complications that
the Medicare Uniform Bill. The APR cases in the APR DRG system. should never be paid (for example,
DRG system requires the same Section 1886(d)(4) of the Act specifies wrong site surgery and instruments left
information used by the current CMS that the Secretary must adjust the in the patient). However, the
DRG system. No changes to the claims classifications and weighting factors at commenters indicated that these kinds
form or the data reported would be least annually to reflect changes in of complications likely constitute less
necessary if CMS were to adopt APR treatment patterns, technology, and than one-half of one percent of all
DRGs or a variant of them. other factors that may change the complications and revising the DRG
The CMS DRG structure makes some relative use of hospital resources. system so that all 996 codes are not paid
DRG modifications difficult to Therefore, we believe a method of will provide incentives to hospitals to
accommodate. For example, high recognizing technologies that represent avoid admitting patients that are at high
severity diseases that occur in low increased complexity, but not risk because of a pre-existing condition
volume are difficult to accommodate necessarily greater severity of illness, or other circumstance. Another
because the only choice is to form a should be included in the system. We commenter stated that all infections
separate base DRG with relatively few plan to develop criteria for determining should be removed as complicating
patients. Such an approach could lead when it is appropriate to recognize conditions under the DRG system.
to a proliferation of low-volume DRGs. increased complexity in the structure of Response: The discussion in this
Alternatively, these cases may be the DRG system and how these criteria section of the proposed rule noted that
included in DRGs with other patients interact with the existing statutory 996 codes are used in assigning a
that are dissimilar clinically or in costs. provisions for new technology add-on patient to a CMS DRG but not to an APR
Requests for new base DRGs formed on payments. In the FY 2007 IPPS DRG. Although the discussion in this
the use of a specific technology may proposed rule, we invited public section of the proposed rule did indicate
also be difficult to accommodate. Base comments on this particular issue. that using these codes to assign a patient
DRGs formed based on the use of a Another difference between the CMS to a DRG may raise questions about
specific technology would result in the DRG system and the APR DRG system incentives for less than optimal quality,
payment weight for the DRG being is the assignment of diagnosis codes in the discussion was only intended to
dominated by the price set by the category 996 (Complications peculiar to note the differences that currently exist
manufacturer for the technology. certain specified procedures). The CMS between the CMS and the APR DRGs.
The structure of the APR DRGs DRG system treats virtually all of these The commenters raised issues that
provides a means of addressing high codes as CCs. With the exceptions of require further study. We will consider
severity cases that occur in low volume complications of organ transplant and quality of care issues and payment
through assignment of the case to a limb reattachments, these complication incentives as we consider how to
severity of illness subclass. However, codes do not contribute to the severity implement section 5001(c) of Pub. L.
the APR DRG structure does not of illness subclass in the APR DRG 109–171 with respect to hospital
currently accommodate distinctions system. While these codes could be acquired conditions, including
based on complexity. Technologies that added to the severity logic, the infections. There is a more detailed
represent increased complexity, but not appropriateness of recognizing codes discussion of this provision of the law
necessarily greater severity of illness, such as code 998.4 (Foreign body in a later section of this final rule.
are not explicitly recognized in the APR accidentally left during a procedure) as Table B below summarizes the
DRG system. For example, in the CMS a factor in payment calculation could differences between the two DRG
DRGs, there are separate DRGs for create the appearance of incentives for systems:

TABLE B.—COMPARISON OF THE CMS DRG SYSTEM AND THE APR DRG SYSTEM
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Element CMS DRG System APR DRG System

Number of base DRGs ......................................................................................... 367 ........................................................ 314


Total number of DRGs ......................................................................................... 526 ........................................................ 1,258
Number of CC (severity) subclasses ................................................................... 2 ............................................................ 4

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TABLE B.—COMPARISON OF THE CMS DRG SYSTEM AND THE APR DRG SYSTEM—Continued
Element CMS DRG System APR DRG System

Multiple CCs recognized ...................................................................................... No ......................................................... Yes.


CC assignment specific to base DRG ................................................................. No ......................................................... Yes.
Logic of CC subdivision ....................................................................................... Presence or absence ............................ 18-step process.
Logic of MDC assignment .................................................................................... Principal diagnosis ................................ Principal diagnosis
with rerouting.
Death used in DRG definitions ............................................................................ Yes ........................................................ No.
Data requirements ................................................................................................ Hospital claims ...................................... Hospital claims.

To illustrate the differences between and rectum (ICD–9–CM diagnosis code CM diagnosis code 422.99), and
the two DRG systems, we compare in 569.41). Under the CMS DRG system, atrioventricular block, complete (ICD–
Table C below four cases that have been the patient is assigned to base DRG 149 9–CM diagnosis code 426.0). Under the
assigned to CMS DRGs and APR DRGs. (Major Small and Large Bowel CMS DRG system, the patient is
In all four cases, the patient is a 67-year- Procedures Without CC). Under the APR assigned to DRG 148. Under the APR
old who is admitted for diverticulitis of DRG system, the patient is assigned to DRG system, the patient is assigned to
the colon and who has a multiple base DRG 221 (Major Small and Large base DRG 221 and the severity of illness
segmental resection of the large Bowel Procedures) with a severity of subclass increases to 3 (major).
intestine performed. ICD–9–CM illness subclass of 1 (minor).
diagnosis code 562.11 (Diverticulitis of Case 2: The patient receives a Case 4: The patient receives multiple
colon (without mention of hemorrhage)) secondary diagnosis of an ulcer of anus secondary diagnoses of an ulcer of anus
and ICD–9–CM procedure code 45.71 and rectum and an additional secondary and rectum, unspecified intestinal
(Multiple segmental resection of large diagnosis of unspecified intestinal obstruction, acute myocarditis,
intestine) would be reported to capture obstruction (ICD–9–CM diagnosis code atrioventricular block, complete, and
this case. In both DRG systems, the 560.9). Under the CMS DRG system, the the additional diagnosis of acute renal
patient would be assigned to the base patient is assigned to DRG 148 (Major failure, unspecified (ICD–9–CM
DRG for major small and large bowel Small and Large Bowel Procedures With diagnosis code 584.9). Under the CMS
procedures. These four cases would fall CC). Under the APR DRG system, the DRG system, the patient is assigned to
into two different CMS DRGs and four patient is assigned to base DRG 221 and DRG 148. Under the APR DRG system,
different APR DRGs. We include the severity of illness subclass increases the patient is assigned to base DRG 221
Medicare average charges in the table to to 2 (moderate). and the severity of illness subclass
illustrate the differences in hospital Case 3: The patient receives multiple increases to 4 (extreme).
resource use. secondary diagnoses of an ulcer of anus
Case 1: The patient receives only a and rectum, unspecified intestinal
secondary diagnosis of an ulcer of anus obstruction, acute myocarditis (ICD–9–

TABLE C.—EXAMPLE OF SAMPLE CASES ASSIGNED UNDER THE CMS DRG SYSTEM AND UNDER THE APR DRG SYSTEM
CMS DRG System APR DRG System
Principal diagnosis code: 562.11
Procedure code: 45.71 Average Average
DRG assigned DRG assigned
charge charge

Case 1—Secondary Diagnosis: 569.41 .......................................... 149 without CC .......... $25,147 221 with severity of ill- $25,988
ness subclass 1.
Case 2—Secondary Diagnoses: 569.41, 560.9 ............................. 148 with CC ............... 59,519 221 with severity of ill- 38,209
ness subclass 2.
Case 3—Secondary Diagnoses: 569.41, 560.9, 422.99, 426.0 ..... 148 with CC ............... 59,519 221 with severity of ill- 66,597
ness subclass 3.
Case 4—Secondary Diagnoses: 569.41, 560.9, 422.99, 426.0, 148 with CC ............... 59,519 221 with severity of ill- 130,750
584.9. ness subclass 4.

The largest significant difference in MedPAC noted that the larger number of subclasses within a base DRG should be
average charges is seen in case 4 where DRGs under a severity-weighted system restricted to contiguous severity of
the average charge under the APR DRG might mean that CMS would be faced illness subclasses. Thus, it would not be
assigned to the patient ($130,750) is with establishing weights in many reasonable clinically to combine
more than double the average charge categories that have few cases and, thus, severity of illness subclasses 1 and 4
under the CMS DRG assigned to the potentially creating unstable estimates. solely because both consist of low-
patient ($59,519). While volume is an important volume cases. We analyzed
consideration in evaluating any consolidating APR DRGs by either
b. CS DRGs for Use in the IPPS
potential consolidation of APR DRGs for combining the base DRGs or the severity
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APR DRGs were developed to use under the IPPS, we believe that of illness subclasses within a base DRG.
encompass all-payer patient hospital resource use and clinical For consolidation across base APR
populations. As a result, we found that, interpretability also need to be taken DRGs, we considered patient volume,
for the Medicare population, some of into consideration. For example, any similarity of hospital charges across all
the APR DRGs have very low volume. consolidation of severity of illness four severity of illness subclasses and

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clinical similarity of the base APR The objective to simultaneously take difficult to consolidate severity of
DRGs. For consolidations of severity of into consideration patient volume and illness subclass 3 and 4 patients.
illness subclasses within a base DRG, average charges often produced conflict. Conversely, we found that, while the
we considered patient volume and the Table D below contains the overall average charge difference between
similarity of hospital charges between patient volume and average charge by severity of illness subclass 1 (minor)
severity of illness subclasses. In APR DRG severity of illness subclass. and 2 (moderate) patients was much
considering how to consolidate severity While severity of illness subclass 4 smaller, of approximately $17,649 and
of illness subclasses, we believed it was (extreme) has the lowest patient volume $20,021, respectively, the majority of
important to use uniform criteria across of 5.80 percent, we found that the patient volume (68.08 percent) is in
all DRGs to avoid creating confusing dramatically different average charges
these two subclasses. Thus, low patient
and difficult to interpret results. That is, between severity of illness subclass 3
volume and small average charge
we were concerned about (major) and subclass 4 (extreme)
differences rarely coincided.
inconsistencies in the number of patients of approximately $32,426 and
severity levels across different DRGs. $81,952, respectively, would make it

TABLE D.—OVERALL AVERAGE CHARGES AND PATIENT VOLUME BY APR DRG SEVERITY OF ILLNESS SUBCLASS
APR DRG APR DRG APR DRG APR DRG
Severity of Severity of Severity of Severity of
All cases illness illness illness illness
Subclass 1 Subclass 2 Subclass 3 Subclass 4

Number of Cases ....................................................... 11,142,651 21.47% 46.61% 26.12% 5.80%


Average Charges ....................................................... $26,342 $17,649 $20,021 $32,426 $81,952

There were also few opportunities to impact on hospital resource use than the single group having 5,492 patients and
consolidate base DRGs. For base DRGs reason for admission (that is, the base an average charge of $107,258. However,
in which there was a clinical basis for APR DRG within an MDC). Thus, we we decided not to include kidney
considering a consolidation, there were believe that, within each MDC, the transplant patients in this severity of
usually significant differences in severity of illness subclass 4 medical illness subclass 4 due to their very high
average charges for one or more of the and surgical patients, respectively, average charges (approximately
severity of illness subclasses. APR DRGs could be consolidated into a single $203,732 or more than $100,000 greater
already represented a considerable group. than other patients in MDC 11 having a
consolidation of base DRGs (314) In some MDCs, it was not possible to
severity of illness subclass 4). Average
compared to CMS DRGs (367). Thus, we consolidate into a single medical and a
charges within the consolidated severity
expected that further base DRG single surgical severity of illness
subclass 4 group. In these MDCs, more of illness subclass 4 surgical DRG in
consolidation would be difficult.
We reviewed the patient volume and than one group was necessary. For MDC 11 show some variation but are
average charges across APR DRGs and instance, Table E below contains the much higher than the corresponding
found that medical cases assigned patient volume and average charges for average charges for the severity of
severity of illness subclass 4 within an severity of illness subclass 4 cases in illness subgroup 3 patients of $48,863.
MDC have similar average charges. We MDC 11 (Diseases and Disorders of the Thus, our analysis suggests that the data
observed the same pattern in average Kidney and Urinary Tract). Taking into support maintaining three severity of
charges across severity of illness consideration volume and average illness levels for each base DRG in MDC
subclass 4 surgical patients within an charges, except for APR DRG 440 11; a separate severity of illness subclass
MDC. The data suggest that, in cases (Kidney Transplant), surgical cases 4 for all patients other than those having
with a severity of illness of subclass 4, assigned severity of illness subclass 4 in kidney transplant; and a separate DRG
the severity of the cases had more MDC 11 could be consolidated into a for kidney transplants.
TABLE E.—SUMMARY STATISTICS FOR SURGICAL CASES WITH SEVERITY OF ILLNESS SUBCLASS 4 IN MDC 11
Average Average
Number of
APR DRG length of total
cases stay charges

440 (Kidney Transplant) ........................................................................................................................ 378 18.0 $203,732


441 (Major Bladder Procedures) ........................................................................................................... 528 21.5 128,729
442 (Kidney & Urinary Tract Procedure for Malignancy) ...................................................................... 833 16.6 101,501
443 (Kidney & Urinary Tract Procedure for Non-Malignancy) .............................................................. 966 18.4 103,905
444 (Renal Dialysis Access Device Procedure Only—Severity of Illness Subclass 4) ....................... 935 18.3 104,249
445 (Other Bladder Procedures) ........................................................................................................... 186 15.2 80,197
446 (Urethral & Transurethral Procedure—Severity of Illness Subclass 4) ......................................... 492 13.4 73,110
447 (Other Kidney, Urinary Tract & Related Procedures) .................................................................... 1,552 19.3 121,011
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The consolidation of severity of With Conditions Originating in the Induced Organic Mental Disorders). In
illness subclass 4 APR DRG into fewer Perinatal Period), MDC 19 (Mental the 22 MDCs in which the severity of
groups was done for all MDCs except Diseases and Disorders), and MDC 20 illness subclass 4 consolidation was
MDC 15 (Newborn and Other Neonates (Alcohol/Drug Use and Alcohol/Drug applied, the number of separate severity

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of illness subclass 4 groups was reduced total number of MDC 15 DRGs from 112 pancreas transplants, and
from 262 to 69. in the APR DRG system to 14 CS DRGs. tracheotomies. For the pre-MDC DRGs,
For MDC 14 (Pregnancy, Childbirth, In MDC 19, we consolidated 12 base except for Bone Marrow Transplant, we
and Puerperium), the base APR DRGs DRGs into 4 base DRGs. We retained the consolidated severity of illness
were consolidated from 12 to 6. Severity 4 severity of illness subclasses in MDC subclasses 1 and 2 into one DRG. In
of illness subclass 1 through 3 were 19 for each of the 4 base DRGs. In MDC addition, the three base APR DRGs for
retained, and severity of illness subclass 20, the base APR DRG for patients who Human Immunodeficiency Virus (HIV)
4 was consolidated into a single APR left against medical advice has severity with multiple or major HIV-related
DRG, except for cesarean section and of illness subclass 1 and 2 consolidated
conditions had severity of illness
vaginal deliveries, which were and severity of illness subclass 3 and 4
subclasses 1 and 2 consolidated.
maintained as separate APR DRGs. This consolidated. The remaining 4 base
consolidation reduced the total number DRGs were consolidated into 1 base In total, we reduced 1,258 APR DRGs
of obstetric APR DRGs from 48 to 22. DRG with 4 severity of illness to 861 CS DRGs. In Appendix C of this
The Medicare patient volume in MDC subclasses. proposed rule, we present the 861
15 was very low, allowing for a more We did not consolidate any of the pre- unique combinations of CS DRGs.
aggressive consolidation. For MDC 15, MDC subclass 4 APR DRGs such as Table F below includes a description
we consolidated 28 base APR DRGs into Heart Transplant. As explained earlier,
of the consolidations that we did within
7 base CS DRGs. For each of the 7 pre-MDC DRGs are DRGs to which cases
each individual MDC and includes
consolidated base MDC 15 DRGs, we are directly assigned on the basis of
information about the total number of
combined severity of illness subclasses ICD–9–CM procedure codes. These
1 and 2 into one DRG and severity of DRGs are for liver and/or intestinal DRGs that were eliminated from the
illness subclass 3 and 4 into another transplants, heart and/or lung APR DRGs to develop the CS DRGs.
DRG. This consolidation reduced the transplants, bone marrow transplants, BILLING CODE 4120–01–P
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Appendix D of the FY 2007 IPPS crosswalk of each CS DRG to its DRGs sequentially and incorporated the
proposed rule (71 FR 24433) showed the respective APR DRG. We numbered the severity of illness subclass into the DRG
ER18AU06.007</GPH>

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description. However, within the range Implant). These patients will be paid in would be paid in the same group as all
of sequential numbers used for an MDC, the same group as implantable cardiac spinal fusions and the new DRGs would
we retained some unused numbers to defibrillator patients under the CS not recognize higher costs associated
allow for future DRG expansion. By DRGs. The commenters noted that it is with treating these patients.
using a three-digit number for the CS possible that payment for these kinds of • The APR DRG and CS DRG systems
DRGs, we also avoid the need for cases could decline by more than 70 do not have DRGs for lung transplants
reprogramming of computer systems percent under the proposed rule. The alone or combined kidney/pancreas
that would be necessary to commenter believed that the assignment transplants. The commenter suggested
accommodate a change from the current under the CS DRGs will not recognize that there should be separate DRGs for
three-digit DRG number to separate higher resources associated with these transplants in addition to liver/
fields for the base CS DRG number and treating VAD patients relative to those intestinal transplants. The commenter
the severity of illness subclass. in need of implantable cardiac indicated that lung transplants alone
Severity DRGs represent a significant defibrillators. have lower costs and should not be in
change from our current DRG system. In • Bare metal and drug-eluting the same DRG as combined transplants.
addition to changing the way claims are coronary stents would be assigned to the Response: In the vast majority of
grouped, severity DRGs introduce other same CS DRG eliminating the clinical situations, severity of illness
issues requiring additional analysis, distinction currently made for these two and treatment complexity are directly
including possible increases in reported different kinds of stents in the CMS related and are therefore addressed in
case-mix and changes to the outlier DRGs. The commenters noted that CMS the CS DRGs. As discussed in the
threshold. Our analysis of these issues created separate DRGs for drug eluting proposed rule, there are a number of
is outlined further in the next section. and bare metal stents to recognize the clinical situations, primarily related to
Comment: A number of commenters higher costs of drug eluting stents. the use of specific technologies, in
suggested further refinements that need • Defibrillator device replacement which low severity patients receive care
to be made to the CS DRGs to account cases are currently assigned to DRG 551 with high treatment complexity and
for complexity as well as severity. (Permanent Cardiac Pacemaker Implant cost. We acknowledge that further
Commenters recommended that CMS With Major Cardiovascular Diagnoses or refinements are needed to the proposed
create a ‘‘task force’’ to analyze AICD Lead or Generator). The CS DRG system before it will be ready
situations in which the complexity of commenters were concerned that these for adoption. In the FY 2007 IPPS
the patients is not always appropriately cases would be assigned to the DRGs for proposed rule, we noted a number of
recognized by the proposed CS DRGs. Permanent Cardiac Pacemaker Implant concerns we had with adopting the CS
One commenter stated that the severity With & W/O AMI, Heart Failure or DRGs in FY 2007 (71 FR 24027). Among
system is flawed because it does not Shock and the cases would revert back them was our concern that we might
capture resource utilization or the to classification based on presence or need additional time to refine the CS
utility of technologies that would be absence of heart failure, AMI, or shock, DRGs to better account for complexity
more appropriate for beneficiaries. rather than an MCV. as well as severity. The commenters
The commenters also provided • Patients receiving tPA thrombolytic have brought some important issues to
examples of base DRG assignments therapy for stroke are currently assigned our attention that we believe should be
under the current CMS DRGs that are to DRG 559 (Acute Ischemic Stroke carefully considered before we adopt
different than those under the CS DRG. With Use of a Thrombolytic Agent). the CS DRGs. We will consider these
For instance, one commenter indicated CMS revised the DRGs in FY 2006 to issues if we were to make further
that high dose interleukin-2 (HD IL2) is provide a separate DRG for stroke modifications to the CS DRGs and
used to treat otherwise terminal cancer patients being treated with a reperfusion propose adopting them for FY 2008.
patients with metastatic renal cell agent. According to the commenter, However, as we indicate elsewhere in
cancer and melanoma. HD IL2 can these patients will be paid in the same this final rule, we have engaged a
evoke an immune response that group with all stroke cases under CS contractor to assist us with completing
eradicates the tumor and provides a DRGs undoing the change that CMS an evaluation of alternative DRG
potential opportunity for recovery. In made in FY 2006 according to the systems that may better recognize
the FY 2004 IPPS final rule, CMS commenter. severity than the current CMS DRGs and
created a new procedure code for HD • In FY 2006, CMS created separate meet other criteria that would make
IL2 therapy and assigned these patients DRGs for the revision of hip or knee them suitable to adopt for purposes of
to DRG 492. The commenter reported replacement (DRG 545, Revision of Hip payment under the IPPS. We expect to
improved access to HD IL2 therapy as a or Knee Replacement) to distinguish the complete this evaluation of alternative
result of these changes. However, the higher resources associated with DRG systems quickly this fall as part of
commenter was concerned that these revisions from original replacements. moving forward on adopting a revised
patients could potentially be assigned to Under CS DRGs, these cases would be DRG system that better recognizes
a number of different DRGs under the assigned to the same group as the severity in the IPPS rulemaking for FY
CS DRGs with a weighted average original replacement (bilateral or single) 2008. It is possible that some of the
reduction in the relative weight of 58 of the specific joint. The commenters alternatives that we evaluate for better
percent. The commenter suggested were concerned that CMS’ proposal to recognizing severity in the DRGs will be
revising the CS DRG to take into account adopt cCS DRGs will undo a proposal based on the current CMS DRGs. If we
the complexity associated with that it adopted just 1 year ago. were to develop a clinical severity
providing HD IL2 therapy. Other • Combined anterior/posterior spinal concept that uses the current CMS DRGs
commenters noted: fusion cases are currently assigned to as the starting point, it is possible that
• Some patients in need of
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DRG 496 (Combined Anterior/Posterior the issues raised by the commenters will
ventricular assist devices (VAD) are Spinal Fusion). This procedure requires no longer be a concern. If, however, we
currently paid in the same group as two separate incisions and turning the were to propose adopting the CS DRGs
heart transplant patients using the CMS patient over during surgery. The for FY 2008, we would consider the
DRGs. Other heart assist devices are commenter expressed concern that issues raised by the commenters as we
assigned to DRG 525 (Other Heart Assist under the CS DRG system, these cases make further refinements to this DRG

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system so it accounts for complexity as Response: MedPAC did not endorse DRG greatly improve recognition of
well as severity as a proxy for relative using the APR DRGs.6 However, resource use and clinical similarity of
resource use. MedPAC’s analysis that led to their patients. However, in our analysis of the
Comment: One commenter suggested recommendation to refine the current APR DRG system, we observed that
a way of accounting for therapeutic DRGs to more fully account for cases assigned severity of illness
complexity when assigning a patient difference in severity of illness among subclass 4 within an MDC have similar
under the CS DRGs. The commenter patients was based on the APR DRGs. average charges. Furthermore, our
indicated that the patient should be Even though MedPAC’s analysis was clinical consultants frequently
assigned to a severity of illness subclass based on the APR DRGs, it recognized considered the severity of illness
based on whether they received a that CMS would have to consider a subclass 4 patients across DRGs within
number of different factors when an MDC to have a closer clinical
separately identifiable technology that
making decisions in the design of a DRG resemblance than to lower severity
provides a clinical benefit and results in
system. For instance, MedPAC noted patients in their respective DRGs
significantly higher case costs
that the large number of DRGs might because, in severely ill patients,
independent of severity level relative to
mean that CMS would be faced with comorbidities have a greater impact on
the base DRG. The commenter also
establishing weights in many categories severity than the reason for admisssion.
recommended that complexity levels be
that have few cases and thus potentially Treatment patterns will evolve for these
superimposed on the proposed severity
creating unstable estimates. To avoid multiple comorbidities leading to
of illness levels, such that either
creating refined DRGs with unstable severity level 4 (sepsis, shock, acute
severity or complexity, or a combination renal failure, among others). However,
of the two, would increase the relative weights, MedPAC
recommended that the Secretary should to the extent that these multiple
classification of a case. The comorbidities will change (for example,
classifications would be defined as be selective in adopting fine clinical
distinctions similar to those reflected in better treatment of septic shock so that
severity of illness or complexity (1–4). this occurs less frequently) they should
the APR DRGs. Refining the DRGs will
Response: We will further consider require carefully weighing the benefits do so equally across all patients within
how to incorporate complexity into the of more accurate and economic an MDC. With respect to the comment
assignment of a patient to a severity of distinctions against the potential for about maintaining more DRG groups for
illness subclass under either the CS instability in relative weights based on purposes other than payment under the
DRGs if we propose to adopt them in FY a small number of cases.7 We do not IPPS, we proposed to adopt the CS
2008 or the alternative DRG system that believe that MedPAC expected that we DRGs only for Medicare inpatient
we will consider once we complete our would adopt the APR DRGs without any hospital payment. We chose to
evaluation of potential DRG systems. It changes. consolidate the APR DRGs to increase
may be possible to assign a case to a Comment: Some commenters stated administrative simplicity, minimize the
severity of illness subclass under either concerns with merging of dissimilar impact on existing claim processing
the CS DRGs, the alternative system we patient groups in the CS DRG system. systems, and avoid having multiple
plan to evaluate or even underrefined Combining clinically dissimilar groups DRGs with low case volumes and
CMS DRGs by using the procedures or across the severity dimension has the similar weights. The commenter’s
services that are provided to the patient potential to render the groups far less suggestion would essentially result in
as a measure of resource use (that is, clinically meaningful. It is anticipated many more DRGs having exactly the
complexity). We agree that the use of a that such groups would have to be same weight. Therefore, we do not see
separately identifiable procedure or restructured frequently as treatment a need to adopt the commenter’s
technology may be useful in patterns change for primarily very ill suggestion. However, a hospital or any
determining the assignment of a patient patients. Some commenters stated that it other entity can use an alternative
to a specific subclass of a base DRG seems that more categories may have patient classification system for the
much like what occurs today under the been consolidated than necessary, other purposes suggested in the
CMS DRGs when assigning patients giving up clinical and statistical comment.
with placement of a bare metal or drug- homogeneity unnecessarily. It was Comment: Some commenters stated
eluting stent to separate DRGs. noted that this is especially important if that the CS DRGs are problematic
the CS DRGs are envisioned as part of because they were not designed to
Comment: Some commenters were accommodate non-Medicare
concerned that CMS did not propose to the basis for evolving efforts towards
value-based purchasing where such populations. The commenters indicated
adopt the already widely used APR that many hospitals use DRGs for
DRGs endorsed by MedPAC, but rather measures as post-admission
complications and readmissions need to quality and other outcome
proposed to adopt CMS’-developed CS measurements and that the proposed CS
DRGs. Some commenters stated that the be evaluated on a risk-adjusted basis.
An alternative approach was suggested DRGs may not be clinically appropriate
CMS analysis that resulted in the CS for these purposes.
DRGs is skewed because Medicare uses to keep the patient groups separate from
In addition, another commenter stated
a truncated list of diagnosis and a classification perspective, but merge
that private health insurance company
procedure codes. The commenter noted from a payment analysis perspective. contracts use the CMS DRG relative
that CMS does not use comparable data Response: As discussed above, the CS
weights as the payment basis for
to what 3M uses for the complete APR DRGs are based on the APR DRG
inpatient services delivered to members
DRGs. Another commenter stated that system. The APR DRG system is
under private health insurance plans.
the APR DRGs are the most advanced comprised of 314 base DRGs, which are
The commenter stated that because
DRG classification system available divided into four severity of illness
bajohnson on PROD1PC67 with RULES2

these contracts are typically negotiated


yielding the most clinically subclasses. We believe that the APR
based on a fairly static assumption of
homogenous groupings and the greatest CMS DRGs (including classification and
6 Medicare Payment Advisory Commission.
predictive power. This commenter weights), the proposed redistribution
March, 2005. Report to the Congress, Physician-
believed that it provides a sound basis Owned Specialty Hospitals, page 76. will disrupt virtually every contract
for developing CS DRGs. 7 Ibid, page 41. because of the varying services

