[Federal Register: May 5, 2000 (Volume 65, Number 88)]
[Proposed Rules]
[Page 26281-26330]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05my00-31]
Table of Contents
Supplementary Information
Addendum
Appendix A--Regulatory Impact Analysis
Appendix B: Technical Appendix on the Capital Cost Model and Required
Adjustments
APPENDIX C--REPORT TO CONGRESS
Appendix D: Recommendation of Update Factors for Operating Cost Rates
of Payment for Inpatient Hospital Services
[[Page 26281]]
-----------------------------------------------------------------------
Part II
Department of Health and Human Services
-----------------------------------------------------------------------
Health Care Financing Administration
42 CFR Parts 412, 413, and 485
Medicare Program; Changes to the Hospital Inpatient Prospective Payment
Systems and Fiscal Year 2001 Rates; Proposed Rule
[[Page 26282]]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Parts 412, 413, and 485
[HCFA-1118-P]
RIN 0938-AK09
Medicare Program; Changes to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 2001 Rates
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: We are proposing to revise the Medicare hospital inpatient
prospective payment system for operating costs to: implement applicable
statutory requirements, including a number of provisions of the
Medicare, Medicaid, and State Children's Health Insurance Program
Balanced Budget Refinement Act of 1999 (Public Law 106-113); and
implement changes arising from our continuing experience with the
system. In addition, in the Addendum to this proposed rule, we are
describing proposed changes to the amounts and factors used to
determine the rates for Medicare hospital inpatient services for
operating costs and capital-related costs. These changes would be
applicable to discharges occurring on or after October 1, 2000. We also
are setting forth proposed rate-of-increase limits as well as proposed
policy changes for hospitals and hospital units excluded from the
prospective payment systems.
We are proposing changes to the policies governing payments to
hospitals for the direct costs of graduate medical education and
payments to disproportionate share hospitals, sole community hospitals,
and critical access hospitals to implement changes made by Public Law
106-113.
Finally, we are proposing a new condition of participation on
organ, tissue, and eye procurement for critical access hospitals that
parallels the condition of participation that we previously published
for all other Medicare-participating hospitals.
DATES: Comments will be considered if received at the appropriate
address, as provided below, no later than 5 p.m. on July 5, 2000.
ADDRESSES: Mail written comments (an original and three copies) to the
following address only: Health Care Financing Administration,
Department of Health and Human Services, Attention: HCFA-1118-P, P.O.
Box 8010, Baltimore, MD 21244-1850.
If you prefer, you may deliver by courier your written comments (an
original and three copies) to one of the following addresses:
Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW,
Washington, DC 20201, or
Room C5-14-03, Central Building, 7500 Security Boulevard, Baltimore, MD
21244-1850.
Comments mailed to those addresses may be delayed and could be
considered late.
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code HCFA-1118-P.
Comments received timely will be available for public inspection as
they are received, generally beginning approximately 3 weeks after
publication of a document, in Room 443-G of the Department's offices at
200 Independence Avenue, SW, Washington, DC, on Monday through Friday
of each week from 8:30 a.m. to 5 p.m. (phone: (202) 690-7890).
For comments that relate to information collection requirements,
mail a copy of comments to the following addresses:
Health Care Financing Administration, Office of Information Services,
Security and Standards Group, Division of HCFA Enterprise Standards,
Room N2-14-26, 7500 Security Boulevard, Baltimore, Maryland 21244-1850.
Attn: John Burke HCFA-1118-P; and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 3001, New Executive Office Building, Washington, DC 20503,
Attn: Allison Herron Eydt, HCFA Desk Officer.
FOR FURTHER INFORMATION CONTACT:
Steve Phillips, (410) 786-4531, Operating Prospective Payment, DRG,
Wage Index, Reclassifications, and Sole Community Hospital Issues.
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, Graduate Medical Education and Critical Access Hospital
Issues.
SUPPLEMENTARY INFORMATION:
Availability of Copies and Electronic Access
Copies: To order copies of the Federal Register containing this
document, send your request to: New Orders, Superintendent of
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date
of the issue requested and enclose a check or money order payable to
the Superintendent of Documents, or enclose your Visa or Master Card
number and expiration date. Credit card orders can also be placed by
calling the order desk at (202) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $8.00. As an alternative, you can view
and photocopy the Federal Register document at most libraries
designated as Federal Depository Libraries and at many other public and
academic libraries throughout the country that receive the Federal
Register.
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web; the Superintendent of Documents home page address
is http://www.access.gpo.gov/nara_docs/, by using local WAIS client
software, or by telnet to swais.access.gpo.gov, then login as guest (no
password required). Dial-in users should use communications software
and modem to call (202) 512-1661; type swais, then login as guest (no
password required).
I. Background
A. Summary
Section 1886(d) of the Social Security Act (the Act) sets forth a
system of payment for the operating costs of acute care hospital
inpatient stays under Medicare Part A (Hospital Insurance) based on
prospectively set rates. Section 1886(g) of the Act requires the
Secretary to pay for the capital-related costs of hospital inpatient
stays under a prospective payment system. Under these prospective
payment systems, Medicare payment for hospital inpatient operating and
capital-related costs is made at predetermined, specific rates for each
hospital discharge. Discharges are classified according to a list of
diagnosis-related groups (DRGs).
Certain specialty hospitals are excluded from the prospective
payment systems. Under section 1886(d)(1)(B) of the Act, the following
hospitals and hospital units are excluded from the prospective payment
systems: psychiatric hospitals and units, rehabilitation hospitals and
units, children's hospitals, long-term care hospitals, and cancer
hospitals. For these hospitals and units, Medicare payment for
operating costs is based on reasonable costs subject to a hospital-
specific annual limit.
Under sections 1820 and 1834(g) of the Act, payments are made to
critical
[[Page 26283]]
access hospitals (CAHs) (that is, rural nonprofit hospitals or
facilities that meet certain statutory requirements) for outpatient
services on a reasonable cost basis. Reasonable cost is determined
under the provisions of section 1861(v)(1)(A) of the Act and existing
regulations under parts 413 and 415.
Under section 1886(a)(4) of the Act, costs of approved educational
activities are excluded from the operating costs of inpatient hospital
services. Hospitals with approved graduate medical education (GME)
programs are paid for the direct costs of GME in accordance with
section 1886(h) of the Act; the amount of payment for direct GME costs
for a cost reporting period is based on the hospital's number of
residents in that period and the hospital's costs per resident in a
base year.
The regulations governing the hospital inpatient prospective
payment system are located in 42 CFR part 412. The regulations
governing excluded hospitals and hospital units are located in parts
412 and 413, and the GME regulations are located in part 413.
On July 30, 1999, we published a final rule in the Federal Register
(64 FR 41490) that implemented both statutory requirements and other
changes to the Medicare hospital inpatient prospective payment systems
for both operating costs and capital-related costs, as well as changes
addressing payment for excluded hospitals and payments for GME costs.
Generally, these changes were effective for discharges occurring on or
after October 1, 1999. Correction notices for the July 30, 1999 final
rule relating to the wage index and geographic adjustment factor were
issued in the Federal Register on January 12, 2000 (65 FR 1817) and
February 7, 2000 (65 FR 5933).
On November 29, 1999, the Medicare, Medicaid, and State Children's
Health Insurance Program (SCHIP) Balanced Budget Refinement Act of
1999, Public Law 106-113, was enacted. Public Law 106-113 made a number
of changes to the Act relating to prospective payments to hospitals for
inpatient services and payments to excluded hospitals. This proposed
rule would implement amendments enacted by Public Law 106-113 relating
to FY 2001 payments for GME costs and FY 2001 payments to
disproportionate share hospitals (DSHs), sole community hospitals
(SCHs), and CAHs. These changes are addressed in sections IV. and VI.
of this preamble.
Other provisions of Public Law 106-113 that relate to Medicare
payments to hospitals effective prior to October 1, 2000, will be
addressed in a separate interim final rule with comment period. The
provisions that will be included in the interim final rule are
summarized in section I.C. of this preamble.
Public Law 106-113 also amended section 1886(j) of the Act, which
was added by section 4421 of the Balanced Budget Act of 1997 (Public
Law 105-33). Section 1886(j) of the Act provides for a fully
implemented prospective payment system for inpatient rehabilitation
hospitals and rehabilitation units, effective for cost reporting
periods beginning on or after October 1, 2002, with provisions for
payments during a transitional period of October 1, 2000 to October 1,
2002, based on target amounts specified in section 1886(b) of the Act.
In section VI of this preamble, we describe the impact of this
provision on the proposed changes applicable to excluded hospitals and
units in this proposed rule. We are issuing a separate notice of
proposed rulemaking to implement the prospective payment system for
inpatient rehabilitation hospitals and units.
B. Major Contents of This Proposed Rule
In this proposed rule, we are setting forth proposed changes to the
Medicare hospital inpatient prospective payment system for operating
costs. We are not proposing any policy changes relating to payments for
capital-related costs under the hospital inpatient prospective payment
system in FY 2001. Our proposed changes relating to capital-related
costs include only changes to the amounts and factors for determining
the rates for capital-related costs for FY 2001. We also are proposing
changes relating to payments for GME costs and payments to excluded
hospitals and units, DSHs, SCHs, and CAHs. This proposed rule would be
effective for discharges occurring on or after October 1, 2000.
The following is a summary of the major changes that we are
proposing to make:
1. Proposed Changes to the DRG Reclassifications and Recalibrations of
Relative Weights
As required by section 1886(d)(4)(C) of the Act, we adjust the DRG
classifications and relative weights annually. Our proposed changes for
FY 2001 are set forth in section II. of this preamble.
2. Proposed Changes to the Hospital Wage Index
In section III. of this preamble, we discuss proposed revisions to
the wage index and the annual update of the wage data. Specific issues
addressed in this section include the following:
The FY 2001 wage index update, using FY 1997 wage data.
The transition to excluding from the wage index Part A
physician wage costs that are teaching-related, as well as resident and
Part A certified registered nurse anesthetist (CRNA) costs.
Revisions to the wage index based on hospital
redesignations and reclassifications.
3. Other Decisions and Proposed Changes to the Prospective Payment
System for Inpatient Operating and Graduate Medical Education Costs
In section IV. of this preamble, we discuss several provisions of
the regulations in 42 CFR Parts 412 and 413 and set forth certain
proposed changes concerning the following:
Postacute care transfers.
Sole community hospitals.
Rural referral centers.
Changes relating to the indirect medical education
adjustment.
Changes relating to the DSH adjustment and collection of
data on uncompensated costs for services furnished in hospitals under
the prospective payment system.
Medicare Geographic Classification Review Board (MGCRB)
classifications.
Payment for the direct costs of GME.
4. Last Year of Transition Period for the Prospective Payment System
for Capital-Related Costs
In section V. of this preamble, we discuss FY 2001 as the last year
of a 10-year transition period established to phase-in the prospective
payment system for capital-related costs for inpatient hospital
services.
5. Proposed Changes for Hospitals and Hospital Units Excluded from the
Prospective Payment Systems
In section VI. of this preamble, we discuss the following proposals
concerning excluded hospital and hospital units and CAHs:
Limits on and adjustments to the proposed target amounts
for FY 2001.
Development of prospective payment system for inpatient
rehabilitation hospitals and units.
Continuous improvement bonus payments.
Clarification that the 5-percent threshold used in
calculating an excluded hospital's cost per discharge is based only on
Medicare inpatients discharged from the hospital-within-a-hospital.
All-inclusive payment rate option for CAHs.
Condition of participation for CAHs relating to organ,
tissue, and eye procurement.
[[Page 26284]]
6. Determining Prospective Payment Operating and Capital Rates and
Rate-of-Increase Limits
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the FY 2001
prospective payment rates for operating costs and capital-related
costs. We also address update factors for determining the rate-of-
increase limits for cost reporting periods beginning in FY 2001 for
hospitals and hospital units excluded from the prospective payment
system.
7. Impact Analysis
In Appendix A, we set forth an analysis of the impact that the
proposed changes described in this proposed rule would have on affected
entities.
8. Capital Acquisition Model
Appendix B contains the technical appendix on the proposed FY 2001
capital cost model.
9. Report to Congress on the Update Factor for Hospitals under the
Prospective Payment System and Hospitals and Units Excluded from the
Prospective Payment System
Section 1886(e)(3) of the Act requires the Secretary to report to
Congress on our initial estimate of a recommended update factor for FY
2001 for payments to hospitals included in the prospective payment
systems, and hospitals excluded from the prospective payment systems.
This report is included as Appendix C to this proposed rule.
10. Proposed Recommendation of Update Factor for Hospital Inpatient
Operating Costs
As required by sections 1886(e)(4) and (e)(5) of the Act, Appendix
D provides our recommendation of the appropriate percentage change for
FY 2001 for the following:
Large urban area and other area average standardized
amounts (and hospital-specific rates applicable to sole community and
Medicare-dependent, small rural hospitals) for hospital inpatient
services paid for under the prospective payment system for operating
costs.
Target rate-of-increase limits to the allowable operating
costs of hospital inpatient services furnished by hospitals and
hospital units excluded from the prospective payment system.
11. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, the Medicare Payment Advisory
Commission (MedPAC) is required to submit a report to Congress, not
later than March 1 of each year, that reviews and makes recommendations
on Medicare payment policies. This annual report makes recommendations
concerning hospital inpatient payment policies. In section VII. of this
preamble, we discuss the MedPAC recommendations and any actions we are
proposing to take with regard to them (when an action is recommended).
For further information relating specifically to the MedPAC March 1
report or to obtain a copy of the report, contact MedPAC at (202) 653-
7220.
C. Provisions of Public Law 106-113 To Be Included in Interim Final
Rule With Comment Period
As we have indicated under section I.A. of this preamble, we are
planning to publish an interim final rule with comment period to
address provisions of Public Law 106-113 that are effective prior to
October 1, 2000. This interim final rule with comment period will be
issued prior to the publication of the hospital inpatient prospective
payment system final rule by August 1. A summary of the provisions of
Public Law 106-113 that will be addressed in the interim final rule
with comment period follows:
Section 111(b), which provides for an additional payment
to teaching hospitals equal to the additional amount the hospital would
have been paid for FY 2000 if the IME adjustment formula under section
1886(d)(5)(B) of the Act (which reflects the higher indirect operating
costs associated with GME) for FY 2000 had remained the same as for FY
1999. (Section 111(a) also changed the IME adjustment formula for
discharges occurring during FY 2001 and for discharges occurring on or
after October 1, 2001, which is addressed in section IV.D. of this
preamble.)
Section 121, which amended section 1886(b)(3)(H) of the
Act to provide for an appropriate wage adjustment to the cap on the
target amounts for psychiatric hospitals and units, rehabilitation
hospitals and units, and long-term care hospitals, effective for cost
reporting periods beginning on or after October 1, 1999, through
September 30, 2002. We will address the wage adjustment to the FY 2000
caps in the interim final rule. (The wage adjustment to the FY 2001
caps is discussed in section VI. of this preamble.)
Section 312, which amended section 1886(h)(5) of the Act
to provide that, effective July 1, 2000, in determining the cap on the
number of residents for GME and IME costs, the period of board
eligibility and the initial residency period for child neurology is the
period of board eligibility for pediatrics plus 2 years. This provision
applies on and after July 1, 2000, to residency programs that began
before, on, or after November 29, 1999.
Section 401(a), which amended section 1886(d)(8) of the
Act to direct the Secretary to treat certain hospitals located in urban
areas as being located in rural areas of their State if the hospital
meets statutory criteria and files an application with HCFA. This
provision is effective on January 1, 2000.
Section 401(b), which contains conforming changes to
incorporate the reclassifications under the amendments made by section
401(a) of Public Law 106-113 to outpatient hospital services (section
1833(t) of the Act) and the CAH statute (section 1820(c)(2)(B)(i) of
the Act). This provision is effective on January 1, 2000.
Section 403(a), which amended section 1820(c)(2)(B)(iii)
of the Act to delete the 96-hour length of stay restriction on
inpatient care in a CAH and to authorize a period of stay that does not
exceed, on an annual basis, 96 hours per patient. This provision is
effective on November 29, 1999.
Section 403(b), which amended section 1820(c)(2)(B)(i) of
the Act to allow for-profit hospitals to qualify for CAH status. This
provision is effective on November 29, 1999.