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consumed by members covered under In addition, we are adopting a 3-year proposed for FY 2007, based on the
private health insurance. The transition of the relative weights. We proposed Version 24 IPPS GROUPER
commenter urged CMS to provide a believe this transition may also mitigate (71 FR 24049 through 24068), and
greater lead time in implementing any potential impacts to private payer changes to the LTC–DRGs that will be
changes to the DRG system and relative contracts from the changes to the DRG effective October 1, 2006, based on the
weight methodology to allow health relative weights. During the first year of finalized Version 24 IPPS GROUPER
insurers more time to model the impact the transition, the relative weights will (presented in this final rule) are
of the methodological changes to their be based on a blend of 33 percent of the discussed in section II.F. of the
hospital contracts. cost-based weights and 67 percent of the preamble of this final rule. Any changes
Response: We acknowledge that charge weights. In the second year of the to the DRG classification systems for
Medicare DRGs are sometimes used by transition, the relative weights will be these prospective payment systems
non-Medicare payers for their own based on a blend of 33 percent of the would be undertaken through notice
purposes. However, CMS’ primary focus charge weights and 67 percent of the and comment rulemaking in their
of updates to the Medicare DRG cost-based weights. In the third year of respective proposed rules.
classification system is on changes the transition, the relative weights will Comment: One commenter stated that
relating to payment for services be based on 100 percent of the cost- it was not clear how the judgment was
furnished to Medicare beneficiaries, not based weights. made for the MDC 11 severity subclass
the obstetric, pediatric, or neonatal Comment: One commenter suggested 4 example shown that these average
population. Cases involving these that CMS seek further refinements to the charge values were sufficiently similar
patients are found far less frequently DRGs for mental services. The to consolidate. The commenter
among Medicare beneficiaries than in commenter suggested that these DRGs suggested that CMS provide further
the general population. In fact, we have been underpaid for many years. information about the criteria and
Response: We will consider whether considerations it used to judge
applied consolidations to the APR DRGs
the psychiatric DRGs need further categories as low volume and
to develop the CS DRGs to recognize
refinements as we proceed to refine the potentially unstable and to judge the
that the APR DRGs were developed to
DRG system to better recognize severity mean charges (or costs) as sufficiently
accommodate all patient populations
for FY 2008. We note that the similar to warrant consolidation. One
and there would be many DRGs with
application of cost-based weights will commenter expressed concern about the
few Medicare cases or insufficient
increase Medicare’s payments for the consolidations related to obstetrics and
differences in the relative weights to
psychiatric DRGs in FY 2007. psychiatric care services.
warrant us maintaining a separate DRG. Comment: Some commenters inquired Response: As discussed above, the CS
We encourage other payers that use how other prospective payment systems DRGs are based on APR DRGs that are
Medicare’s DRG system for payment to such as the IPF PPS and LTCH PPS that divided into severity subclasses 2
make appropriate modifications for rely upon the IPPS DRG classifications through 4 subclasses which greatly
patient populations that are found would be affected by the changes to increase the resource and clinical
infrequently among Medicare adopt CS DRGs. similarity of the patients. Furthermore,
beneficiaries such as neonates and Response: We did not propose any as discussed above, our clinical
children. Again, as we stated above, a changes to the DRG classifications consultants frequently considered the
hospital or any other entity can use an systems used under the IPF PPS or the level 4 severity patients across DRGs
alternative patient classification system LTCH PPS in the IPPS proposed rule. within an MDC to have a closer clinical
for purposes other than Medicare However, we acknowledge that these resemblance than to lower severity
payment. PPSs use the IPPS DRG classifications to patients in their respective DRGs. In
In response to the commenter’s make payment determinations. consolidating the severity level 4
concern with regard to the impact on Furthermore, we note that the patients in an MDC, volume was a
private health insurance plans, we are refinements we are adopting to the primary consideration along with the
improving our relative weight current CMS DRG system to better extent of clinical difference. For
methodology to make Medicare recognize severity (which are discussed example, in MDC 11 severity level 4,
payments more accurate. We utilize in detail in section II.C.7. of this final kidney transplants were kept in a
Medicare specific data to calculate the rule) will be applicable under the IPF separate group and not consolidated
relative weights designed to pay PPS and LTCH PPS, just as past annual with the other MDC 11 surgical DRGs
Medicare costs. We have a fiduciary updates to the IPPS DRG because of the clinical distinctiveness of
responsibility to administer the trust classifications). We will need to patients having a major organ
fund in order to provide quality care for consider whether corresponding transplant.
our beneficiaries and that, not private changes need to be made to these other Comment: One commenter expressed
payer contracts, is our foremost concern. payment systems once final decisions concern that patients may need to suffer
However, as we noted earlier in this are made about how DRG classification adverse consequences in order for the
section, we are postponing the will occur under the IPPS in the future. case to be assigned to a higher severity
implementation of the HSRV Payment rate and policy changes to the level. The commenter believed that the
methodology while we study its impact IPF PPS and LTCH PPS went into effect severity grouping should reflect
on charge compression. Instead, we are for RY 2007 on July 1, 2006. These PPSs complexity and patient benefit as well
using a more similar approach to are using the Version 23 IPPS GROUPER and should allow for an increased
calculating the IPPS relative weights for the first 3 months of RY 2007 (July severity/complexity level even without
that is used in the OPPS. That is, rather 2006 through September 2006). adverse patient consequences.
bajohnson on PROD1PC67 with RULES2

than using a hospital-specific relative Consistent with the IPPS, the IPF PPS Response: The current DRG system
weighting methodology, we are will use Version 24 of the IPPS assigns a CC status to most patients with
standardizing charges to remove GROUPER, effective October 1, 2006. No a complication or adverse event that
relevant payment factor adjustments further changes will be made to the IPF occurs after admission. Although in the
and then adjusting those charges to PPS until next July. Under the LTCH CS DRGs post admission complications
costs using national cost center CCRs. PPS, changes to the LTC–DRGs were can result in an increase in a patient’s

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severity level, patients are primarily access to the details of the CS DRG proposed rule noted that we modeled
assigned to the higher severity levels methodology. The commenters the CS DRGs and observed a 12-percent
(levels 3 and 4) based on the presence identified the following concerns: increase in the explanatory power (or R-
of multiple serious comorbidities in • Validation. The commenters square statistic) of the DRG system to
multiple organ systems rather than a indicated that it is unclear whether explain hospital charges. That is, we
single adverse event. Thus, unlike the there is a need for a new patient found more uniformity among hospital
current DRGs in which a single post classification system. The commenters total charges within the CS DRGs than
admission complication can place the stated that the implication of moving we did with Medicare’s current DRG
patient in a higher paying DRG, the CS from a resource-based system to a system (71 FR 24027). Thus, we believe
DRGs in general require multiple severity-based payment system must be that there is clear evidence that
significant problems to be present in more fully explored and understood. improvements can be made to the
order for a higher severity level to be They indicated that CMS provided no current DRG system that will reduce
assigned. In general, these patients will analysis that shows that the proposed heterogeneity among patients within a
be more costly to treat. The system does changes result in an improved hospital given DRG. While this statistic indicates
not reward ‘‘adverse’’ consequences as payment system compared to the that the current CMS DRG system can be
suggested by the commenter but instead existing DRG system or APR DRGs. refined to improve payment accuracy,
recognizes severity of illness will also • Budget neutrality adjustment. The
we agree that it does not necessarily
be associated, at least in part, with commenter indicated that the proposed
mean we should adopt the system we
resource use. rule did not address an adjustment for
proposed. As suggested by the
Patients are increasingly admitted to improved documentation and coding or
commenters, there are a number of other
the hospital at high severity of illness. even a methodology for determining
evaluation criteria that we need to
Adverse consequences can and do occur one. The commenter suggested that
CMS not apply an adjustment for more consider before deciding whether to
within the hospital. However, some of
comprehensive documentation and adopt the CS DRGs or a potential
those consequences are unavoidable
coding that increases perceived but not alternative. We describe these criteria in
(particularly for patients who are
real case mix until there is evidence that more detail below. With respect to the
admitted at a high severity of illness).
one is needed. The commenter comments about a budget neutrality
Section 5001(c) of Pub. L. 109–171
requested that CMS monitor actual adjustment to account for potential
requires that, beginning in FY 2009, we
changes in coding and documentation improvements in documentation and
select diagnosis codes associated with at
least two conditions that result in practices associated with coding, we discuss the comments and
assignment of a higher weighted DRG implementation of inpatient payment our responses on this issue more fully
and that reasonably could be prevented reforms to determine if any base in the next section of this final rule. The
through the application of evidence- payment adjustments are needed rather comment about the availability of the
based guidelines. Beginning with than adjust payments in anticipation of GROUPER is related to a number of
discharges in FY 2009, section 5001(c) such changes. detailed comments we received about
requires that we not assign cases to • Availability of the GROUPER. Many the potential for Medicare to adopt a
higher weighted DRGs based on the commenters stated that the proprietary proprietary DRG system. We have
presence of these preventable nature and lack of transparency of the provided a more detailed description of
conditions. Section 5001(c) also proposed CS DRG GROUPER are these comments and our responses
mandates that, for discharges on or after concerns. The current DRG GROUPER below. With respect to the comment
October 1, 2007, we require a hospital logic has been in the public domain about fully utilizing all of the diagnosis
to include the secondary diagnosis of a since the inception of IPPS. Without the and procedure codes submitted on the
patient at admission as part of the new GROUPER logic, the commenters claim, we note that CMS does not
information required to be reported by believed that it is virtually impossible process codes submitted electronically
a hospital for payment purposes. We for anyone to thoroughly analyze the on the 837i electronic format beyond the
believe that the concerns of the system and comment. The commenters first 9 diagnosis codes and the first 6
commenter will be addressed when we urged that CMS make any new procedure codes. While HIPAA requires
implement section 5001(c) of Pub. L. classification system widely available to CMS to accept up to 25 ICD–9–CM
109–171. the public on the same terms as the diagnosis and procedure codes on the
Comment: A number of comments current DRG system. Some commenters HIPAA 837i electronic format, it does
supported CMS’ goal of improving stated that CMS should provide the not require that CMS process that many
payment accuracy. However, the GROUPER for the CS DRGs and open a diagnosis and procedure codes. As
commenters stated that the need for and new public comment period. Several suggested by the commenters, there may
best approach to changing the patient commenters were concerned about the be value in retaining additional data on
classification system has not been cost of the GROUPER if the CS DRGs patient conditions that would result
objectively demonstrated. One were implemented. from expanding Medicare’s data system
commenter provided a sophisticated • Too few diagnoses and procedures so it can accommodate additional
statistical analysis that it asserted considered. The commenters are diagnosis and procedure codes. We will
confirms MedPAC’s conclusion that concerned that the current CMS consider this issue while we
changes are needed to improve payment GROUPER does not use all diagnosis contemplate refinements to our DRG
accuracy. However, this commenter and procedures that affect a patient’s system to better recognize patient
suggested the greatest improvement in severity of illness and/or the resources severity. However, extensive lead time
cost-margin consistency resulted from utilized. The commenters believed that is required to allow for modifications to
bajohnson on PROD1PC67 with RULES2

switching the basis for the DRG weights the number of secondary diagnoses may our internal and contractors’ electronic
from charges to cost and neither the be an important factor in determining systems in order to process and store
HSRVcc methodology nor the CS DRGs differences in patient characteristics. this additional information. We are
improved payment accuracy. Other Response: With respect to the unable to move forward with this
commenters indicated that more careful comment about the need for a new recommendation without carefully
analysis is needed, along with greater patient classification system, the evaluating implementation issues. One

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issue that we expect to consider in Comment: Numerous comments underlying codes, conditions and edits
deciding whether to adopt such a major expressed concerns about the use of a utilized by 3M with its product and as
systems change is how frequently proprietary DRG classification system. a result could not accurately comment
information beyond the ninth diagnosis The commenters indicated that the on the interaction between severity and
code and sixth procedure code affects current DRG GROUPER logic has been complexity associated with individual
DRG assignment. Given the cost of an in the public domain since the claims in contrast to resource
infrastructure change to accommodate inception of the IPPS. Many consumption. The commenter stated
this request, we want to be certain that commenters noted that the source code, that, although hospitals are not required
there are sufficient benefits to justify the logic and documentation for the current to have a GROUPER, hospitals that hold
costs. Again, we will continue to DRG system can be purchased through compliance as a top priority rely on a
carefully evaluate this request to expand the National Technical Information grouper/encoder to ensure that claims
the process capacity of our systems. Service. The commenters stressed the meet all edits prior to submission.
Comment: Some commenters stated importance of maintaining transparency Several commenters stated that a
that the CS DRG grouping methodology within the DRG system (that is, any new single company’s monopoly over the
based on average charges is inconsistent DRG system should be available to the DRG system would be costly to
with the proposed changes to adopt cost public on the same terms as the current hospitals. The commenters indicated
relative weights. The commenters one). The commenters stated that any that it would be more difficult to obtain
recommended using the HSRVcc methodology used for the Medicare the system to integrate it into hospitals’
methodology to determine cost-based GROUPER must not be based on a existing systems. The commenters
weights for consolidating the APR DRGs proprietary system. One commenter reported that Maryland hospitals report
into CS DRGs. questioned how future DRG refinements a GROUPER price of $20,000 per
Response: As explained above, we are would be made if the underlying system hospital with the ultimate price varying
not adopting the HSRVcc methodology is owned by 3M. based on criteria such as whether it is
for FY 2007 because of our concerns A number of commenters were used on a mainframe or personal
about the interaction of charge concerned that it was not possible to computer. Another commenter
compression with the hospital-specific thoroughly analyze the proposed CS expressed concerns that only 3M would
portion of the cost weight methodology. DRGs and provide comments without be providing access to the GROUPER.
Instead, we are setting relative weights the GROUPER logic. Other commenters The commenter stated that with over
based on the estimated cost of the DRGs stated that limited information on the 4,000 hospitals requiring a new severity-
where cost is determined by applying proposed CS DRGs hampered their adjusted DRG GROUPER, it is not
the national average CCRs to the ability to conduct modeling of the new feasible or reasonable to expect that one
standardized charges for each DRG in system. Some commenters raised vendor could service all the hospitals
each of the 13 cost centers. In general, serious concerns allowing CMS to nationally in the few months between
when we consider whether to further assign the CS DRG without hospitals the posting of the final IPPS rule and an
distinguish types of cases within a DRG having the ability to group the case October 1, 2006 implementation. The
in order to create a new DRG or to themselves. According to the commenter stated that having 3M
reassign these cases to a different DRG, commenters, without the CS DRG maintain control of the GROUPER
we are comparing cases that are information, revenue and patient software limits access by other software
clinically similar. Therefore, it is receivables cannot be recorded vendors to begin reprogramming of the
possible or even likely that these cases accurately. The commenters stated that many computer systems that would
will be using the same mix of routine hospitals must have the ability to need to be loaded with the CS DRGs that
and ancillary services and the results of accurately estimate payments in is currently incompatible with the CMS
the analysis will be similar whether the evaluating strategic initiatives, business DRGs. The commenter stated that there
cases are compared based on average plans, budgets, marketing, staffing, and will need to be sufficient time between
costs or charges. That is, the cases will other critical decisions. Commenters making the GROUPER available and
be using services that have comparable noted that CMS provided a link to a web implementation so that hospitals can
charge markups over costs and the tool on the 3M Web site that allowed test their systems, and study the impact
analysis will produce the same hospitals to conduct their own analyses on their facilities.
conclusion whether the comparison of the impact of moving to CS DRGs. Another commenter stated that it
between cases is based on costs or However, these commenters stated that offered software that hospitals and
charges. The major differences between the reality was that if a hospital does not health plans utilize in managing the
cost and charge weights will occur have its own APR DRG GROUPER billing, coding, and payment for
when comparing across clinically software, it can only obtain CS DRG inpatient hospital services under the
dissimilar services that use a different information one case at a time by DRGs. The development of software
mix of routine and ancillary services entering specific diagnostic and related to Medicare’s DRG system by
with variable markups. For this reason, procedure codes. private companies is possible only
we believe that we can continue to do Several commenters stated that if CS because the current DRG methodology is
our initial evaluation of potential DRG DRGs are adopted and the GROUPER available in the public domain. The
changes using average charges. Given remains proprietary, they would be commenter also noted that the public
the complexity associated with limited in their ability to educate and can obtain full access to the details
developing cost-based weights, we assist hospitals in use of the new underlying the CMS DRG system by
believe our preliminary analysis for system. One commenter indicated that purchasing information and software
evaluating whether to make a DRG the current 3M product is proprietary from the National Technical Information
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change should use charges as a proxy and not available in the public domain Service for a nominal charge in a timely
for costs. However, we will consider the for hospitals or their software vendors manner well in advance of the
commenters’ suggestion and, to the who develop and support their patient implementation of changes. The
extent feasible, consider whether it is account billing and case management commenter noted the information was
possible to evaluate potential DRG software. The commenter also stated available to all of the public
changes using costs as well as charges. that it does not have any access to the simultaneously and no company

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currently has a competitive advantage in • CCRs and Weighting Factors. opportunity to avoid some of the
producing DRG products. The • DRG Relative Weights. transition issues the HSCRC faced by
commenter added that CMS currently • CS DRG HSRVcc relative weights. placing the CS DRG logic in the public
engages in an open and comprehensive • CAH List for FY 2007 Proposed domain or by requiring open licensing
discussion about the structure of the Rule. of the GROUPER at reasonable rates.’’
DRG methodology through a variety of In addition to this information, we The commenter noted that consultants
mechanisms including notices made available for purchase both the FY and vendors to hospitals have struggled
published in the Federal Register. CMS 2004 and FY 2005 MedPAR data that to obtain access to the GROUPER as
releases sufficient detail about its were used in simulating the policies in they advised their clients.
methodology in electronic formats to the IPPS proposed rule. We also The public comments and Maryland’s
enable providers, health plans, and discussed the proposed rule in at least experience with APR DRGs have led to
vendors to develop and validate their two national teleconferences that were many commenters recommending that
own computer programs. The open to the public. One of these calls Medicare should adopt a new DRG
commenter expressed concern that was a Special Hospital Open Door call system that is in the public domain. As
unfettered access to the underpinnings that was scheduled for 1 and 1⁄2 hours we evaluate alternative severity
of the DRG system would not continue and was completely devoted to classification systems, we will use
to be available under the CMS proposal explaining the IPPS proposed rule and public access to the system as an
to adopt CS DRGs. The commenter answering questions from the public. important element in evaluating
There were over 1,100 calls into this whether each system can be adopted by
suggested the following criteria that a
national teleconference. Finally, we Medicare. We will continue to strive to
new DRG system should meet in order
were able to provide access to a Web promote transparency in our decision
to be adopted by Medicare:
• Software distribution comparable to tool on 3M’s Web site that would allow making as well as in future payment and
what is currently made available, which an end user to build case examples classification systems, as we have done
includes: using the proposed CS DRGs. While the in the past.
• GROUPER source code which commenters are correct that these case Comment: A number of commenters
produces all pertinent return examples could only be analyzed one at suggested that a more straightforward
information; a time, the tool did provide a detailed approach to achieving the same or
• All underlying tables that drive the explanation of how the severity of similar objective would be for CMS to
GROUPER with documentation; illness was assigned and the refine the current DRG classification
• A complete set of test cases to demographic and diagnostic system by retaining the current base
validate the functioning of the software; information that went into that DRGs (eliminating the current paired
• Complete system and user determination. Further, other DRGs with and without CC) and adding
documentation; information about the CS DRGs and 3–4 levels of severity, rather than using
• Contact people who can and will APR DRGs were available at that Web APR DRGs. This option would preserve
respond to questions in a timely site, including access to the APR DRG the many policy decisions that CMS has
fashion; definitions manual. made over the last 20 years that are
• The right to redistribute the We acknowledge the many comments already incorporated into the DRG
methodology to business partners and suggesting that the logic of Medicare’s system and yet adjust hospital payments
consultants; DRG system should continue to remain to reflect the cost of care based on
• The right to translate source code to in the public domain as it has since the patient needs and conditions. Other
other technology environments and to inception of PPS. We also acknowledge commenters suggested designating
integrate it into other systems; the commenters’ concern about the certain DRGs as device-dependent to
• Pre-releases of software and impact of moving to a proprietary ensure that device costs are
documentation well in advance of system and the potential for limiting appropriately reflected in the claims file
planned implementations; and public access to the underlying data. Some commenters suggested that
• An open inclusive process for GROUPER logic relative to the current CMS retain the current DRG system but
considering future enhancements. CMS DRGs. We note that the issues revise the CC list as an alternative
The commenter indicated that the associated with using a proprietary DRG approach to better recognizing severity
agency must also ensure that whatever system were well illustrated in a public of illness in the DRG system.
refinement methodology is adopted is comment that we received from the Several commenters stated that CMS
open to public discussion and scrutiny, Maryland Health Services Cost Review did not conduct an objective study of
now and on an ongoing basis. The Commission (HSCRC). Maryland the CS DRGs although alternatives for
commenter stated that transparency is adopted the APR DRGs in June 2004. the APR DRG system are readily
critical to advancing affordability in our The commenter noted that ‘‘despite the available. These commenters asked
health care system. advance notice, a number of hospitals whether CMS considered adopting an
Response: With respect to making had not acquired the APR DRG alternative DRG system that could also
information available for the public to GROUPER until near the time for full better recognize severity.
analyze the proposed DRGs, we were implementation to begin. In addition to Two commenters proposed alternative
cognizant of this issue and attempted to acquiring the GROUPER, hospitals had severity of illness systems to the APR
provide as much information as possible to deal with issues of integrating the DRG system. One commenter suggested
that would allow the public an GROUPER with other hospital systems, that we use the Refined DRG (RDRG)
opportunity to comment meaningfully which was at times difficult with severity of illness system which is
on the proposed CS DRGs. We provided proprietary systems.’’ The commenter supported by Health Systems
bajohnson on PROD1PC67 with RULES2

the following data files on the CMS Web further noted that Maryland has 47 Consultants, Inc, that contains 1,274
site at no cost to the public to assist with acute care hospitals and ‘‘moving the groups with 350 base DRGs. The
understanding our proposed rule: nation’s entire hospital industry to a commenter explained that each of the
• Provider Specific File. new system in a short period is likely medical base DRGs is divided into three
• Impact file for IPPS FY 2007 to be much more difficult.’’ The severity classes and each of the surgical
Proposed Rule. commenter indicated that ‘‘CMS has the base DRGs is divided into four severity

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classes. In addition, there are neonate 2008 implementation. We believe it is Health Care Financing Review.8
groups based on birth weight, seven very important to make improvements Although the APR DRGs have departed
DRGs that do not have severity classes to the DRG system to better recognize from the Yale approach to a greater
and an early death group in each MDC severity rapidly and there are a number extent than have the other systems, both
created to remove low outliers of different ways that improvements in the 3M product and the APS–DRGs
according to the commenter. The payment accuracy can be achieved were derived from the 1989 Yale
commenter noted that the research for without undertaking a lengthy severity system that is in the public
the RDRG system was undertaken demonstration project. As suggested by domain. Given that the Yale system is
between 1986 and 1989 under a Health the commenters, much research has in the public domain and CMS
Care Financing Administration (now already been completed on alternative considered adopting a severity DRG
CMS) cooperative agreement. The DRG systems. We believe it is likely that system based on it in the mid 1990’s, we
commenter indicated that the RDRG at least one of these systems (or will also consider updating our prior
system has been updated annually using potentially a system that we develop work part of our initiative to identify
the current CMS complications and ourselves based on our own prior and implement a severity DRG system
comorbidities list since 1989. Solucient, research) will be suitable to achieve our for use by Medicare in FY 2008.
LLC has also used the previous HCFA goal of improvements in payment Consistent with the sentiment expressed
DRG severity work to develop a risk accuracy by FY2008. We are currently in the public comments, this option
adjusted DRG system which they refer in the process of engaging a research would have the advantage of using the
to as Refined Diagnosis Related Group contractor to evaluate the 3M Severity of current DRGs as a starting point and
(R–DRG). Solucient also reports that Illness DRG products along with the retaining the benefit of the many DRG
they have updated their system other DRG severity systems that have decisions we have made in recent years.
annually with ICD–9–CM code changes. come to our attention during the The DRG system we considered in the
Another commenter noted that HSS/ comment process. mid-1990’s used a base DRG with 3
Ingenix has developed an all-payer As indicated above, we will use levels of severity depending upon
severity-adjusted DRG system (APS– public access to the system as an whether the patient had no CC, a CC, or
DRGs) which contains 1,130 case-mix important element in evaluating a major CC. During this past winter,
cells with 376 consolidated DRGs plus whether each system can be adopted by CMS began a comprehensive review of
2 error categories. The commenter Medicare. With respect to the CS DRGs over 13,000 diagnosis codes to
indicated that, outside of MDC 15, all and potentially the other systems determine whether they should be
consolidated DRGs are divided described in the public comments, there classified as CCs when present as a
uniformly into three severity levels. The may be licensing issues. We proposed to secondary diagnosis. Under this option,
commenter also indicated that the use the CS DRGs beginning in FY 2008. we could continue this review of the CC
number of severity levels within MDC While they were developed under a list, classifying them into one of the
15 depends upon the consolidated DRG contract with the Federal government, three categories described above in
in the APS–DRG system. the CS DRGs are essentially a variant of conjunction with updating the severity
One commenter stated that based on the APR DRGs that are copyrighted by DRG system that we considered in mid-
their analysis none of the off-the-shelf 3M. The APS–DRGs are a proprietary 1990’s.
Version 23 DRG systems is the best product owned by HSS/Ingenix, a
alternative. Rather, it was recommended c. Changes to CMI From a New DRG
division of United Health Care. System
that a hybrid system be created which
However, HSS/Ingenix has indicated After the 1983 implementation of the
would combine the best features of each
that, should we decide to adopt their IPPS DRG classification system, CMS
system. The commenter stated that the
product, it would make its DRG system observed unanticipated growth in
proposed CS DRG system or the current
available to the public under the same inpatient hospital case-mix (the average
CMS DRG system would be the
terms as the current CMS DRGs (that is, relative weight of all inpatient hospital
preferred systems to modify. One
the source code, logic and cases) that is used as proxy
commenter stated that the use of
documentation can be purchased measurement for severity of illness.
objective, physiologic data on admission
through the National Technical There are three factors that determine
to enhance claims data significantly
Information Service). The RDRG system changes in a hospital’s CMI:
improves the accuracy of any severity
stratification. The commenter suggested is supported by Health Systems (1) Admitting and treating a more
that CMS conduct one or more Consultants. resource intensive patient-mix (due, for
demonstration projects studying claims There are other issues of note with example, to technical changes that allow
data enhanced with objective, time- respect to the DRG systems mentioned treatment of previously untreatable
stamped electronically captured in the comments and Medicare’s efforts conditions and/or an aging population);
laboratory results as an alternative to adopt a DRG system that better (2) Providing services (such as higher
approach for severity adjustment for recognizes severity. In the late 1980’s, cost surgical treatments, medical
payment and quality assessment CMS (then HCFA) funded a Yale devices, and imaging services) on an
purposes. University contract for the development inpatient basis that previously were
Response: The approach suggested in of refined severity DRGs. The severity more commonly furnished in an
the comments to incorporating severity DRGs developed under this contract outpatient setting; and
measures into the current CMS DRG formed the basis for most of the severity (3) Changes in documentation (more
system may be a viable option that we DRG systems available today, including complete medical records) and coding
will evaluate in the coming year. With the Ingenix APS–DRGs, the 3M APR practice (more accurate and complete
DRGs, the Health Systems Consultants coding of the information contained in
bajohnson on PROD1PC67 with RULES2

respect to the comment that we


undertake demonstration projects to RDRGs and the Australian government’s the medical record).
study alternative ways of better AR–DRGs. In the mid-1990’s, CMS (then
recognizing severity in the DRG system, HCFA) also adapted the Yale system 8 Edwards, Nancy et al., ‘‘Refinement of Medicare

Diagnosis Related Groups to Incorporate a Measure


we are concerned that such an endeavor and developed a potential severity DRG of Severity,’’Health Care Financing Review, Winter
could not be completed in time for FY system, which was described in the 1994, pages 45–64.

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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 47913

Changes in CMI as a result of system until it conducts nationwide CMI as a result of improved coding.
improved documentation and coding do coding and documentation education, This commenter asserted there are many
not represent real increases in particularly to physicians. The needs for accurate data collection in a
underlying resource demands. For the commenter also suggested that CMS hospital setting and coders do not stop
implementation of the IPPS in 1983, should find a method to provide reviewing a medical record after
improved documentation and coding physicians who practice in hospitals locating the first CC that assigns the
were found to be the primary cause in with web-based documentation training patient to a higher weighted DRG. The
the underprojection of CMI increases, and incentives document correctly. commenter maintained that several
accounting for as much as 2 percent in Response: The proposed CS DRG hospitals ask coders to assign codes to
the annual rate of CMI growth observed system is based on the reporting of many of the non-invasive procedures
post-PPS.9 current ICD–9–CM diagnosis and that do not affect DRG assignment. This
We believe that adoption of CS DRGs procedure codes. The proposed changes same commenter also stated they
would create a risk of increased do not require any changes for hospitals believe the increase in CMI will not be
aggregate levels of payment as a result or physicians in how they code or as significant as CMS anticipates.
of increased documentation and coding. document information in the medical One commenter representing the State
MedPAC notes that ‘‘refinements in record. For this reason, we do not of Maryland shared the state’s
DRG definitions have sometimes led to believe there is a need for any changes experience with case mix index changes
substantial unwarranted increases in to education and training that occurs after adoption of the APR DRG system.
payments to hospitals, reflecting more with respect to documentation and The commenter stated correct coding
complete reporting of patients’ coding. resulting in maximum reimbursement
diagnoses and procedures.’’ MedPAC Comment: Several commenters under the CMS DRGs could understate
further notes that ‘‘refinements to the expressed concern that the proposed a hospital’s case mix under the APR
DRG definitions and weights would rule did not provide any type of analysis DRGs. Facilities that have tried to
substantially strengthen providers’ to justify or support the need for an improve their coding productivity by
incentives to accurately report patients’ adjustment to the IPPS rates for seeking to maximize reimbursement
comorbidities and complications.’’ To anticipated changes in case mix from a under Medicare may not obtain an
address this issue, MedPAC new DRG system. These commenters accurate representation of its patient’s
recommended that the Secretary noted that CMS did not provide a severity of illness under APR DRGs.
‘‘project the likely effect of reporting specific adjustment amount in the According to the commenter, hospitals
improvements on total payments and proposed rule. The commenters stated have a financial incentive to improve
make an offsetting adjustment to the their view that it is the responsibility of their clinical documentation and to
national average base payment CMS to provide adequate notice and the code more completely when APR DRGs
amounts.’’ 10 opportunity for meaningful public (or CS DRGs which are based on APR
The Secretary has broad discretion comments in response to such a specific DRGs) are used for reimbursement.
under section 1886(d)(3)(A)(vi) of the proposal before any adjustment can be The commenter also indicated that
Act to adjust the standardized amount applied. One commenter recognized case mix growth exceeded four percent
so as to eliminate the effect of changes that CMS is authorized to make for the State’s hospitals on average, as
in coding or classification of discharges adjustments for changes in coding that they began to prepare for the full
that do not reflect real changes in case- are likely to occur. However, absent transition to APR DRGs. Case mix
mix. While we modeled the changes to strong evidence, they urged CMS to growth in this current fiscal year is
the DRG system and relative weights for avoid making negative adjustments to about the same. As such, the State has
the proposed rule to ensure budget the standardized amount for anticipated established a policy for FY 2006,
neutrality, we are concerned that the increases in case mix. Another limiting the amount of case mix growth
large increase in the number of DRGs commenter provided two suggestions to experienced for each hospital until the
will provide opportunities for hospitals CMS. The first suggestion was for CMS coding patterns become stable. In
to do more accurate documentation and to share its thought process on how the addition, an appeals process for
coding of information contained in the standardized amount would be adjusted hospitals with services that generate
medical record. Coding that has no and allow the public an opportunity to rising case mix growth due to
effect on payment under the current provide comments on this basic set of complexity has also been established.
DRG system may result in a case being criteria. The second suggestion was that Response: We appreciate the
assigned to a higher paid DRG under a CMS should make a commitment to commenters’ concerns and feedback
system that better recognizes severity. adjust future base payment levels if it is regarding potential adjustments to the
Thus, more accurate and complete determined that the initial adjustment national standardized amount to
documentation and coding may occur projections are inaccurate. Another account for improvements in
under a DRG system that better commenter stated that any adjustment documentation and coding that may
recognizes severity because it will result to the standardized amount in an cause the case-mix index to increase
in higher payments than the current attempt to account for increased absent real case-mix growth. The
CMS DRGs. In the FY2007 IPPS documentation and coding is commenters are correct that we did not
proposed rule, we solicited comments unnecessary and unwarranted. The propose a specific adjustment for
on this issue. commenter asserted that it is virtually improved documentation and coding.
Comment: One commenter suggested impossible to objectively distinguish As stated in the proposed rule, we were
that CMS should delay implementation real changes in case mix from those that soliciting comments on the possibility
of the proposed changes to the DRG occur due to improved coding and of changes in the case mix index as a
bajohnson on PROD1PC67 with RULES2

documentation. This commenter stated result of the increase in the number of


9 Carter, Grace M. and Ginsburg, Paul: The
claims are coded using the official DRGs within the proposed CS DRGs. We
Medicare Case Mix Index Increase, Medical Practice coding guidelines that are the same will continue to analyze this issue as we
Changes, Aging and DRG Creep, Rand, 1985.
10 Medicare Payment Advisory Commission: regardless of the DRG system being evaluate alternative DRG systems that
Report to Congress on Physician-Owned Specialty used. Another commenter requested may better recognize severity of illness
Hospitals, March 2005, p. 42. that CMS not overestimate the growth in for implementation in FY 2008. We

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47914 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

acknowledge the commenters’ request to Response: We appreciate the that change the relative use of hospital
provide an opportunity for public commenter’s concern and agree that the resources in the calculation of the DRG
comment before CMS adopts a specific severity of illness grouping logic will relative weights, we stated we would
adjustment to the standardized amounts affect case-mix. Also, we have known consider changes that would reduce or
for improved documentation and since the development of a PPS for eliminate the effect of high-cost outliers
coding. As stated earlier, we intend to capital payments that changes in case- on the DRG relative weights. At this
propose further changes to better mix affect capital payments to certain time, we have not completed a detailed
recognize severity in the DRG system for hospitals as much, or more than, analysis of MedPAC’s outlier
FY 2008. If we decide to make an operating payments. However, we do recommendation because we do not
adjustment to the standardized amount not know, at this point, the extent and have the authority to adopt such a
to account for improvements in direction of the impact to case-mix that change under current law. Instead, we
documentation and coding, we will the severity of illness grouping logic have focused our resources on analyzing
provide the specific level adjustment would have, or how rapidly the changes MedPAC’s recommendations with
and the data and analysis underlying it to case-mix would occur. When a respect to adopting severity DRGs and
in a proposed rule that will allow for an decision is made regarding calculating cost-based HSRV weights
opportunity for public comment. implementing the severity logic, we will that can be adopted without a change in
We disagree with the commenters that be carefully scrutinizing the data and a law. While we intend to study
suggested there is no need for an myriad of variables to ascertain its effect MedPAC’s recommendation in more
adjustment to the IPPS standardized and whether or not adjustments or detail at a future date, we note that
amounts to account for improvements in interventions are necessary. changes to the DRG system that better
documentation that increase case mix recognize severity would have
4. Effect of CS DRGs on the Outlier
and, therefore, payments. As presented important implications for the outlier
Threshold
above and in the proposed rule, threshold. In the proposed rule, we
In its March 2005 Report to Congress analyzed how the outlier threshold
Medicare’s experience since the original on Physician-Owned Specialty
inception of the IPPS and long-standing would be affected by adopting the CS
Hospitals, MedPAC recommended that DRGs.
research provide substantiation that Congress amend the law to give the Using FY 2004 Medicare charge data,
improvements in documentation and Secretary authority to adjust the DRG 3M Health Information Systems
coding that increase case-mix and relative weights to account for the simulated the effect of adopting CS
payment will occur when the differences in the prevalence of high- DRGs in conjunction with HSRVcc
opportunity arises through the cost outlier cases. MedPAC weights (described) on the FY 2006
expansion of the DRG system. Further, recommended DRG-specific outlier outlier threshold using the same
the comment representing the State of thresholds that would be financed by estimation parameters used by CMS in
Maryland made clear that when CS each DRG rather than through an across- the FY 2006 final rule (that is, the
DRGs ‘‘are used for reimbursement, the-board adjustment to the charge inflation factor of 14.94 percent)
hospitals have the financial incentive to standardized amounts. Furthermore, in (70 FR 47494). Under these
improve their clinical documentation comments that MedPAC submitted assumptions, 3M Health Information
and to code administrative records more during the comment period for the FY Systems estimated that the outlier
completely.’’ 11 MedPAC also noted that 2006 IPPS proposed rule, MedPAC threshold would be reduced from
‘‘adopting our recommended stated its belief that the current policy $23,600 under the current system to
refinements to the DRG definitions and makes DRGs with a high prevalence of $18,758 under the CS DRGs with
weights would substantially strengthen outliers profitable for two reasons: 1) HSRVcc weights. By increasing the
providers’ incentives to accurately These DRGs receive more in outlier number of DRGs to better recognize
report patients’ comorbidities and payments than the 5.1 percent that is severity, the DRG system itself would
complications.’’ 12 removed from the national standardized provide better recognition for cases that
Comment: One commenter stated that, amount; and 2) the relative weight are currently paid as outliers. That is,
in its experience, a change to the calculation results in these DRGs being many cases that are high-cost outlier
severity of illness grouping logic will overvalued because of the high cases under the current DRG system
result in an increase to the rate of standardized charges of outlier cases. would be paid using a severity of illness
change in case-mix. Because any effect MedPAC also noted that, under its subclass 3 or 4 under the CS DRGs and
will not be revenue neutral, the recommendations, outlier thresholds in could potentially be paid as nonoutlier
commenter questioned if and how CMS each DRG would reduce the distortion cases.
intends to address the change in case- in the relative weights that comes from Comment: Some commenters noted
mix, for example, regulating the change including the outlier cases in the that there was only a limited discussion
or setting a cap for hospitals. The calculation of the weight and would of the CS DRGs’ effect on the outlier
commenter indicated that case-mix correct the differences in profitability threshold and no information about
could rapidly decline as well as rapidly that stem from using a uniform outlier application of the postacute care
increase at the hospital-specific level offset for all cases. MedPAC added that transfer payment policy. Some
and asked if CMS had a mechanism to its recommendation would help make commenters inquired how policy areas
address that issue, as well. The relative profitability more uniform such as outliers and new technology
commenter also recommended that across all DRGs. will be affected by the proposed DRG
hospitals with improved case mix due In the FY 2006 IPPS final rule (70 FR changes.
to improved coding accuracy and 47481), we responded to MedPAC’s Response: We will consider further
bajohnson on PROD1PC67 with RULES2

internal documentation should be recommendation on outliers by noting the application of the postacute care
entitled to the full CMI benefit. that a change in policy to replace the 5.1 transfer payment policy as we make
percent offset to the standardized changes to the DRG system. With
11 Redmon, Patrick, D., Comment Letter to CMS amount would require a change in law. respect to outliers, we discussed this
on the FY 2007 IPPS Proposed Rule, June 12, 2006. However, because the Secretary has issue in the proposed rule. We noted
12 MedPAC, p. 42. broad discretion to consider all factors that better recognition of severity in the

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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 47915

DRG system will result in some cases payment for blood clotting factor HSRVcc relative weights using the FY
that are currently paid as outliers provided to hemophiliac inpatients is 2005 MedPAR claims data applying the
becoming nonoutliers. Under current not included in Medicare’s IPPS traditional statutory budget neutrality
law, we are required to establish an payment and is paid separately. For this requirements.
estimated outlier threshold so that reason, we will continue to apply For reasons described in more detail
between 5 and 6 percent of estimated Medicare’s policy of paying separately above, we are adopting cost-based
IPPS payments are made as outlier for blood clotting factor provided to weights in this final rule. However, we
payments. Our longstanding policy has hemophiliac inpatients. are not adopting our proposal to
been to set the outlier threshold so that standardize charges on MedPAR claims
5. Impact of Refinement of DRG System
estimated outlier payments equal 5.1 using HSRVs until we further research
on Payments
percent of estimated IPPS payments. If issues related to charge compression.
we were to continue this longstanding In the FY 2007 IPPS proposed rule (71
FR 24020), using the FY 2004 MedPAR Further, as described in more detail
policy, we would expect DRG
claims data, we simulated the payment above, we are modifying our proposed
refinements that better recognize
impacts of moving to the CS DRG plan to adopt the CS DRG system for FY
severity to lead to a reduction in the
GROUPER and the alternative HSRVcc 2008. Rather, we will evaluate the CS
outlier threshold. In the proposed rule,
method for developing HSRV weights. DRGs along with the other DRG severity
using the same data and assumptions
These payment simulations did not systems that have come to our attention
used for the FY 2006 final rule, we
make any adjustments for changes in during the comment process and
estimated that adoption of the CS DRGs
coding or case-mix. For purposes of this consider updating the work we did to
would reduce the outlier threshold from
analysis, estimated payments were held develop a severity DRG system in the
$23,600 to $18,758.
Comment: One commenter budget neutral to estimated FY 2006 mid-1990’s before adopting a system
recommended that CMS continue to payments because we have a statutory that better recognizes severity for FY
provide the additional payment for requirement to make any changes to the 2008.
blood clotting factor administered to weights or GROUPER budget neutral. In the proposed rule, we presented
hemophiliac inpatients in the future Based on the results of this impact the impact of the proposed changes on
even if severity-adjusted DRGs are analysis, in the FY 2007 IPPS proposed specific high volume DRGs. For
implemented. rule, we proposed to adopt both the comparison purposes, in the following
Response: Section 1886(a)(4) of the HSRVcc weighting methodology for FY table we are showing the percent
Act excludes the costs of administering 2007 and the CS DRGs for FY 2008. changes in weight for these DRGs
blood clotting factors to inpatients with Later in the proposed rule (71 FR 24028) presented in the proposed rule and the
hemophilia from the definition of and in the Appendix A—Regulatory percent changes in weights for these
‘‘operating costs of inpatient hospital Impact Analysis (71 FR 24404), we DRGs under the policies we are
services.’’ Therefore, under the statute, modeled the effect of only adopting finalizing in this rule:

Proposed Final rule (w/o Final rule (with


DRG Title rule transition) transition)
(percent) (percent) (percent)

14 ... INTRACRANIAL HEMORRHAGE OR CEREBRAL INFARCTION ................................. 3.8 1.8 0.6


75 ... MAJOR CHEST PROCEDURES .................................................................................... 1.4 0.0 0.0
76 ... OTHER RESP SYSTEM O.R. PROCEDURES W CC ................................................... ¥3.4 ¥1.7 ¥0.6
79 ... RESPIRATORY INFECTIONS & INFLAMMATIONS AGE >17 W CC ........................... 7.6 2.0 0.7
87 ... PULMONARY EDEMA & RESPIRATORY FAILURE ..................................................... 10.9 0.0 0.0
88 ... CHRONIC OBSTRUCTIVE PULMONARY DISEASE ..................................................... 8.3 1.8 0.6
89 ... SIMPLE PNEUMONIA & PLEURISY AGE >17 W CC ................................................... 9.7 2.1 0.7
104 CARDIAC VALVE & OTH MAJOR CARDIOTHORACIC PROC W CARD CATH ......... ¥11.0 ¥3.1 ¥1.0
105 CARDIAC VALVE & OTH MAJOR CARDIOTHORACIC PROC W/O CARD CATH ...... ¥7.2 ¥2.3 ¥0.8
110 MAJOR CARDIOVASCULAR PROCEDURES W CC .................................................... ¥5.4 ¥3.3 ¥1.1
113 AMPUTATION FOR CIRC SYSTEM DISORDERS EXCEPT UPPER LIMB & TOE ..... 5.0 3.4 1.1
121 CIRCULATORY DISORDERS W AMI & MAJOR COMP, DISCHARGED ALIVE .......... 4.7 0.7 0.2
124 CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH & COMPLEX DIAG ..... ¥19.7 ¥9.3 ¥3.1
125 CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH W/O COMPLEX DIAG ¥28.9 ¥14.6 ¥4.9
127 HEART FAILURE & SHOCK ........................................................................................... 2.8 3.7 1.2
138 CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W CC ................................. 2.7 2.5 0.8
143 CHEST PAIN ................................................................................................................... ¥10.5 ¥6.2 ¥2.1
144 OTHER CIRCULATORY SYSTEM DIAGNOSES W CC ................................................ 4.2 2.2 0.7
174 G.I. HEMORRHAGE W CC ............................................................................................. 11.2 2.9 1.0
182 ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE >17 W CC .......... 5.6 ¥1.1 ¥0.4
188 OTHER DIGESTIVE SYSTEM DIAGNOSES AGE >17 W CC ...................................... 5.7 1.0 0.3
210 HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE >17 W CC ................... 3.8 2.2 0.7
277 CELLULITIS AGE >17 W CC .......................................................................................... 15.2 9.1 3.0
296 NUTRITIONAL & MISC METABOLIC DISORDERS AGE >17 W CC ............................ 10.6 5.3 1.8
316 RENAL FAILURE ............................................................................................................. 8.3 3.7 1.2
320 KIDNEY & URINARY TRACT INFECTIONS AGE >17 W CC ....................................... 10.9 5.3 1.8
493 LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W CC ....................................... ¥4.0 ¥4.6 ¥1.5
497 SPINAL FUSION EXCEPT CERVICAL W CC ................................................................ ¥13.4 0.5 0.2
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515 CARDIAC DEFIBRILLATOR IMPLANT W/O CARDIAC CATH ...................................... ¥20.6 0.3 0.1
541 ECMO OR TRACH W MV 96+HRS OR PDX EXC FACE, MOUTH & NECK W MAJ 3.6 ¥2.9 ¥1.0
O.R..
542 TRACH W MV 96+HRS OR PDX EXC FACE, MOUTH & NECK W/O MAJ O.R. ........ 8.4 ¥0.8 ¥0.3
544 MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREMITY ..... ¥3.7 2.6 0.9
545 REVISION OF HIP OR KNEE REPLACEMENT ............................................................. ¥5.8 1.8 0.6

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47916 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

Proposed Final rule (w/o Final rule (with


DRG Title rule transition) transition)
(percent) (percent) (percent)

547 CORONARY BYPASS W CARDIAC CATH W MAJOR CV DX ..................................... ¥8.9 ¥5.5 ¥1.8
548 CORONARY BYPASS W CARDIAC CATH W/O MAJOR CV DX ................................. ¥11.9 ¥6.2 ¥2.1
550 CORONARY BYPASS W/O CARDIAC CATH W/O MAJOR CV DX ............................. ¥5.8 ¥3.8 ¥1.3
551 PERMANENT CARDIAC PACEMAKER IMPL W MAJ CV DX OR AICD LEAD OR ¥13.0 1.3 0.4
GNRTR.
552 OTHER PERMANENT CARDIAC PACEMAKER IMPLANT W/O MAJOR CV DX ........ ¥15.0 1.0 0.3
553 OTHER VASCULAR PROCEDURES W CC W MAJOR CV DX ................................... ¥5.8 ¥0.5 ¥0.2
554 OTHER VASCULAR PROCEDURES W CC W/O MAJOR CV DX ................................ ¥6.5 ¥1.4 ¥0.5
556 PERCUTANEOUS CARDIOVASC PROC W NON-DRUG-ELUTING STENT W/O MAJ ¥34.9 ¥16.2 ¥5.4
CV DX.
557 PERCUTANEOUS CARDIOVASCULAR PROC W DRUG-ELUTING STENT W ¥25.5 ¥10.4 ¥3.5
MAJOR CV DX.
558 PERCUTANEOUS CARDIOVASCULAR PROC W DRUG-ELUTING STENT W/O ¥34.5 ¥13.8 ¥4.6
MAJ CV DX.

We received a number of comments, is significantly less than the impacts and final rules. We also are showing the
which we discuss below, expressing projected in the proposed rule. As a number of providers experiencing
concern over the magnitude of the further demonstration of the manner in percent gains and losses in case mix due
changes we proposed to the relative which our final policy mitigates the to the proposed and final changes. As
weight methodology and the effects on impacts of the proposed rule, we are shown in the tables, the more extreme
the DRG weights. As shown in this table presenting the following two tables percent changes are greatly reduced
above, the impact of the transitional cost showing the number of DRGs with our final policies.
based weights computed without using experiencing percent gains and losses in
the HSRVcc method of standardization their relative weights in the proposed

COMPARISON OF THE NUMBER OF DRGS EXPERIENCING PERCENT GAINS/LOSSES IN RELATIVE WEIGHTS IN THE
PROPOSED RULE RELATIVE TO THE FINAL RULE TRANSITION
Final rule
Percent change in DRG weight Proposed rule (with transition)

More than ¥10% ..................................................................................................................................... 32 0


Between ¥5 and ¥10% ......................................................................................................................... 42 1
Between ¥1 and ¥5% ........................................................................................................................... 49 78
Between ¥1 and +1% ............................................................................................................................ 42 308
Between 1% and 5% ............................................................................................................................... 111 130
Between 5% and 10% ............................................................................................................................. 97 12
More than +10% ...................................................................................................................................... 153 7

COMPARISON OF THE NUMBER OF HOSPITALS EXPERIENCING PERCENT GAINS/LOSSES IN CASE-MIX INDEX IN THE
PROPOSED RULE RELATIVE TO THE FINAL RULE TRANSITION
Final rule
Percent change in case-mix index Proposed rule (with transition)

More than ¥10% ..................................................................................................................................... 40 0


Between ¥5 and ¥10% ......................................................................................................................... 103 0
Between ¥1 and ¥5% ........................................................................................................................... 597 30
Between ¥1 and +1% ............................................................................................................................ 416 2,067
Between 1% and 5% ............................................................................................................................... 1493 1,450
Between 5% and 10% ............................................................................................................................. 794 28
More than +10% ...................................................................................................................................... 79 20

For additional comparison purposes following table shows the estimated proposed rule and also shows the
between the proposed and final rule payment impacts on case mix change by estimated payment impacts that we are
relative weights and DRG changes, the hospital group that we projected for the finalizing in this rule.