Section 403(c), which amended section 1820(c) of the Act
to allow hospitals that have closed within 10 years prior to November
29, 1999, or hospitals that downsized to a health clinic or health
center, to be designated as CAHs if they meet the established criteria
for designation.
Section 403(e), which amended sections 1833(a)(1)(D)(i)
and 1833(a)(2)(D)(i) the Act to eliminate the Medicare Part B
deductible and coinsurance for clinical diagnostic laboratory tests
furnished by a CAH on an outpatient basis. This provision is effective
with respect to services furnished on or after November 29, 1999.
Section 403(f), which amended section 1883 of the Act to
reinstate the right of CAHs that meet applicable requirements to enter
into "swing-bed" agreements.
Section 404, which amended section 1886(d)(5)(G) of the
Act to extend the Medicare-dependent, small rural hospital program for
5 years, from FY 2001 through FY 2005. Section 404 also amended section
1886(b)(3)(D) of the Act as a conforming change to make the 5-year
extension applicable to the
[[Page 26285]]
target amounts for Medicare-dependent, small rural hospitals.
Section 407(a)(1), which amended section 1886(h)(4)(F) of
the Act to direct the Secretary, for purposes of determining a
hospital's FTE cap for direct GME payments, to count an individual to
the extent that the individual would have been counted as a primary
care resident for purposes of the FTE cap but for the fact that the
individual was on maternity or disability leave or a similar approved
leave of absence. Section 407(a)(2) made a corresponding amendment to
section 1886(d)(5)(B)(v) of the Act relating to the IME adjustment. The
provision relating to direct GME is effective with cost reporting
periods beginning on or after November 29, 1999. The provision relating
to the IME adjustment applies to discharges occurring in cost reporting
periods beginning on or after November 29, 1999.
Section 407(b)(1), which amended section 1886(h)(4)(F)(i)
of the Act to provide that a rural hospital's direct FTE count for
direct GME may not exceed 130 percent of the number of unweighted
residents that the rural hospital counted in its most recent cost
reporting period ending on or before December 31, 1996. Section
407(b)(2) made a similar change to section 1886(d)(5)(B)(v) of the Act
relating to the IME adjustment. The provision relating to direct GME
applies to cost reporting periods beginning on or after April 1, 2000.
The provision relating to the IME adjustment applies to discharges
occurring on or after April 1, 2000.
Section 407(c), which amended sections 1886(h)(4)(H) and
1886(d)(5)(B)(v) of the Act to allow a non-rural hospital that
establishes separately accredited approved medical residency training
programs (or rural training tracks) in a rural area or has an
accredited training program with an integrated rural track, to receive
an FTE cap adjustment for purposes of direct GME and IME. The provision
is effective with cost reporting periods beginning on or after April 1,
2000 for direct GME, and with discharges occurring on or after April 1,
2000 for IME.
Section 407(d) addresses the situation where residents
were training in a residency training program at a Veterans Affairs
hospital and then were transferred on or after January 1, 1997 and on
or before July 30, 1998, to a non-Veterans Affairs hospital because the
program in which the residents were training would lose its
accreditation by the Accreditation Council on Graduate Medical
Education (ACGME) if the residents continued to train at the facility.
In this scenario, the non-Veterans Affairs hospital may receive a
temporary adjustment to its 1996 FTE cap to include in its FTE count
those residents who were transferred from the Veterans Affairs
hospital. This provision applies as if it was included in the enactment
of Public Law 105-33, that is, for GME with cost reporting periods
beginning on or after October 1, 1997, and for IME, discharges
occurring on or after October 1, 1997. If a hospital is owed payments
as a result of this provision, payments must be made immediately.
Section 541, which amended section 1886 of the Act to
provide an additional payment to hospitals that receive payments under
section 1861(v) of the Act for approved nursing and allied health
education programs to reflect utilization of Medicare+Choice enrollees.
This provision is effective for portions of cost reporting periods in a
year beginning with calendar year 2000.
II. Proposed Changes to DRG Classifications and Relative Weights
A. Background
Under the prospective payment system, we pay for inpatient hospital
services on a rate per discharge basis that varies according to the DRG
to which a beneficiary's stay is assigned. The formula used to
calculate payment for a specific case takes an individual hospital's
payment rate per case and multiplies it by the weight of the DRG to
which the case is assigned. Each DRG weight represents the average
resources required to care for cases in that particular DRG relative to
the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the
DRG relative weights periodically to account for changes in resource
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires
that the Secretary adjust the DRG classifications and relative weights
at least annually. These adjustments are made to reflect changes in
treatment patterns, technology, and any other factors that may change
the relative use of hospital resources. The proposed changes to the DRG
classification system, and the proposed recalibration of the DRG
weights for discharges occurring on or after October 1, 2000, are
discussed below.
B. DRG Reclassification
1. General
Cases are classified into DRGs for payment under the prospective
payment system based on the principal diagnosis, up to eight additional
diagnoses, and up to six procedures performed during the stay, as well
as age, sex, and discharge status of the patient. The diagnosis and
procedure information is reported by the hospital using codes from the
International Classification of Diseases, Ninth Revision, Clinical
Modification (ICD-9-CM). Medicare fiscal intermediaries enter the
information into their claims processing systems and subject it to a
series of automated screens called the Medicare Code Editor (MCE).
These screens are designed to identify cases that require further
review before classification into a DRG.
After screening through the MCE and any further development of the
claims, cases are classified into the appropriate DRG by the Medicare
GROUPER software program. The GROUPER program was developed as a means
of classifying each case into a DRG on the basis of the diagnosis and
procedure codes and demographic information (that is, sex, age, and
discharge status). It is used both to classify past cases in order to
measure relative hospital resource consumption to establish the DRG
weights and to classify current cases for purposes of determining
payment. The records for all Medicare hospital inpatient discharges are
maintained in the Medicare Provider Analysis and Review (MedPAR) file.
The data in this file are used to evaluate possible DRG classification
changes and to recalibrate the DRG weights.
In the July 30, 1999 final rule (64 FR 41500), we discussed a
process for considering non-MedPAR data in the recalibration process.
In order for the use of particular data to be feasible, we must have
sufficient time to evaluate and test the data. The time necessary to do
so depends upon the nature and quality of the data submitted.
Generally, however, a significant sample of the data should be
submitted by August 1, approximately 8 months prior to the publication
of the proposed rule, so that we can test the data and make a
preliminary assessment as to the feasibility of using the data.
Subsequently, a complete database should be submitted no later than
December 1 for consideration in conjunction with the next year's
proposed rule.
Currently, cases are assigned to one of 501 DRGs (including one DRG
for a diagnosis that is invalid as a discharge diagnosis and one DRG
for ungroupable diagnoses) in 25 major diagnostic categories (MDCs).
Most MDCs are based on a particular organ system of the body (for
example, MDC 6 (Diseases and Disorders of the Digestive System));
however, some MDCs are not constructed on this basis since they
[[Page 26286]]
involve multiple organ systems (for example, MDC 22 (Burns)).
In general, cases are assigned to an MDC based on the principal
diagnosis, before assignment to a DRG. However, there are five DRGs to
which cases are directly assigned on the basis of procedure codes.
These are the DRGs for liver, bone marrow, and lung transplants (DRGs
480, 481, and 495, respectively) and the two DRGs for tracheostomies
(DRGs 482 and 483). Cases are assigned to these DRGs before
classification to an MDC.
Within most MDCs, cases are then divided into surgical DRGs (based
on a surgical hierarchy that orders individual procedures or groups of
procedures by resource intensity) and medical DRGs. Medical DRGs
generally are differentiated on the basis of diagnosis and age. Some
surgical and medical DRGs are further differentiated based on the
presence or absence of complications or comorbidities (CC).
Generally, the GROUPER does not consider other procedures; that is,
nonsurgical procedures or minor surgical procedures generally not
performed in an operating room are not listed as operating room (OR)
procedures in the GROUPER decision tables. However, there are a few
non-OR procedures that do affect DRG assignment for certain principal
diagnoses, such as extracorporeal shock wave lithotripsy for patients
with a principal diagnosis of urinary stones.
The changes we are proposing to make to the DRG classification
system for FY 2001 and other issues concerning DRGs are set forth
below. Unless otherwise noted, our DRG analysis is based on the full
(100 percent) FY 1999 MedPAR file (bills received through December 31,
1999 for discharges in FY 1999).
2. MDC 5 (Diseases and Disorders of the Circulatory System)
In the August 29, 1997 final rule with comment period (62 FR
45974), we noted that, because of the many recent changes in heart
surgery, we were considering conducting a comprehensive review of the
MDC 5 surgical DRGs. In the July 31, 1998 final rule with comment
period (63 FR 40956), we did adopt some changes to the MDC 5 surgical
DRGs. Since that time, we have received inquiries on a continuing basis
regarding these DRGs. We have continued to review Medicare claims data
and, based on our analysis, we are proposing the following DRG changes
in MDC 5:
a. Heart Transplant (DRG 103)
As previously stated, cases are generally assigned to an MDC based
on principal diagnosis and subsequently assigned to surgical or medical
DRGs included in that MDC. However, cases involving liver, bone marrow,
and lung transplants (DRGs 480, 481, and 495, respectively) and the two
DRGs for tracheostomies (DRGs 482 and 483) are directly assigned on the
basis of procedure codes. Cases assigned to these DRGs before
classification to an MDC are referred to as pre-MDC. However, cases
involving heart transplants are currently assigned first to MDC 5 and
then to DRG 103.
Currently, when a bone marrow transplant and a heart transplant are
performed during the same admission, the case is assigned to DRG 481
(Bone Marrow Transplant). Because bone marrow transplant cases are
first classified to pre-MDC, while heart transplants are first assigned
to MDC 5, the bone marrow transplant assumes precedence in the
assignment of the case to a DRG. However, payment for DRG 481 is
substantially less than DRG 103. For FY 2000, the relative weight for
DRG 103 is 19.5100, while the relative weight for DRG 481 is 8.7285.
We reviewed the FY 1999 MedPAR file containing bills through
December 31, 1999 and found no cases in which a bone marrow transplant
and a heart transplant were performed in the same admission. However,
to ensure appropriate DRG assignment of these cases, we are proposing
that the heart transplant DRG, which encompasses combined heart-lung
transplantation (ICD-9-CM procedure code 33.6) and heart
transplantation (ICD-9-CM procedure code 37.5) be assigned to pre-MDC.
In this way, cases involving a bone marrow transplant and a heart
transplant would be assigned to DRG 103 (DRG 103 would be reordered
higher in the pre-MDC surgical hierarchy, as discussed in section
II.B.5. of this preamble).
b. Heart Assist Devices
We continue to review data in MDC 5 (Diseases and Disorders of the
Circulatory System) to determine if cases are being assigned to the
most appropriate DRG based on clinical coherence and similar resource
consumption. At the December 1, 1994 ICD-9-CM Coordination and
Maintenance Committee meeting, we recommended creation of new codes to
capture single and bi-ventricular heart assist systems. These codes,
37.65 (Implant of an external, pulsatile heart assist system) and 37.66
(Implant of an implantable, pulsatile heart assist system), were
adopted for use for discharges occurring on or after October 1, 1995.
However, code 37.66 was deemed investigational and was not considered a
covered procedure. Effective May 5, 1997, we revised Medicare coverage
of heart assist devices to allow coverage of a ventricular assist
device (code 37.66) used for support of blood circulation
postcardiotomy if certain conditions were met.
Due to some residual misunderstanding regarding this coverage
policy, we would like to emphasize that this device was and will
continue to be listed as a noncovered procedure in the Medicare Code
Editor (MCE), the front-end software product in the GROUPER program
that detects and reports errors in the coding of claims data. The
reason that this device is listed in the MCE, in spite of the fact that
its implantation is covered, is because of the stringent conditions
that must be met by hospitals in order to receive payment.
In the August 29, 1997 final rule (62 FR 45973), we moved procedure
code 37.66 from DRGs 110 and 111 \1\ (Major Cardiovascular Procedures
with and without CCs, respectively) to DRG 108 (Other Cardiothoracic
Procedures). As stated in the July 31, 1998 final rule (63 FR 40956),
we moved procedure code 37.66 to DRGs 104 and 105 (Cardiac Valve and
Other Major Cardiothoracic Procedures with and without CCs,
respectively) for FY 1999.
---------------------------------------------------------------------------
\1\ A single title combined with two DRG numbers is used to
signify pairs. Generally, the first DRG is for cases with CC and the
second DRG is for cases without CC. If a third number is included,
it represents cases with patients who are age 0-17. Occasionally, a
pair of DRGs is split between age 17 and age 0-17.
---------------------------------------------------------------------------
In the July 30, 1999 final rule (64 FR 41498), we responded to a
comment suggesting that heart assist devices be assigned to DRG 103. In
further consideration of this issue, we have reviewed the 100 percent
FY 1999 MedPAR file containing bills through December 31, 1999, and
found that there were a total of 47 implantable heart assist system
procedures performed on Medicare beneficiaries. Of these cases, 13
(approximately 28 percent) were assigned to DRG 103 (Heart Transplant)
and four (approximately 9 percent) were assigned to DRG 483
(Tracheostomy Except for Face, Mouth and Neck Diagnoses), and,
therefore, were paid at significantly higher rates than the remaining
30 cases. All of the procedure code 37.66 cases have extremely high
charges, which is consistent with past
[[Page 26287]]
analysis, and all of these cases are subject to payment as cost
outliers.
Our data analysis indicates that the most cases in any one hospital
is 5, while 17 hospitals performed only one heart assist system implant
each. We reiterate that only heart transplant cases can be properly
assigned to the transplant DRG (August 29, 1997 final rule (62 FR
45974)). Since heart assist devices are used across DRGs, many not
involving a transplant, we are not proposing to assign procedure code
37.66 to DRG 103.
In addition to the review of 37.66, we also looked at procedure
codes 37.62 (Implant of other heart assist system), 37.63 (Replacement
and repair of heart assist system), and 37.65 (Implant of an external,
pulsatile heart assist system). These cases are currently assigned to
DRGs 110 and 111 (Major Cardiovascular Procedures). We believe that
these procedures are similar both clinically and in terms of resource
utilization to procedure code 37.66, which is already assigned to DRGs
104 and 105. Therefore, we propose to move codes 37.62, 37.63, and
37.65 from DRGs 110 and 111 to DRGs 104 and 105.
c. Platelet Inhibitors
Effective October 1, 1998, procedure code 99.20 (Injection or
infusion of platelet inhibitor) was created. The use of platelet
inhibitors have been shown to significantly decrease the rate of acute
vessel closure, as well as the rate of cardiac complications and death.
Platelet inhibitors are frequently administered to patients undergoing
percutaneous transluminal coronary angioplasty (PTCA). In addition,
patients admitted with unstable angina may also benefit from platelet
inhibitors. This procedure code is designated as a non-OR procedure
that does not affect DRG assignment (platelet inhibitors are
administered either through intravenous injection or infusion).
For the past 2 years, a manufacturer of platelet inhibitors has
submitted data to support its position that cases involving platelet
inhibitor therapy receiving angioplasty should be reclassified from DRG
112 (Percutaneous Cardiovascular Procedures) to DRG 116 (Other
Permanent Cardiac Pacemaker Implant or PTCA with Coronary Artery Stent
Implant). In the July 30, 1999 final rule (64 FR 41503), we noted that
we had received a new set of data from the platelet inhibitor
manufacturer containing 27,673 cases from 164 hospitals in which
Medicare patients underwent an angioplasty.
Included with the data were tables summarizing the results of the
commenter's analysis of the data, showing that angioplasty cases
receiving platelet inhibitor therapy are more expensive than those not
receiving platelet inhibitors. According to the commenter, the
approximate average standardized charges for the different classes of
patients are as follows:
No drug, no stent: $19,877.
No drug, with stent: $22,968.
Drug, no stent: $26,389.
Drug, stent: $30,139.
Using the 100 percent FY 1999 MedPAR file that contains discharges
through September 30, 1999, we performed analysis of the cases for
which procedure code 99.20 was reported. There were a total of 37,222
cases spread across 123 DRGs.