Severity DRG
Severity changes &
Proposed rule changes in cost weights
Column 1
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DRGs (with transi-


tion)

All hospitals .................................................................................................................................. 0.0 0.0 0.0


By Geographic Location:
Urban hospitals ........................................................................................................................ ¥0.3 0.0 0.0

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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 47917

Severity DRG
Severity changes &
Proposed rule changes in cost weights
Column 1 DRGs (with transi-
tion)

Large urban areas (populations over 1 million) ....................................................................... 0.1 0.0 0.1
Other urban areas (populations of 1 million or fewer) ............................................................. ¥0.9 0.0 ¥0.2
Rural hospitals ......................................................................................................................... 2.7 ¥0.1 0.2
Bed Size (Urban):
0–99 beds ................................................................................................................................ 0.5 0.3 0.1
100–199 beds .......................................................................................................................... 1.8 0.0 0.3
200–299 beds .......................................................................................................................... 0.0 ¥0.1 ¥0.1
300–499 beds .......................................................................................................................... ¥1.1 0.0 0.1
500 or more beds ..................................................................................................................... ¥1.5 0.0 ¥0.2
Bed Size (Rural):
0–49 beds ................................................................................................................................ 5.5 ¥0.1 0.3
50–99 beds .............................................................................................................................. 4.3 ¥0.2 0.3
100–149 beds .......................................................................................................................... 2.8 –0.2 0.2
150–199 beds .......................................................................................................................... 1.0 0.1 0.1
200 or more beds ..................................................................................................................... ¥0.2 ¥0.2 ¥0.2
Urban by Region:
New England ............................................................................................................................ 0.3 0.3 0.1
Middle Atlantic .......................................................................................................................... 0.1 0.0 0.2
South Atlantic ........................................................................................................................... ¥0.7 ¥0.1 ¥0.2
East North Central ................................................................................................................... ¥0.4 0.0 0.0
East South Central ................................................................................................................... ¥0.8 ¥0.2 ¥0.3
West North Central .................................................................................................................. ¥1.4 0.1 ¥0.2
West South Central .................................................................................................................. ¥0.7 0.0 ¥0.1
Mountain ................................................................................................................................... ¥1.4 0.2 ¥0.1
Pacific ....................................................................................................................................... 0.6 ¥0.1 0.2
Puerto Rico .............................................................................................................................. 3.3 ¥0.4 0.1
Rural by Region:
New England ............................................................................................................................ 1.8 0.1 0.5
Middle Atlantic .......................................................................................................................... 2.8 0.0 0.4
South Atlantic ........................................................................................................................... 3.4 ¥0.3 0.2
East North Central ................................................................................................................... 1.9 ¥0.1 0.1
East South Central ................................................................................................................... 2.9 0.0 0.0
West North Central .................................................................................................................. 1.7 ¥0.1 0.1
West South Central .................................................................................................................. 3.5 ¥0.2 0.1
Mountain ................................................................................................................................... 2.4 ¥0.1 0.2
Pacific ....................................................................................................................................... 3.5 ¥0.4 0.3
By Payment Classification:
Urban hospitals ........................................................................................................................ ¥0.3 0.0 0.0
Large urban areas (populations over 1 million) ....................................................................... 0.1 0.0 0.1
Other urban areas (populations of 1 million or fewer) ............................................................. ¥0.9 0.0 ¥0.2
Rural areas ............................................................................................................................... 2.6 ¥0.1 0.2
Teaching Status:
Non–teaching ........................................................................................................................... 1.1 0.0 0.2
Fewer than 100 Residents ....................................................................................................... ¥0.8 ¥0.1 ¥0.1
100 or more Residents ............................................................................................................ ¥0.8 0.0 ¥0.2
Urban DSH:
Non–DSH ................................................................................................................................. ¥1.1 0.1 0.0
100 or more beds ..................................................................................................................... ¥0.2 ¥0.1 0.0
Less than 100 beds ................................................................................................................. 3.5 0.1 0.4
Rural DSH:
SCH .......................................................................................................................................... 4.2 —0.2 0.2
RRC .......................................................................................................................................... 1.3 ¥0.1 0.0
Other Rural: ..............................................................................................................................
100 or more beds ..................................................................................................................... 4.2 0.1 0.3
Less than 100 beds ................................................................................................................. 5.5 ¥0.1 0.2
Urban teaching and DSH:
Both teaching and DSH ........................................................................................................... ¥0.6 0.0 ¥0.1
Teaching and no DSH ............................................................................................................. ¥1.7 0.1 ¥0.1
No teaching and DSH .............................................................................................................. 1.1 0.0 0.2
No teaching and no DSH ......................................................................................................... ¥1.0 0.1 0.0
Rural Hospital Types:
RRC .......................................................................................................................................... 4.8 0.1 0.3
SCH .......................................................................................................................................... 0.9 0.0 0.0
MDH ......................................................................................................................................... 3.9 ¥0.3 0.2
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SCH and RRC .......................................................................................................................... 5.1 ¥0.1 0.4


MDH and RRC ......................................................................................................................... 1.0 ¥0.3 0.0
Type of Ownership:
Voluntary .................................................................................................................................. ¥0.3 0.0 0.0
Proprietary ................................................................................................................................ 0.2 0.0 0.1
Government .............................................................................................................................. 1.3 0.0 0.0

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47918 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

Severity DRG
Severity changes &
Proposed rule changes in cost weights
Column 1 DRGs (with transi-
tion)

Medicare Utilization as a Percent of Inpatient Days:


0–25 ......................................................................................................................................... 2.7 0.2 0.3
25–50 ....................................................................................................................................... ¥0.5 0.0 0.0
50–65 ....................................................................................................................................... 0.3 ¥0.1 0.0
Over 65 .................................................................................................................................... 0.3 0.0 ¥0.1
Hospitals Reclassified by the Medicare Geographic Classification Review Board:
FY 2005 Reclassifications:.
Urban Hospitals Reclassified by the Medicare Geographic Classification Review Board:
First Half FY 2007 Reclassifications .................................................................................... ¥0.5 0.1 0.0
Urban Nonreclassified, First Half FY 2007 .............................................................................. ¥0.3 0.0 0.0
All Urban Hospitals Reclassified Second Half FY 2007 .......................................................... ¥0.3 0.0 0.0
Urban Nonreclassified Hospitals Second Half FY 2007 .......................................................... ¥0.3 0.0 0.0
All Rural Hospitals Reclassified Second Half FY 2007 ........................................................... 1.6 ¥0.1 0.1
Rural Nonreclassified Hospitals Second Half FY 2007 ........................................................... 4.5 ¥0.1 0.3
All Section 401 Reclassified Hospitals .................................................................................... 2.9 ¥0.1 0.2
Other Reclassified Hospitals (Section 1886(d)(8)(B)) ............................................................. 4.6 ¥0.2 0.4
Section 508 Hospitals .............................................................................................................. ¥0.5 ¥0.1 0.0
Cardic Specialty Hospitals ........................................................................................................... ¥11.2 0.0 ¥2.3

We are discussing specific comments relative weights using the FY 2005 all of the policies would create the most
and responses relevant to our impact MedPAR because we would be using accurate payments and prevent
analysis below. The changes that we are these data to calculate actual relative hospitals from facing unjustified shifts
adopting in this final rule are illustrated weights that would be used to in their payments that may occur under
in our regulatory impact analysis. determine FY 2007 hospital payments. partial adoption of the payment reforms.
Comment: Some commenters We believed it was important to model MedPAC stated that concerns about
expressed concern that the proposed our FY 2007 proposal as closely to how giving hospitals time to adapt to the
rule discusses the impact of moving to payments would be determined to changes may be better managed by
CS DRGs using FY 2004 inpatient provide the most meaningful implementing all changes in FY 2007
claims rather than FY 2005 claims to opportunity for public comment. For and then giving hospitals a transition
estimate impact. Some commenters purposes of providing the payment period. Another commenter asked that
stated that using 2 separate years of impacts shown on pages 24028–24030 CMS implement both of these proposed
claims data to show the impact of major and the Appendix A—Regulatory changes in FY 2007 for the following
changes made it impossible to assess the Impact Analysis (71 FR24404) and the reasons:
overall impact of the changes with any methodological description shown on • MedPAC’s analysis revealed
reasonable level of confidence. pages 24044–24049 of the proposed significant inaccuracy in the current
Response: Because of the long lead payment system and recommended
rule, we used FY 2005 MedPAR data.
time to develop the methodology and implementation of both the new
We disagree with the commenters that
our proposed rule, we used the FY 2004 severity-refined DRGs and a revised
providing separate analyses using 2
MedPAR data to calculate HSRVcc method for the weights at the same time.
years of data makes it more difficult to
weights and model the CS DRGs for • It is inequitable to remove the
understand and assess the payment
purposes of the analysis shown on pages subsidy provided by the overpayments
impacts. Rather, we believe that
24007–24011, 24020–24026 of the FY for cardiac and orthopedic surgery prior
providing these analyses makes it easier
2007 IPPS proposed rule (71 FR24007– to correcting the underpayments for the
to understand how relative weights will
24011, 24020–24026). At the time we most severely ill patients.
change solely as a result of updating the • It is not reasonable to ask that some
were developing provisions of the
proposed rule, FY 2005 MedPAR data data. hospitals experience financial losses
were unavailable to us. Given the public Comment: MedPAC was pleased that from implementing the new weights this
interest in prompt publication of the CMS proposed three of MedPAC’s four year if implementing severity would
rule, we decided not to replicate all of recommended changes to the IPPS offset some or all of these losses. To
the analysis that we provided in section system. However, the MedPAC stagger implementation will cause
II.C. of the proposed rule based on the expressed concern the proposal not to providers to experience unnecessary
FY 2004 data once the new FY 2005 implement the severity changes until FY payment fluctuation between FY 2007
data became available to us. We 2008. They stated that it is important to and FY 2008.
believed delaying publication of the correct for differences in patients’ The commenter further added that a
proposed rule to revise our analysis so severity concurrently with the delay is not beneficial to taxpayers as
all of the payment impacts were shown corrections for charging distortions. hospitals will have more time to up-
based on FY 2005 data was not in the MedPAC believed that all of the code and increase their Medicare
public interest. Once we developed the proposed policy changes to the IPPS payments. Many commenters agreed
bajohnson on PROD1PC67 with RULES2

methodology and the analysis for the should happen concurrently. MedPAC with MedPAC that the cost weights and
proposed rule, we calculated the stated that failure to adopt all of the severity-adjusted DRGs should be
relative weights using the HSRVcc changes would leave some payment implemented simultaneously. However,
methodology that we were proposing to distortions in place, thereby continuing these commenters suggested
adopt for FY 2007 using the FY 2005 to favor some kinds of patients over implementation no sooner than FY 2008
MedPAR. We modeled the HSRVcc others. According to MedPAC, adopting to limit sharp fluctuations in payments

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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 47919

to hospitals from year to year. Many Response: We believe the commenters impact all hospitals. Several
commenters opposed a two-step were expressing concern that we did not commenters suggested implementing
implementation, whereby CMS would analyze MedPAC’s recommendation to the proposal only for specialty hospitals
implement cost-based weights in one adjust the relative weights to account for while deferring the proposed payment
year and a new DRG system to better differences in the prevalence of outlier reforms for full-service hospitals to
account for patient severity in a cases. As explained above, we placed afford more time to study the
subsequent year. They noted that each most of our attention and resources on implications of the HSRVcc as a method
of these two major reforms significantly the recommendations related to of general applicability. Another
redistributes payments, often in off- refinement of the current DRGs to more commenter stated that care for Medicare
setting directions. They stated that large fully account for differences in severity beneficiaries in rural areas will be
swings in payments between the two of illness among patients as we do not adversely affected by the proposed
reforms would create unnecessary have the statutory authority to make the adoption of HSRVcc weights because of
volatility and have a profound impact specific changes to our outlier policy the dramatic impact on specialized
on hospitals’ ability to plan effectively, that MedPAC recommended. While we services provided by rural referral
especially for necessary major medical have not made MedPAC’s centers that are not available at other
equipment purchases and other capital recommendation regarding outliers a smaller hospitals in rural communities.
expenditures. Therefore, they central focus of our analysis, we do The commenter suggested that the
recommended that CMS implement intend to examine this issue in more future viability of these specialized
both cost-based weights and severity- detail over the next year. services may be at risk. Therefore, the
adjusted DRGs concurrently. While Comment: One commenter stated that commenter recommended that CMS
some commenters urged CMS to the annual impact of the changes to the recognize the unique impact of the
implement both payment reforms proposed CS DRG system will reduce proposed changes on rural referral
concurrently in FY 2007, other payments for its institution by an centers by excluding these hospitals
commenters advised delaying until at additional $2.7 million per year. The from the change.
least FY 2008 to allow enough time to commenter suggested that community, Response: Payments under a
improve the proposed methodologies not for profit hospitals be exempt from prospective payment system are
and underlying cost data to ensure these proposed changes as this is not the predicated on averages. Therefore, we
accuracy of payments. Some group of hospitals that were the do not believe it would be appropriate
commenters stated that the cost-based intended target of these changes. One to exclude certain hospital groups from
weights methodology should be commenter stated that the efforts to implementation of the changes we are
implemented after the severity adjusted address issues identified in the MedPAC adopting to use cost-based weights or
DRG methodology. report should begin and end with the better recognize severity in the DRG
Response: Although we are not specialty hospital subset and should not system. While these changes are
adopting the CS DRGs this year, we occur in conjunction with payment expected to reduce incentives for
agree that it is important to smooth the systems at large for all other hospital hospitals to ‘‘cherry pick’’ or treat only
transition for our current DRG system to facilities. the most profitable patients, the
a more accurate payment system. As A few commenters urged CMS to objective of these proposed revisions is
indicated above, we have decided to further analyze and evaluate the impact to improve the accuracy of payments,
adopt traditional cost-based weights for of the proposed HSRVcc methodology leading to better incentives for hospital
FY 2007 without the HSRV part of the on access to Centers of Excellence. They quality and efficiency and ensure that
methodology and we are making noted that the proposed changes are payment rates relate more closely to
refinements that will create 20 new particularly significant for large volume patient resource needs. Even though few
CMS DRGs, modify 32 others across 13 hospitals and may have a negative hospitals will have a large increase or
different clinical areas involving impact on the Centers of Excellence. decrease in overall Medicare payments,
1,666,476 cases that would improve the Any negative impact to these Centers there may be a significant increase or
CMS DRG system’s recognition of could impede beneficiary access to high decrease in payment for individual
severity of illness for FY 2007. We quality services. Several commenters cases within a hospital. Under certain
believe it is appropriate to take steps stated that although CMS’ intent may circumstances, the current DRG system
toward transitioning the IPPS to a have been to eliminate reimbursement benefits hospitals that focus on treating
severity based DRG system for FY 2007 incentives for specialty hospitals to less severely ill patients. Adjusting
by applying some of the severity logic select the most profitable cases, the payment for the severity of the patient
from our proposal to the CMS DRGs proposed methodology appears to will remove the incentives to
where appropriate. By revising the CMS negatively affect all hospitals serving systematically choose one patient over
DRGs, we are offering hospitals an the most prevalent diagnoses another. Currently, the DRGs overpay
interim step toward severity DRGs. (cardiology, orthopedic joint for some types of cases and underpay
Hospitals would be able to take replacement, and neurosurgery) within for others because the relative weight
advantage of the improved recognition the Medicare population. The system is based on charges and the DRG
of severity within the context of the commenters stated that efforts to system does not sufficiently distinguish
more familiar CMS DRGs. This interim address issues identified in the MedPAC more or less resource intensive patients
step affords us the opportunity to adopt report should be limited to specialty based on severity of illness. The changes
some of the more basic components of hospitals. The payment systems at large we are making to account for costs in
a severity DRG system, such as specific that affect all other hospital facilities the DRG relative weights and improve
splits in DRGs that lead to groups with should not be changed. These recognition of severity within the DRG
bajohnson on PROD1PC67 with RULES2

greater resource utilization. commenters suggested that CMS address system will significantly increase
Comment: Some commenters were the reimbursement incentives of payment accuracy at both the patient
concerned that CMS has not taken into specialty hospitals by implementing a and hospital level.
account all of MedPAC’s separate payment system for specialty For these reasons, we believe these
recommendations for reforming the hospitals, rather than implement a changes should apply to all hospitals
IPPS. proposed policy that could negatively paid using the IPPS, regardless of

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47920 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

whether a hospital is a specialty being able to provide hospital-level such as ICD–10–CM and ICD–10–PCS
hospital or a rural referral center. We impacts. In addition, to the extent that that will be capable of fully recognizing
have made significant changes to our adjustments for providers such as the a patient’s severity of illness and the
proposal and the impacts shown in this IME adjustment, DSH adjustment, and/ services provided to treat that condition.
final rule may be very different for an or operating and capital CCRs may be Response: We believe that it is
individual hospital than those we updated for FY 2007 subsequent to the important to improve the payment
showed in the proposed rule. The publication of this final rule, the actual accuracy in the hospital IPPS by
impact on any specific hospital will impacts on individual providers may implementing these changes when
depend on the types of cases it treats. differ slightly from those we estimated. appropriate. The IPPS payment reforms
Comment: Several commenters stated We believe that by providing the that we have proposed do not require
that in order to analyze and comment, payment variables and other information system changes for
a crosswalk between the current DRGs information electronically on the CMS hospitals similar to those that will be
and the severity DRGs should be made Web site, hospitals have the flexibility required for adoption of ICD–10 or a
available. to simulate and develop their own new HIPAA compliant transaction
Response: As indicated earlier, we impact analyses that may be better system. The relative weights are merely
provided a number of resources during suited to their needs than any analysis one component in a payment formula
the comment period to assist CMS would do at the hospital level. for calculating Medicare’s IPPS payment
commenters in analyzing our proposal. Comment: Some commenters stated rate. Although there will be increases
We provided a number of data files that CMS needs to extend the comment and decreases in the relative weights
listed earlier on the CMS Web site at no period to allow hospitals additional that are used in the payment formula for
cost to the public. In addition to this time to evaluate the effects of these different DRGs, this payment change
information, we made available for proposed changes. does not require hospitals to make any
purchase both the FY 2004 and FY 2005 Response: One of the reasons that we computer system changes. Similarly, the
MedPAR data that were used in proposed adopting the CS DRGs for FY changes to adopt a severity DRG system
simulating the policies in the FY 2007 2008 was to give hospitals more than will also not necessarily require
IPPS proposed rule. We also provided the 60-day public comment period and hospitals to make any upgrades to their
access to a Web tool on 3M’s Web site the additional 60-day delay between the computer systems. The proposed DRG
that would allow an end user to build publication of the final rule and system or any alternative that we
case examples using the proposed CS implementation on October 1, 2006, to consider would use the same ICD–9–CM
DRGs. fully understand and plan for the diagnosis and procedures codes as the
Comment: One commenter stated that change to the CS DRG system. As current CMS DRGs. Although it seems
the best estimates on a hospital specific indicated earlier, we are not adopting likely that hospitals will want to acquire
basis, of the incremental effects on CS DRGs for FY 2007. Therefore, we do the DRG system that Medicare will use,
payment of CMS’ changes to the DRG not see a need to extend the 60-day we do not expect that substituting one
system should be published in the FY public comment period. Although we DRG GROUPER for another should be
2007 IPPS final rule. The commenter are not extending the 60-day public burdensome and require upgrades to
also suggested that CMS release impact comment period, we will involve hospital information systems. With
files by hospitals far in advance of any hospitals and other stakeholders in our regard to the comment that a more
implementation. plans for moving to a severity DRG refined DRG system can only be adopted
Response: Information to determine system for FY 2008. We are interested with more specific classification
hospital-specific impacts is available on in public input on the types of criteria systems such as ICD–10–CM and ICD–
the CMS Web site at: http://www.cms. that we should consider and how to 10–PCS, the Secretary is evaluating
hhs.gov/AcuteInpatientPPS/FFD/ evaluate improved payment accuracy as whether we should adopt ICD–10.
list.asp#TopOfPage. Click on: ‘‘Acute we consider changes to the DRG system Comment: One commenter supported
Inpatient—Files for Download http:// to better recognize severity of illness. the decision to use the CS DRGs, noting
www.cms.hhs.gov/AcuteInpatientPPS/ Comment: Some commenters that use of a 3-digit DRG number would
FFD/list.asp.’’ For the proposed rule encouraged CMS to review the cost/ avoid the undue health programming
impact file, click on ‘‘Impact file for benefit of implementing the cost-based costs that move limited financial
IPPS FY 2007 Proposed Rule http:// weight methodology and a severity- resources away from initiatives focused
www.cms.hhs.gov/AcuteInpatientPPS/ adjusted DRG system in conjunction on improving quality care and access to
FFD/itemdetail.asp?filter with changes to the CMS UB04 claim health care. However, the commenter
Type=none&filterByDID=-99& form and the adoption of ICD–10–CM. also indicated that the number of digits
sortByDID=2>&sortOrder=ascending& The commenters suggested that in the DRG number should not be a
itemID=CMS061736.’’ Similar implementing these changes factor in choosing the best severity
information for the final rule will also simultaneously could help alleviate the classification system.
be available on the CMS Web site additional cost of multiple system Response: We appreciate the
shortly after the publication of this final upgrades both for the hospital and the commenter’s support for our proposal as
rule. We note that some level of fiscal intermediaries. Some commenters well as the comment that the DRG
familiarity with data concepts and stated that CMS should conduct a single classification system used by Medicare
Medicare payment variables will be independent study to determine the should not be dependent upon the
necessary for hospitals to use these files impact that implementation of this number of digits in the DRG number.
and simulate a payment analysis for methodology will have on coding and We will consider any information
their own facility. Using the latest data billing productivity or hospital cash system infrastructure issues as we
bajohnson on PROD1PC67 with RULES2

available at the time this final rule was flow. Some commenters stated that evaluate alternative DRG systems.
prepared, we estimated impacts by implementing the significant DRG Comment: Several commenters stated
category of hospital, and the tables changes proposed by CMS is only a that the reasons CMS gave in the
displaying these impacts are published temporary solution until a more refined proposed rule for not implementing CS
in the impact section of this final rule. DRG system can be adopted with more DRGs for FY 2007 are valid. The
Space limitations preclude us from specific clinical classification systems commenters stated that they are all the

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more valid because hospitals now for a transition period of 3 years with that ‘‘failure to adopt any of (MedPAC’s)
would have less time to prepare if CMS the relative weights becoming an recommendations would leave some
were to implement its proposed severity increasing blend of costs weights as the payment distortions in place, thereby
adjusted DRGs this October 1. transition proceeds. We also believe that continuing to favor some patients over
Response: We agree. The proposed the 20 new DRGs we are adopting for others.’’ Therefore, the commenter
change to adopt CS DRGs represents a 2007 will improve the transition from recommended that CMS implement all
major change to how hospitals are paid our current system to a more of MedPAC’s recommendations
for Medicare inpatient services. We will sophisticated severity DRG system in FY simultaneously when Congress has
not be implementing the CS DRGs for 2008. granted CMS authority to adopt
FY 2007. However, we do plan to Comment: One commenter noted that MedPAC’s outlier recommendation.
evaluate potential alternative DRG MedPAC recommended excluding One commenter was concerned that
systems that better recognize severity statistical and high cost outliers from CMS provided only ‘‘minimal’’ analysis
than the current CMS DRGs for FY 2008. the computation of the DRG weights in of the effect of the DRG refinements on
Comment: One commenter suggested order that the weights reflect the average the outlier threshold. Noting that the 5.1
that the CS DRG system’s reliance on cost of the inlier case only. MedPAC percent set aside for outlier payments
3M’s proprietary APR DRG grouping further recommended shifting the could be significantly reduced with the
logic and software may not be in financing of the outlier pool from all adoption of severity DRG refinements,
compliance with Pub. L. 104–113, the cases to cases in the DRGs with the the commenter believed that
National Technology Transfer and highest prevalence of outliers. The implementation of severity DRGs is
Advancement Act of 1995. The commenter noted that outlier cases premature until the Secretary
commenter recommended that we occur most frequently in high-weighted determines whether statutory changes
participate in the formation of expert DRGs. Therefore, MedPAC’s proposal of are needed to determine the percentage
committees with a proven consensus accounting for the high prevalence of of total IPPS payments that should be
standards body to develop a outliers in the DRGs would compound made as outliers.
standardized DRG classification and the weight compression caused by the One commenter recommended that,
severity-adjustment system for the IPPS. HSRV methodology. The commenter even though CMS does not have the
Response: We appreciate the believed that each proposal by MedPAC authority to change the outlier policy, it
commenter’s support for the use of a (to exclude statistical and high cost should review creating DRG-specific or
consensus standards body to develop a outliers from the computation of the day outliers under a severity DRG
severity-adjusted DRG system. The DRGs) would exacerbate payment system. Another commenter
National Technology Transfer and inaccuracies, and the two proposals recommended that CMS reduce
Advancement Act of 1995 directs combined would be deleterious. The payments for outliers and eventually
Federal agencies to use voluntary commenter stated that it would further eliminate them upon implementing
consensus standards in lieu of analyze MedPAC’s proposal to test their severity DRGs.
government-unique standards, except theory empirically. Response: We thank the commenters
where inconsistent with law or Another commenter was also for taking the time to comment on
otherwise impractical. As we move concerned about MedPAC’s MedPAC’s recommendation. As noted
toward implementing a severity- recommendation to adjust the DRGs to above, we do not have the statutory
adjusted DRG system, we will carefully account for the prevalence of high-cost authority to implement MedPAC’s
consider whether it would be cases. The commenter explained that recommendation, and, therefore, we
appropriate to involve a voluntary reducing the relative weights to finance placed most of our attention and
consensus standards body in the the outlier pool will adversely affect resources on the recommendations
process. payment for hospitals specializing in related to refinement of the current
Comment: Some commenters stated a the most complex patients. Hospitals DRGs to more fully capture differences
transition (blended) period with stop may be discouraged from developing the in severity of illness among patients.
loss protections should be provided capacity to treat high cost outliers and However, we intend to examine
over a period of one to three years. responding to the needs of their MedPAC’s recommendation regarding
Other commenters suggested a longer community according to the commenter. outliers in more detail in the future and
transition period given the magnitude of Meanwhile, the commenter suggested will consider the comments we received
payment distribution across DRGs and that hospitals that have the capacity to on the FY 2007 IPPS proposed rule.
hospitals. The commenters believe that treat the highest cost and most complex
the transition approach would be 6. Conclusions
cases may abandon such an
consistent with many other major infrastructure because it will be too As we describe in more detail below,
changes that have been implemented costly to maintain. we believe that adopting cost-based
gradually over the years, including the One commenter supported MedPAC’s weights and making improvements to
capital prospective payment system. proposal and believed that the DRG system to better recognize
The commenters suggested that a implementing MedPAC’s proposal severity has the potential to result in
minimum of 1 year should be allowed would support the goal of achieving significant improvements to Medicare’s
for the development of software systems payment accuracy. The commenter IPPS payments. This final rule
to handle these changes. explained that the current system implements a cost weight methodology
Response: We agree that these provides double reward for DRGs with effective for FY 2007. Further, we are
changes should be implemented over a a high prevalence of outliers. The creating 20 new CMS DRGs and
transitional period. As we indicated commenter recommended that CMS modifying 32 others across 13 different
bajohnson on PROD1PC67 with RULES2

earlier, we are revising the current DRG seek legislative authority to implement clinical areas involving 1,666,476 cases
system to better recognize severity MedPAC’s proposal of DRG specific that would improve the CMS DRG
(which is discussed in detail in section outlier thresholds. system’s recognition of severity of
II.C.7. of the preamble of this final rule) Another commenter was supportive of illness for FY 2007. Further, as
and are also adopting cost-based MedPAC’s recommendation and noted suggested by MedPAC and others, we
weights for FY 2007. We are providing that MedPAC stated in a letter to CMS are adopting these changes over a

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transition period while we plan further received correspondence that raised the recognize severity to avoid losing the
improvements to the IPPS for FY 2008. concern that hospitals may have many positive changes that have been
In developing our proposed and final incentives under the current DRG made over the years to the CMS DRGs.
policies, we considered a range of system to avoid severely ill, resource- We also encouraged commenters to send
alternatives outlined below, and we intensive back and spine surgical cases us suggestions regarding potential
solicited comments on both the (as discussed in section II.D.3.b. of the changes that could be made to the
proposal and the alternatives. We asked proposed rule; the correspondence current DRG system to better recognize
commenters to consider both the CS specifically requested that we apply a severity of illness. As indicated below,
DRGs and alternative severity clinical severity concept to DRG 546). In some commenters did provide us with
adjustment methods for accounting for the proposed rule, we noted that other specific suggestions for how we could
severity more comprehensively in the surgical DRGs may not accurately revise the current DRGs.
DRG payment system. For example, recognize case severity. Because of the In the FY 2007 IPPS proposed rule,
under one alternative in the proposed frequency of DRG use and the potential we also discussed an additional
rule, we would implement the CS DRGs for risk selection, we pointed out that alternative under which we would
in FY 2007 along with the HSRVcc certain DRGs may be particularly implement the CS DRGs in FY 2007 and
weighting methodology. In this event, as important in creating a financial the HSRVcc methodology in FY 2008.
discussed above, to maintain budget incentive for hospitals to select a less We did receive one comment supporting
neutrality, we would also implement in severely ill patient whose case would be this idea. However, as we have
FY 2007 an adjustment to the assigned to the same DRG as a more discussed elsewhere, we believe that we
standardized amounts to eliminate the severely ill patient. should not adopt CS DRGs in FY 2007,
effect of changes in coding or Therefore, while we proposed to but rather evaluate severity DRG
classification of discharges that do not adopt the CS DRGs in FY 2008, we were systems for adoption in FY 2008.
reflect real changes in case-mix. considering whether to make more With respect to the relative weight
Although we did receive comments in limited changes to the current DRG calculations, we believe that adopting
support of this idea, many commenters system to better recognize severity of HSRVcc weights has the potential to
requested that we not adopt the CS illness in FY 2007. In the FY 2006 IPPS significantly improve payment equity
DRGs and the HSRVcc weights for FY final rule (70 FR 47474 through 47478), between DRGs. As MedPAC notes, a
2007. Many of these commenters we took steps to better recognize ‘‘survey of hospitals’ charging practices
suggested delaying implementation of severity of illness among cardiovascular suggests that hospitals use diverse
both proposals until at least FY 2008. patients. For all DRGs except cardiac strategies for setting service charges and
Under another alternative, we would DRGs, we currently distinguish between raising them over time.’’ MedPAC found
have adopted and implemented CS more and less complex cases based on that data from the Medicare cost reports
DRGs in FY 2008. Although we did the presence or absence of a CC. indicate that hospital markups for
receive comments in support of this However, the diagnoses that we ancillary services (for example,
idea, we also received many comments designate as CCs are the same across all operating room, radiology, and
raising important concerns about base DRGs. Because the CC list is not laboratory) are generally higher than for
licensing and proprietary issues dependent on the patient’s underlying routine services (for example, intensive
potentially associated with use of the CS condition, CCs may not accurately care unit and room and board).13 Thus,
DRGs. The commenters asked us not to recognize severity in a given case. The MedPAC has concluded that the relative
adopt the CS DRGs unless we could changes we made in FY 2006 to the weights for DRGs that use more
make them available on the same terms cardiac DRGs significantly improved ancillary services may be too high
as the current CMS DRGs. Yet other recognition of severity between patients compared to other DRGs where the
commenters objected to our proposed by distinguishing between more and routine costs account for a higher
implementation of the CS DRGs unless less severe cases based on the presence proportion of hospital costs. Although
we evaluated alternatives and better or absence of a MCV. In the proposed we agree with MedPAC’s conclusion,
justified why there is a need to adopt a rule, we indicated that we were the public comments raised important
revised DRG system. Under yet another considering whether a similar approach issues about the effect of charge
alternative, we would consider partially applied to other DRGs would improve compression on the relative weights
implementing the CS DRGs in FY 2007 payment. using the HSRVcc methodology. These
and complete implementation in FY Much like the approach we took last commenters argued that the HSRV
2008. However, we noted that there year to identify MCV conditions that calculation exacerbates the effect of
were practical difficulties associated represented higher severity in charge compression or the practice of
with partial implementation of CS DRGs cardiovascular patients, in the proposed hospitals applying higher percentage
because cases in a single DRG under the rule, we indicated that we planned to markups on lower cost items and lower
current CMS DRG system may group to examine which conditions identified percentage markups on higher cost
multiple DRGs and MDCs under the CS more severely ill cases in selected MDCs items. As we indicated above, we have
DRG system. Conversely, cases that and DRGs. We solicited comments as to engaged a contractor to assist us with
group to multiple MDCs and DRGs whether it would be appropriate to studying whether charge compression is
under the current system may group to adopt these types of limited changes in an actual phenomenon and how it
a single MDC and DRG under the FY 2007 as an intermediate step to affects the HSRV methodology. As part
current CS DRG system. We did not adopting CS DRGs in FY 2008. There of this analysis, we will study an
receive any comments supporting the were a number of comments that adjustment for charge compression
idea of partial adoption of the CS DRGs. suggested we should make suggested in the public comments and
bajohnson on PROD1PC67 with RULES2

In the FY 2007 IPPS proposed rule, improvements to our current DRG will consider adopting HSRV weights in
we discussed in some detail an system rather than adopting the CS the future. Nevertheless, in the interim,
alternative to partially adopting CS DRGs. A number of comments we believe it is important to adopt a
DRGs that would apply a clinical expressed support for using the current methodology for calculation of DRG
severity concept to an expanded set of DRG system as the starting point for
DRGs in FY 2007. For example, we have revising the DRG system to better 13 Ibid, p. 26.

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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 47923

relative weights that takes costs into Although adopting HSRVcc weights • Use of a proprietary DRG system.
account. We have revised the CCRs that would result in the most significant The commenters raised valid points
we used to develop cost-based weights improvement in hospital payment-to- about adopting a proprietary DRG
based on the public comments. cost ratios among the changes to the system, including concerns about the
Although they do not show the same IPPS recommended by MedPAC,15 we availability, price and transparency of
differentials indicated in the proposed have concerns about implementing this logic of the APR DRGs that are currently
rule, they continue to support methodology until we can further study in use in Maryland. The CS DRGs are a
MedPAC’s conclusion that a system whether the relative weights might be variant of the APR DRG system. As we
based on charges pays too much for affected by charge compression. For this evaluate alternative severity
some types of cases and pays too little reason, we are adopting cost-based classification systems, we will use
for others. As indicated above, we weights without HSRV for FY 2007. public access to the system as an
summarized hospital-level cost and However, we will consider applying the important element in evaluating
charge information to 2 routine and 11 HSRV methodology in subsequent years whether each system can be adopted for
ancillary departmental cost centers and if our analysis of charge compression Medicare. We will continue to strive to
found that national average routine cost suggests the issue is not a concern or, promote transparency in our
center CCRs ranged from 50 percent if appropriate, we can apply an decisionmaking as well as in future
(intensive care unit days) to 56 percent adjustment that would account for its payment and classification systems as
(routine days), while ancillary cost effects. we have done in the past.
center CCRs ranged from 16 percent Based on our analysis, we concur • No alternatives have been
(anesthesiology) to 46 percent (labor and with MedPAC that the CS DRGs would evaluated. We have not evaluated
delivery room). account more completely for differences alternative DRG systems that could also
MedPAC also found that relative in severity of illness and associated better recognize severity. We have
profitability ratios were higher among costs among hospitals. MedPAC received comments suggesting that
cardiovascular surgical DRGs than the observed some modest improvements in alternative DRG systems can better
medical DRGs.14 We believe the relative hospitals’ payment-to-cost ratios from recognize severity than the CS DRGs. It
profitability of the surgical adopting APR DRGs.16 We modeled the
appears that all of the DRG systems that
cardiovascular DRGs has been an CS DRGs discussed above and observed
were raised in the public comments as
important factor in the development of a 12-percent increase in the explanatory
potential alternatives to the CS DRGs are
specialty heart hospitals. Our payment power (or R-square statistic) of the DRG
proprietary systems. However, it is
impact analysis indicates that this issue system to explain total hospital charges.
possible that we could use one of these
will be addressed by adopting cost- That is, we found more uniformity
systems if it were made available in the
based weights. Moving from the current among hospital total charges within the
public domain on the same terms as the
system of charge-based weights to cost- CS DRG system than we did with
current CMS DRGs. Further, as
based weights increases payment in the Medicare’s current DRG system. While
discussed above, CMS (then HCFA) did
medical DRGs relative to the surgical we believe the CS DRG system that we
work on developing a severity DRG
DRGs. We expected this result, given described above has the potential to
that routine costs will generally account improve the IPPS, we have the system in the mid-1990’s. It is possible
for a higher proportion of total costs in following concerns about adopting it for that we could update this work and
the medical DRGs than in the surgical FY 2007: adopt a system that better recognizes
severity based on the current CMS DRGs
DRGs. In the proposed rule, we • Further adjustments are needed to
estimated that all of our combined for FY 2008 that does not raise the
the proposed DRG system. In the
changes would, on average, increase the licensing issues that are involved with
proposed rule, we indicated that further
medical DRG weights by approximately using prioprietary systems.
adjustments need to be made to the
7.3 percent while reducing the surgical proposed CS DRGs to account for Therefore, for the reasons indicated
DRG weights by approximately 6.9 situations where less severely ill above, we are not adopting the CS DRGs
percent. Implementing the cost-based patients may be more resource-intensive for FY 2007. However, we are creating
weights without utilizing the HSRV because they need expensive medical 20 new CMS DRGs and modifying 32
standardization method under the 3- technology. The CS DRGs assign a others across 13 different clinical areas
year transition period where the weights patient to a DRG based on severity of involving 1,666,476 cases that would
for FY 2007 will be based on 33 percent illness but do not recognize increased improve the CMS DRG system’s
of the cost-based weight and 67 percent complexity due to the types of services/ recognition of severity of illness for FY
of the charge weight will lessen the technology provided. In addition, the 2007. Furthermore, as discussed earlier,
effects of redistribution between CS DRGs do not incorporate many of the we have engaged a contractor to assist
medical and surgical DRGs. In this final changes to the base DRG assignments us with evaluating alternative DRG
rule, we estimate that the increase in the that have been made over the years to systems that were raised as potential
average medical DRG weight will be 0.9 the CMS DRGs. There was significant alternatives to the 3M Severity of Illness
percent and that the decrease in the interest in the public comments in DRG products in the public comments.
average surgical DRG weight will be 1.2 either revising the CS DRGs to reflect Finally, we will consider the review that
percent. The pattern of increasing these changes or use the CMS DRGs at we have undertaken of the 13,000 codes
medical weights and decreasing surgical the starting point to better recognize on the CC list as part of making further
weights still holds true. However, by severity. The public comments provided refinements to the current CMS DRGs to
adopting the cost based weights in a a number of examples where we need to better recognize severity of illness based
transition period, we are mitigating the
bajohnson on PROD1PC67 with RULES2

consider whether further changes are on the work that CMS (then HCFA) did
larger swings in payments that our needed to the CS DRGs before they are in the mid-1990’s to adopt severity
proposed policies adopted in full would ready for implementation. DRGs. Again, we expect to complete this
have caused. work in time for proposing changes to
15 Ibid, p. 37. the DRG system to better recognize
14 Ibid, p. 29. 16 Ibid, p.37. severity of illness by FY 2008.

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7. Severity Refinements to CMS DRGs also afford hospitals a more detailed hospitals. As mentioned earlier, this
In response to the FY 2007 IPPS understanding of some of the basic DRG change involved splitting some
proposed rule, we received a number of types of DRG logic used in the proposed cardiac DRGs based on the presence or
public comments that supported the CS DRG system. Obviously, we were not absence of an MCV. We then conducted
refinement of the current CMS DRGs so able to adopt some of the more a comparison of the base DRGs in the
that they better capture severity. Several sophisticated logic involved in the 18 CMS DRG system and proposed CS
commenters supported the expanded steps included in the proposed CS DRG DRGs. We analyzed data to identify
use of a clinical severity concept similar system. However, we were able to adopt specific CMS DRGs with wide ranges in
to the approach used in FY 2006 to some of the more basic components charges that had been subdivided or in
refine the cardiac DRGs. One such as specific splits in DRGs that lead other ways modified under the
commenter urged CMS to expand the set to groups with greater resource proposed CS DRGs. As stated earlier,
of DRGs to which this clinical severity utilization. this process did not allow CMS to use
We began our process of adopting the more sophisticated logic involved in
concept would apply, including the
some of the severity logic within the the proposed CS DRGs to differentiate
DRGs that capture the implanting of
proposed CS DRGs by first comparing groups with greater severity. However,
defibrillators. Another commenter the current CMS DRGs to the base DRGs
expressed support for additional we were able to identify a group of
in the proposed CS DRGs to identify DRGs that could be created to better
modifications to the current DRGs to areas where improvements could be
better capture severity and complexity align our payments based on severity of
made to better account for severity of illness. We used our own analysis along
of patients. Another commenter illness and resource utilization. We
recommended that CMS start with the with specific recommendations received
used two general approaches to evaluate during the comment period to develop
current DRG system and provide potential DRG changes. First, we
overlays for severity, complexity and further severity refinements to the
analyzed where the assignment of a case current DRGs.
patient benefit. One commenter to a DRG differed under the CMS DRGs
suggested that CMS develop severity We identified 20 new CMS DRGs
and the proposed base CS DRGs. involving 13 different clinical areas that
levels within all of the existing DRGs (or Second, we analyzed whether there was
pairs of DRGs, in the cases where CC or would improve the CMS DRG system’s
a list of ‘‘major conditions’’ that could recognition of severity of illness. Twelve
MCV splits now exist), or identify be used to revise any DRGs to better
specific DRGs that may be most of the new DRGs are medical and 8 are
recognize severity, similar to the surgical. The 20 new DRGs are
appropriate for severity adjustments. changes to the cardiovascular DRGs
Several commenters recommended constructed through a combination of
involving MCVs we established in last approaches used in the proposed CS
specific adjustments to better capture year’s final rule. We used the diagnoses
severity for septicemia, headache, and DRGs to refine the base DRGs such as:
listed as ‘‘major’’ or ‘‘extreme’’ under • Subdividing existing DRGs through
mechanical ventilation patients. (The the proposed CS DRGs for this review.
DRG recommendations are discussed the use of diagnosis codes.
The changes described below will result • Subdividing DRGs based on
below under the specific DRG topic.) in better recognition of severity in the
We recognize the importance of specific surgical procedures.
current DRG system and, like the • Selecting cases with specific
having a classification system that changes we made last year to reform the
recognizes cases that utilize greater diagnosis and/or procedure codes and
cardiovascular DRGs based on MCVs, assigning them to a new DRG which
resources and have higher levels of represent an excellent next step in
severity of illness. While we discussed better accounts for their resource use
refining the Medicare inpatient hospital and severity.
moving to a new DRG system such as payment system so our payments are
the CS DRGs for FY 2007, we stated that We also modified 32 DRGs to better
better targeted to specific patients based capture differences in severity. The new
we were also interested in improving on their costs of care.
the current DRGs so that they better and revised DRGs were selected from 40
We began our review by focusing on
capture patients with greater severity of current DRGs which contain 1,666,476
the cardiac and orthopedic DRGs
illness as early as FY 2007. We solicited cases and represent a number of body
because of our concerns that cardiac,
comments in the proposed rule on systems. In creating these 20 new DRGs,
orthopedic, and surgical hospitals have
whether it would be appropriate in FY we are deleting 8 existing DRGs and
taken advantage of opportunities in the
2007 to apply a clinical severity concept modifying 32 existing DRGs. The
DRG system to specialize in the least
to an expanded set of DRGs, similar to specific DRG changes are described
complex and most profitable inpatient
the approach we used in FY 2006 to cases. However, with respect to below:
refine cardiac DRGs based on the orthopedic and surgical specialty a. MDC 1 (Diseases and Disorders of the
presence or absence of an MCV. hospitals, we considered that they have Nervous System)
We believe it is appropriate to move very small inpatient volume and the
in a direction toward a DRG system that (1) Nervous System Infection Except
issues that are leading to their creation
better recognizes severity. Our strategy Viral Meningitis
are generally unrelated to profit
involves following recommendations opportunities in the IPPS. Although we Under our current DRG system, all
received as part of public comments and did review the orthopedic DRGs, we nervous system infections except viral
implementing some of the severity logic generally did not find opportunities meningitis are assigned to CMS DRG 20
in the proposed CS DRGs in the CMS within the current DRG system to make (Nervous System Infection Except Viral
DRGs where appropriate. By doing so, further refinements for severity of Meningitis). By combining all nervous
we would be taking an interim step illness. We were also unable to find a system infections except viral
bajohnson on PROD1PC67 with RULES2

toward better recognizing severity in the strong basis to subdivide further most of meningitis into one DRG, we are
DRG system. Hospitals would be able to the cardiovascular DRGs. In last year’s grouping together patients with wide
take advantage of a portion of improved IPPS rule, we already made significant ranges of severity. Under our proposed
severity logic in the proposed CS DRGs changes to the DRG system to better CS DRGs, there are separate DRGs that
within the context of the more familiar account for severity of illness in the distinguish bacterial infection and
CMS DRGs. This interim step would DRGs frequently performed by cardiac tuberculosis from other infections of the

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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 47925

nervous system. The CS DRGs divided tuberculosis of the nervous system. Our $47,034 compared to the $36,507
these cases in order to better recognize medical advisors support dividing these average charges for cases with other
severity. The codes which describe cases in this manner to better recognize types of infection of the nervous system.
bacterial infection and tuberculosis are severity of illness. The data indicated Clearly these charge data support the
listed below. that these are two distinctly different fact that the bacterial and tuberculous
We then divided the cases within groups with significant differences in infection group has a significantly
CMS DRG 20 based on the presence or severity. The bacterial and tuberculosis greater degree of severity. The chart
absence of bacterial infections and infection group had average charges of below illustrates these data:

Number of Average Average


DRG cases length of stay charges

CMS DRG 20 ............................................................................................................................... 6,130 9.88 $42,191.76


DRG 20 with Bacterial & TB Infections of Nervous System ....................................................... 3,310 10.1 47,034.42
DRG 20 w/o Bacterial & TB Infections of Nervous System ........................................................ 2,820 9.54 36,507.64

The data support the creation of two • DRG 560 (Bacterial & Tuberculosis The ICD–9–CM diagnosis codes
separate DRGs for these two groups of Infections of Nervous System). assigned to each new DRG are as
patients. Therefore, we are deleting DRG • DRG 561 (Non-Bacterial Infections follows.
20 and creating the following two new of Nervous System Except Viral The new DRG 560 will have principal
DRGs: Meningitis). diagnosis codes listed in the following
table.

Diagnosis DRG 560 diagnosis code titles


code

003.21 ...... Salmonella meningitis.


013.00 ...... Tuberculous meningitis, unspecified examination.
013.01 ...... Tuberculous meningitis, bacteriological or histological examination not done.
013.02 ...... Tuberculous meningitis, bacteriological or histological examination results unknown (at present).
013.03 ...... Tuberculous meningitis, tubercle bacilli found (in sputum) by microscopy.
013.04 ...... Tuberculous meningitis, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.05 ...... Tuberculous meningitis, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.06 ...... Tuberculous meningitis, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other
methods (inoculation of animals).
013.10 ...... Tuberculoma of meninges, unspecified examination.
013.11 ...... Tuberculoma of meninges, bacteriological or histological examination not done.
013.12 ...... Tuberculoma of meninges, bacteriological or histological examination results unknown (at present).
013.13 ...... Tuberculoma of meninges, tubercle bacilli found (in sputum) by microscopy.
013.14 ...... Tuberculoma of meninges, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.15 ...... Tuberculoma of meninges, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.16 ...... Tuberculoma of meninges, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by
other methods (inoculation of animals).
013.20 ...... Tuberculoma of brain, unspecified examination.
013.21 ...... Tuberculoma of brain, bacteriological or histological examination not done.
013.22 ...... Tuberculoma of brain, bacteriological or histological examination results unknown (at present).
013.23 ...... Tuberculoma of brain, tubercle bacilli found (in sputum) by microscopy.
013.24 ...... Tuberculoma of brain, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.25 ...... Tuberculoma of brain, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.26 ...... Tuberculoma of brain, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other
methods (inoculation of animals).
013.30 ...... Tuberculous abscess of brain, unspecified examination.
013.31 ...... Tuberculous abscess of brain, bacteriological or histological examination not done.
013.32 ...... Tuberculous abscess of brain, bacteriological or histological examination results unknown (at present).
013.33 ...... Tuberculous abscess of brain, tubercle bacilli found (in sputum) by microscopy.
013.34 ...... Tuberculous abscess of brain, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.35 ...... Tuberculous abscess of brain, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.36 ...... Tuberculous abscess of brain, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by
other methods (inoculation of animals).
013.40 ...... Tuberculoma of spinal cord, unspecified examination.
013.41 ...... Tuberculoma of spinal cord, bacteriological or histological examination not done.
013.42 ...... Tuberculoma of spinal cord, bacteriological or histological examination results unknown (at present).
013.43 ...... Tuberculoma of spinal cord, tubercle bacilli found (in sputum) by microscopy.
013.44 ...... Tuberculoma of spinal cord, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.45 ...... Tuberculoma of spinal cord, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.46 ...... Tuberculoma of spinal cord, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by
bajohnson on PROD1PC67 with RULES2

other methods (inoculation of animals).


013.50 ...... Tuberculous abscess of spinal cord, unspecified examination.
013.51 ...... Tuberculous abscess of spinal cord, bacteriological or histological examination not done.
013.52 ...... Tuberculous abscess of spinal cord, bacteriological or histological examination results unknown (at present).
013.53 ...... Tuberculous abscess of spinal cord, tubercle bacilli found (in sputum) by microscopy.
013.54 ...... Tuberculous abscess of spinal cord, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.

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47926 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

Diagnosis DRG 560 diagnosis code titles


code

013.55 ...... Tuberculous abscess of spinal cord, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histo-
logically.
013.56 ...... Tuberculous abscess of spinal cord, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis con-
firmed by other methods (inoculation of animals).
013.60 ...... Tuberculous encephalitis or myelitis, unspecified examination.
013.61 ...... Tuberculous encephalitis or myelitis, bacteriological or histological examination not done.
013.62 ...... Tuberculous encephalitis or myelitis, bacteriological or histological examination results unknown (at present).
013.63 ...... Tuberculous encephalitis or myelitis, tubercle bacilli found (in sputum) by microscopy.
013.64 ...... Tuberculous encephalitis or myelitis, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.65 ...... Tuberculous encephalitis or myelitis, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histo-
logically.
013.66 ...... Tuberculous encephalitis or myelitis, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis con-
firmed by other methods (inoculation of animals).
013.80 ...... Other specified tuberculosis of central nervous system, unspecified examination.
013.81 ...... Other specified tuberculosis of central nervous system, bacteriological or histological examination not done.
013.82 ...... Other specified tuberculosis of central nervous system, bacteriological or histological examination results unknown (at present).
013.83 ...... Other specified tuberculosis of central nervous system, tubercle bacilli found (in sputum) by microscopy.
013.84 ...... Other specified tuberculosis of central nervous system, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial
culture.
013.85 ...... Other specified tuberculosis of central nervous system, tubercle bacilli not found by bacteriological examination, but tuberculosis
confirmed histologically.
013.86 ...... Other specified tuberculosis of central nervous system, tubercle bacilli not found by bacteriological or histological examination, but
tuberculosis confirmed by other methods (inoculation of animals).
013.90 ...... Unspecified tuberculosis of central nervous system, unspecified examination.
013.91 ...... Unspecified tuberculosis of central nervous system, bacteriological or histological examination not done.
013.92 ...... Unspecified tuberculosis of central nervous system, bacteriological or histological examination results unknown (at present).
013.93 ...... Unspecified tuberculosis of central nervous system, tubercle bacilli found (in sputum) by microscopy.
013.94 ...... Unspecified tuberculosis of central nervous system, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial cul-
ture.
013.95 ...... Unspecified tuberculosis of central nervous system, tubercle bacilli not found by bacteriological examination, but tuberculosis con-
firmed histologically.
013.96 ...... Unspecified tuberculosis of central nervous system, tubercle bacilli not found by bacteriological or histological examination, but tu-
berculosis confirmed by other methods (inoculation of animals).
036.0 ........ Meningococcal meningitis.
036.1 ........ Meningococcal encephalitis.
098.82 ...... Gonococcal meningitis.
320.0 ........ Hemophilus meningitis.
320.1 ........ Pneumococcal meningitis.
320.2 ........ Streptococcal meningitis.
320.3 ........ Staphylococcal meningitis.
320.7 ........ Meningitis in other bacterial diseases classified elsewhere.
320.81 ...... Anaerobic meningitis.
320.82 ...... Meningitis due to gram-negative bacteria, not elsewhere classified.
320.89 ...... Meningitis due to other specified bacteria.
320.9 ........ Meningitis due to unspecified bacterium.
324.0 ........ Intracranial abscess.
324.1 ........ Intraspinal abscess.
324.9 ........ Intracranial and intraspinal abscess of unspecified site.
357.0 ........ Acute infective polyneuritis.

The new DRG 561 will have principal


diagnosis codes listed in the following
table.

Diagnosis DRG 561 diagnosis code titles


code

006.5 ........ Amebic brain abscess.


045.00 ...... Acute paralytic poliomyelitis specified as bulbar, unspecified type of poliovirus.
045.01 ...... Acute paralytic poliomyelitis specified as bulbar, poliovirus type i.
045.02 ...... Acute paralytic poliomyelitis specified as bulbar, poliovirus type ii.
045.03 ...... Acute paralytic poliomyelitis specified as bulbar, poliovirus type iii.
045.10 ...... Acute poliomyelitis with other paralysis, unspecified type of poliovirus.
045.11 ...... Acute poliomyelitis with other paralysis, poliovirus type i.
045.12 ...... Acute poliomyelitis with other paralysis, poliovirus type ii.
bajohnson on PROD1PC67 with RULES2

045.13 ...... Acute poliomyelitis with other paralysis, poliovirus type iii.
045.90 ...... Unspecified acute poliomyelitis, unspecified type poliovirus.
045.91 ...... Unspecified acute poliomyelitis, poliovirus type i.
045.92 ...... Unspecified acute poliomyelitis, poliovirus type ii.
045.93 ...... Unspecified acute poliomyelitis, poliovirus type iii.
049.8 ........ Other specified non-arthropod-borne viral diseases of central nervous system.

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Diagnosis DRG 561 diagnosis code titles


code

049.9 ........ Unspecified non-arthropod-borne viral diseases of central nervous system.


052.0 ........ Postvaricella encephalitis.
052.2 ........ Postvaricella myelitis.
053.14 ...... Herpes zoster myelitis.
054.3 ........ Herpetic meningoencephalitis.
054.74 ...... Herpes simplex myelitis.
055.0 ........ Postmeasles encephalitis.
056.01 ...... Encephalomyelitis due to rubella.
056.09 ...... Rubella with other neurological complications.
062.0 ........ Japanese encephalitis.
062.1 ........ Western equine encephalitis.
062.2 ........ Eastern equine encephalitis.
062.3 ........ St. Louis encephalitis.
062.4 ........ Australian encephalitis.
062.5 ........ California virus encephalitis.
062.8 ........ Other specified mosquito-borne viral encephalitis.
062.9 ........ Mosquito-borne viral encephalitis, unspecified.
063.0 ........ Russian spring-summer (taiga) encephalitis.
063.1 ........ Louping ill.
063.2 ........ Central European encephalitis.
063.8 ........ Other specified tick-borne viral encephalitis.
063.9 ........ Tick-borne viral encephalitis, unspecified.
064 ........... Viral encephalitis transmitted by other and unspecified arthropods.
066.2 ........ Venezuelan equine fever.
071 ........... Rabies.
072.2 ........ Mumps encephalitis.
090.40 ...... Juvenile neurosyphilis, unspecified.
090.41 ...... Congenital syphilitic encephalitis.
090.42 ...... Congenital syphilitic meningitis.
090.49 ...... Other juvenile neurosyphilis.
091.81 ...... Acute syphilitic meningitis (secondary).
094.2 ........ Syphilitic meningitis.
094.3 ........ Asymptomatic neurosyphilis.
094.81 ...... Syphilitic encephalitis.
100.81 ...... Leptospiral meningitis (aseptic).
100.89 ...... Other specified leptospiral infections.
112.83 ...... Candidal meningitis.
114.2 ........ Coccidioidal meningitis.
115.01 ...... Histoplasma capsulatum meningitis.
115.11 ...... Histoplasma duboisii meningitis.
115.91 ...... Histoplasmosis meningitis, unspecified.
130.0 ........ Meningoencephalitis due to toxoplasmosis.
321.0 ........ Cryptococcal meningitis.
321.1 ........ Meningitis in other fungal diseases.
321.2 ........ Meningitis due to viruses not elsewhere classified.
321.3 ........ Meningitis due to trypanosomiasis.
321.4 ........ Meningitis in sarcoidosis.
321.8 ........ Meningitis due to other nonbacterial organisms classified elsewhere.
322.0 ........ Nonpyogenic meningitis.
322.1 ........ Eosinophilic meningitis.
322.2 ........ Chronic meningitis.
322.9 ........ Meningitis, unspecified.
323.01 ...... Encephalitis and encephalomyelitis in viral diseases classified elsewhere.
323.02 ...... Myelitis in viral diseases classified elsewhere.
323.1 ........ Encephalitis, myelitis, and encephalomyelitis in rickettsial diseases classified elsewhere.
323.2 ........ Encephalitis, myelitis, and encephalomyelitis in protozoal diseases classified elsewhere.
323.41 ...... Other encephalitis and encephalomyelitis due to infection classified elsewhere.
323.42 ...... Other myelitis due to infection classified elsewhere.
323.51 ...... Encephalitis and encephalomyelitis following immunization procedures.
323.52 ...... Myelitis following immunization procedures.
323.61 ...... Infectious acute disseminated encephalomyelitis (ADEM).
323.62 ...... Other postinfectious encephalitis and encephalomyelitis.
323.63 ...... Postinfectious myelitis.
323.81 ...... Other causes of encephalitis and encephalomyelitis.
323.82 ...... Other causes of myelitis.
323.9 ........ Unspecified causes of encephalitis, myelitis, and encephalomyelitis.
bajohnson on PROD1PC67 with RULES2

341.20 ...... Acute (transverse) myelitis NOS.