The majority of the platelet inhibitor cases, 28,022 (75 percent of
all platelet inhibitor cases), are already assigned to DRG 116. The
average standardized charges for these cases are approximately $26,683,
compared to approximately $25,251 for DRG 116 overall. In DRG 112,
there were 4,310 platelet inhibitor cases (12 percent of all platelet
inhibitor cases) assigned. The average standardized charge for these
cases is approximately $22,786, compared to approximately $20,224 for
DRG 112 overall. Although the platelet inhibitor therapy cases that are
classified to DRG 112 do have somewhat higher charges than the average
case assigned to this DRG (11 percent, or $2,563), we found several
procedures in DRG 112 with average standardized charges higher than the
platelet inhibitor cases. For example, there were 1,560 cases in which
a single vessel PTCA or coronary atherectomy with thrombolytic agent
(procedure code 36.02) was performed with an average standardized
charge of approximately $25,181, and there were 4,951 cases in which a
multiple vessel PTCA or coronary atherectomy was performed, with or
without a thrombolytic agent (procedure code 36.05) with an average
standardized charge of approximately $23,608.
We also noted that there are several procedures assigned to DRG 112
that have average standardized charges lower than the average charges
for all cases in the DRG. For example, average charges for cases with
procedure code 37.34 (Catheter ablation of lesion or tissues of heart)
were $18,429. The following chart illustrates the variation among the
average charges for DRG 112. This chart shows that the average charges
for cases with procedure code 99.20 are well within the normal
variation of other procedures.
------------------------------------------------------------------------
Average
DRG 112 Cases standardized
charges
------------------------------------------------------------------------
Catheter ablation of lesion or 6,972 $18,429
tissues of heart (code 37.34)....
All cases within DRG 112.......... 60,842 20,224
Injection or infusion of platelet 4,310 22,786
inhibitor (code 99.20)...........
Multiple vessel PTCA or coronary 4,951 23,608
atherectomy with or without
mention of thrombolytic agent
(code 36.05).....................
Single vessel PTCA or coronary 1,560 25,181
atherectomy with mention of
thrombolytic agent (code 36.02)..
------------------------------------------------------------------------
These examples indicate that there is always some variation in
charges within a DRG. This difference in variations of charges is
within the normal range of charge variations.
Clinical homogeneity within DRGs has always been a fundamental
principle considered when assigning codes to appropriate DRGs.
Currently, DRG 116 includes cases involving the insertion of a
pacemaker as well as the insertion of coronary artery stents with PTCA.
On the other hand, cases assigned to DRG 112 involve less invasive
operating room and, in some cases, nonoperating room procedures.
The basis for DRG assignment has generally been the diagnosis of
the patient or the procedures performed. To the extent the use of a
particular technology becomes prevalent in the treatment of a
particular type of case, the DRG system is designed to account for any
increases or decreases in costs through recalibration. Hospitals
frequently benefit from this process while efficiency-enhancing
technology is being introduced. We believe that the update factors
established in section 1886(b)(3)(B)(i) of the Act, combined with the
potential for continuing improvements in hospital productivity, and
annual recalibration of the DRG
[[Page 26288]]
weights, are adequate to finance appropriate care of Medicare patients.
We also received a comment from another manufacturer of platelet
inhibitors whose therapy is targeted on acute coronary syndrome
patients without coronary intervention. These cases are assigned to DRG
124 (Circulatory Disorders Except Acute Myocardial Infarction with
Cardiac Catheterization and Complex Diagnosis) or DRG 140 (Angina
Pectoris). The manufacturer's concern is that both types of cases,
those performed in conjunction with coronary intervention and those
without, be given an equal focus in this evaluation.
Based on our analysis, we found 410 platelet inhibitor cases (1
percent) assigned to DRG 124. This is a small percentage of cases in
comparison to the overall total of 134,759 cases assigned to this DRG.
The platelet inhibitor cases had an average standardized charge of
approximately $17,378 compared to approximately $14,730 for DRG 124
overall. As we have illustrated above, there is always some variation
in charges within a DRG and this difference is within normal variation.
There were 66 platelet inhibitor cases (0.2 percent) assigned to
DRG 140. The average standardized charge for these cases is higher than
the overall DRG charge, approximately $8,992 and $5,657, respectively.
However, it represents a small percentage of the total (76,913) cases
assigned to DRG 140.
In summary, currently 75 percent of cases where code 99.20 is
present are assigned to DRG 116. The next most common DRG where these
cases are assigned is DRG 112 (12 percent). Cases assigned to DRG 116
generally involve implantation of a pacemaker or artery stent, while
cases assigned to DRG 112 involve percutaneous cardiovascular
procedures. Our analysis found a $3,897 difference between cases
involving platelet inhibitor therapy that were assigned to DRG 116 and
cases assigned to DRG 112, indicating a clinical distinction between
the cases grouping to the two DRGs. Finally, among platelet inhibitor
therapy cases that are assigned to DRG 112, our analysis found that the
average charges are well within the normal variation around the overall
average charges within the DRG. Based on these findings, we do not
believe it would be appropriate to assign all cases where procedure
code 99.20 is present to DRG 116. Therefore, we are not proposing to
change to our current policy which specifies that assignment of cases
to this code does not affect the DRG assignment.
d. Extracorporeal Membrane Oxygenation
Extracorporeal Membrane Oxygenation (ECMO) is a cardiopulmonary
bypass technique that provides long-term cardiopulmonary support to
patients who have reversible cardiopulmonary insufficiency that has not
responded to conventional management. It involves passing a patient's
blood through an extracorporeal membrane oxygenator which adds oxygen
and removes carbon dioxide. The oxygenated blood then is passed through
a heat exchanger to warm it to body temperature prior to returning it
to the patient. The process and equipment are similar to those used in
open heart surgery, but are continued over prolonged periods of time.
ECMO attempts to provide the patient with artificial cardiopulmonary
function while his or her own cardiopulmonary functions are incapable
of sustaining life.
Since ECMO involves the use of a device that sustains
cardiopulmonary function while the underlying condition is being
treated, it is important to identify and treat underlying conditions
leading to cardiopulmonary failure if the patient is to return to
normal cardiopulmonary function.
ECMO is assigned to procedure code 39.65 (Extracorporeal membrane
oxygenation (ECMO)). This code is not recognized as an OR procedure
within the DRG system and, therefore, does not affect payment. To
evaluate the appropriateness of payment under the current DRG
assignment, we have reviewed a 10-percent sample of Medicare claims in
the FY 1999 MedPAR file and found only 4 cases in which ECMO was used.
The charges for these cases ranged from $16,006 to $198,014. Since
medical literature indicates that ECMO is predominately used on
newborns and pediatric cases, this low number of claims is not
surprising. Only in recent years have some hospitals started to use
ECMO on adults. It is reserved for cases facing almost certain
mortality.
Because ECMO is a procedure clinically similar to a heart assist
device, we are proposing that procedure code 39.65 be classified as an
OR procedure and be classified in DRGs 104 and 105 along with the heart
assist system procedures (as discussed in section II.B.2.b. of this
preamble). Those cases in which ECMO was provided, but for which the
principal diagnosis is not classified to MDC 5, would then be assigned
to DRG 468 (Extensive OR Procedure Unrelated to Principal Diagnosis).
This would be appropriate since it is possible that secondary
conditions or complications may arise during hospitalization that would
require the use of ECMO. The relatively high weight of DRG 468 would be
appropriate for these cases.
3. MDC 15 (Newborns and Other Neonates With Conditions Originating in
the Perinatal Period)
a. V05.8 (Vaccination for Disease, NEC)
DRG 390 (Neonate with Other Significant Problems) contains newborn
or neonate cases with other significant problems, not assigned to DRGs
385 through 389, DRG 391, or DRG 469. In order to be classified into
DRG 391 (Normal Newborn), the neonate must have a principal diagnosis
as listed under DRG 391 and either no secondary diagnosis or a
secondary diagnosis as listed under DRG 391. Neonates with a secondary
diagnosis of V05.8 (Vaccination for disease, NEC) are currently
classified to DRG 390. Although it would seem that healthy newborns who
receive vaccinations and have no other problems should be classified to
DRG 391, code V05.8 was not included as one of the secondary diagnoses
under DRG 391, and therefore the case would not be classified as a
normal newborn (DRG 391). Code V05.8 is assigned to DRG 390 as a
default, since it is not included under another complicated neonate DRG
or the normal newborn DRG.
Based on inquiries we have received, we reviewed the
appropriateness of including diagnosis code V05.8 on the list of
acceptable secondary diagnoses under DRG 390. It was pointed out that
by including V05.8 on the acceptable secondary diagnosis list for DRG
390, newborns who receive vaccinations are classified as having
significant health problems. The inquirers believed this incorrectly
labels an otherwise healthy newborn as having a significant medical
condition. Providing a vaccination to a newborn is performed to prevent
the infant from contracting a disease.
We agree with the inquirers that, absent any evidence of disease, a
newborn should not be considered as having a significant problem simply
because a preventative vaccination was provided. Therefore, we are
proposing that V05.8 be removed from the list of acceptable secondary
diagnoses under DRG 390 and assigned as a secondary diagnosis under DRG
39l. In doing so, these cases would no longer be classified to DRG 390.
[[Page 26289]]
b. Diagnosis Code 666.02 (Third-stage Postpartum Hemorrhage, Delivered
With Postpartum Complication)
Diagnosis code 666.02 is assigned to DRG 373 (Vaginal Delivery
without Complicating Diagnosis). This DRG was created for uncomplicated
vaginal deliveries. However, code 666.22 (Delayed and secondary
postpartum hemorrhage, delivered with postpartum complication) is
assigned to DRG 372 (Vaginal Delivery with Complicating Diagnoses).
This means that mothers who had a delayed and secondary postpartum
hemorrhage would be assigned to DRG 372, while mothers who had a third-
stage postpartum hemorrhage would not be considered as a complicated
delivery.
We believe a third-stage postpartum hemorrhage should be considered
a complicating diagnosis and, in order to more appropriately categorize
these cases, we are proposing that diagnosis code 666.02 be removed
from DRG 373 and assigned as a complicating diagnosis under DRG 372.
c. Diagnosis Code 759.89 (Specified Congenital Anomalies, NEC)
(Alport's Syndrome)
Alport's Syndrome (also referred to as hereditary nephritis) is an
inherited disorder involving damage to the kidney, blood in the urine,
and, in some cases, loss of hearing. It may also include loss of
vision. Patients who are not treated early enough or who do not respond
to treatment may progress to renal failure. A kidney transplant is one
treatment option for these cases. As with many of the congenital
anomalies, there is no unique ICD-9-CM code for this condition.
Alport's Syndrome, along with many other rare and diverse congenital
anomalies, is assigned to the rather nonspecific diagnosis code 759.89
(Specific congenital anomalies, NEC). Examples include William
Syndrome, Brachio-Oto-Renal Syndrome, and Costello's Syndrome. Each of
these is a unique hereditary disorder affecting a variety of body
systems.
Patients can be diagnosed and treated for congenital anomalies
throughout their lives; treatment is not restricted to the neonatal
period. In our GROUPER, however, each diagnosis code is assigned to
just one MDC. In this case, diagnosis code 759.89 is assigned to MDC 15
(Newborns and Other Neonates with Conditions Originating in the
Perinatal Period) even though the patient may be an adult.
We have received a request from a physician concerning renal
transplants for patients with Alport's Syndrome. The physician pointed
out that when a patient with Alport's Syndrome is admitted for a kidney
transplant, the case is assigned to DRG 390 (Neonate with Other
Significant Problems). In these instances, when the principal diagnosis
is code 759.89, the case is classified to MDC 15 even though the
patient may no longer be a newborn. The physician believed that these
cases should be assigned to DRG 302 (Kidney Transplant).
The inquirer suggested moving diagnosis code 759.89 to MDC 11
(Diseases and Disorders of the Kidney and Urinary Tract) so that when a
kidney transplant is performed, it will be assigned to DRG 302.
Although this seems quite appropriate for patients with Alport's
Syndrome found in diagnosis code 759.89, it does not work well for the
wide variety of patients also described by this code. Many others would
be inappropriately classified to MDC 11.
Alport's Syndrome cases with code 759.89 as a principal diagnosis
who receive a kidney transplant are assigned to DRG 468 (Extensive OR
Procedure Unrelated to Principal Diagnosis). This DRG has a FY 2000
relative weight of 3.6400. Also for FY 2000, DRG 302 (Kidney
Transplant) has a relative weight of 3.5669. Therefore, the payment
amounts are in fact comparable.
There are several options for resolving this issue:
(1) If the case is assigned a principal diagnosis code of renal
failure with Alport's Syndrome as a secondary diagnosis, the case could
be assigned to DRG 302. As this option would represent a change in the
sequencing of congenital anomaly codes and related complications, it
would have to be evaluated and subsequently approved by the Editorial
Advisory Board for Coding Clinic for ICD-9-CM. This Editorial Advisory
Board contains representatives from the physician, coding, and hospital
industry. Final decisions on coding policy issues are made by the
representatives from the American Hospital Association, the American
Health Information Management Association, the National Center for
Health Statistics, and HCFA.
Since a change in sequencing of congenital anomaly codes and their
manifestations and complications would require a change of coding
policy, this issue was brought to the Editorial Advisory Board, which
is currently evaluating it. A final decision on any proposed policy
change would not be finalized and published in time for either this
proposed rule or the final rule. Therefore, this option would not
assist in immediately addressing the issue at hand.
(2) A unique ICD-9-CM diagnosis code could be created for Alport's
Syndrome that could then be evaluated for possible assignment within
MDC 11. This issue has been referred to the National Center for Health
Statistics for consideration as a future coding modification.
One difficulty with this option is the large number of congenital
anomalies and the limited number of unused codes in this section of
ICD-9-CM. Each new code must be carefully evaluated for
appropriateness.
(3) A third option, which was already addressed, involves moving
diagnosis code 759.89 to MDC 11. The problem with this approach is that
many cases would then be misassigned to MDC 11 because the congenital
anomaly would not involve diseases of the kidney and urinary tract.
(4) A fourth option would be to leave the coding and DRG assignment
as they currently exist. Since few cases exist, the overall impact may
be minimal.
To evaluate the impact of leaving the DRG assignment as it
currently exists, we examined data from a 10-percent sample of Medicare
cases in the FY 1999 MedPAR file. There were 95 cases assigned to a
wide range of DRGs with code 759.89 as a secondary diagnosis. There was
only one case assigned to MDC 15 with a principal diagnosis of code
759.89.
We are recommending that diagnosis code 759.89 remain in MDC 15,
since it encompasses such a wide variety of conditions. In addition, we
are not proposing a change in the DRG assignment because the payment
impact would be minimal and the cases few. We will continue to pursue
the possibility of modifying the ICD-9-CM code as well as evaluating
the coding rules.
4. MDC 17 (Myeloproliferative Diseases and Disorders and Poorly
Differentiated Neoplasm)
Diagnosis code 273.8 (Disorders of plasma protein metabolism, NEC)
is assigned to DRG 403 (Lymphoma and Nonacute Leukemia with CC) and DRG
404 (Lymphoma and Nonacute Leukemia without CC). A disorder of plasma
protein metabolism does not mean one has a lymphoma with nonacute
leukemia. An individual can have a disorder of plasma protein
metabolism without having a lymphoma or leukemia.
We have received an inquiry on the appropriateness of including
diagnosis code 273.8 in DRGs 403 and 404. The inquirer pointed out that
disorders of
[[Page 26290]]
plasma protein metabolism are not lymphomas or leukemia. We agree that
diagnosis code 273.8 is not a lymphoma or leukemia and is more closely
related to DRG 413 (Other Myeloproliferative Disorders or Poorly
Differentiated Neoplasm Diagnoses with CC) and DRG 414 (Other
Myeloproliferative Disorders or Poorly Differentiated Neoplasm
Diagnoses without CC).
We examined charge data drawn from cases assigned to diagnosis code
273.8 in a 10-percent sample of Medicare cases in the FY 1999 MedPAR
file and found that the average charges for these cases were also more
closely related to DRGs 413 and 414 than to DRGs 403 and 404, as
demonstrated in the following chart.
----------------------------------------------------------------------------------------------------------------
DRGs 403/404 all cases in 10-percent sample DRGs 413/414 all cases in 10-percent sample
----------------------------------------------------------------------------------------------------------------
Average Average
DRG Count charge DRG Count charge
----------------------------------------------------------------------------------------------------------------
403................................ 2,107 $17,617 413................... 387 $12,278
404................................ 296 8,063 414................... 47 5,906
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Average Average
Code DRG Count charge Code DRG Count charge
----------------------------------------------------------------------------------------------------------------
273.8 403............. 17 $8,573 273.8 404............ 3 $6,644
----------------------------------------------------------------------------------------------------------------
Therefore, we are proposing to move diagnosis code 273.8 from DRGs
403 and 404 to DRGs 413 and 414.