341.21 ...... Acute (transverse) myelitis in conditions classified elsewhere.
341.22 ...... Idiopathic transverse myelitis.

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47928 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

(2) Seizure and Headache differentiated from other patients in the patients with seizures versus those who
DRG. The commenter suggested are admitted with headaches and found
Comment: One commenter stated that
splitting these DRGs into two or more that seizure cases have higher average
the current DRGs do not adequately
new DRGs to better capture severity. charges than headaches. We did not
capture the severity of patients with
Alternatively, the commenter suggested have enough cases to analyze potential
more severe types of headaches. The
that CMS examine how the APR DRG DRG changes for DRG 26. As the chart
commenter further noted that seizures
system handles these types of cases. below shows, seizure patients age
and headaches represent distinctly Response: Under both the APR DRGs
different levels of severity, yet they are greater than 17 have average charges of
and our proposed CS DRGs, seizure and $17,125 with CC and $10,540 without
grouped together in the CMS DRGs: headache cases are assigned to separate
• CMS DRG 24 (Seizure & Headache CC. Headache patients greater than 17
DRGs while these cases are grouped
Age >17 with CC). years of age have average charges of
together in the CMS DRGs. Both severity
• CMS DRG 25 (Seizure & Headache DRG systems recognize different levels $11,618. The data did not support
Age >17 without CC). of severity for these two groups of creating a split for headache patients
• CMS DRG 26 (Seizure & Headache patients. Our medical advisors found greater than 17 years with and without
Age 0–17). that seizure and headache patients are CC. The difference in average charges
The commenter stated that more clinically different, with seizure for these groups was only $2,596
severely ill patients, such as those with patients having a higher level of ($12,591 with CC as compared to $9,995
intense migraine headaches, should be severity. We also analyzed data for for those without a CC).

DRGS 24, 25, AND 26


Number of Average Average
DRG cases length of stay charges

24 ................................................................................................................................................. 60,186 4.67 $16,403.55


25 ................................................................................................................................................. 25,816 3.13 10,419.00
26 ................................................................................................................................................. 21 4.05 17,396.43

SEIZURES AGE >17 WITH AND WITHOUT CC


Number of Average Average
DRG cases length of stay charges

With CC ....................................................................................................................................... 50,605 4.8 $17,125.19


Without CC .................................................................................................................................. 20,065 3.1 10,540.27

HEADACHES > 17
Average Average
DRG length of stay charges

15,332 ...................................................................................................................................................................... 3.4 $11,618.15

HEADACHES >17 WITH AND WITHOUT CC


Number of Average Average
DRG cases length of stay charges

With CC ....................................................................................................................................... 9,581 3.7 $12,591,92


Without CC .................................................................................................................................. 5,751 2.9 9,995.85

The data also support creating The clinical data and our medical • DRG 562 (Seizure Age >17 with
separate DRGs for seizure and headache advisors support the creation of separate CC).
patients greater than 17 years of age. DRGs for these two groups of patients. • DRG 563 (Seizure Age >17 without
The data further support an additional Therefore, we are deleting the following CC).
split for seizure patients based on the DRGs:
• DRG 564 (Headaches Age >17).
presence of a complication or • DRG 24 (Seizure & Headache
comorbidity (CC). Seizure cases with a The ICD–9–CM codes and DRG logic
Age >17 with CC).
CC have $6,585 greater average charges for cases assigned to these new DRGs
compared to cases without a CC. The • DRG 25 (Seizure & Headache will be as follows.
Age >17 without CC).
bajohnson on PROD1PC67 with RULES2

data are less compelling for creating a New DRG 562 will have the following
split based on the presence of a CC for We are creating the following three principal diagnosis codes and age
headache cases, since the difference in new DRGs: greater than 17 years with a CC.
average charges is only $2,596.

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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 47929

Diagnosis Diagnosis code title


code

345.00 ...... Generalized nonconvulsive epilepsy, without mention of intractable epilepsy.


345.01 ...... Generalized nonconvulsive epilepsy, with intractable epilepsy.
345.10 ...... Generalized convulsive epilepsy, without mention of intractable epilepsy.
345.11 ...... Generalized convulsive epilepsy, with intractable epilepsy.
345.2 ........ Petit mal status, epileptic.
345.3 ........ Grand mal status, epileptic.
345.40 ...... Localization-related (focal) (partial) epilepsy and epileptic syndromes with complex partial seizures, without mention of intractable
epilepsy.
345.41 ...... Localization-related (focal) (partial) epilepsy and epileptic syndromes with complex partial seizures, with intractable epilepsy.
345.50 ...... Localization-related (focal) (partial) epilepsy and epileptic syndromes with simple partial seizures, without mention of intractable epi-
lepsy.
345.51 ...... Localization-related (focal) (partial) epilepsy and epileptic syndromes with simple partial seizures, with intractable epilepsy.
345.60 ...... Infantile spasms, without mention of intractable epilepsy.
345.61 ...... Infantile spasms, with intractable epilepsy.
345.70 ...... Epilepsia partialis continua, without mention of intractable epilepsy.
345.71 ...... Epilepsia partialis continua, with intractable epilepsy.
345.80 ...... Other forms of epilepsy and recurrent seizures, without mention of intractable epilepsy.
345.81 ...... Other forms of epilepsy and recurrent seizures, with intractable epilepsy.
345.90 ...... Epilepsy, unspecified, without mention of intractable epilepsy.
345.91 ...... Epilepsy, unspecified, with intractable epilepsy.
780.31 ...... Febrile convulsions (simple), unspecified.
780.32 ...... Complex febrile convulsions.
780.39 ...... Other convulsions.

New DRG 563 will have the principal 562, age greater than 17 years, but no New DRG 564 will have the principal
diagnosis codes listed above for DRG complication/comorbidity. diagnosis codes listed as follows and an
age greater than 17 years.

Diagnosis Diagnosis code title


code

307.81 ...... Tension headache.


310.2 ........ Postconcussion syndrome.
346.00 ...... Classical migraine without mention of intractable migraine.
346.01 ...... Classical migraine with intractable migraine, so stated.
346.10 ...... Common migraine without mention of intractable migraine.
346.11 ...... Common migraine with intractable migraine, so stated.
346.20 ...... Variants of migraine without mention of intractable migraine.
346.21 ...... Variants of migraine with intractable migraine, so stated.
346.80 ...... Other forms of migraine without mention of intractable migraine.
346.81 ...... Other forms of migraine with intractable migraine, so stated.
346.90 ...... Migraine, unspecified without mention of intractable migraine.
346.91 ...... Migraine, unspecified with intractable migraine, so stated.
348.2 ........ Benign intracranial hypertension.
349.0 ........ Reaction to spinal or lumbar puncture.
437.4 ........ Cerebral arteritis.
784.0 ........ Headache.

b. MDC 4 (Diseases and Disorders of the proposed CS DRGs divide these patients hours. A review of these cases illustrates
Respiratory System): Respiratory System into two groups, those on ventilator a significant difference in average
Diagnosis With Ventilator Support support for 96 or more hours and those charges for patients on ventilator
on ventilator support for less than 96 support for 96 or more hours which
Medical patients who are treated with hours. The CS DRGs recognize the supports the greater severity of these
mechanical ventilation for respiratory difference in severity between these two patients. The chart below shows that
failure are currently assigned to DRG groups of patients. Our medical advisors patients on ventilator support for 96 or
475 (Respiratory System Diagnosis with agree that medical patients who are more hours have average charges of
Ventilator Support). This DRG includes treated with mechanical ventilation for $83,058 compared to $38,300 for
patients who are on a mechanical respiratory failure for 96 or more hours patients on ventilator support for less
ventilator for only a few hours as well in most cases are more severely ill than than 96 hours, a difference of $44,758 in
as patients who are on mechanical patients who are treated with charges. The following chart
ventilation for several days. The mechanical ventilation for fewer than 96 summarizes these data.
bajohnson on PROD1PC67 with RULES2

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47930 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

DRG 475 RESPIRATORY SYSTEM DIAGNOSIS WITH VENTILATOR SUPPORT


Average
Number of Average
DRG length of
cases charges
stay

DRG 475 .................................................................................................................................................. 114,199 10.64 $55,873.15


DRG 475 with Ventilator Support 96+ Hours .......................................................................................... 44,836 15.30 83,058.24
DRG 475 with Ventilator Support <96 Hours .......................................................................................... 69,363 7.64 38,300.81

The proposed CS DRGs do a much 96.71 (Continuous mechanical Our data show that the two groups of
better job of identifying patients on ventilation for less than 96 consecutive cases assigned to major esophageal
ventilator support who have higher hours). disorders and to the gastrointestinal and
levels of severity and utilize peritoneal infections represent
c. MDC 6 (Diseases and Disorders of the
significantly more resources. Therefore, Digestive System)
significantly greater severity levels and
we will adopt the approach used under have higher average charges than do
the CS DRG system and split these (1) Major Esophageal Disorders and other cases in the eight CMS DRGs. The
patients based on whether or not the Major Gastrointestinal and Peritoneal eight current CMS DRGs to which these
patients are on mechanical ventilation Infections two groups of higher severity cases as
for 96 hours. We are deleting DRG 475 The proposed CS DRGs assign major assigned are as follows:
and creating the following two new esophageal disorders to a single DRG • CMS DRG 174 (G.I. Hemorrhage
DRGs: because these disorders have been with CC).
• DRG 565 (Respiratory System shown to have a higher level of severity • CMS DRG 175 (G.I. Hemorrhage
Diagnosis with Ventilator Support 96+ than do other types of esophageal without CC).
Hours). disorders. Under the current CMS DRGs • CMS DRG 182 (Esophagitis,
• DRG 566 (Respiratory System these disorders are dispersed Gastroenteritis & Miscellaneous
Diagnosis with Ventilator Support < 96 throughout 8 separate DRGs. The Digestive Disorders Age >17 with CC).
Hours). conditions included in the list of major • CMS DRG 183 (Esophagitis,
The DRG logic for these two new esophageal disorders are described in Gastroenteritis & Miscellaneous
DRGs is as follows. the table below. The proposed CS DRGs Digestive Disorders Age >17 without
New DRG 565 will have a respiratory also assign specific gastrointestinal and CC).
system diagnosis and procedure code peritoneal infections that represent a • CMS DRG 184 (Esophagitis,
96.72 (Continuous mechanical high level of severity into a single DRG. Gastroenteritis & Miscellaneous
ventilation for 96 consecutive hours or These conditions are assigned to the Digestive Disorders Age 0–17).
more). same group of eight CMS DRGs • CMS DRG 188 (Digestive System
New DRG 566 will have a respiratory mentioned above within CMS’ current Diagnoses Age >17 with CC).
system diagnosis and the following DRGS. The conditions considered • CMS DRG 189 (Digestive System
procedure codes: gastrointestinal and peritoneal Diagnoses Age >17 without CC).
96.70 (Continuous mechanical infections are described in the table • CMS DRG 190 (Digestive System
ventilation of unspecified duration). below. Diagnoses Age 0–17).

DRGS 174, 175, 182, 183, 184, 188, 189, AND 190
Average
Number of Average
DRG length of
cases stay charges

DRG 174 .............................................................................................................................................. 249,359 4.69 $16,987.26


DRG 174 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections ................ 241,508 4.69 16,934.86
DRG 175 .............................................................................................................................................. 28,485 2.86 9,573.73
DRG 175 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections ................ 27,816 2.87 9,934.86
DRG 182 .............................................................................................................................................. 282,619 4.48 14,269.01
DRG 182 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections ................ 243,563 4.07 13,124.03
DRG 183 .............................................................................................................................................. 77,582 2.89 9,933.62
DRG 183 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections ................ 74,899 2.84 9,845.81
DRG 184 .............................................................................................................................................. 66 4.38 12,116.67
DRG 184 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections ................ 60 3.88 10,053.38
DRG 188 .............................................................................................................................................. 88,970 5.45 18,278.19
DRG 189 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections ................ 87,210 5.43 18,194.27
DRG 189 .............................................................................................................................................. 12,454 3.06 9,963.90
DRG 190 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections ................ 12,123 3.02 9,855.31
DRG 190 .............................................................................................................................................. 58 5.02 14,156.52
DRG 190 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections ................ 45 5.13 14,829.47
bajohnson on PROD1PC67 with RULES2

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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 47931

MAJOR ESOPHAGEAL DISORDERS peritoneal infection have average cases with major esophageal and
charges ranging from $9,845 to $18,194. gastrointestinal disorders and peritoneal
Number of Average Average The average charges for major infections to two new DRGs has the
length of esophageal disorders are $18,410, while effect of creating two groups which have
cases charges
stay
average charges for major higher levels of severity and use
10,633 ........... 4.7 $18,410.30 gastrointestinal disorders and peritoneal significantly greater resources. Our
infections are $20,861. Removing these medical advisors agree that these two
higher severity cases from the eight groups represent higher levels of
MAJOR GASTROINTESTINAL AND DRGs does not have a significant impact severity and that it is appropriate to
PERITONEAL INFECTIONS on the DRG weights for the remaining move these two groups of cases out of
cases. Most of the higher severity cases their existing assignments and into the
Average are being removed from DRG 182. There following two new DRGs:
Number of Average
length of
cases stay charges were 282,619 cases in this DRG. By • DRG 571 (Major Esophageal
removing the two new groups of cases, Disorders)
41,736 ........... 6.9 $20,861.06 the DRG has 243,563 cases remaining. • DRG 572 (Major Gastrointestinal
The average charge for DRG 182 with Disorders and Peritoneal Infections)
As can be seen from the tables above, the remaining cases decreases from We are creating new DRG 571 with
cases assigned to these eight DRGs $14,269 to $13,124. Therefore, the the following ICD–9–CM diagnosis
without a major esophageal disorder or impact on the remaining cases is not codes (removing them from DRGs 174,
a major gastrointestinal disorder and that significant. However, reassigning 175, 182, 183, 184, 188, 189, and 190):

Diagnosis Major esophageal disorders diagnosis code titles


code

017.80 ...... Tuberculosis of esophagus, unspecified examination.


017.81 ...... Tuberculosis of esophagus, bacteriological or histological examination not done.
017.82 ...... Tuberculosis of esophagus, bacteriological or histological examination results unknown (at present).
017.83 ...... Tuberculosis of esophagus, tubercle bacilli found (in sputum) by microscopy.
017.84 ...... Tuberculosis of esophagus, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
017.85 ...... Tuberculosis of esophagus, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
017.86 ...... Tuberculosis of esophagus, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by
other methods (inoculation of animals).
112.84 ...... Candidal esophagitis.
456.0 ........ Esophageal varices with bleeding.
456.1 ........ Esophageal varices without mention of bleeding.
456.20 ...... Esophageal varices in diseases classified elsewhere, with bleeding.
530.4 ........ Perforation of esophagus.
530.7 ........ Gastroesophageal laceration-hemorrhage syndrome.
530.82 ...... Esophageal hemorrhage.
530.84 ...... Tracheoesophageal fistula.
750.3 ........ Congenital tracheoesophageal fistula, esophageal atresia and stenosis.
750.4 ........ Other specified congenital anomalies of esophagus.
862.22 ...... Injury to esophagus without mention of open wound into cavity.
947.2 ........ Burn of esophagus.

We are creating new DRG 572 with codes (removing them from DRGs 182,
the following ICD–9–CM diagnosis 183, 184, 188, 189, and 190):

Diagnosis Major esophageal disorders diagnosis code titles


code

001.0 ........ Cholera due to vibrio cholerae.


001.1 ........ Cholera due to vibrio cholerae el tor.
001.9 ........ Cholera, unspecified.
003.0 ........ Salmonella gastroenteritis.
004.0 ........ Shigella dysenteriae.
004.1 ........ Shigella flexneri.
004.2 ........ Shigella boydii.
004.3 ........ Shigella sonnei.
004.8 ........ Other specified shigella infections.
004.9 ........ Shigellosis, unspecified.
005.0 ........ Staphylococcal food poisoning.
005.2 ........ Food poisoning due to clostridium perfringens (c. welchii).
005.3 ........ Food poisoning due to other clostridia.
005.4 ........ Food poisoning due to vibrio parahaemolyticus.
005.81 ...... Food poisoning due to vibrio vulnificus.
bajohnson on PROD1PC67 with RULES2

005.89 ...... Other bacterial food poisoning.


006.0 ........ Acute amebic dysentery without mention of abscess.
006.1 ........ Chronic intestinal amebiasis without mention of abscess.
006.2 ........ Amebic nondysenteric colitis.
007.0 ........ Balantidiasis.
007.1 ........ Giardiasis.

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47932 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

Diagnosis Major esophageal disorders diagnosis code titles


code

007.2 ........ Coccidiosis.


007.3 ........ Intestinal trichomoniasis.
007.4 ........ Cryptosporidiosis.
007.5 ........ Cyclosporiasis.
007.8 ........ Other specified protozoal intestinal diseases.
007.9 ........ Unspecified protozoal intestinal disease.
008.00 ...... Intestinal infection due to e. coli, unspecified.
008.01 ...... Intestinal infection due to enteropathogenic e. coli.
008.02 ...... Intestinal infection due to enterotoxigenic e. coli.
008.03 ...... Intestinal infection due to enteroinvasive e. coli.
008.04 ...... Intestinal infection due to enterohemorrhagic e. coli.
008.09 ...... Intestinal infection due to other intestinal e. coli infections.
008.1 ........ Intestinal infection due to arizona group of paracolon bacilli.
008.2 ........ Intestinal infection due to aerobacter aerogenes.
008.3 ........ Intestinal infection due to proteus (mirabilis) (morganii).
008.41 ...... Intestinal infection due to staphylococcus.
008.42 ...... Intestinal infection due to pseudomonas.
008.43 ...... Intestinal infection due to campylobacter.
008.44 ...... Intestinal infection due to yersinia enterocolitica.
008.45 ...... Intestinal infection due to clostridium difficile.
008.46 ...... Intestinal infection due to other anaerobes.
008.47 ...... Intestinal infection due to other gram-negative bacteria.
008.49 ...... Intestinal infection due to other organisms.
008.5 ........ Bacterial enteritis, unspecified.
4.00 .......... Tuberculous peritonitis, unspecified examination.
014.01 ...... Tuberculous peritonitis, bacteriological or histological examination not done.
014.02 ...... Tuberculous peritonitis, bacteriological or histological examination results unknown (at present).
014.03 ...... Tuberculous peritonitis, tubercle bacilli found (in sputum) by microscopy.
014.04 ...... Tuberculous peritonitis, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
014.05 ...... Tuberculous peritonitis, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
014.06 ...... Tuberculous peritonitis, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other
methods (inoculation of animals).
014.80 ...... Other tuberculosis of intestines and mesenteric glands, unspecified examination.
014.81 ...... Other tuberculosis of intestines and mesenteric glands, bacteriological or histological examination not done.
014.82 ...... Other tuberculosis of intestines and mesenteric glands, bacteriological or histological examination results unknown (at present).
014.83 ...... Other tuberculosis of intestines and mesenteric glands, tubercle bacilli found (in sputum) by microscopy.
014.84 ...... Other tuberculosis of intestines and mesenteric glands, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial
culture.
014.85 ...... Other tuberculosis of intestines and mesenteric glands, tubercle bacilli not found by bacteriological examination, but tuberculosis
confirmed histologically.
014.86 ...... Other tuberculosis of intestines and mesenteric glands, tubercle bacilli not found by bacteriological or histological examination, but
tuberculosis confirmed by other methods (inoculation of animals).
021.1 ........ Enteric tularemia.
022.2 ........ Gastrointestinal anthrax.
032.83 ...... Diphtheritic peritonitis.
039.2 ........ Abdominal actinomycotic infection.
095.2 ........ Syphilitic peritonitis.
098.86 ...... Gonococcal peritonitis.
123.1 ........ Cysticercosis.
123.5 ........ Sparganosis (larval diphyllobothriasis).
123.6 ........ Hymenolepiasis.
123.8 ........ Other specified cestode infection.
123.9 ........ Cestode infection, unspecified.
126.0 ........ Ancylostomiasis due to ancylostoma duodenale.
126.1 ........ Necatoriasis due to necator americanus.
126.2 ........ Ancylostomiasis due to ancylostoma braziliense.
126.3 ........ Ancylostomiasis due to ancylostoma ceylanicum.
126.8 ........ Other specified ancylostoma.
126.9 ........ Ancylostomiasis and necatoriasis, unspecified.
540.0 ........ Acute appendicitis with generalized peritonitis.
540.1 ........ Acute appendicitis with peritoneal abscess.
567.0 ........ Peritonitis in infectious diseases classified elsewhere.
567.1 ........ Pneumococcal peritonitis.
567.21 ...... Peritonitis (acute) generalized.
567.22 ...... Peritoneal abscess.
567.23 ...... Spontaneous bacterial peritonitis.
567.29 ...... Other suppurative peritonitis.
bajohnson on PROD1PC67 with RULES2

567.31 ...... Psoas muscle abscess.


567.38 ...... Other retroperitoneal abscess.
7.39 .......... Other retroperitoneal infections.
567.89 ...... Other specified peritonitis.
567.9 ........ Unspecified peritonitis.
569.5 ........ Abscess of intestine.

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(2) Principal or Secondary Diagnosis of diagnosis. In general, these Major Diagnosis have average charges of
Major Gastrointestinal Diagnosis Gastrointestinal Diagnoses represent or $70,001.16 compared to average charges
We examined the diagnosis codes are associated with the reason for of $43,809.03 when a Major
assigned to MDC 6 for severity using the performing the surgical procedure in Gastrointestinal Diagnosis is not
proposed CS DRGs and created a list of DRGs 148 and 149 and DRGs 154 present. The difference in charges for
diagnosis codes that are identified as through 156 and are the most serious cases in DRG 149 was not as great. The
major or extreme in the APR DRGs or diagnoses that necessitate surgery. As difference in average charges was
the consolidated severity DRGs. We the following tables illustrate, the $29,103.84 for DRG 149 when a Major
refer to this set of higher severity presence of these Major Gastrointestinal Gastrointestinal Diagnosis was present
diagnosis codes as Major Diagnoses identifies patients with a and $23,077.84 when it was not. The
Gastrointestinal Diagnoses. The list of higher level of severity. The presence of number of cases with a Major
higher severity diagnosis codes these Major Gastrointestinal Diagnoses Gastrointestinal Diagnosis was
considered to be a Major leads to significantly higher average
significantly larger for DRG 148 (58,153
Gastrointestinal Diagnosis is provided charges for these two groups of surgical
cases compared to only 1,822 in DRG
in the table below showing new DRG patients, particularly for cases currently
149). Similar findings occur for DRGs
569. assigned to DRGs 148 and 154 which are
the surgical procedures that include the 154, 155, and 156. Cases with a Major
We then examined DRGs 148 and 149
(Major Small & Large Bowel Procedures presence of a CC. The surgical patients Gastrointestinal Diagnosis occur with
with and without CC, respectively) and with Major Gastrointestinal Diagnoses significantly greater numbers in DRG
DRGs 154 through 156 (Stomach, would not only be considered to have a 154 (9,924 compared to only 357 in DRG
Esophageal & Duodenal Procedures Age greater level of severity and be more 155 and none in DRG 156). The average
>17 with and without CC and Age 0–17, expensive, they would also be assigned charges for cases with a Major
respectively) when these Major to the surgical DRG that includes a CC. Gastrointestinal Diagnosis were
Gastrointestinal Diagnoses were present The tables below show that patients in $84,270.92 for DRG 154, and only
as either a principal or secondary DRG 148 with a Major Gastrointestinal $29,193.81 for DRG 155.

DRGS 148, 149, 154, 155, AND 156


Average
Number of Average
DRG length of
cases charges
stay

DRG 148 .............................................................................................................................................. 126,156 11.92 $55,882.59


DRG 148 with PDX/SDX of Major GI Diagnoses ................................................................................ 58,153 14.24 70,001.16
DRG 148 w/o PDX/SDX Major GI Diagnoses ..................................................................................... 68,003 9.94 43,809.03
DRG 149 .............................................................................................................................................. 18,471 5.66 23,672.25
DRG 149 with PDX/SDX of Major GI Diagnoses ................................................................................ 1,822 7.66 29,103.84
DRG 149 w/o PDX/SDX Major GI Diagnoses ..................................................................................... 16,649 5.44 23,077.84
DRG 154 .............................................................................................................................................. 25,617 12.95 66,257.17
DRG 154 with PDX/SDX of Major GI Diagnoses ................................................................................ 9,924 15.59 84,270.92
DRG 154 w/o PDX/SDX Major GI Diagnoses ..................................................................................... 15,693 11.28 54,865.56
DRG 155 .............................................................................................................................................. 5,679 3.96 21,543.88
DRG 155 with PDX/SDX of Major GI Diagnoses ................................................................................ 357 7.10 29,193.81
DRG 155 w/o PDX/SDX Major GI Diagnoses ..................................................................................... 5,322 3.75 21,030.50
DRG 156 .............................................................................................................................................. 4 9.25 48,015.50
DRG 156 with PDX/SDX of Major GI Diagnoses ................................................................................ 0 0 0
DRG 156 w/o PDX/SDX Major GI Diagnoses ..................................................................................... 4 9.25 48,015.50

Our medical advisors agree that these of severity. A summary of these changes The DRG logic for new DRGs 569 and
gastrointestinal surgical patients with a is provided below. 570 is as follows.
Major Gastrointestinal Diagnosis are We are deleting DRG 148 and creating New DRG 569 will have a principal
more severely ill and represent patients the following two new DRGs: diagnosis from MDC 6 and one of the
with a higher level of severity. They • DRG 569 (Major Small & Large following codes as either the principal
support subdividing cases in DRG 148 Bowel Procedures with CC with Major or secondary diagnosis. This DRG will
and 154 based on the presence of a Gastrointestinal Diagnosis) also have an operating room procedure
Major Gastrointestinal Diagnosis to • DRG 570 (Major Small & Large from current DRG 148 and a
better capture patients with higher level Bowel Procedures with CC without Complication/Comorbidity (as defined
Major Gastrointestinal Diagnosis) in CMS DRG GROUPER Version 24.0).

Diagnosis Principal or secondary diagnosis—major gastrointestinal diagnosis diagnosis code title


code

008.41 ...... Intestinal infection due to staphylococcus.


008.42 ...... Intestinal infection due to pseudomonas.
bajohnson on PROD1PC67 with RULES2

008.43 ...... Intestinal infection due to campylobacter.


008.45 ...... Intestinal infection due to clostridium difficile.
008.46 ...... Intestinal infection due to other anaerobes.
008.49 ...... Intestinal infection due to other organisms.
014.04 ...... Tuberculous peritonitis, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
098.86 ...... Gonococcal peritonitis.

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Diagnosis Principal or secondary diagnosis—major gastrointestinal diagnosis diagnosis code title


code

456.0 ........ Esophageal varices with bleeding.


456.20 ...... Esophageal varices in diseases classified elsewhere, with bleeding.
530.21 ...... Ulcer of esophagus with bleeding.
530.4 ........ Perforation of esophagus.
530.7 ........ Gastroesophageal laceration-hemorrhage syndrome.
530.84 ...... Tracheoesophageal fistula.
531.00 ...... Acute gastric ulcer with hemorrhage, without mention of obstruction.
531.21 ...... Acute gastric ulcer with hemorrhage and perforation, with obstruction.
531.40 ...... Chronic or unspecified gastric ulcer with hemorrhage, without mention of obstruction.
531.41 ...... Chronic or unspecified gastric ulcer with hemorrhage, with obstruction.
531.50 ...... Chronic or unspecified gastric ulcer with perforation, without mention of obstruction.
531.60 ...... Chronic or unspecified gastric ulcer with hemorrhage and perforation, without mention of obstruction.
531.91 ...... Gastric ulcer, unspecified as acute or chronic, without mention of hemorrhage or perforation, with obstruction.
532.00 ...... Acute duodenal ulcer with hemorrhage, without mention of obstruction.
532.10 ...... Acute duodenal ulcer with perforation, without mention of obstruction.
532.11 ...... Acute duodenal ulcer with perforation, with obstruction.
532.20 ...... Acute duodenal ulcer with hemorrhage and perforation, without mention of obstruction.
532.31 ...... Acute duodenal ulcer without mention of hemorrhage or perforation, with obstruction.
532.40 ...... Chronic or unspecified duodenal ulcer with hemorrhage, without mention of obstruction.
532.41 ...... Chronic or unspecified duodenal ulcer with hemorrhage, with obstruction.
532.50 ...... Chronic or unspecified duodenal ulcer with perforation, without mention of obstruction.
532.60 ...... Chronic or unspecified duodenal ulcer with hemorrhage and perforation, without mention of obstruction.
533.00 ...... Acute peptic ulcer of unspecified site with hemorrhage, without mention of obstruction.
533.10 ...... Acute peptic ulcer of unspecified site with perforation, without mention of obstruction.
533.21 ...... Acute peptic ulcer of unspecified site with hemorrhage and perforation, with obstruction.
533.40 ...... Chronic or unspecified peptic ulcer of unspecified site with hemorrhage, without mention of obstruction.
533.41 ...... Chronic or unspecified peptic ulcer of unspecified site with hemorrhage, with obstruction.
533.50 ...... Chronic or unspecified peptic ulcer of unspecified site with perforation, without mention of obstruction.
533.51 ...... Chronic or unspecified peptic ulcer of unspecified site with perforation, with obstruction.
533.60 ...... Chronic or unspecified peptic ulcer of unspecified site with hemorrhage and perforation, without mention of obstruction.
533.91 ...... Peptic ulcer of unspecified site, unspecified as acute or chronic, without mention of hemorrhage or perforation, with obstruction.
534.00 ...... Acute gastrojejunal ulcer with hemorrhage, without mention of obstruction.
534.40 ...... Chronic or unspecified gastrojejunal ulcer with hemorrhage, without mention of obstruction.
534.41 ...... Chronic or unspecified gastrojejunal ulcer, with hemorrhage, with obstruction.
534.50 ...... Chronic or unspecified gastrojejunal ulcer with perforation, without mention of obstruction.
534.51 ...... Chronic or unspecified gastrojejunal ulcer with perforation, with obstruction.
534.91 ...... Gastrojejunal ulcer, unspecified as acute or chronic, without mention of hemorrhage or perforation, with obstruction.
535.01 ...... Acute gastritis with hemorrhage.
535.11 ...... Atrophic gastritis with hemorrhage.
535.21 ...... Gastric mucosal hypertrophy with hemorrhage.
535.31 ...... Alcoholic gastritis with hemorrhage.
535.41 ...... Other specified gastritis with hemorrhage.
535.51 ...... Unspecified gastritis and gastroduodenitis with hemorrhage.
535.61 ...... Duodenitis with hemorrhage.
537.3 ........ Other obstruction of duodenum.
537.83 ...... Angiodysplasia of stomach and duodenum with hemorrhage.
540.0 ........ Acute appendicitis with generalized peritonitis.
540.1 ........ Acute appendicitis with peritoneal abscess.
550.00 ...... Unilateral or unspecified inguinal hernia, with gangrene.
550.01 ...... Recurrent unilateral or unspecified inguinal hernia, with gangrene.
550.02 ...... Bilateral inguinal hernia, with gangrene.
551.00 ...... Unilateral or unspecified femoral hernia with gangrene.
551.1 ........ Umbilical hernia with gangrene.
551.20 ...... Unspecified ventral hernia with gangrene.
551.21 ...... Incisional ventral hernia, with gangrene.
551.29 ...... Other ventral hernia with gangrene.
551.3 ........ Diaphragmatic hernia with gangrene.
551.8 ........ Hernia of other specified sites, with gangrene.
551.9 ........ Hernia of unspecified site, with gangrene.
557.0 ........ Acute vascular insufficiency of intestine.
557.1 ........ Chronic vascular insufficiency of intestine.
557.9 ........ Unspecified vascular insufficiency of intestine.
560.0 ........ Intussusception.
560.2 ........ Volvulus.
560.31 ...... Gallstone ileus.
560.81 ...... Intestinal or peritoneal adhesions with obstruction (postoperative) (postinfection).
560.89 ...... Other specified intestinal obstruction.
bajohnson on PROD1PC67 with RULES2

560.9 ........ Unspecified intestinal obstruction.


562.02 ...... Diverticulosis of small intestine with hemorrhage.
562.03 ...... Diverticulitis of small intestine with hemorrhage.
562.12 ...... Diverticulosis of colon with hemorrhage.
562.13 ...... Diverticulitis of colon with hemorrhage.
564.7 ........ Megacolon, other than hirschsprung’s.

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Diagnosis Principal or secondary diagnosis—major gastrointestinal diagnosis diagnosis code title


code

567.0 ........ Peritonitis in infectious diseases classified elsewhere.


567.1 ........ Pneumococcal peritonitis.
567.21 ...... Peritonitis (acute) generalized.
567.22 ...... Peritoneal abscess.
567.23 ...... Spontaneous bacterial peritonitis.
567.29 ...... Other suppurative peritonitis.
567.31 ...... Psoas muscle abscess.
567.38 ...... Other retroperitoneal abscess.
567.39 ...... Other retroperitoneal infections.
567.81 ...... Choleperitonitis.
567.9 ........ Unspecified peritonitis.
568.81 ...... Hemoperitoneum (nontraumatic).
569.5 ........ Abscess of intestine.
569.83 ...... Perforation of intestine.
569.85 ...... Angiodysplasia of intestine with hemorrhage.
578.0 ........ Hematemesis.
750.3 ........ Congenital tracheoesophageal fistula, esophageal atresia and stenosis.
863.30 ...... Injury to small intestine, unspecified site, with open wound into cavity.
863.31 ...... Injury to duodenum with open wound into cavity.
863.39 ...... Other injury to small intestine with open wound into cavity.
863.50 ...... Injury to colon, unspecified site, with open wound into cavity.
863.51 ...... Injury to ascending (right) colon with open wound into cavity.
863.52 ...... Injury to transverse colon with open wound into cavity.
863.53 ...... Injury to descending (left) colon with open wound into cavity.
863.54 ...... Injury to sigmoid colon with open wound into cavity.
863.55 ...... Injury to rectum with open wound into cavity.
863.59 ...... Other injury to colon and rectum with open wound into cavity.
863.90 ...... Injury to gastrointestinal tract, unspecified site, with open wound into cavity.
863.95 ...... Injury to appendix with open wound into cavity.
863.99 ...... Injury to other and unspecified gastrointestinal sites with open wound into cavity.
868.13 ...... Injury to peritoneum with open wound into cavity.
947.3 ........ Burn of gastrointestinal tract.

New DRG 570 will have an operating Complication/Comorbidity without room procedure from current CMS DRG
room procedure code from current CMS Major Gastrointestinal Diagnosis) 154 and a CC.
DRG 148 and a principal diagnosis from New DRG 567 will have a principal
diagnosis from MDC 6 with either a d. MDC 11 (Diseases and Disorders of
MDC 6, except for a principal or
principal or secondary diagnosis of a the Kidney and Urinary Tract): Major
secondary diagnosis listed above in the
Major Gastrointestinal Diagnosis (see Bladder Procedures
Major Gastrointestinal Diagnosis list and
will have a Complication/Comorbidity. list of Major Gastrointestinal Diagnoses Under our proposed CS DRGs, cases
We also are deleting DRG 154 and listed above). New DRG 567 will also with a major bladder procedure were
creating two new DRGs as follows: have an operating room procedure from found to have a higher level of severity
• DRG 567 (Stomach, Esophageal & current CMS DRG 154 and a CC. New than were cases with other types of
Duodenal Procedures Age >17 with DRG 568 will have a principal diagnosis bladder procedures. Therfore, cases
Complication/Comorbidity with Major from MDC 6, except it will not have a with a major bladder procedure are
Gastrointestinal Diagnosis) principal or secondary diagnosis from assigned to a single DRG in the CS
• DRG 568 (Stomach, Esophageal & the list of Major Gastrointestinal DRGs. The procedures classified as a
Duodenal Procedures Age >17 with Diagnoses. It will also have an operating major bladder procedure are as follows:

MAJOR BLADDER PROCEDURES


Procedure Description
code

57.6 .......... Partial cystectomy.


57.71 ........ Radical cystectomy.
57.79 ........ Other total cystectomy.
57.83 ........ Repair of fistula involving bladder and intestine.
57.84 ........ Repair of other fistula of bladder.
57.85 ........ Cystourethroplasty and plastic repair of bladder neck.
57.86 ........ Repair of bladder exstrophy.
57.87 ........ Reconstruction of urinary bladder.
57.88 ........ Other anastomosis of bladder.
bajohnson on PROD1PC67 with RULES2

57.89 ........ Other repair of bladder.

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The CMS DRGs assign these cases to • DRG 308 (Minor Bladder and determined they represent cases
one of the five following DRGs: Procedures with CC) with a higher level of severity and
• DRG 303 (Kidney, Ureter & Major • DRG 309 (Minor Bladder utilize significantly more resources than
Bladder Procedures for Neoplasm). Procedures without CC) other cases within the DRGs where they
Our medical advisors support creating are currently assigned. Cases with a
• DRG 304 (Kidney, Ureter & Major a new DRG for major bladder major bladder procedure had average
Bladder Procedures for Non-Neoplasm procedures because they represent cases charges of $53,434 compared to $14,976
with CC) with higher levels of severity, are to $38,119 for other cases within the
• DRG 305 (Kidney, Ureter & Major clinically different, and use greater five DRGs where the patient did not
Bladder Procedures for Non-Neoplasm resources. We examined data on cases have a major bladder procedure. The
without CC) containing a major bladder procedure tables below illustrate these data.

Average
Number of Average
DRGs length of
cases charges
stay

DRG 303 .............................................................................................................................................. 23,328 7.28 $37,510.79


DRG 303 Without Major Bladder Procedures ..................................................................................... 18,909 6.33 32,867.55
DRG 304 .............................................................................................................................................. 13,257 8.35 38,800.38
DRG 304 Without Major Bladder Procedures ..................................................................................... 12,835 8.19 38,119.74
DRG 305 .............................................................................................................................................. 2,827 3.10 19,528.35
DRG 305 Without Major Bladder Procedures ..................................................................................... 2,776 3.02 19,295.59
DRG 308 .............................................................................................................................................. 6,358 6.15 27,982.54
DRG 308 Without Major Bladder Procedures ..................................................................................... 5,180 5.30 24,017.30
DRG 309 .............................................................................................................................................. 3,104 1.98 15,446.61
DRG 309 Without Major Bladder Procedures ..................................................................................... 2,820 1.72 14,976.79

MAJOR BLADDER PROCEDURES into new DRG 573 (Major Bladder • DRG 305—‘‘ Kidney and Ureter
Procedures). A summary of these Procedures for Non-Neoplasm Without
Number of Average length Average changes is as follows: CC’’
cases of stay charges We are renaming the following three We are removing the following
6,354 ........ 10.8 $53,434.93 DRGs: procedure codes from DRG 303–305,
• DRG 303—‘‘ Kidney and Ureter 308, and 309 and assigning them to new
Therefore, we are moving these Procedures for Neoplasm’’ DRG 573. New DRG 573 will contain the
procedures out of their current DRGs • DRG 304—‘‘ Kidney and Ureter following procedure codes.
(DRG 303, 304, 305, 308, and 309) and Procedures for Non-Neoplasm With CC’’
MAJOR BLADDER PROCEDURES
Procedure Description
code

57.6 .......... Partial cystectomy.


57.71 ........ Radical cystectomy.
57.79 ........ Other total cystectomy.
57.83 ........ Repair of fistula involving bladder and intestine.
57.84 ........ Repair of other fistula of bladder.
57.85 ........ Cystourethroplasty and plastic repair of bladder neck.
57.86 ........ Repair of bladder exstrophy.
57.87 ........ Reconstruction of urinary bladder.
57.88 ........ Other anastomosis of bladder.
57.89 ........ Other repair of bladder.

e. MDC 16 (Diseases and Disorders of diagnoses were found to identify cases


the Blood and Blood Forming Organs with a higher level of severity. They are
and Immunological Disorders): Major assigned to a single DRG under the CS
Hematological and Immunological DRGs. The diagnoses considered to be
Diagnoses major hematological and immunological
Under our proposed CS DRGs, major diagnoses include the following
hematological and immunological conditions:

Diagnosis Major hematological and immunological code titles


code
bajohnson on PROD1PC67 with RULES2

279.11 ...... Digeorge’s syndrome.


279.12 ...... Wiskott-aldrich syndrome.
279.13 ...... Nezelof’s syndrome.
279.19 ...... Other deficiency of cell-mediated immunity.
279.2 ........ Combined immunity deficiency.
283.0 ........ Autoimmune hemolytic anemias.

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Diagnosis Major hematological and immunological code titles


code

283.10 ...... Non-autoimmune hemolytic anemia, unspecified.


283.19 ...... Other non-autoimmune hemolytic anemias.
283.2 ........ Hemoglobinuria due to hemolysis from external causes.
283.9 ........ Acquired hemolytic anemia, unspecified.
284.8 ........ Other specified aplastic anemias.
284.9 ........ Aplastic anemia, unspecified.
288.1 ........ Functional disorders of polymorphonuclear neutrophils.
288.2 ........ Genetic anomalies of leukocytes.
996.85 ...... Complications of transplanted bone marrow.

These conditions are currently Our medical advisors agree that major other conditions assigned to these four
assigned to the following four CMS hematological and immunological DRGs. Cases with major hematological
DRGs: disorders are found in patients with and immunological conditions had
• DRG 395 (Red Blood Cell Disorders significantly greater levels of severity average charges of $21,276 compared to
Age >17) and are different from other conditions $11,066 to $18,791 for the other
• DRG 396 (Red Blood Cell Disorders in the four DRGs where they are conditions where these cases are
Age 0–17) assigned. Our data analysis shows that currently assigned. Most of the
• DRG 398 (Reticuloendothelial & major hematological and immunological nonhematological and immunological
Immunity Disorders with CC) diseases identify patients with cases (96,557) are assigned to DRG 395
• DRG 399 (Reticuloendothelial & significantly greater levels of severity. and have an average charge of $12,977.
Immunity Disorders without CC) They are more resource intensive than

DRGS 395, 396, 398, AND 399


Average
Number of Average
DRG length of
cases charges
stay

DRG 395 .................................................................................................................................................. 109,874 4.28 $14,078.78


DRG 395 Without Major Hematological Diagnosis excluding Sickle Cell Crisis & Coagulation Dis-
orders ................................................................................................................................................... 96,557 4.10 12,977.20
DRG 396 .................................................................................................................................................. 19 2.95 10,406.05
DRG 396 Without Major Hematological Diagnosis excluding Sickle Cell Crisis & Coagulation Dis-
orders ................................................................................................................................................... 17 3.06 11,066.94
DRG 398 .................................................................................................................................................. 17,608 5.71 19,902.21
DRG 398 Without Major Hematological Diagnosis excluding Sickle Cell Crisis & Coagulation Dis-
orders ................................................................................................................................................... 6,381 3.28 18,791.32
DRG 399 .................................................................................................................................................. 1,552 3.38 11,277.35
DRG 399 Without Major Hematological Diagnosis excluding Sickle Cell Crisis & Coagulation Dis-
orders ................................................................................................................................................... 1,011 3.28 11,207.22

MAJOR HEMATOLOGICAL DIAGNOSIS We are creating a new CMS DRG 574 (*) to new DRG 574. These new codes
EXCLUDING SICKLE CELL CRISIS & (Major Hematologic/Immunologic also capture major hematological and
COAGULATION DISORDERS Diagnoses Except Sickle Cell Crisis and immunological conditions and were
Coagulation Disorders). We are created to provide more detail than the
Number of Average length Average removing the codes mentioned in the current codes in this section of ICD–9–
cases of stay charges table above from DRGs 395, 396, 398, CM. The DRG assignments for these new
and 399 and assigning them to new DRG codes are also shown in Table 6A of the
25,087 ...... 5.6 $21,276.25 574. We also are assigning the new
Addendum to this final rule.
diagnosis codes indicated by an asterisk

Diagnosis Major hematological and immunological code titles


code

279.11 ...... Digeorge’s syndrome.


279.12 ...... Wiskott-aldrich syndrome.
279.13 ...... Nezelof’s syndrome.
279.19 ...... Other deficiency of cell-mediated immunity.
279.2 ........ Combined immunity deficiency.
283.0 ........ Autoimmune hemolytic anemias.
283.10 ...... Non-autoimmune hemolytic anemia, unspecified.
283.19 ...... Other non-autoimmune hemolytic anemias.
283.2 ........ Hemoglobinuria due to hemolysis from external causes.
bajohnson on PROD1PC67 with RULES2

283.9 ........ Acquired hemolytic anemia, unspecified.


284.01 * .... Constitutional red blood cell aplasia.
284.09 * .... Other constitutional aplastic anemia.
284.8 ........ Other specified aplastic anemias.
284.9 ........ Aplastic anemia, unspecified.
288.00 * .... Neutropenia, unspecified.

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47938 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

Diagnosis Major hematological and immunological code titles


code

288.01 * .... Congenital neutropenia.


288.02 * .... Cyclic neutropenia.
288.03 * .... Drug induced neutropenia.
288.04 * .... Neutropenia due to infection.
288.09 * .... Other neutropenia.
288.1 ........ Functional disorders of polymorphonuclear neutrophils.
288.2 ........ Genetic anomalies of leukocytes.
996.85 ...... Complications of transplanted bone marrow.

f. MDC 18 (Infections and Parasitic Postoperative or Post-Traumatic The APR DRG system found cases
Diseases (Systemic or Unspecified Infection: with one of the above infection codes to
Sites)): O.R. Procedure for Patients With • 958.3, Posttraumatic wound represent a higher level of severity. Our
Infectious and Parasitic Diseases infection, not elsewhere classified medical advisors examined cases in the
current CMS DRG system in DRG 415
Under the APR DRG system, cases in • 998.51, Infected postoperative
and found that the presence of one of
DRG 415 (O.R. Procedure for Infectious seroma
these infection codes as a principal
and Parasitic Diseases) are subdivided • 998.59, Other postoperative diagnosis led to significantly higher
based on the presence or absence of one infection levels of severity. Charge data also
of the following principal diagnosis • 999.3, Infection complicating support this conclusion. The following
codes, which we are referring to as medical care, not elsewhere classified table illustrates our findings.

Average
Number of Average
DRG Redefinition of DRG 415 length of
cases charges
stay

415 .... O.R. Procedure for Infectious & Parasitic Diseases ............................................................ 52,458 14.03 $63,211.99
A ........ O.R. Procedure with Principal Diagnosis Except Postoperative or Post-Traumatic Infec- 33,077 15.90 74,964.28
tion.
B ........ O.R. Procedure with Principal Diagnosis of Postoperative or Post-Traumatic Infection ..... 19,381 10.8 43,154.68

As can be seen from the above table, Cases will be assigned to DRG 579 if ventilation for 96 or more hours.
cases in DRG 415 with a principal they were previously assigned to DRG Another commenter recommended
diagnosis except for postoperative or 415 and contain one of the four considering mechanical ventilation as a
post-traumatic infection have average principal diagnosis codes listed above. pre-MDC DRG on the basis of the
charges of $74,964.28. Cases with a mechanical ventilation greater than 96
principal diagnosis of postoperative or g. Severe Sepsis hours procedure code (96.72) to better
postπtraumatic infection have average Comment: As an alternative to the recognize patients with a greater
charges of $43,154.68, or $31,809.60 proposed CS DRGs, commenters severity level. This commenter also
less. Therefore, cases without one of the recommended a new DRG to identify provided an option to add systemic
four infection codes, 958.3, 998.51, patients with severe sepsis associated infections (038.x) as an acceptable
998.59, and 999.3, have significantly with respiratory failure requiring principal diagnosis for DRG 475 when
higher severity levels than do cases that mechanical ventilation. One commenter reported in conjunction with
contain one of the four infection codes. suggested using an approach to better mechanical ventilation or tracheostomy.
Accordingly, we are deleting DRG 415 recognize severity of illness that is One commenter maintained that the
and divide the cases into two new DRGs similar to the change CMS implemented clinical reason to address a new DRG for
as follows: in the FYa2006 final rule for major severe sepsis is related to proper
• DRG 578, Infectious and Parasitic recognition and treatment for this group
cardiovascular conditions (MCVs). This
Diseases with O.R. Procedure of patients with a greater degree of
• DRG 579, Postoperative or Post- approach involved examining the MCVs
which could be present as either a severity. This commenter stated
traumatic Infection with O.R. Procedure clinicians are getting better at
Cases will be assigned to new DRG principal or secondary diagnosis leading
to greater severity of illness and understanding the importance of early
578 if they were previously in DRG 415, recognition and treatment. As sepsis
but do not contain one of the following resource consumption. Another option
suggested by two commenters involved presents with organ dysfunction,
principal diagnosis codes: treatments must be prompt or mortality
• 958.3, Posttraumatic wound modifying DRGa416 (Septicemia Age
>17) so that it would be split based on rapidly increases according to the
infection, not elsewhere classified
commenter.
• 998.51, Infected postoperative mechanical ventilation greater than 96
seroma hours (code 96.72). The commenter Response: We analyzed data for
• 998.59, Other postoperative stated that patients on mechanical patients in DRG 416 and 417 who are on
infection ventilation for greater than 96 hours mechanical ventilation for 96 or more
bajohnson on PROD1PC67 with RULES2

• 999.3, Infection complicating have a greater severity of illness than do hours. The following table shows our
medical care, not elsewhere classified those who are not on mechanical findings.

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Average
Number of Average
DRGs length of
cases charges
stay

DRG 416 .............................................................................................................................................. 272,603 7.45 $28,344.81


DRG 416 With Mechanical Ventilation 96 Hours (96.72) ................................................................... 10.369 15.55 94,994.49
DRG 416 Without Mechanical Ventilation 96 + Hours ........................................................................ 262,234 7.13 25,709.42
DRG 417 .............................................................................................................................................. 31 6.35 27,131.58
DRG 417 With Mechanical Ventilation 96 + Hours ............................................................................. 0 0 0
DRG 417 Without Mechanical Ventilation 96 + Hours ........................................................................ 31 6.35 27,131.58

The data clearly show that DRG 416 D. Changes to Specific DRG Given the newness of this procedure
septicemia patients who are on Classifications and the latest generation of this device,
mechanical ventilation for 96 or more the Medicare charge data included a
1. Pre-MDCs limited number of patients having the
hours have a significantly greater
severity of illness level and use greater a. Heart Transplant or Implant of Heart device implanted and removed.
resources than do other patients in DRG Assist System: Addition of Procedure to However, the Medicare charge data did
416. Those patients on mechanical DRG 103 support that patients receiving both an
ventilation for 96 or more hours had implant and removal of an external
Based on public comments, we are heart assist system in a single hospital
average charges of $94,994 compared to
assigning an additional procedure code stay had an average length of stay
$25,709 for other patients in DRG 416.
to DRG 103 (Heart Transplant or exceeding 50 days and average charges
We found no cases in DRG 417 with Implant of Heart Assist System) under
patients who reported mechanical of $378,000 that are more comparable to
the pre-MDCs. In the FY 2006 IPPS final patients in DRG 103 than DRG 525
ventilation for 96 or more hours. rule (70 FR 47297), we addressed (Other Heart Assist System Implant).
Therefore, we agree with the suggestions concerning the placement of Accordingly, in FY 2006, we revised
commenters that patients in DRG 416 codes for external heart assist systems in DRG 103 so that both implantation and
who are on long term mechanical DRG 103. Although we found that removal of an external heart assist
ventilation of 96 or more hours have charges associated with code 37.65 device in the same hospitalization
greater severity of illness and use (Implant of external heart assist system) would group to DRG 103.
significantly greater resources. These were more than $100,000 lower than the However, we did not consider those
patients should be assigned to a separate average charges for all cases in DRG 103, cases where an external heart assist
DRG to better reflect their higher we found that there was a subgroup of system is switched during a
severity level. Because we have no data patients who were comparable in hospitalization, and replaced with
on patients in DRG 417, we are not resource use and length of stay to other another external heart assist system, that
modifying that DRG at this time. cases included in DRG 103. Those is subsequently removed. The ICD–9–
Because the data on DRG 416 are patients received both the external heart CM coding structure specifies that the
compelling, we are deleting DRG 416 assist device (code 37.65) and later had replacement of the system be coded to
and splitting these cases into two new the device removed (code 37.64, 37.63 (Repair of heart assist system),
DRGs based on whether or not the Removal of heart assist system) after a and not to 37.65. These cases are
patient is on mechanical ventilation for lengthy period of rest and recovery of assigned to DRG 525 not DRG 103 even
96 or more hours. These two new DRGs their native hearts. We note that though the cases are comparable in
are as follows: commenters provided external data resources expended, length of stay, etc.,
indicating that survival rates are to other patients where the device is
• DRG 575 (Septicemia with improving for patients receiving more
Mechanical Ventilation 96 + Hours Age implanted and explanted during the
advanced versions of these devices. In same hospital stay.
>17) addition, commenters provided
• DRG 576 (Septicemia without information indicating that longer Based on public comments, we
Mechanical Ventilation 96 + Hours Age periods of support with the external believe that DRG 103 should be revised
>17) heart assist device are improving to take this situation into account.
patients’ survival chances and Therefore, we are reconfiguring DRG
Cases will be assigned to DRG 575 103 in the following manner: Those
opportunity to be discharged with their
when they have a principal diagnosis patients who have both the replacement
native heart. These data show a 50-
from current DRG 416 and code 96.72 of an external heart assist system (code
percent survival rate with an average
(Continuous mechanical ventilation for total length of stay of 43 days for all 37.63) and the explantation of that
96 consecutive hours or more). Cases AMI heart recovery patients. On system (code 37.64) prior to the hospital
will be assigned to DRG 576 when they average, a surviving patient will receive discharge will be assigned to DRG 103.
have a principal diagnosis from current 31 days of average support time By making this change, Medicare will
DRG 416 and do not have code 96.72. followed by an additional 38 days in the be making higher payments for patients
We note that this DRG split is similar hospital after the device is removed. who receive both a replacement and an
to the change we are making in MDC 4, Based on information considered from a explant of an external heart assist
for DRG 475 which was discussed later year than our MedPAR data, it is system during a single hospital stay.
bajohnson on PROD1PC67 with RULES2

earlier. The creation of these two new clear that patients weaned from the Our intent in making this change is to
DRGs is distinct from the request to external heart assist system have longer recognize the higher costs of patients
create a separate DRG for severe sepsis, lengths of stay and are very different who have a longer length of stay and are
which is discussed in section II.D.7. of from the average patients having this discharged alive with their native heart.
this final rule. procedure that were in our FY 2004 Cases in which a heart transplant also
data. occurs during the same hospitalization