Diagnosis code 273.8 is also included in the following surgical
DRGs that are performed on patients with lymphoma or leukemia:
DRG 400 (Lymphoma and Leukemia with Major OR Procedure).
DRG 401 (Lymphoma and Nonacute Leukemia with Other OR
Procedure with CC).
DRG 402 (Lymphoma and Nonacute Leukemia with Other OR
Procedure without CC).
The same clinical issue would apply to these surgical DRGS
performed on patients with lymphoma and leukemia. Code 273.8 should be
assigned to the surgical DRGs for myeloproliferative disorders since
the cases are clinically similar and, as stated before, code 273.8 is
not clinically similar to lymphomas and leukemias. Therefore, we are
also proposing that code 273.8 be removed from the surgical DRGs
related to lymphoma and leukemia (DRGS 400, 401, and 402) and assigned
to the following myeloproliferative surgical DRGS, based on the
procedure performed:
DRG 406 (Myeloproliferative Disorders or Poorly
Differentiated Neoplasms with Major OR Procedures with CC).
DRG 407 (Myeloproliferative Disorders Or Poorly
Differentiated Neoplasms with Major OR Procedures without CC).
DRG 408 (Myeloproliferative Disorders or Poorly
Differentiated Neoplasms with Other OR Procedures).
5. Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different DRG within the MDC to which the principal diagnosis is
assigned. Therefore, it is necessary to have a decision rule by which
these cases are assigned to a single DRG. The surgical hierarchy, an
ordering of surgical classes from most to least resource intensive,
performs that function. Its application ensures that cases involving
multiple surgical procedures are assigned to the DRG associated with
the most resource-intensive surgical class.
Because the relative resource intensity of surgical classes can
shift as a function of DRG reclassification and recalibration, we
reviewed the surgical hierarchy of each MDC, as we have for previous
reclassifications, to determine if the ordering of classes coincided
with the intensity of resource utilization, as measured by the same
billing data used to compute the DRG relative weights.
A surgical class can be composed of one or more DRGs. For example,
in MDC 11, the surgical class "kidney transplant" consists of a
single DRG (DRG 302) and the class "kidney, ureter and major bladder
procedures" consists of three DRGs (DRGs 303, 304, and 305).
Consequently, in many cases, the surgical hierarchy has an impact on
more than one DRG. The methodology for determining the most resource-
intensive surgical class involves weighting each DRG for frequency to
determine the average resources for each surgical class. For example,
assume surgical class A includes DRGs 1 and 2 and surgical class B
includes DRGs 3, 4, and 5. Assume also that the average charge of DRG 1
is higher than that of DRG 3, but the average charges of DRGs 4 and 5
are higher than the average charge of DRG 2. To determine whether
surgical class A should be higher or lower than surgical class B in the
surgical hierarchy, we would weight the average charge of each DRG by
frequency (that is, by the number of cases in the DRG) to determine
average resource consumption for the surgical class. The surgical
classes would then be ordered from the class with the highest average
resource utilization to that with the lowest, with the exception of
"other OR procedures" as discussed below.
This methodology may occasionally result in a case involving
multiple procedures being assigned to the lower-weighted DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER searches for the procedure in the
most resource-intensive surgical class, this result is unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average relative
weight is ordered above a surgical class with a higher average relative
weight. For example, the "other OR procedures" surgical class is
uniformly ordered last in the surgical hierarchy of each MDC in which
it occurs, regardless of the fact that the relative weight for the DRG
or DRGs in that surgical class may be higher than that for other
surgical classes in the MDC. The "other OR procedures" class is a
group of procedures that are least likely to be related to the
diagnoses in the MDC but are occasionally performed on patients with
these diagnoses. Therefore, these procedures should only be considered
if no other procedure more closely related to the diagnoses in the MDC
has been performed.
A second example occurs when the difference between the average
weights for two surgical classes is very small.
[[Page 26291]]
We have found that small differences generally do not warrant
reordering of the hierarchy since, by virtue of the hierarchy change,
the relative weights are likely to shift such that the higher-ordered
surgical class has a lower average weight than the class ordered below
it.
Based on the preliminary recalibration of the DRGs, we are
proposing to modify the surgical hierarchy as set forth below. As we
stated in the September 1, 1989 final rule (54 FR 36457), we are unable
to test the effects of proposed revisions to the surgical hierarchy and
to reflect these changes in the proposed relative weights due to the
unavailability of the revised GROUPER software at the time the proposed
rule is prepared. Rather, we simulate most major classification changes
to approximate the placement of cases under the proposed
reclassification and then determine the average charge for each DRG.
These average charges then serve as our best estimate of relative
resource use for each surgical class. We test the proposed surgical
hierarchy changes after the revised GROUPER is received and reflect the
final changes in the DRG relative weights in the final rule. Further,
as discussed in section II.C of this preamble, we anticipate that the
final recalibrated weights will be somewhat different from those
proposed, since they will be based on more complete data. Consequently,
further revision of the hierarchy, using the above principles, may be
necessary in the final rule.
At this time, we are proposing to revise the surgical hierarchy for
the pre-MDC DRGs, MDC 8 (Diseases and Disorders of the Musculoskeletal
System and Connective Tissue), and MDC 10 (Endocrine, Nutritional, and
Metabolic Diseases and Disorders) as follows:
In the pre-MDC DRGs, as we stated previously, we are
proposing to move DRG 103 (Heart Transplant) from MDC 5 to pre-MDC. We
are proposing to reorder DRG 103 (Heart Transplant) above DRG 483
(Tracheostomy Except for Face, Mouth, and Neck Diagnoses).
In the pre-MDC DRGs, we are proposing to reorder DRG 481
(Bone Marrow Transplant) above DRG 495 (Lung Transplant).
In MDC 8, we are proposing to reorder DRG 230 (Local
Excision and Removal of Internal Fixation Devices of Hip and Femur)
above DRG 226 (Soft Tissue Procedures with CC) and DRG 227 (Soft Tissue
Procedures without CC).
In MDC 10, we are proposing to reorder DRG 288 (OR
Procedures for Obesity) above DRG 285 (Amputation of Lower Limb for
Endocrine, Nutritional, and Metabolic Disorders).
6. Refinement of Complications and Comorbidities (CC) List
In the September 1, 1987 final notice (52 FR 33143) concerning
changes to the DRG classification system, we modified the GROUPER logic
so that certain diagnoses included on the standard list of CCs would
not be considered a valid CC in combination with a particular principal
diagnosis. Thus, we created the CC Exclusions List. We made these
changes for the following reasons: (1) To preclude coding of CCs for
closely related conditions; (2) to preclude duplicative coding or
inconsistent coding from being treated as CCs; and (3) to ensure that
cases are appropriately classified between the complicated and
uncomplicated DRGs in a pair. We developed this standard list of
diagnoses using physician panels to include those diagnoses that, when
present as a secondary condition, would be considered a substantial
complication or comorbidity. In previous years, we have made changes to
the standard list of CCs, either by adding new CCs or deleting CCs
already on the list. At this time, we do not propose to delete any of
the diagnosis codes on the CC list.
In the May 19, 1987 proposed notice (52 FR 18877) concerning
changes to the DRG classification system, we explained that the
excluded secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another (as subsequently corrected
in the September 1, 1987 final notice (52 FR 33154)).
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for a condition should not be considered CCs for
one another.
Conditions that may not coexist, such as partial/total,
unilateral/bilateral, obstructed/unobstructed, and benign/malignant,
should not be considered CCs for one another.
The same condition in anatomically proximal sites should
not be considered CCs for one another.
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. The FY 1988 revisions were intended only
as a first step toward refinement of the CC list in that the criteria
used for eliminating certain diagnoses from consideration as CCs were
intended to identify only the most obvious diagnoses that should not be
considered complications or comorbidities of another diagnosis. For
that reason, and in light of comments and questions on the CC list, we
have continued to review the remaining CCs to identify additional
exclusions and to remove diagnoses from the master list that have been
shown not to meet the definition of a CC. (See the September 30, 1988
final rule (53 FR 38485) for the revision made for the discharges
occurring in FY 1989; the September 1, 1989 final rule (54 FR 36552)
for the FY 1990 revision; the September 4, 1990 final rule (55 FR
36126) for the FY 1991 revision; the August 30, 1991 final rule (56 FR
43209) for the FY 1992 revision; the September 1, 1992 final rule (57
FR 39753) for the FY 1993 revision; the September 1, 1993 final rule
(58 FR 46278) for the FY 1994 revisions; the September 1, 1994 final
rule (59 FR 45334) for the FY 1995 revisions; the September 1, 1995
final rule (60 FR 45782) for the FY 1996 revisions; the August 30, 1996
final rule (61 FR 46171) for the FY 1997 revisions; the August 29, 1997
final rule (62 FR 45966) for the FY 1998 revisions; and the July 31,
1998 final rule (63 FR 40954) for the FY 1999 revisions. In the July
30, 1999 final rule (64 FR 41490) we did not modify the CC Exclusions
List for FY 2000 because we did not make any changes to the ICD-9-CM
codes for FY 2000.
We are proposing a limited revision of the CC Exclusions List to
take into account the changes that will be made in the ICD-9-CM
diagnosis coding system effective October 1, 2000. (See section II.B.8.
below, for a discussion of ICD-9-CM changes.) These proposed changes
are being made in accordance with the principles established when we
created the CC Exclusions List in 1987.
Tables 6F and 6G in section V. of the Addendum to this proposed
rule contain the proposed revisions to the CC Exclusions List that
would be effective for discharges occurring on or after October 1,
2000. Each table shows the principal diagnoses with proposed changes to
the excluded CCs. Each of these principal diagnoses is shown with an
asterisk and the additions or deletions to the CC Exclusions List are
provided in an indented column immediately following the affected
principal diagnosis.
CCs that are added to the list are in Table 6F--Additions to the CC
Exclusions List. Beginning with discharges on or after October 1, 2000,
the indented diagnoses will not be recognized by the GROUPER as valid
CCs for the asterisked principal diagnosis.
CCs that are deleted from the list are in Table 6G--Deletions from
the CC
[[Page 26292]]
Exclusions List. Beginning with discharges on or after October 1, 2000,
the indented diagnoses will be recognized by the GROUPER as valid CCs
for the asterisked principal diagnosis.
Copies of the original CC Exclusions List applicable to FY 1988 can
be obtained from the National Technical Information Service (NTIS) of
the Department of Commerce. It is available in hard copy for $92.00
plus $6.00 shipping and handling and on microfiche for $20.50, plus
$4.00 for shipping and handling. A request for the FY 1988 CC
Exclusions List (which should include the identification accession
number (PB) 88-133970) should be made to the following address:
National Technical Information Service, United States Department of
Commerce, 5285 Port Royal Road, Springfield, Virginia 22161; or by
calling (703) 487-4650.
Users should be aware of the fact that all revisions to the CC
Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996,
1997, 1998, and 1999) and those in Tables 6F and 6G of this document
must be incorporated into the list purchased from NTIS in order to
obtain the CC Exclusions List applicable for discharges occurring on or
after October 1, 2000. (Note: There was no CC Exclusions List in FY
2000 because we did not make changes to the ICD-9-CM codes for FY
2000.)
Alternatively, the complete documentation of the GROUPER logic,
including the current CC Exclusions List, is available from 3M/Health
Information Systems (HIS), which, under contract with HCFA, is
responsible for updating and maintaining the GROUPER program. The
current DRG Definitions Manual, Version 17.0, is available for $225.00,
which includes $15.00 for shipping and handling. Version 18.0 of this
manual, which includes the final FY 2001 DRG changes, will be available
in October 2000 for $225.00. These manuals may be obtained by writing
3M/HIS at the following address: 100 Barnes Road, Wallingford,
Connecticut 06492; or by calling (203) 949-0303. Please specify the
revision or revisions requested.
7. Review of Procedure Codes in DRGs 468, 476, and 477
Each year, we review cases assigned to DRG 468 (Extensive OR
Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic OR
Procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive
OR Procedure Unrelated to Principal Diagnosis) to determine whether it
would be appropriate to change the procedures assigned among these
DRGs.
DRGs 468, 476, and 477 are reserved for those cases in which none
of the OR procedures performed is related to the principal diagnosis.
These DRGs are intended to capture atypical cases, that is, those cases
not occurring with sufficient frequency to represent a distinct,
recognizable clinical group. DRG 476 is assigned to those discharges in
which one or more of the following prostatic procedures are performed
and are unrelated to the principal diagnosis:
60.0 Incision of prostate
60.12 Open biopsy of prostate
60.15 Biopsy of periprostatic tissue
60.18 Other diagnostic procedures on prostate and periprostatic tissue
60.21 Transurethral prostatectomy
60.29 Other transurethral prostatectomy
60.61 Local excision of lesion of prostate
60.69 Prostatectomy NEC
60.81 Incision of periprostatic tissue
60.82 Excision of periprostatic tissue
60.93 Repair of prostate
60.94 Control of (postoperative) hemorrhage of prostate
60.95 Transurethral balloon dilation of the prostatic urethra
60.99 Other operations on prostate
All remaining OR procedures are assigned to DRGs 468 and 477, with
DRG 477 assigned to those discharges in which the only procedures
performed are nonextensive procedures that are unrelated to the
principal diagnosis. The original list of the ICD-9-CM procedure codes
for the procedures we consider nonextensive procedures, if performed
with an unrelated principal diagnosis, was published in Table 6C in
section IV. of the Addendum to the September 30, 1988 final rule (53 FR
38591). As part of the final rules published on September 4, 1990 (55
FR 36135), August 30, 1991 (56 FR 43212), September 1, 1992 (57 FR
23625), September 1, 1993 (58 FR 46279), September 1, 1994 (59 FR
45336), September 1, 1995 (60 FR 45783), August 30, 1996 (61 FR 46173),
and August 29, 1997 (62 FR 45981), we moved several other procedures
from DRG 468 to 477, and some procedures from DRG 477 to 468. No
procedures were moved in FY 1999, as noted in the July 31, 1998 final
rule (63 FR 40962), or in FY 2000, as noted in the July 30, 1999 final
rule (64 FR 41496).
a. Moving Procedure Codes From DRGs 468 or 477 to MDCs
We annually conduct a review of procedures producing assignment to
DRG 468 or DRG 477 on the basis of volume, by procedure, to see if it
would be appropriate to move procedure codes out of these DRGs into one
of the surgical DRGs for the MDC into which the principal diagnosis
falls. The data are arrayed two ways for comparison purposes. We look
at a frequency count of each major operative procedure code. We also
compare procedures across MDCs by volume of procedure codes within each
MDC. That is, using procedure code 57.49 (Other transurethral excision
or destruction of lesion or tissue of bladder) as an example, we
determined that this particular code accounted for the highest number
of major operative procedures (162 cases, or 9.8 percent of all cases)
reported in the sample of DRG 477. In addition, we determined that
procedure code 57.49 appeared in MDC 4 (Diseases and Disorders of the
Respiratory System) 28 times as well as in 9 other MDCs.
Using a 10-percent sample of the FY 1999 MedPAR file, we determined
that the quantity of cases in DRG 477 totaled 1,650. There were 106
instances where the major operative procedure appeared only once (6.4
percent of the time), resulting in assignment to DRG 477.
Using the same 10-percent sample of the FY 1999 MedPAR file, we
reviewed DRG 468. There were a total of 3,858 cases, with one major
operative code causing the DRG assignment 311 times (or 8 percent) and
230 instances where the major operative procedure appeared only once
(or 6 percent of the time).
Our medical consultants then identified those procedures occurring
in conjunction with certain principal diagnoses with sufficient
frequency to justify adding them to one of the surgical DRGs for the
MDC in which the diagnosis falls. Based on this year's review, we did
not identify any necessary changes in procedures under either DRG 468
or 477 and, therefore, are not proposing to move any procedures from
either DRG 468 or DRG 477 to one of the surgical DRGs.
b. Reassignment of Procedures Among DRGs 468, 476, and 477
We also annually review the list of ICD-9-CM procedures that, when
in combination with their principal diagnosis code, result in
assignment to DRGs 468, 476, and 477, to ascertain if any of those
procedures should be moved from one of these DRGs to another of these
DRGs based on average charges and length of stay. We look at the data
for trends such as shifts in treatment practice or reporting practice
that would make the resulting DRG assignment illogical. If our medical
consultants were to find these shifts, we
[[Page 26293]]
would propose moving cases to keep the DRGs clinically similar or to
provide payment for the cases in a similar manner. Generally, we move
only those procedures for which we have an adequate number of
discharges to analyze the data. Based on our review this year, we are
not proposing to move any procedures from DRG 468 to DRGs 476 or 477,
from DRG 476 to DRGs 468 or 477, or from DRG 477 to DRGs 468 or 476.
c. Adding Diagnosis Codes to MDCs
It has been brought to our attention that an ICD-9-CM diagnosis
code should be added to DRG 482 (Tracheostomy for Face, Mouth and Neck
Diagnoses) to preserve clinical coherence and homogeneity of the
system. In the case of a patient who has a facial infection (diagnosis
code 682.0 (Other cellulitis and abscess, Face)), the face may become
extremely swollen and the patient's ability to breathe might be
impaired. It might be deemed medically necessary to perform a temporary
tracheostomy (procedure code 31.1) on the patient until the swelling
subsides enough for the patient to once again breathe on his or her
own.
The combination of diagnosis code 682.0 and procedure code 31.1
results in assignment to DRG 483 (Tracheostomy Except for Face, Mouth
and Neck Diagnoses). The absence of diagnosis code 682.0 in DRG 483
forces the GROUPER algorithm to assign the case based solely on the
procedure code, without taking this diagnosis into account. Clearly
this was not the intent, as diagnosis code 682.0 should be included
with other face, mouth and neck diagnosis. We believe that cases such
as these would appropriately be assigned to DRG 482. Therefore, we are
proposing to add diagnosis code 682.0 to the list of other face, mouth
and neck diagnoses already in the principal diagnosis list in DRG 482.
8. Changes to the ICD-9-CM Coding System
As described in section II.B.1 of this preamble, the ICD-9-CM is a
coding system that is used for the reporting of diagnoses and
procedures performed on a patient. In September 1985, the ICD-9-CM
Coordination and Maintenance Committee was formed. This is a Federal
interdepartmental committee, co-chaired by the National Center for
Health Statistics (NCHS) and HCFA, charged with maintaining and
updating the ICD-9-CM system. The Committee is jointly responsible for
approving coding changes, and developing errata, addenda, and other
modifications to the ICD-9-CM to reflect newly developed procedures and
technologies and newly identified diseases. The Committee is also
responsible for promoting the use of Federal and non-Federal
educational programs and other communication techniques with a view
toward standardizing coding applications and upgrading the quality of
the classification system.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes
included in the Tabular List and Alphabetic Index for Diseases, while
HCFA has lead responsibility for the ICD-9-CM procedure codes included
in the Tabular List and Alphabetic Index for Procedures.
The Committee encourages participation in the above process by
health-related organizations. In this regard, the Committee holds
public meetings for discussion of educational issues and proposed
coding changes. These meetings provide an opportunity for
representatives of recognized organizations in the coding field, such
as the American Health Information Management Association (AHIMA)
(formerly American Medical Record Association (AMRA)), the American
Hospital Association (AHA), and various physician specialty groups as
well as physicians, medical record administrators, health information
management professionals, and other members of the public to contribute
ideas on coding matters. After considering the opinions expressed at
the public meetings and in writing, the Committee formulates
recommendations, which then must be approved by the agencies.
The Committee presented proposals for coding changes for FY 2000 at
public meetings held on June 4, 1998 and November 2, 1998. Even though
the Committee conducted public meetings and considered approval of
coding changes for FY 2000 implementation, we did not implement any
changes to ICD-9-CM codes for FY 2000 because of our major efforts to
ensure that all of the Medicare computer systems were compliant with
the year 2000. Therefore, the code proposals presented at the public
meetings held on June 4, 1998 and November 2, 1998, that (if approved)
ordinarily would have been included as new codes for October 1, 1999,
were held for consideration for inclusion in this proposed annual
update for FY 2001.
The Committee also presented proposals for coding changes for
implementation in FY 2001 at public meetings held on May 13, 1999 and
November 12, 1999, and finalized the coding changes after consideration
of comments received at the meetings and in writing by January 7, 2000.
Copies of the Coordination and Maintenance Committee minutes of the
1999 meetings can be obtained from the HCFA Home Page by typing http://
www.hcfa.gov/medicare/icd9cm.htm. Paper copies of these minutes are no
longer available and the mailing list has been discontinued. We
encourage commenters to address suggestions on coding issues involving
diagnosis codes to: Donna Pickett, Co-Chairperson; ICD-9-CM
Coordination and Maintenance Committee; NCHS; Room 1100; 6525 Belcrest
Road; Hyattsville, Maryland 20782. Comments may be sent by E-mail to:
dfp4@cdc.gov.
Questions and comments concerning the procedure codes should be
addressed to: Patricia E. Brooks, Co-Chairperson; ICD-9-CM Coordination
and Maintenance Committee; HCFA, Center for Health Plans and Providers,
Purchasing Policy Group, Division of Acute Care; C4-07-07; 7500
Security Boulevard; Baltimore, Maryland 21244-1850. Comments may be
sent by E-mail to: pbrooks@hcfa.gov.
The ICD-9-CM code changes that have been approved will become
effective October 1, 2000. The new ICD-9-CM codes are listed, along
with their proposed DRG classifications, in Tables 6A and 6B (New
Diagnosis Codes and New Procedure Codes, respectively) in section VI.
of the Addendum to this proposed rule. As we stated above, the code
numbers and their titles were presented for public comment at the ICD-
9-CM Coordination and Maintenance Committee meetings. Both oral and
written comments were considered before the codes were approved.
Therefore, we are soliciting comments only on the proposed DRG
classification of these new codes.
Further, the Committee has approved the expansion of certain ICD-9-
CM codes to require an additional digit for valid code assignment.
Diagnosis codes that have been replaced by expanded codes or other
codes, or have been deleted are in Table 6C (Invalid Diagnosis Codes).
These invalid diagnosis codes will not be recognized by the GROUPER
beginning with discharges occurring on or after October 1, 2000. For
codes that have been replaced by new or expanded codes, the
corresponding new or expanded diagnosis codes are included in Table 6A
(New Diagnosis Codes). There were no procedure codes that were replaced
by expanded codes or other codes, or were deleted. Revisions to
diagnosis code titles are in Table 6D (Revised Diagnosis Code Titles),
which also include the proposed DRG assignments
[[Page 26294]]
for these revised codes. Revisions to procedure code titles are in
Table 6E (Revised Procedure Codes Titles).
9. Other Issues
a. Immunotherapy
Effective October 1, 1994, procedure code 99.28 (Injection or
infusion of biologic response modifier (BRM) as an antineoplastic
agent) was created and designated as a non-OR procedure that does not
affect DRG assignment. This cancer treatment involving biological
response modifiers is also known as BRM therapy or immunotherapy.
In response to a comment on the May 7, 1999 proposed rule, for the
FY 2000 final rule we performed analysis of cases for which procedure
code 99.28 was reported using the 100 percent FY 1998 MedPAR file. The
commenter requested that we create a new DRG for BRM therapy or assign
cases in which BRM therapy is performed to an existing DRG with a high
relative weight. The commenter suggested that DRG 403 (Lymphoma and
Nonacute Leukemia with CC) would be an appropriate DRG.
Based on the commenter's request, we examined cases only for
hospitals that use the particular drug manufactured by the commenter.
We concluded that due to the variation of charges across the cases and
the limited number of cases distributed across 19 different DRGs, it
would be inappropriate to classify these cases to a single DRG. For
example, it would be inappropriate to classify these cases into DRG 403
because only a few cases were coded with a principal diagnosis assigned
to MDC 17 (Myeloproliferative Diseases and Disorders, and Poorly
Differentiated Neoplasm), the MDC that includes DRG 403. We stated in
the July 30, 1999 final rule (64 FR 41497) that we would perform a full
analysis of immunotherapy cases using the FY 1999 MedPAR data to
determine if changes are needed.
Using 100 percent of the data in the FY 1999 MedPAR file, we
performed an analysis of all cases for which procedure code 99.28 was
reported. We identified 1,179 cases in 136 DRGs in 22 MDCs. No more
than 141 cases were assigned to any one particular DRG.
Of the 1,179 cases, 141 cases (approximately 12 percent) were
assigned to DRG 403 in MDC 17. We found approximately one-half of these
cases had other procedures performed in addition to receiving
immunotherapy, such as chemotherapy, bone marrow biopsy, insertion of
totally implantable vascular access device, thoracentesis, or
percutaneous abdominal drainage, which may account for the increased
charges. There were 123 immunotherapy cases assigned to DRG 82
(Respiratory Neoplasms) in MDC 4 (Diseases and Disorders of the
Respiratory System). We noted that, in some cases, in addition to
immunotherapy, other procedures were performed, such as insertion of an
intercostal catheter for drainage, thoracentesis, or chemotherapy.
There were 84 cases assigned to DRG 416 (Septicemia, Age >17) in
MDC 18 (Infectious and Parasitic Diseases (Systemic or Unspecified
Sites)). The principal diagnosis for this DRG is septicemia and, in
addition to receiving treatment for septicemia, immunotherapy was also
given. There were 79 cases assigned to DRG 410 (Chemotherapy without
Acute Leukemia as Secondary Diagnosis) in MDC 17.
The cost of immunotherapy is averaged into the weight for these
DRGS and, based on our analysis, we do not believe a reclassification
of these cases is warranted. Due to the limited number of cases that
were distributed throughout 136 DRGs in 22 MDCs and the variation of
charges, we concluded that it would be inappropriate to classify these
cases into a single DRG.
Although there were 141 cases assigned to DRG 403, it would be
inappropriate to place all immunotherapy cases, regardless of
diagnosis, into a DRG that is designated for lymphoma and nonacute
leukemia. We establish DRGs based on clinical coherence and resource
utilization. Each DRG encompasses a variety of cases, reflecting a
range of services and a range of resources. Generally, then, each DRG
reflects some higher cost cases and some lower cost cases. To the
extent a new technology is extremely costly relative to the cases
reflected in the DRG relative weight, the hospital might qualify for
outlier payments, that is, additional payments over and above the
standard prospective payment rate. We have not received any comments
from hospitals regarding payment for immunotherapy cases.
b. Pancreas Transplant
Effective July 1, 1999, Medicare covers whole organ pancreas
transplantation if the transplantation is performed simultaneously with
or after a kidney transplant (procedure codes 55.69, Other kidney
transplantation, and V42.0, Organ or tissue replaced by transplant,
Kidney) (Transmittal No. 115, April 1999). We note that when we
published the notification of this coverage in the July 30, 1999 final
rule (64 FR 41497), we inadvertently made an error in announcing the
covered codes. We cited the incorrect codes for pancreas
transplantation as procedure code 52.80 (Pancreatic transplant, not
otherwise specified) and 52.83 (Heterotransplant of pancreas). The
correct procedure codes for pancreas transplantation are 52.80
(Pancreatic transplant, not otherwise specified) and 52.82
(Homotransplant of pancreas). We will revise the Coverage Issues Manual
to reflect this correction.
Pancreas transplantation is generally limited to those patients
with severe secondary complications of diabetes, including kidney
failure. However, pancreas transplantation is sometimes performed on
patients with labile diabetes and hypoglycemic unawareness. Pancreas
transplantation for diabetic patients who have not experienced end-
stage renal failure secondary to diabetes is excluded from coverage.
Medicare also excludes coverage of transplantation of partial
pancreatic tissue or islet cells.
In the July 30, 1999 final rule (64 FR 41497), we indicated that we
planned to review discharge data to determine whether a new DRG should
be created, or existing DRGs modified, to further classify pancreas
transplantation in combination with kidney transplantation.
Under the current DRG classification, if a kidney transplant and a
pancreas transplant are performed simultaneously on a patient with
chronic renal failure secondary to diabetes with renal manifestations
(diagnosis codes 250.40 through 250.43), the case is assigned to DRG
302 (Kidney Transplant) in MDC 11 (Diseases and Disorders of the Kidney
and Urinary Tract). If a pancreas transplant is performed following a
kidney transplant (that is, during a different hospital admission) on a
patient with chronic renal failure secondary to diabetes with renal
manifestations, the case is assigned to DRG 468 (Extensive OR Procedure
Unrelated to Principal Diagnosis). This is because pancreas transplant
is not assigned to MDC 11, the MDC to which a principal diagnosis of
chronic renal failure secondary to diabetes is assigned.
Using 100 percent of the data in the FY 1999 MedPAR file (which
contains hospital bills through December 31, 1999), we performed an
analysis of the cases for which procedure codes 52.80 and 52.83 were
reported. We identified a total of 79 cases in 8 DRGs, in 3 MDCs, and
in 1 pre-MDC. Of the 79 cases identified, 49 cases were assigned to DRG
302, 14 cases were assigned to DRG 468, and 8 cases were assigned to
DRG 191 (Pancreas, Liver and Shunt
[[Page 26295]]
Procedures with CC). The additional 8 cases were distributed over 5
other assorted DRGs, and due to their disparity, were not considered in
our evaluation.
We examined our data to determine whether we should propose a new
kidney and pancreas transplant DRG at this time. We identified 49 such
dual transplant cases in the FY 1999 MedPAR file. We do not believe
this is a sufficient sample size to warrant the creation of a new DRG.
Furthermore, we would note that nearly half of these cases occurred at
a hospital in Maryland, which is not paid under the prospective payment
system. The rest of the cases are spread across multiple hospitals,
with no single hospital having more than 5 cases in the FY 1999 MedPAR.
C. Recalibration of DRG Weights.
We are proposing to use the same basic methodology for the FY 2001
recalibration as we did for FY 2000 (July 30, 1999 final rule (64 FR
41498)). That is, we would recalibrate the weights based on charge data
for Medicare discharges. However, we propose to use the most current
charge information available, the FY 1999 MedPAR file. (For the FY 2000
recalibration, we used the FY 1998 MedPAR file.) The MedPAR file is
based on fully coded diagnostic and procedure data for all Medicare
inpatient hospital bills.
The proposed recalibrated DRG relative weights are constructed from
FY 1999 MedPAR data (discharges occurring between October 1, 1998 and
September 30, 1999), based on bills received by HCFA through December
31, 1999, from all hospitals subject to the prospective payment system
and short-term acute care hospitals in waiver States. The FY 1999
MedPAR file includes data for approximately 11,059,625 Medicare
discharges.
The methodology used to calculate the proposed DRG relative weights
from the FY 1999 MedPAR file is as follows:
To the extent possible, all the claims were regrouped
using the proposed DRG classification revisions discussed in section
II.B of this preamble. As noted in section II.B.5, due to the
unavailability of the revised GROUPER software, we simulated most major
classification changes to approximate the placement of cases under the
proposed reclassification. However, there are some changes that cannot
be modeled.
Charges were standardized to remove the effects of
differences in area wage levels, indirect medical education and
disproportionate share payments, and, for hospitals in Alaska and
Hawaii, the applicable cost-of-living adjustment.
The average standardized charge per DRG was calculated by
summing the standardized charges for all cases in the DRG and dividing
that amount by the number of cases classified in the DRG.
We then eliminated statistical outliers, using the same
criteria used in computing the current weights. That is, all cases that
are outside of 3.0 standard deviations from the mean of the log
distribution of both the charges per case and the charges per day for
each DRG are eliminated.
The average charge for each DRG was then recomputed
(excluding the statistical outliers) and divided by the national
average standardized charge per case to determine the relative weight.
A transfer case is counted as a fraction of a case based on the ratio
of its transfer payment under the per diem payment methodology to the
full DRG payment for nontransfer cases. That is, transfer cases paid
under the transfer methodology equal to half of what the case would
receive as a nontransfer would be counted as 0.5 of a total case.
We established the relative weight for heart and heart-
lung, liver, and lung transplants (DRGs 103, 480, and 495) in a manner
consistent with the methodology for all other DRGs except that the
transplant cases that were used to establish the weights were limited
to those Medicare-approved heart, heart-lung, liver, and lung
transplant centers that have cases in the FY 1999 MedPAR file.
(Medicare coverage for heart, heart-lung, liver, and lung transplants
is limited to those facilities that have received approval from HCFA as
transplant centers.)
Acquisition costs for kidney, heart, heart-lung, liver,
and lung transplants continue to be paid on a reasonable cost basis.