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47940 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

episode will continue to be assigned to alone is reasonable and necessary for Response: We appreciate the support
DRG 103. Medicare beneficiaries in limited of the commenters. Accordingly, as the
circumstances, the logic for the NCD for pancreas transplants alone was
b. Pancreas Transplants
determination of patient case approved, in this final rule, we are
On July 1, 1999, we issued coverage assignment to DRG 513 in the FY 2006 adopting the changes as described above
policy that specified that pancreas GROUPER program needs to be to DRG 513 and the MCE logic.
transplants were only covered when modified to remove the requirement that
performed simultaneously with or after 2. MDC 1 (Diseases and Disorders of the
patients also have kidney disease.
a Medicare covered kidney transplant. A Nervous System)
Therefore, because the NCD was
noncoverage policy for pancreas finalized, we are modifying DRG 513 to a. Implantation of Intracranial
transplant remained in effect for consist of the following logic: List A (the Neurostimulator System for Deep Brain
patients who had not experienced end diabetes codes) of the required principal Stimulation (DBS)
stage renal failure secondary to diabetes. or secondary diagnosis codes remains
On July 29, 2005, we opened a national Deep-brain stimulation (DBS) is
the same, as does the required operating designed to deliver electrical
coverage determination (NCD) to room procedures (codes 52.80
determine whether pancreas transplant stimulation to the subthalamic nucleus
(Pancreatic transplant NOS), and 52.82, or internal globus pallidus to ameliorate
alone, that is, without a kidney (Homotransplant of pancreas)). List B is
transplant, is a reasonable and necessary symptoms caused by abnormal
removed from the logic; the following neurotransmitter levels that lead to
service for Medicare beneficiaries. On codes will no longer be required as a
April 26, 2006, we published the NCD abnormal cell-to-cell electrical impulses
principal or secondary diagnosis: in Parkinson’s disease and essential
for pancreas transplants on our Web site • 403.01, Hypertensive kidney
at: http://www.cms.hhs.gov/mcd/ tremor. DBS implants for essential
disease, malignant, with chronic kidney tremor are unilateral, with
viewncd.asp?ncd_id=260.3&_ disease
version=3&basket=ncd%3A260%2E3% neurostimulation leads on one side of
• 403.11, Hypertensive kidney the brain. DBS implants for Parkinson’s
3A3%3APancreas+Transplants. The disease, benign, with chronic kidney
NCD specifies the limited circumstances disease are bilateral, requiring
disease implantation of neurostimulation leads
where the evidence is adequate to • 403.91, Hypertensive kidney
conclude that pancreas transplant alone in both the left and right sides of the
disease, unspecified, with chronic brain.
is reasonable and necessary for kidney disease
Medicare beneficiaries. The implantation of a full DBS system
• 404.02, Hypertensive heart and requires two types of procedures. First,
Medicare coverage of pancreas kidney disease, malignant, with chronic
transplants alone is limited to surgeons implant leads containing
kidney disease electrodes into the targeted sections of
transplants in those facilities that are • 404.03, Hypertensive heart and
Medicare-approved for kidney the brain where neurostimulation
kidney disease, malignant, with heart therapy is to be delivered. Second, a
transplantation. A listing of approved failure and chronic kidney disease
transplant centers can be found at: neurostimulator pulse generator is
• 404.12, Hypertensive heart and
http://www.cms.hhs.gov/ implanted in the pectoral region and
kidney disease, benign, with chronic
ESRDGeneralInformation/02_Data. extensions from the neurostimulator
kidney disease
asp#TopOfPage. The CMS NCD pulse generator are then tunneled under
• 404.13, Hypertensive heart and
includes several criteria for the coverage the skin along the neck and connected
kidney disease, benign, with heart
of pancreas transplants alone, including with the proximal ends of the leads
failure and chronic kidney disease
having a diagnosis of Type I diabetes. • 404.92, Hypertensive heart and implanted in the brain. Hospitals stage
(We refer readers to section 260.3 of the kidney disease, unspecified, with the two procedures required for a full-
Medicare National Coverage Manual for chronic kidney disease system DBS implant.
the entire language of the NCD.) • 404.93, Hypertensive heart and In FY 2005, to better account for these
Because we had issued a proposed kidney disease, unspecified, with heart two types of procedures, we revised
NCD and a final NCD was not expected failure and chronic kidney disease procedure code 02.93 (Implantation or
to be completed until late April 2006 • 585.1, Chronic kidney disease, replacement of intracranial
(after completion of the proposed rule), Stage I neurostimulator lead(s)) for the lead
we used the FY 2007 IPPS proposed • 585.2, Chronic kidney disease, placement and created three new
rule to indicate the coding changes that Stage II (mild) procedures codes for the pulse
we would make to DRG 513 (Pancreas • 585.3, Chronic kidney disease, generator: 86.94 (Insertion or
Transplant) in FY 2007 if Medicare’s Stage III (moderate) replacement of single array
final decision memorandum would have • 585.4, Chronic kidney disease, neurostimulator pulse generator); 86.95
continued the program’s national Stage IV (severe) (Insertion or replacement of dual array
noncoverage of pancreas transplants (71 • 585.5, Chronic kidney disease, neurostimulator pulse generator); and
FR 24030). In addition, we also Stage V 86.96 (Insertion or replacement of other
indicated the conforming changes that • 585.6, End stage renal disease neurostimulator pulse generator). We
we would make to the MCE • 585.9, Chronic kidney disease, published the new procedure codes and
‘‘NonCovered Procedure’’ edit if unspecified revised procedure code titles in Tables
Medicare coverage was established for • V42.0, Organ or tissue replaced by 6B and 6F of the FY 2005 IPPS final rule
pancreas transplants alone. That transplant, kidney (69 FR 49627 and 49641).
discussion was included in section • V43.89, Organ or tissue replaced by In FY 2006, we made further
bajohnson on PROD1PC67 with RULES2

II.D.6. of the preamble of the proposed other means, other organ or tissue, other refinements to the pulse generator codes
rule (71 FR 24039), which described We note that DRG 513 remains in the to identify rechargeable pulse
proposed changes to the MCE. pre-MDC hierarchy. generators. We published the new
Because the April 2006 Medicare final Comment: Five commenters procedure codes and revised procedure
decision memorandum stated that the supported the proposed coding changes code titles in Tables 6B and 6F of the
performance of pancreas transplants to DRG 513 and the MCE. FY 2006 IPPS final rule (70 FR 47637

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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 47941

and 47639). The current list of pulse weights. Medtronic also argues that, Medtronic also emphasized that its
generators codes are: once a technology is no longer eligible proposal would only apply to full-
• 86.94 (Insertion or replacement of for new technology add-on payments, system Kinetra implants when both the
single array neurostimulator pulse the new technology add-on payment leads and generators are implanted
generator, not specified as rechargeable); provision is designed to support the during a single inpatient stay and
• 86.95 (Insertion or replacement of reclassification of the technology to procedure codes 02.93 and 86.95 both
dual array neurostimulator pulse other clinically coherent DRGs with appear on the claim. Medtronic believes
generator, not specified as rechargeable); comparable resource costs. the current DRG assignment is
• 86.96 (Insertion or replacement of appropriate for partial system implants.
other neurostimulator pulse generator); With the conclusion of the new
• 86.97 (Insertion or replacement of technology add-on payment, Medtronic Medtronic provided an analysis of FY
single array neurostimulator is concerned that Kinetra will be 2004 MedPAR data. Procedure code
rechargeable generator); and inadequately paid in DRG 1 86.95 was not created until FY 2005 so
• 86.98 (Insertion or replacement of (Craniotomy Age >17 With CC) or DRG Medtronic used procedure codes 02.93
dual array neurostimulator rechargeable 2 (Craniotomy Age >17 Without CC) and 86.09 (Other incision of skin and
generator). under MDC 1. Medtronic recommended subcutaneous tissue) to identify the full
Kinetra is an implantable dual array that CMS reassign the full-system system. It identified 193 cases assigned
neurostimulator pulse generator that is Kinetra implants to DRG 543 to DRG 1 with average charges of
approved for a new technology add-on (Craniotomy with Implant of Chemo approximately $69,155, and 532 cases
payment through FYA2006. For more Agent or Acute Complex CNS Principal assigned to DRG 2 with average charges
information about the new technology Diagnosis) under MDC 1. To of approximately $56,113.
add-on payment, please refer to section accommodate this recommendation, In the FY 2007 IPPS proposed rule we
II.G.3.a. of this preamble. procedure codes 02.93 and 86.95 would indicated that we have reviewed the
Medtronic, the manufacturer of have to be reassigned to DRG 543 and latest data for the full-system DBS
Kinetra, argues that the new the title for DRG 543 would have to be implants assigned to DRG 1 or DRG 2 in
technology add-on payment provision is revised to ‘‘Craniotomy with the FY 2005 MedPAR file. We identified
designed to recognize the higher costs of Implantation of Major Device or Acute cases with procedure codes 02.93 and
new medical innovations for the initial Complex CNS Principal Diagnosis.’’ 86.95 for full-system dual array cases.
period the technology is available on the Medtronic argued that DRG 543 would We also identified cases with reported
market, and until the associated costs be a ‘‘clinically-consistent DRG that codes 02.93 and 86.96 for those full-
and charges related to the technology more appropriately reflects the resource system cases where the type of pulse
are available in the MedPAR database utilization associated with full-system generator was not specified. The
and can be used to recalibrate the DRG [deep brain stimulation] procedures.’’ following table displays our results:

Average
Number of Average
DRG length of
cases charges
stay

DRG 1—All Cases ............................................................................................................................... 23,037 9.61 $55,494


DRG 1—Cases with 02.93 and 86.95 (Kinetra) ................................................................................ 51 5.18 73,020
DRG 1—Cases with 02.93 and 86.96 (Unspecified) .......................................................................... 101 4.86 53,356
DRG 2—All Cases ............................................................................................................................... 9,707 4.41 32,791
DRG 2—Cases with 02.93 and 86.95 (Kinetra) ................................................................................ 146 2.40 59,414
DRG 2—Cases with 02.93 and 86.96 (Unspecified) .......................................................................... 249 2.12 47,047
DRG 543—All cases ............................................................................................................................ 5,192 11.71 71,138

These data showed that the full-system DBS implants, we much lower than the charges would
approximately one-quarter of the full- believe for most of the cases assigned to suggest.
system dual array neurostimulator pulse these DRGs, there will be no device cost With respect to whether the cost of
generator cases are assigned to DRG 1 to the hospital. For this reason, we the technology itself, absent a charge
and approximately three-quarters of believe the higher average charges and markup, makes the case more
these cases are assigned to DRG 2. In lower length of stay for cases involving expensive, in the FY 2007 IPPS
both DRGs, the average length of stay full-system dual array neurostimulator proposed rule, we stated that we
was shorter for the full-system array pulse generators are likely accounted for intended to address this issue as we
neurostimulator pulse generator cases by the cost of the device. While it is make further refinements to the DRG
than for all other cases. However, the possible that the cost of the device itself system to address severity of illness as
average charges for the full-system dual discussed in section II.C. of this
will make the full-system DBS implants
array neurostimulator pulse generator preamble.
more expensive than other cases in the
cases are approximately $18,000 and Comment: Several commenters
$27,000 higher than the average charges DRG, the hospital’s charge markup may opposed CMS’ proposed decision to
for DRGs 1 and 2, respectively. The also explain the higher charges but retain the current assignment of
average charges for these cases in DRG lower average length of stay. As implantable dual array neurostimulator
1 are comparable to those for DRG 543. indicated in section II.G.3.a. of this final pulse generator cases in DRGs 1 and 2.
rule, the national average CCR for
bajohnson on PROD1PC67 with RULES2

However, the more commonly occurring Several commenters stated that CMS
cases in DRG 2 have average charges medical equipment and supplies is should recognize the higher resources
that are less than those in DRG 543 by approximately 34 percent. Thus, the associated with this technology and
nearly $12,000. We reviewed all of the actual cost to the hospital of the case reassign implantable dual array
procedures that will result in a case including the full-system dual array neurostimulator pulse generator cases to
being assigned to DRGs 1 and 2. Unlike neurostimulator pulse generator may be DRG 543. Two commenters disagreed

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47942 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

with CMS’ statements that markups States and the leading cause of serious, facilities and with FDA-approved
associated with Kinetra may overstate long-term disability. Approximately 70 carotid artery stent(s) with distal
the total charges of the implant percent of all strokes occur in people embolic protection. (Section 20.7 of the
procedure. Medtronic submitted age 65 and older. The carotid artery, NCD manual which discusses this
information on charge compression in located in the neck, is the principal decision may be viewed at the Web site:
which the company contends that it artery supplying the head and neck with http://www.cms.hhs.gov/manuals/
conclusively finds the hospital charge blood. Accumulation of plaque in the downloads/ncd103c1_Part1.pdf.
markups for implantable devices are in carotid artery can lead to stroke either Placement of a carotid artery stent in
fact significantly lower than for other, by decreasing the blood flow to the patients who have had a disabling
lower cost supplies and equipment. brain or by the plaque breaking free and stroke (modified Rankin scale ≥3) is
Medtronic and one other commenter lodging in the brain or other arteries excluded from coverage.
argued that the total charges found in leading to the head. The percutaneous
the FY 2005 MedPAR data associated transluminal angioplasty (PTA) We established codes for carotid
with implantable dual array procedure involves inflating a balloon- artery stent procedures for use with
neurostimulator pulse generator like device in the narrowed section of discharges occurring on or after October
procedures may be understated relative the carotid artery to reopen the vessel. 1, 2004, for inpatients who were
to other procedures in DRG 1, DRG 2 A carotid stent is then deployed in the enrolled in an FDA-approved clinical
and DRG 543 and that reassignment of artery to prevent the vessel from closing trial and who were using on-label FDA-
this technology to DRG 543 is fully or restenosing. A distal filter device approved stents and embolic protection
warranted. The commenters stated that (embolic protection device) may also be devices. These codes are as follows:
the implementation of the CS DRGs present, which is intended to prevent • 00.61 (Percutaneous angioplasty or
should be deferred to at least FY 2008 pieces of plaque from entering the atherectomy of precerebral (extracranial
and not be a factor in CMS’ decision to bloodstream. vessel(s)); and
make DRG reassignments this year. Effective July 1, 2001, Medicare • 00.63 (Percutaneous insertion of
Response: With regard to the issue of covered PTA of the carotid artery carotid artery stent(s)).
charge compression, we are studying concurrent with carotid stent placement
this issue in our effort to improve We assigned procedure code 00.61 to
when furnished in accordance with the four MDCs and seven DRGs. The most
payment accuracy in the IPPS. The
FDA-approved protocols governing likely clinical scenario is that in which
average charges for the 51 cases in DRG
Category B Investigational Device cases are assigned to MDC 1 (Diseases
1 where the patient received a dual
Exemption (IDE) clinical trials. PTA of and Disorders of the Nervous System) in
array neurostimulator are $17,426 or 31
the carotid artery, when provided solely DRGs 533 (Extracranial Procedures with
percent higher than the rest of the cases
for the purpose of carotid artery dilation CC) and 534 (Extracranial Procedures
in DRG 1. The average charges are
concurrent with carotid stent without CC). Other DRG assignments
comparable to those for DRG 543
placement, was considered to be a can be found in Table 6B of the
($73,020 for dual array neurostimulator
reasonable and necessary service only Addendum to the FY 2005 IPPS final
cases and $71,138 for DRG 543).
The average charges for the 146 cases when provided in the context of such rule (69 FR 49624). Code 00.63 is not
in DRG 2 are $26,623 or 81 percent clinical trials and, therefore, was considered a procedure code itself and
higher than the rest of the cases in DRG considered a covered service for the should be used in combination with
2 and only $12,000 less than the average purposes of those trials. Performance of code 00.61.
charges for DRG 543. Based on these PTA in the carotid artery when used to
treat obstructive lesions outside of Based on the results of evaluation of
data, we believe that the dual array PTA and carotid stents for our FY 2006
neurostimulator cases will be more approved protocols governing Category
B IDE clinical trials remained final rule (70 FR 47300, August 12,
accurately paid in DRG 543 than DRGs 2005), we did not find sufficient
1 and 2. We will be implementing this noncovered until the release of the
October 12, 2004 NCD for PTA of the evidence to warrant a DRG change at
change to the DRG assignment for the that time.
full-system dual array neurostimulator carotid artery in post-approval studies.
cases for FY 2007. Implantable dual This decision extended coverage of PTA We again reviewed the PTA and
array neurostimulator pulse generator in the carotid artery concurrent with insertion of a carotid stent(s) for the FY
procedure cases reported with ICD–9– placement of an FDA-approved carotid 2007 proposed rule, as manufacturer
CM procedure codes 02.93 and 86.95 stent for an FDA-approved indication representatives suggested that we assign
will be reassigned to DRG 543. We are when furnished in accordance with the all carotid stenting cases to DRG 533
changing the DRG title for DRG 543 to FDA-approved protocols governing only, bypassing DRG 534. As we
‘‘Craniotomy With Major Device post-approval studies. On March 17, indicated in the FY 2007 IPPS proposed
Implant or Acute Complex CNS 2005, CMS released an NCD that rule (71 FR 24032), we reviewed the FY
Principal Diagnosis.’’ extended coverage to patients at high 2005 MedPAR data on all cases in DRGs
risk for carotid endarterectomy (CEA) 533 and 534 and on those cases
b. Carotid Artery Stents who also have symptomatic carotid containing code 00.61 in combination
Background: Stroke is the third artery stenosis ≥70 percent. Procedures with 00.63. The following table displays
leading cause of death in the United must be performed in CMS-approved those results:

Average
Number of Average
DRG length of
cases charges
stay (Days)
bajohnson on PROD1PC67 with RULES2

DRG 533—All cases ............................................................................................................................ 44,031 3.65 $26,376


DRG 533 with codes 00.61 and 00.63 reported ................................................................................. 2,400 2.94 33,344
DRG 533 with code 00.61 and without 00.63 ..................................................................................... 99 5.95 46,591
DRG 534—All cases ............................................................................................................................ 40,381 1.72 17,196
DRG 534 with codes 00.61 and 00.63 reported ................................................................................. 2,056 1.52 25,000

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Average
Number of Average
DRG length of
cases charges
stay (Days)

DRG 534 with code 00.61 and without 00.63 ..................................................................................... 55 2.31 27,895

We found that 5.5 and 5.1 percent of each DRG category. Further, this concept as we evaluate severity DRG
the cases in DRGs 533 and 534, structure is based on an organizing systems for adoption in FY 2008.
respectively, involved placement of a principle. For example, cases in DRGs Comment: One commenter, while
carotid artery stent. In DRG 533, the 533 and 534 are organized on the urging CMS to reconsider our decision
average length of stay was 19.4 percent principle of surgical approach not to assign all carotid cases to DRG
shorter for the carotid stenting cases (extracranial procedures) as well as the 533, noted that the current National
than for all other cases. In DRG 534, the presence or absence of CCs. To ignore Coverage Determination on CAS
average length of stay was 11.6 percent the structure of the DRG solely for the [Carotid Artery Stenting] very clearly
shorter for the carotid stenting cases purpose of increasing payment would states that only those patients who are
than for all other cases. However, the set an unwelcome precedent for at high risk for [open] surgery due to the
average charges for the carotid stent defining all of the other DRGs in the presence of a detailed list of
cases were higher by $6,968 in DRG 533 system. complications or comorbidities are
and $7,804 in DRG 534. We reviewed all Comment: Several commenters eligible for carotid artery stenting.
of the procedures that would result in mentioned that, while CMS suggested Therefore, by CMS’ own
a case being assigned to DRGs 533 and that the higher average charges and characterization, all patients undergoing
534. Unlike the carotid artery stent lower lengths of stay for cases involving carotid artery stenting have
placements, we believe that, for most of carotid artery stents are likely accounted complications and comorbidities and
the other cases assigned to these DRGs, for by the cost of the device, CMS should be assigned to DRG 533.
there will be no device cost to the provided no evidence to support this Response: This assumption is
hospital. For this reason, we believe the assertion.
theoretically correct. However, the
higher average charges and lower length Response: The average length of stay
detailed list of comorbidities or
of stay for the cases involving carotid for patients in DRGs 533 and 534 with
the placement of carotid stent(s) are 19.4 anatomical risk factors that are required
artery stents could be accounted for by to support the surgeon’s decision to
the cost of the device. We discussed the and 11.6 percent shorter than the other
patients assigned to DRGs 533 and 534, perform carotid stenting instead of a
possibility that the cost of the device carotid endarterectomy is not the same
itself makes the stent cases more respectively. Therefore, a long length of
stay is not the reason for the higher as the CMS list of CCs. For example,
expensive than other cases in the DRG,
average charges. We based our assertion amaurosis fugax, code 362.34 (Transient
and that the hospital’s charge markup
on the contribution of the cost of the arterial occlusion) is recognized as a risk
may also explain the higher charges but
device to the total cost of the patients in factor which would justify carotid
lower average length of stay. We also
these DRGs compared to other cases in stenting, but is not recognized by the
suggested that we intended to address
the DRG with longer lengths of stay. We CMS GROUPER as a diagnosis defined
this issue as we make further
note that the next comment suggests as a CC.
refinements to the CS DRG system
previously described. The use of a that our analysis is correct that the Comment: Several commenters
carotid stent or stents may increase higher charges for the carotid artery suggested that CMS create two new
complexity and resource use even stent cases relative to other cases in the DRGs for the carotid stent cases.
though the patient is not necessarily DRG are, in part, associated with higher Response: We note that the number of
more severely ill. We indicated that we supply costs. procedures has increased from the data
believed that the CS DRG system we Comment: One commenter suggested reported in the FY 2006 IPPS final rule
proposed would need to be further that CMS create a new pair of DRGs (70 FR 47300), thus indicating
refined to assign cases based on with and without MCVs until the acceptance of this procedure by the
complexity as well as severity to adequacy of payment under the severity medical community as a main-stream
account for technologies such as carotid adjustment methodology is fully surgical alternative. In FY 2006, as the
stents that increase costs. For this assessed. This commenter noted that, specific codes for carotid stenting had
reason, we did not propose a change to while length of stay and operating room only been in use since October 1, 2004,
the current DRG assignment for these costs are lower for carotid stenting, we used the existing codes 39.50
cases. supply and radiology charges associated (Angioplasty or atherectomy of other
Comment: More than a dozen with the stent and the angiography are noncoronary vessel(s)) and 39.90
commenters addressed this topic. State higher, resulting in higher overall costs (Insertion of non-drug-eluting
hospital associations, in particular, were for carotid stenting. peripheral vessel stent(s)), in
unanimous in their recommendation Response: While we recognize the combination with principal diagnosis
that all carotid stenting cases should creativity of this approach, we note that code 433.10 (Occlusion and stenosis of
immediately be assigned only to DRG the MCVs are applicable to cases in carotid artery, without mention of
533, bypassing DRG 534 entirely. The MDC 5 (Diseases and Disorders of the cerebral infarction) as a proxy for the
commenters suggested this solution to Circulatory System), while DRGs 533 number of cases involved in clinical
increase payments to hospitals in order and 534 are in MDC 1 (Diseases and trials. In DRG 533, we had 1,586 cases
bajohnson on PROD1PC67 with RULES2

that the higher costs associated with Disorders of the Nervous System). Such with the proxy codes reported, and in
carotid stents are recognized within the an approach for MDC 1 might have DRG 534, there were 1,397 cases. In FY
existing DRG system. merit, but we would want to evaluate 2005, the patients represented 3.5
Response: We are opposed to this the entire MDC thoroughly before percent and 3.3 percent of all cases in
suggestion. The DRGs comprise a native creating such a list of complicating DRGs 533 and 534, respectively. That
structure of the types of patients within diagnoses. We will further consider this figure has now climbed to 2,400 cases

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47944 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations

and 2,056 cases, and 5.5 percent and 5.1 3. MDC 5 (Diseases and Disorders of the total system [AICD]). Cases can also be
percent, respectively. Circulatory System) assigned to DRGs 515, 535, and 536
In addition, the difference in the a. Insertion of Epicardial Leads for when a combination of a device and a
average charges are 26 percent higher Defibrillator Devices lead code is reported. The following
for carotid artery stent cases in DRG 533 combinations of defibrillator device and
than for the average charges in all cases As we indicated in the FY 2007 IPPS lead codes are present in the current
in that DRG, and 45 percent higher proposed rule (71 FR 24033), we DRG logic:
using the same parameters for DRG 534. received a comment indicating that a • 00.52 (Implantation or replacement
We believe these data are compelling change in coding advice for the of transvenous lead [electrode] into left
enough to warrant creation of a new insertion of epicardial leads for CRT–D ventricular coronary venous system)
DRG. defibrillator devices affects DRG and 00.54 (Implantation or replacement
assignment. The commenter noted that of cardiac resynchronization
Accordingly, we are creating DRG 583
the Third Quarter 2005 issue of the defibrillator, pulse generator device
(Carotid Artery Stent Procedure). This
American Hospital Association’s only [CRT–D])
DRG will be located in MDC 1, and will
be hierarchically ordered above DRGs
publication Coding Clinic for ICD–9–CM • 37.95 (Implantation of automatic
instructs coders to assign code 37.74 cardioverter/defibrillator lead(s) only)
533 and 534. DRG 583 will contain two
(Insertion or replacement of epicardial and 00.54 (Implantation or replacement
procedure codes. Code 00.61 will
lead [electrode] into atrium) for of cardiac resynchronization
determine the DRG, and will be
pacemaker or defibrillator leads inserted defibrillator, pulse generator device
combined with code 00.63. Both codes
through use of a thoracotomy into the only [CRT–D])
must be reported in order for cases to be
epicardium. While the use of code 37.74 • 37.95 (Implantation of automatic
assigned to this DRG.
is standard coding practice for cardioverter/defibrillator lead(s) only)
We are not splitting this DRG based
pacemakers, the advice is new for and 37.96 (Implantation of automatic
on the presence or absence of a CC as
defibrillators. This coding advice was cardioverter/defibrillator pulse
suggested by the commenters. One
discussed at the ICD–9–CM generator only)
criterion for splitting a DRG based on • 37.97 (Replacement of automatic
Coordination and Maintenance
the presence or the absence of a CC is cardioverter/defibrillator lead(s) only)
Committee meeting held on September
that it must have an impact of at least and 00.54 (Implantation or replacement
29 and 30, 2005. Participants at the
$40 million. In this situation, the overall of cardiac resynchronization
Committee meeting proposed
average of the charges for all cases in defibrillator, pulse generator device
modifications for the code category 37.7
DRGs 533 and 534 is $30,193. We then only [CRT–D])
(insertion, revision, replacement, and
subtracted the actual average charges for • 37.97 (Replacement of automatic
removal of pacemaker leads; insertion of
only the carotid stent cases in both cardioverter/defibrillator lead(s) only)
temporary pacemaker system; and
DRGs 533 and 534, and multiplied that and 37.98 (Replacement of automatic
revision of cardiac device pocket).
figure by the actual number of cases. For cardioverter/defibrillator pulse
These modifications involved
DRG 533 a