Unlike other excluded costs, the acquisition costs are concentrated in
specific DRGs (DRG 302 (Kidney Transplant); DRG 103 (Heart Transplant);
DRG 480 (Liver Transplant); and DRG 495 (Lung Transplant)). Because
these costs are paid separately from the prospective payment rate, it
is necessary to make an adjustment to prevent the relative weights for
these DRGs from including the acquisition costs. Therefore, we
subtracted the acquisition charges from the total charges on each
transplant bill that showed acquisition charges before computing the
average charge for the DRG and before eliminating statistical outliers.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. We propose to use that same case threshold
in recalibrating the DRG weights for FY 2001. Using the FY 1999 MedPAR
data set, there are 40 DRGs that contain fewer than 10 cases. We
computed the weights for these 40 low-volume DRGs by adjusting the FY
2000 weights of these DRGs by the percentage change in the average
weight of the cases in the other DRGs.
The weights developed according to the methodology described above,
using the proposed DRG classification changes, result in an average
case weight that is different from the average case weight before
recalibration. Therefore, the new weights are normalized by an
adjustment factor (1.45431) so that the average case weight after
recalibration is equal to the average case weight before recalibration.
This adjustment is intended to ensure that recalibration by itself
neither increases nor decreases total payments under the prospective
payment system.
Section 1886(d)(4)(C)(iii) of the Act requires that, beginning with
FY 1991, reclassification and recalibration changes be made in a manner
that assures that the aggregate payments are neither greater than nor
less than the aggregate payments that would have been made without the
changes. Although normalization is intended to achieve this effect,
equating the average case weight after recalibration to the average
case weight before recalibration does not necessarily achieve budget
neutrality with respect to aggregate payments to hospitals because
payment to hospitals is affected by factors other than average case
weight. Therefore, as we have done in past years and as discussed in
section II.A.4.b. of the Addendum to this proposed rule, we are
proposing to make a budget neutrality adjustment to assure that the
requirement of section 1886(d)(4)(C)(iii) of the Act is met.
III. Proposed Changes to the Hospital Wage Index
A. Background
Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary must adjust the standardized amounts "for area differences
in hospital wage levels by a factor (established by the Secretary)
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level." In
accordance with the broad discretion conferred under the Act, we
currently define hospital labor market areas based on the definitions
of Metropolitan
[[Page 26296]]
Statistical Areas (MSAs), Primary MSAs (PMSAs), and New England County
Metropolitan Areas (NECMAs) issued by the Office of Management and
Budget (OMB). The OMB also designates Consolidated MSAs (CMSAs). A CMSA
is a metropolitan area with a population of one million or more,
comprising two or more PMSAs (identified by their separate economic and
social character). For purposes of the hospital wage index, we use the
PMSAs rather than CMSAs since they allow a more precise breakdown of
labor costs. If a metropolitan area is not designated as part of a
PMSA, we use the applicable MSA. Rural areas are areas outside a
designated MSA, PMSA, or NECMA. For purposes of the wage index, we
combine all of the rural counties in a State to calculate a rural wage
index for that State.
We note that effective April 1, 1990, the term Metropolitan Area
(MA) replaced the term MSA (which had been used since June 30, 1983) to
describe the set of metropolitan areas consisting of MSAs, PMSAs, and
CMSAs. The terminology was changed by OMB in the March 30, 1990 Federal
Register to distinguish between the individual metropolitan areas known
as MSAs and the set of all metropolitan areas (MSAs, PMSAs, and CMSAs)
(55 FR 12154). For purposes of the prospective payment system, we will
continue to refer to these areas as MSAs.
Beginning October 1, 1993, section 1886(d)(3)(E) of the Act
requires that we update the wage index annually. Furthermore, this
section provides that the Secretary base the update on a survey of
wages and wage-related costs of short-term, acute care hospitals. The
survey should measure, to the extent feasible, the earnings and paid
hours of employment by occupational category, and must exclude the
wages and wage-related costs incurred in furnishing skilled nursing
services. As discussed below in section III.F of this preamble, we also
take into account the geographic reclassification of hospitals in
accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when
calculating the wage index.
B. FY 2001 Wage Index Update
The proposed FY 2001 wage index values in section VI of the
Addendum to this proposed rule (effective for hospital discharges
occurring on or after October 1, 2000 and before October 1, 2001) are
based on the data collected from the Medicare cost reports submitted by
hospitals for cost reporting periods beginning in FY 1997 (the FY 2000
wage index was based on FY 1996 wage data).
The proposed FY 2001 wage index includes the following categories
of data associated with costs paid under the hospital inpatient
prospective payment system (as well as outpatient costs), which were
also included in the FY 2000 wage index:
Salaries and hours from short-term, acute care hospitals.
Home office costs and hours.
Certain contract labor costs and hours.
Wage-related costs.
Consistent with the wage index methodology for FY 2000, the
proposed wage index for FY 2001 also continues to exclude the direct
and overhead salaries and hours for services not paid through the
inpatient prospective payment system such as skilled nursing facility
services, home health services, or other subprovider components that
are not subject to the prospective payment system.
We calculate a separate Puerto Rico-specific wage index and apply
it to the Puerto Rico standardized amount. (See 62 FR 45984 and 46041.)
This wage index is based solely on Puerto Rico's data. Finally, section
4410 of Public Law 105-33 provides that, for discharges on or after
October 1, 1997, the area wage index applicable to any hospital that is
not located in a rural area may not be less than the area wage index
applicable to hospitals located in rural areas in that State.
C. FY 2001 Wage Index Proposal
Because it is used to adjust payments to hospitals under the
prospective payment system, the hospital wage index should, to the
extent possible, reflect the wage costs associated with the areas of
the hospital included under the hospital inpatient prospective payment
system. In response to concerns within the hospital community related
to the removal from the wage index calculation costs related to
graduate medical education (GME) (teaching physicians and residents),
and certified registered nurse anesthetists (CRNAs), which are paid by
Medicare separately from the prospective payment system, the American
Hospital Association (AHA) convened a workgroup to develop a consensus
recommendation on this issue. The workgroup recommended that costs
related to GME and CRNAs be phased out of the wage index calculation
over a 5-year period. Based upon our analysis of hospitals' FY 1996
wage data, and consistent with the AHA workgroup's recommendation, we
specified in the July 30, 1999 final rule (64 FR 41505) that we would
phase-out these costs from the calculation of the wage index over a 5-
year period, beginning in FY 2000. In keeping with the decision to
phase-out costs related to GME and CRNAs, the proposed FY 2001 wage
index is based on a blend of 60 percent of an average hourly wage
including these costs, and 40 percent of an average hourly wage
excluding these costs.
1. Teaching Physician Costs and Hours Survey
As discussed in the July 30, 1999 final rule, because the FY 1996
cost reporting data did not separate teaching physician costs from
other physician Part A costs, we instructed our fiscal intermediaries
to survey teaching hospitals to collect data on teaching physician
costs and hours payable under the per resident amounts (Sec. 413.86)
and reported on Worksheet A, Line 23 of the hospitals' cost report.
The FY 1997 cost reports also do not separately report teaching
physician costs. Therefore, we once again conducted a special survey to
collect data on these costs. (For the FY 1998 cost reports, we have
revised the Worksheet S-3, Part II so that hospitals can separately
report teaching physician Part A costs. Therefore, after this year, it
will no longer be necessary for us to conduct this special survey.)
The survey data collected as of mid-January 2000 were included in
the preliminary public use data file made available on the Internet in
February 2000 at HCFA's home page (http://www.hcfa.gov). At that time,
we had received teaching physician data for 459 out of 770 teaching
hospitals reporting physician Part A costs on their Worksheet S-3, Part
II. Also, in some cases, intermediaries reported that teaching
hospitals did not incur teaching physician costs. In early January
2000, we instructed intermediaries to review the survey data for
consistency with the Supplemental Worksheet A-8-2 of the hospitals'
cost reports. Supplemental Worksheet A-8-2 is used to apply the
reasonable compensation equivalency limits to the costs of provider-
based physicians, itemizing these costs by the corresponding line
number on Worksheet A.
When we notified the hospitals, through our fiscal intermediaries,
that they could review the survey data on the Internet, we also
notified hospitals that requests for changes to the teaching survey
data must be submitted by March 6, 2000. We instructed fiscal
intermediaries to review the requests for changes received from
hospitals and submit necessary data revisions to HCFA by April 3, 2000.
[[Page 26297]]
We removed from the wage data the physician Part A teaching costs
and hours reported on the survey form for every hospital that completed
the survey. These data had been verified by the fiscal intermediary
before submission to HCFA. We have identified 42 teaching hospitals in
our database that reported physician Part A costs on Line 4 of their
Worksheet S-3 and teaching-related costs on Line 23 of Worksheet A,
Column 1, but for which we do not have teaching physician costs from
the survey because the hospitals failed to complete the survey. As we
did in the case of such hospitals in calculating the FY 2000 wage
index, for purposes of calculating the FY 2001 wage index, we propose
to subtract the costs reported on Line 23 of the Worksheet A, Column 1
(GME Other Program Costs) from Line 1 of the Worksheet S-3. These costs
(from Line 23, Column 1 of Worksheet A) are included in Line 1 of the
Worksheet
S-3, which is the sum of Column 1, Worksheet A. They also represent
costs for which the hospital is paid through the per resident amount
under the direct GME payment. To determine the hours to be removed, the
costs reported on Line 23 of the Worksheet A, Column 1 would be divided
by the national average hourly wage for teaching physicians based upon
the survey of $65.62.
For the FY 2000 wage index, the AHA workgroup recommended that, if
reliable teaching physician data were not available for removing
teaching costs from hospitals' total physician Part A costs, HCFA
should remove 80 percent of the costs and hours reported by hospitals
attributable to physicians' Part A services. In calculating the FY 2000
wage index, if we did not receive survey data for a teaching hospital,
we removed 80 percent of the hospital's reported total physician Part A
costs and hours from the calculation. For the FY 2001 wage index, we
are proposing a different approach. In some instances, fiscal
intermediaries have verified that teaching hospitals do not have
teaching physician costs; for these hospitals, it is not necessary to
adjust the hospitals' physician Part A costs. We are actively
conferring with the fiscal intermediaries to distinguish teaching
hospitals that do not have teaching physician costs from teaching
hospitals that have not identified the portion of their physician Part
A costs associated with teaching physicians (that is, hospitals that
did not complete the teaching survey and did not report teaching-
related costs on Worksheet A, Line 23). We propose to remove 100
percent of the physician Part A costs and hours (reported on Worksheet
S-3, Lines 4, 10, 12, and 18) in the FY 2001 wage index calculation for
those hospitals where the fiscal intermediary verifies that the
hospital has otherwise unidentified teaching physician costs included
in physician Part A costs and hours.
It should be noted that Line 23 of Worksheet A, Column 1, flows
directly into hospitals' total salaries on Worksheet S-3, Part II. Line
23 contains GME costs not directly attributable to residents' salaries
or fringe benefits. Therefore, these costs tend to be costs associated
with teaching physicians. To the extent a hospital fails to separately
identify the proportion of its Line 23 Worksheet A costs associated
with teaching physicians, we believe it is reasonable to remove all of
these costs under the presumption that they are all associated with
teaching physicians.
Thus, for the proposed wage index, we are either using the data
submitted on the teaching physician survey or, in the absence of such
data, removing the amount reported on Line 23 of Worksheet A, Column 1
or removing 100 percent of physician Part A costs reported on Worksheet
S-3.
2. Nurse Practitioner and Clinical Nurse Specialist Costs
The current wage index includes salaries and wage-related costs for
nurse practitioners (NPs) and clinical nurse specialists (CNSs) who,
similar to physician assistants and CRNAs (unless at hospitals under
the rural pass-through exception for CRNAs), are paid under the
physician fee schedule. Over the past year, we have received several
inquiries from hospitals and fiscal intermediaries regarding NP costs
and how they should be handled for purposes of the hospital wage index.
Because Medicare generally pays for NP and CNS costs under Part B
outside the hospital prospective payment system, removing NP and CNS
Part B costs from the wage index calculation would be consistent with
our general policy to exclude, to the extent possible, costs that are
not paid through the hospital prospective payment system. Because NP
and CNS costs are not separately reported on the Worksheet S-3 for FYs
1997, 1998, and 1999, the FY 2000 Worksheet S-3 and cost reporting
instructions will be revised to allow for separate reporting of NP and
CNS Part A and Part B costs. We will exclude the Part B costs beginning
with the FY 2004 wage index. These services are pervasive in both rural
and urban settings. As such, we believe there will be no significant
overall impact resulting from the removal of Part B costs for NPs and
CNSs.
3. Severance and Bonus Pay Costs
On October 6, 1999, we issued a memorandum to hospitals and
intermediaries regarding our policy on treatment of severance and bonus
pay costs in developing the wage index, effective beginning with the FY
2001 wage index. (The hospital cost report instructions also will be
amended to reflect our policy on these costs.) We stated that severance
pay costs may be included on Worksheet S-3 as salaries on Part II, Line
1, only if the associated hours are included. If the hospital has no
accounting of the hours, or if the costs are not based on hours, the
severance pay costs may not be included in the wage index. On the other
hand, bonus pay costs may be included in the cost report on Line 1 of
Worksheet S-3 with no corresponding hours. Due to the inquiries we
continue to receive from hospitals regarding the inclusion of severance
pay costs on cost reports, we are clarifying our policy in this
proposed rule.
Hospitals vary in their accounting of severance pay costs. Some
hospitals base the amounts to be paid on hours, for example, 80 hours
worth of pay. Others do not; for example, a 15-year employee may be
offered a $25,000 buyout package. Some hospitals record associated
hours; others do not. The Wage Index Workgroup has suggested that we
not include any severance pay costs in the wage index calculation, that
these costs are for terminated employees, and, therefore, they should
be considered an administrative rather than a salary expense.
Severance pay costs can be substantial amounts, particularly in
periods of downsizing. We believe that, if severance pay costs are
included with no associated hours, the wage index, which is a relative
measure of wage costs across labor market areas, would be distorted.
Severance pay costs are included in the proposed FY 2001 wage index
as a salary cost to the extent that associated hours are also reported.
However, we are soliciting public comments on this issue.
4. Health Insurance and Health-Related Costs
In the September 1, 1994 final rule (59 FR 45356), we stated that
health insurance, purchased or self-insurance, is a core wage-related
cost. Over the past year, we have received several inquiries from
hospitals and hospital associations requesting that we define
"purchased health insurance costs." In response, in
[[Page 26298]]
this proposed rule, we are clarifying that, for wage index purposes, we
define "purchased health insurance costs" as the premiums and
administrative costs a hospital pays on behalf of its employees for
health insurance coverage. "Self-insurance" includes the hospital's
costs (not charges) for covered services delivered to its employees,
less any amounts paid by the employees, and less the personnel costs
for hospital staff who delivered the services (these costs are already
included in the wage index). For purchased health insurance and self-
health insurance, the included costs must be for services covered in a
health insurance plan.
Also, in the September 1, 1994 final rule (59 FR 45357), we
addressed a comment about the inclusion of health-related costs in the
calculation of the wage index. Such health-related costs include
employee physical examinations, flu shots, and clinic visits, and other
services that are not covered by employees' health insurance plans but
are provided at no cost or at discounted rates to employees of the
hospital. We are clarifying that the costs for these services may be
included as an "other" wage-related cost if (among other criteria),
when all such health-related costs are combined, the total of such
costs is greater than 1 percent of the hospital's total salaries (less
excluded area salaries). As discussed in the September 1, 1994 final
rule (59 FR 45357), a cost may be allowable as an "other wage-related
cost" if it meets certain criteria. Under one criterion, the wage-
related cost must be greater than 1 percent of total salaries (less
excluded area salaries). For purposes of applying this 1-percent test
with respect to the health-related costs at issue here, we look at the
combined total of the health-related costs (not charges) for services
delivered to its employees, less any amounts employees paid, and less
the personnel costs for hospital staff who delivered the services (as
these costs are already included in the wage index).
5. Elimination of Wage Costs Associated With Rural Health Clinics and
Federally Qualified Health Centers
The current hospital wage index includes the salaries and wage-
related costs of hospital-based rural health clinics (RHCs) and
federally qualified health centers (FQHCs). However, Medicare pays for
these costs outside the hospital inpatient prospective payment system.
Effective January 1, 1998, under section 1833(f) of the Act, as amended
by section 4205 of Public Law 105-33, Medicare pays both hospital-based
and freestanding RHCs and FQHCs on a cost-per-visit basis. Medicare
cost reporting forms for RHCs and FQHCs were revised to reflect this
legislative change, beginning with cost reporting periods ending on or
after September 30, 1998 (the FY 1998 cost report). Other cost-
reimbursed outpatient departments, such as ambulatory surgical centers,
community mental health centers, and comprehensive outpatient
rehabilitation facilities, are presently excluded from the wage index.
Therefore, consistent with our wage index refinements that exclude, to
the extent possible, costs associated with services not paid under the
hospital inpatient prospective payment system, we believe it would be
appropriate to exclude all salary costs associated with RHCs and FQHCs
from the wage index calculation if we had feasible, reliable data for
such exclusion.
Because RHC and FQHC costs are not separately reported on the
Worksheet S-3 for FYs 1997, 1998, and 1999, we cannot exclude these
costs from the FY 2001, FY 2002, or FY 2003 wage indexes. Therefore, we
will revise the FY 2000 Worksheet S-3 to begin providing for the
separate reporting of RHC and FQHC salaries, wage-related costs, and
hours. We will evaluate the wage data for RHCs and FQHCs in developing
the FY 2004 wage index.
D. Verification of Wage Data From the Medicare Cost Report
The data for the proposed FY 2001 wage index were obtained from
Worksheet S-3, Parts II and III of the FY 1997 Medicare cost reports.
The data file used to construct the proposed wage index includes FY
1997 data submitted to HCFA as of mid-February 2000. As in past years,
we performed an intensive review of the wage data, mostly through the
use of edits designed to identify aberrant data.
We asked our fiscal intermediaries to revise or verify data
elements that resulted in specific edit failures. Some unresolved data
elements are included in the calculation of the proposed FY 2001 wage
index pending their resolution before calculation of the final FY 2001
wage index. We have instructed the intermediaries to complete their
verification of questionable data elements and to transmit any changes
to the wage data (through HCRIS) no later than April 3, 2000. We expect
that all unresolved data elements will be resolved by that date. The
revised data will be reflected in the final rule.
Also, as part of our editing process, we removed data for 19
hospitals that failed edits. For two of these hospitals, we were unable
to obtain sufficient documentation to verify or revise the data because
the hospitals are no longer participating in the Medicare program or
are in bankruptcy status. Four hospitals had negative average hourly
wages after allocating overhead to their excluded areas and, therefore,
were removed from the calculation. The data from the remaining 13
hospitals also failed the edits and were removed. The data for these
hospitals will be included in the final wage index if we receive
corrected data that pass our edits. As a result, the proposed FY 2001
wage index is calculated based on FY 1997 wage data for 4,926
hospitals.
E. Computation of the Proposed FY 2001 Wage Index
The method used to compute the proposed FY 2001 wage index is as
follows:
Step 1--As noted above, we are proposing to base the FY 2001 wage
index on wage data reported on the FY 1997 Medicare cost reports. We
gathered data from each of the non-Federal, short-term, acute care
hospitals for which data were reported on the Worksheet S-3, Parts II
and III of the Medicare cost report for the hospital's cost reporting
period beginning on or after October 1, 1996 and before October 1,
1997. In addition, we included data from a few hospitals that had cost
reporting periods beginning in September 1996 and reported a cost
reporting period exceeding 52 weeks. These data were included because
no other data from these hospitals would be available for the cost
reporting period described above, and because particular labor market
areas might be affected due to the omission of these hospitals.
However, we generally describe these wage data as FY 1997 data. We note
that, if a hospital had more than one cost reporting period beginning
during FY 1997 (for example, a hospital had two short cost reporting
periods beginning on or after October 1, 1996 and before October 1,
1997), we included wage data from only one of the cost reporting
periods, the longest, in the wage index calculation. If there was more
than one cost reporting period and the periods were equal in length, we
included the wage data from the latest period in the wage index
calculation.
Step 2--Salaries--The method used to compute a hospital's average
hourly wage is a blend of 60 percent of the hospital's average hourly
wage including all GME and CRNA costs, and 40 percent of the hospital's
average hourly wage after eliminating all GME and CRNA costs.
In calculating a hospital's average salaries plus wage-related
costs,
[[Page 26299]]
including all GME and CRNA costs, we subtracted from Line 1 (total
salaries) the Part B salaries reported on Lines 3 and 5, home office
salaries reported on Line 7, and excluded salaries reported on Lines 8
and 8.01 (that is, direct salaries attributable to skilled nursing
facility services, home health services, and other subprovider
components not subject to the prospective payment system). We also
subtracted from Line 1 the salaries for which no hours were reported on
Lines 2, 4, and 6. To determine total salaries plus wage-related costs,
we added to the net hospital salaries the costs of contract labor for
direct patient care, certain top management, and physician Part A
services (Lines 9 and 10), home office salaries and wage-related costs
reported by the hospital on Lines 11 and 12, and nonexcluded area wage-
related costs (Lines 13, 14, 16, 18, and 20).
We note that contract labor and home office salaries for which no
corresponding hours are reported were not included. In addition, wage-
related costs for specific categories of employees (Lines 16, 18, and
20) are excluded if no corresponding salaries are reported for those
employees (Lines 2, 4, and 6, respectively).
We then calculated a hospital's salaries plus wage-related costs by
subtracting from total salaries the salaries plus wage-related costs
for teaching physicians, Part A CRNAs (Lines 2 and 16), and residents
(Lines 6 and 20).
Step 3--Hours--With the exception of wage-related costs, for which
there are no associated hours, we computed total hours using the same
methods as described for salaries in Step 2.
Step 4--For each hospital reporting both total overhead salaries
and total overhead hours greater than zero, we then allocated overhead
costs. First, we determined the ratio of excluded area hours (sum of
Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours
(Line 1 minus the sum of Part II, Lines 3, 5, and 7 and Part III, Line
13 of Worksheet S-3). We then computed the amounts of overhead salaries
and hours to be allocated to excluded areas by multiplying the above
ratio by the total overhead salaries and hours reported on Line 13 of
Worksheet S-3, Part III. Finally, we subtracted the computed overhead
salaries and hours associated with excluded areas from the total
salaries and hours derived in Steps 2 and 3.
Step 5--For each hospital, we adjusted the total salaries plus
wage-related costs to a common period to determine total adjusted
salaries plus wage-related costs. To make the wage adjustment, we
estimated the percentage change in the employment cost index (ECI) for
compensation for each 30-day increment from October 14, 1996 through
April 15, 1998 for private industry hospital workers from the Bureau of
Labor Statistics' Compensation and Working Conditions. We use the ECI
because it reflects the price increase associated with total
compensation (salaries plus fringes) rather than just the increase in
salaries. In addition, the ECI includes managers as well as other
hospital workers. This methodology to compute the monthly update
factors uses actual quarterly ECI data and assures that the update
factors match the actual quarterly and annual percent changes. The
factors used to adjust the hospital's data were based on the midpoint
of the cost reporting period, as indicated below.
Midpoint of Cost Reporting Period
------------------------------------------------------------------------
Adjustment
After Before factor
------------------------------------------------------------------------
10/14/96........................... 11/15/96............. 1.02848
11/14/96........................... 12/15/96............. 1.02748
12/14/96........................... 01/15/97............. 1.02641
01/14/97........................... 02/15/97............. 1.02521
02/14/97........................... 03/15/97............. 1.02387
03/14/97........................... 04/15/97............. 1.02236
04/14/97........................... 05/15/97............. 1.02068
05/14/97........................... 06/15/97............. 1.01883
06/14/97........................... 07/15/97............. 1.01695
07/14/97........................... 08/15/97............. 1.01520
08/14/97........................... 09/15/97............. 1.01357
09/14/97........................... 10/15/97............. 1.01182
10/14/97........................... 11/15/97............. 1.00966
11/14/97........................... 12/15/97............. 1.00712
12/14/97........................... 01/15/98............. 1.00451
01/14/98........................... 02/15/98............. 1.00213
02/14/98........................... 03/15/98............. 1.00000
03/14/98........................... 04/15/98............. 0.99798
------------------------------------------------------------------------
For example, the midpoint of a cost reporting period beginning
January 1, 1997 and ending December 31, 1997 is June 30, 1997. An
adjustment factor of 1.01695 would be applied to the wages of a
hospital with such a cost reporting period. In addition, for the data
for any cost reporting period that began in FY 1997 and covers a period
of less than 360 days or more than 370 days, we annualized the data to
reflect a 1-year cost report. Annualization is accomplished by dividing
the data by the number of days in the cost report and then multiplying
the results by 365.
Step 6--Each hospital was assigned to its appropriate urban or
rural labor market area before any reclassifications under section
1886(d)(8)(B) or section 1886(d)(10) of the Act. Within each urban or
rural labor market area, we added the total adjusted salaries plus
wage-related costs obtained in Step 5 (with and without GME and CRNA
costs) for all hospitals in that area to determine the total adjusted
salaries plus wage-related costs for the labor market area.
Step 7--We divided the total adjusted salaries plus wage-related
costs obtained under both methods in Step 6 by the sum of the
corresponding total hours (from Step 4) for all hospitals in each labor
market area to determine an average hourly wage for the area.
Because the proposed FY 2001 wage index is based on a blend of
average hourly wages, we then added 60 percent of the average hourly
wage calculated without removing GME and CRNA costs, and 40 percent of
the average hourly wage calculated with these costs excluded.
Step 8--We added the total adjusted salaries plus wage-related
costs obtained in Step 5 for all hospitals in the nation and then
divided the sum by the national sum of total hours from Step 4 to
arrive at a national average hourly wage (using the same blending
methodology described in Step 7). Using the data as described above,
the national average hourly wage is $21.6988.
Step 9--For each urban or rural labor market area, we calculated
the hospital wage index value by dividing the area average hourly wage
obtained in Step 7 by the national average hourly wage computed in Step
8.
Step 10--Following the process set forth above, we developed a
separate Puerto Rico-specific wage index for purposes of adjusting the
Puerto Rico standardized amounts. (The national Puerto Rico
standardized amount is adjusted by a wage index calculated for all
Puerto Rico labor market areas based on the national average hourly
wage as described above.) We added the total adjusted salaries plus
wage-related costs (as calculated in Step 5) for all hospitals in
Puerto Rico and divided the sum by the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an overall average hourly wage of
$9.9667 for Puerto Rico. For each labor market area in Puerto Rico, we
calculated the Puerto Rico-specific wage index value by dividing the
area average hourly wage (as calculated in Step 7) by the overall
Puerto Rico average hourly wage.
Step 11--Section 4410 of Public Law 105-33 provides that, for
discharges on or after October 1, 1997, the area wage index applicable
to any hospital that is located in an urban area may not be less than
the area wage index applicable to hospitals located in rural areas in
that State. Furthermore, this wage index floor is to be implemented in
such a manner as to assure that aggregate
[[Page 26300]]
prospective payment system payments are not greater or less than those
that would have been made in the year if this section did not apply.
For FY 2001, this change affects 241 hospitals in 41 MSAs. The MSAs
affected by this provision are identified in Table 4A by a footnote.
F. Revisions to the Wage Index Based on Hospital Redesignation
Under section 1886(d)(8)(B) of the Act, hospitals in certain rural
counties adjacent to one or more MSAs are considered to be located in
one of the adjacent MSAs if certain standards are met. Under section
1886(d)(10) of the Act, the Medicare Geographic Classification Review
Board (MGCRB) considers applications by hospitals for geographic
reclassification for purposes of payment under the prospective payment
system.
Under section 152 of Public Law 106-113, hospitals in certain
counties are deemed to be located in specified areas for purposes of
payment under the hospital inpatient prospective payment system, for
discharges occurring on or after October 1, 2000. For payment purposes,
these hospitals are to be treated as though they were reclassified for
purposes of both the standardized amount and the wage index. We are
proposing to calculate FY 2001 wage indexes for hospitals in the
affected counties as if they were reclassified to the specified area.
For purposes of making payments under section 1886(d) of the Act
for FY 2001, section 152 provides the following:
Iredell County, North Carolina is deemed to be located in
the Charlotte-Gastonia-Rock Hill, North Carolina-South Carolina MSA;
Orange County, New York is deemed to be located in the New
York, New York MSA;
Lake County, Indiana and Lee County, Illinois are deemed
to be located in the Chicago, Illinois MSA;
Hamilton-Middletown, Ohio is deemed to be located in the
Cincinnati, Ohio-Kentucky-Indiana MSA;
Brazoria County, Texas is deemed to be located in the
Houston, Texas MSA;
Chittenden County, Vermont is deemed to be located in the
Boston-Worcester-Lawrence-Lowell-Brockton, Massachusetts-New Hampshire
MSA.
Section 152 also requires that these reclassifications be treated
for FY 2001 as though they are reclassification decisions by the MGCRB.
Therefore, the proposed wage indexes for the areas to which these
hospitals are reclassifying, as well as the wage indexes for the areas
in which they are located, are subject to all of the normal rules for
calculating wage indexes for hospitals affected by reclassification
decisions by the MGCRB, as described below.
In addition, we would note that the reclassifications enacted by
section 152 pertain only to the hospitals located in the specified
counties, not to hospitals in other counties within the MSA or
hospitals reclassified into the MSA by the MGCRB.
Under section 154 of Public Law 106-113, the Allentown-Bethlehem-
Easton, Pennsylvania MSA wage index will be calculated including the
wage data for Lehigh Valley Hospital. Section 154 states that, for FY
2001, "[n]otwithstanding any other provision of section 1886(d) of the
Social Security Act (42 U.S.C. 1395ww(d)), in calculating and applying
the wage indices under that section for discharges occurring during
fiscal year 2001, Lehigh Valley Hospital shall be treated as being
classified in the Allentown-Bethlehem-Easton Metropolitan Statistical
Area." This statutory language directs us to include Lehigh Valley
Hospital's wage data in the wage index calculation for the Allentown-
Bethlehem-Easton MSA for FY 2000 and FY 2001, and to apply the
Allentown-Bethlehem-Easton MSA wage index to Lehigh Valley Hospital for
discharges occurring during FY 2001.
Section 1886(d)(8)(B) of the Act established that a hospital
located in a rural county adjacent to one or more urban areas is
treated as being located in the MSA to which the greatest number of
workers in the county commute, if the rural county would otherwise be
considered part of an MSA (or NECMAs), if the commuting rates used in
determining outlying counties were determined on the basis of the
aggregate number of resident workers who commute to (and, if applicable
under the standards, from) the central county or counties of all
contiguous MSAs. Through FY 2000, hospitals are required to use
standards published in the Federal Register on January 3, 1980, by the
Office of Management and Budget. For FY 2000, there were 26 hospitals
affected by this provision.
Section 402 of Public Law 106-113 amended section 1886(d)(8)(B) of
the Act to allow hospitals to elect to use the standards published in
the Federal Register on January 3, 1980 (1980 decennial census data) or
March 30, 1990 (1990 decennial census data) during FY 2001 and FY 2002.
As of FY 2003, hospitals will be required to use the standards
published in the Federal Register by the Director of the Office of
Management and Budget based on the most recent available decennial
population data.
We are in the process of working with the Office of Management and
Budget to identify the hospitals that would be affected by this
amendment. We refer the reader to the September 30, 1988 final rule (53
FR 38499) for a complete discussion of our approach to identify the
outlying counties using the standards published in the January 3, 1980
Federal Register.
The methodology for determining the wage index values for
redesignated hospitals is applied jointly to the hospitals located in
those rural counties that were deemed urban under section 1886(d)(8)(B)
of the Act and those hospitals that were reclassified as a result of
the MGCRB decisions under section 1886(d)(10) of the Act. Section
1886(d)(8)(C) of the Act provides that the application of the wage
index to redesignated hospitals is dependent on the hypothetical impact
that the wage data from these hospitals would have on the wage index
value for the area to which they have been redesignated. Therefore, as
provided in section 1886(d)(8)(C) of the Act, the wage index values
were determined by considering the following:
If including the wage data for the redesignated hospitals
would reduce the wage index value for the area to which the hospitals
are redesignated by 1 percentage point or less, the area wage index
value determined exclusive of the wage data for the redesignated
hospitals applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
reduces the wage index value for the area to which the hospitals are
redesignated by more than 1 percentage point, the redesignated
hospitals are subject to that combined wage index value.
If including the wage data for the redesignated hospitals
increases the wage index value for the area to which the hospitals are
redesignated, both the area and the redesignated hospitals receive the
combined wage index value.
The wage index value for a redesignated urban or rural
hospital cannot be reduced below the wage index value for the rural
areas of the State in which the hospital is located.
Rural areas whose wage index values would be reduced by
excluding the wage data for hospitals that have been redesignated to
another area continue to have their wage index values calculated as if
no redesignation had occurred.
Rural areas whose wage index values increase as a result
of excluding the wage data for the hospitals that have been
redesignated to another area have
[[Page 26301]]
their wage index values calculated exclusive of the wage data of the
redesignated hospitals.
The wage index value for an urban area is calculated
exclusive of the wage data for hospitals that have been reclassified to
another area. However, geographic reclassification may not reduce the
wage index value for an urban area below the statewide rural wage index
value.
We note that, except for those rural areas in which redesignation
would reduce the rural wage index value, the wage index value for each
area is computed exclusive of the wage data for hospitals that have
been redesignated from the area for purposes of their wage index. As a
result, several urban areas listed in Table 4A have no hospitals
remaining in the area. This is because all the hospitals originally in
these urban areas have been reclassified to another area by the MGCRB.
These areas with no remaining hospitals receive the prereclassified
wage index value. The prereclassified wage index value will apply as
long as the area remains empty.
The proposed wage index values for FY 2001 are shown in Tables 4A,
4B, 4C, and 4F in the Addendum to this proposed rule. Hospitals that
are redesignated should use the wage index values shown in Table 4C.
Areas in Table 4C may have more than one wage index value because the
wage index value for a redesignated urban or rural hospital cannot be
reduced below the wage index value for the rural areas of the State in
which the hospital is located. When the wage index value of the area to
which a hospital is redesignated is lower than the wage index value for
the rural areas of the State in which the hospital is located, the
redesignated hospital receives the higher wage index value; that is,
the wage index value for the rural areas of the State in which it is
located, rather than the wage index value otherwise applicable to the
redesignated hospitals.
Tables 4D and 4E list the average hourly wage for each labor market
area, before the redesignation of hospitals, based on the FY 1997 wage
data. In addition, Table 3C in the Addendum to this proposed rule
includes the adjusted average hourly wage for each hospital based on
the preliminary FY 1997 data as of February 25, 2000 (reflecting the
phase-out of GME and CRNA wages as described at section III.C of this
preamble). The MGCRB will use the average hourly wage published in the
final rule to evaluate a hospital's application for reclassification
for FY 2002 (unless that average hourly wage is later revised in
accordance with the wage data correction policy described in
Sec. 412.63(w)(2)). We note that in adjudicating these wage index
reclassifications the MGCRB will use the average hourly wages for each
hospital and labor market area that are reflected in the final FY 2001
wage index.
At the time this proposed wage index was constructed, the MGCRB had
completed its review of FY 2001 reclassification requests. The proposed
FY 2001 wage index values incorporate all 586 hospitals redesignated
for purposes of the wage index (hospitals redesignated under section
1886(d)(8)(B) or 1886(d)(10) of the Act, and section 152 Public Law
106-113) for FY 2001. The final number of reclassifications may vary
because some MGCRB decisions are still under review by the
Administrator and because some hospitals may withdraw their requests
for reclassification.
Any changes to the wage index that result from withdrawals of
requests for reclassification, wage index corrections, appeals, and the
Administrator's review process will be incorporated into the wage index
values published in the final rule following this proposed rule. The
changes may affect not only the wage index value for specific
geographic areas, but also the wage index value redesignated hospitals
receive; that is, whether they receive the wage index value for the
area to which they are redesignated, or a wage index value that
includes the data for both the hospitals already in the area and the
redesignated hospitals. Further, the wage index value for the area from
which the hospitals are redesignated may be affected.
Under Sec. 412.273, hospitals that have been reclassified by the
MGCRB are permitted to withdraw their applications within 45 days of
the publication of this proposed rule in the Federal Register. The
request for withdrawal of an application for reclassification that
would be effective in FY 2001 must be received by the MGCRB by June 19,
2000. A hospital that requests to withdraw its application may not
later request that the MGCRB decision be reinstated.
G. Requests for Wage Data Corrections
To allow hospitals time to evaluate the wage data used to construct
the proposed FY 2001 hospital wage index, we made available to the
public a data file containing the FY 1997 hospital wage data. As stated
in section II.D of this preamble, the data file used to construct the
proposed wage index includes FY 1997 data submitted to HCFA as of mid-
February 2000. In a memorandum dated January 28, 2000, we instructed
all Medicare intermediaries to inform the prospective payment hospitals
that they service of the availability of the wage data file and the
process and timeframe for requesting revisions. The wage data file was
made available on February 7, 2000 through the Internet at HCFA's home
page (http://www.hcfa.gov). We also instructed the intermediaries to
advise hospitals of the availability of these data either through their
representative hospital organizations or directly from HCFA. Additional
details on ordering this data file are discussed in section IX.A of
this preamble, "Requests for Data from the Public."
In addition, Table 3C in the Addendum to this proposed rule
contains each hospital's adjusted average hourly wage used to construct
the proposed wage index values. It should be noted that the hospital
average hourly wages shown in Table 3C may not reflect any changes made
to a hospital's data after February 7, 2000. Changes approved by a
hospital's fiscal intermediary and forwarded to HCFA by April 3, 2000
will be reflected on the final public use wage data file scheduled to
be made available on May 5, 2000.
We believe hospitals have sufficient time to ensure the accuracy of
their FY 1997 wage data. Moreover, the ultimate responsibility for
accurately completing the cost report rests with the hospital, which
must attest to the accuracy of the data at the time the cost report is
filed. However, if, after review of the wage data file released
February 4, 2000, a hospital believed that its FY 1997 wage data were
incorrectly reported, the hospital was to submit corrections along with
complete, detailed supporting documentation to its intermediary by
March 6, 2000. Hospitals were notified of this deadline, and of all
other possible deadlines and requirements, through written
communications from their fiscal intermediaries in late January 2000.
After reviewing requested changes submitted by hospitals,
intermediaries transmitted any revised cost reports to HCFA and
forwarded a copy of the revised Worksheet S-3, Parts II and III to the
hospitals. In addition, fiscal intermediaries were to notify hospitals
of the changes or the reasons that changes were not accepted. This
procedure ensures that hospitals have every opportunity to verify the
data that will be used to construct their wage index values. We believe
that fiscal intermediaries are generally in the best position to make
evaluations regarding the appropriateness of a particular cost and
whether it should be included in the wage index data. However, if a
[[Page 26302]]
hospital disagrees with the intermediary's resolution of a requested
change, the hospital may contact HCFA in an effort to resolve policy
disputes. We note that the April 3, 2000 deadline also applies to these
requested changes. We will not consider factual determinations at this
time, as these should have been resolved earlier in the process.
Any wage data corrections to be reflected in the final wage index
must have been reviewed and verified by the intermediary and
transmitted to HCFA on or before April 3, 2000. (The deadline for
hospitals to request changes from their fiscal intermediaries was March
6, 2000.) These deadlines are necessary to allow sufficient time to
review and process the data so that the final wage index calculation
can be completed for development of the final prospective payment rates
to be published by August 1, 2000.
We have created the process described above to resolve all
substantive wage data correction disputes before we finalize the wage
data for the FY 2001 payment rates. Accordingly, hospitals that do not
meet the procedural deadlines set forth above will not be afforded a
later opportunity to submit wage data corrections or to dispute the
intermediary's decision with respect to requested changes.
The final wage data public use file will be released by May 5,
2000. Hospitals should examine both Table 3C of this proposed rule and
the May 5 final public use wage data file (which reflects revisions to
the data used to calculate the values in Table 3C) to verify the data
HCFA is using to calculate the wage index. Hospitals will have until
June 5, 2000, to submit requests to correct errors in the final wage
data due to data entry or tabulation errors by the intermediary or
HCFA. The correction requests that will be considered at that time will
be limited to errors in the entry or tabulation of the final wage data
that the hospital could not have known about before the release of the
final wage data public use file.
As noted above in section III.C of this preamble, the final wage
data file released on May 5, 2000 will include hospitals' teaching
survey data as well as cost report data. As with the file made
available in February 2000, HCFA will make the final wage data file
released in May 2000 available to hospital associations and the public
on the Internet. However, this file is being made available solely for
the limited purpose of identifying any potential errors made by HCFA or
the intermediary in the entry of the final wage data that result from
the correction process described above (with the March 6 deadline).
Hospitals are encouraged to review their hospital wage data promptly
after the release of the final file because data presented at this time
cannot be used by hospitals to initiate new wage data correction
requests.
If, after reviewing the final file, a hospital believes that its
wage data are incorrect due to a fiscal intermediary or HCFA error in
the entry or tabulation of the final wage data, it should send a letter
to both its fiscal intermediary and HCFA. The letters should outline
why the hospital believes an error exists and provide all supporting
information, including dates. These requests must be received by HCFA
and the intermediaries no later than June 5, 2000. Requests mailed to
HCFA should be sent to: Health Care Financing Administration; Center
for Health Plans and Providers; Attention: Wage Index Team, Division of
Acute Care; C4-07-07; 7500 Security Boulevard; Baltimore, MD 21244-
1850. Each request must also be sent to the hospital's fiscal
intermediary. The intermediary will review requests upon receipt and
contact HCFA immediately to discuss its findings.
At this point in the process, changes to the hospital wage data
will only be made in those very limited situations involving an error
by the intermediary or HCFA that the hospital could not have known
about before its review of the final wage data file. Specifically,
neither the intermediary nor HCFA will accept the following types of
requests at this stage of the process:
Requests for wage data corrections that were submitted too
late to be included in the data transmitted to HCFA on or before April
3, 2000.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the February 2000
wage data file.
Requests to revisit factual determinations or policy
interpretations made by the intermediary or HCFA during the wage data
correction process.
Verified corrections to the wage index received timely (that is, by
June 5, 2000) will be incorporated into the final wage index to be
published by August 1, 2000 and effective October 1, 2000.
Again, we believe the wage data correction process described above
provides hospitals with sufficient opportunity to bring errors in their
wage data to the intermediary's attention. Moreover, because hospitals
will have access to the final wage data by early May 2000, they will
have the opportunity to detect any data entry or tabulation errors made
by the intermediary or HCFA before the development and publication of
the FY 2001 wage index by August 1, 2000 and the implementation of the
FY 2001 wage index on October 1, 2000. If hospitals avail themselves of
this opportunity, the wage index implemented on October 1, should be
virtually error free. Nevertheless, in the unlikely event that errors
should occur after that date, we retain the right to make midyear
changes to the wage index under very limited circumstances.
Specifically, in accordance with Sec. 412.63(w)(2), we may make
midyear corrections to the wage index only in those limited
circumstances in which a hospital can show (1) that the intermediary or
HCFA made an error in tabulating its data; and (2) that the hospital
could not have known about the error, or did not have an opportunity to
correct the error, before the beginning of FY 2001 (that is, by the
June 5, 2000 deadline). As indicated earlier, since a hospital will
have the opportunity to verify its data, and the intermediary will
notify the hospital of any changes, we do not foresee any specific
circumstances under which midyear corrections would be necessary.
However, should a midyear correction be necessary, the wage index
change for the affected area will be effective prospectively from the
date the correction is made.
IV. Other Decisions and Proposed Changes to the Prospective Payment
System for Inpatient Operating Costs and Graduate Medical Education
Costs
A. Expanding the Transfer Definition to Include Postacute Care
Discharges (Sec. 412.4)
In accordance with section 1886(d)(5)(I) of the Act, the
prospective payment system distinguishes between "discharges,"
situations in which a patient leaves an acute care (prospective
payment) hospital after receiving complete acute care treatment, and
"transfers," situations in which the patient is transferred to
another acute care hospital for related care. Our policy, as set forth
in the regulations at Sec. 412.4, provides that, in a transfer
situation, full payment is made to the final discharging hospital and
each transferring hospital is paid a per diem rate for each day of the
stay, not to exceed the full DRG payment that would have been made if
the patient had been discharged without being transferred.
Effective with discharges on or after October 1, 1998, section
1886(d)(5)(J) of the Act required the Secretary to define
[[Page 26303]]
and pay as transfers all cases assigned to one of 10 DRGs (identified
below) selected by the Secretary if the individuals are discharged to
one of the following settings:
A hospital or hospital unit that is not a subsection
1886(d) hospital. (Section 1886(d)(1)(B) of the Act identifies the
hospitals and hospital units that are excluded from the term
"subsection(d) hospital" as psychiatric hospitals and units,
rehabilitation hospitals and units, children's hospitals, long-term
care hospitals, and cancer hospitals.)
A skilled nursing facility (as defined at section 1819(a)
of the Act).
Home health services provided by a home health agency, if
the services relate to the condition or diagnosis for which the
individual received inpatient hospital services, and if the home health
services are provided within an appropriate period (as determined by
the Secretary).
Therefore, any discharge from a prospective payment hospital from
one of the selected 10 DRGs that is admitted to a hospital excluded
from the prospective payment system on the date of discharge from the
acute care hospital, on or after October 1, 1998, would be considered a
transfer and paid accordingly under the prospective payment systems
(operating and capital) for inpatient hospital services. Similarly, a
discharge from an acute care inpatient hospital paid under the
prospective payment system to a skilled nursing facility on the same
date would be defined as a transfer and paid as such. This would
include cases discharged from one of the 10 selected DRGs to a
designated swing bed for skilled nursing care. We consider situations
in which home health services related to the condition or diagnosis of
the inpatient admission are received within 3 days after the discharge
as a transfer.
The statute specifies that the Secretary select 10 DRGs based upon
a high volume of discharges to postacute care and a disproportionate
use of postacute care services. We identified the following DRGs with
the highest percentage of postacute care:
DRG 14 (Specific Cerebrovascular Disorders Except
Transient Ischemic Attack (Medical)).
DRG 113 (Amputation for Circulatory System Disorders
Except Upper Limb and Toe (Surgical)).
DRG 209 (Major Joint Limb Reattachment Procedures of Lower
Extremity (Surgical)).
DRG 210 (Hip and Femur Procedures Except Major Joint
Procedures Age >17 with CC (Surgical)).
DRG 211 (Hip and Femur Procedures Except Major Joint
Procedures Age >17 without CC (Surgical)).
DRG 236 (Fractures of Hip and Pelvis (Medical)).
DRG 263 (Skin Graft and/or Debridement for Skin Ulcer or
Cellulitis with CC (Surgical))
DRG 264 (Skin Graft and/or Debridement for Skin Ulcer or
Cellulitis without CC (Surgical))
DRG 429 (Organic Disturbances and Mental Retardation
(Medical))
DRG 483 (Tracheostomy Except for Face, Mouth and Neck
Diagnoses (Surgical)).
Generally, we pay for transfers based on a per diem payment,
determined by dividing the DRG payment by the average length of stay
for that DRG. The transferring hospital receives twice the per diem
rate the first day and the per diem rate for each following day, up to
the full DRG payment. Of the 10 selected DRGs, 7 are paid under this
method. However, three DRGs exhibit a disproportionate share of costs
very early in the hospital stay. For these three DRGs, hospitals
receive one-half of the DRG payment for the first day of the stay and
one-half of the payment they would receive under the current transfer
payment method, up to the full DRG payment.
Section 1886(d)(5)(J)(iv) of the Act requires the Secretary to
include in the FY 2001 proposed rule a description of the effect of the
provision to treat as transfers cases that are assigned to one of the
10 selected DRGs and receive postacute care upon their discharge from
the hospital. Under contract with HCFA (Contract No. 500-95-0006),
Health Economics Research, Inc. (HER) conducted an analysis of the
impact on hospitals and hospital payments of the postacute transfer
provision. The analysis sought to obtain information on four primary
areas: how hospitals responded in terms of their transfer practices; a
comparison of payments and costs for these cases; whether hospitals are
attempting to circumvent the policy by delaying postacute care or
coding the patient's discharge status as something other than a
transfer; and what the next possible step is for expanding the transfer
payment policy beyond the current 10 selected DRGs or the current
postacute destinations.
Section 1886(d)(5)(J)(iv)(I) authorizes the Secretary to include in
the proposed rule for FY 2001 a description of other post-discharge
services that should be added to this postacute care transfer
provision. Since FY 1999 was the first year this policy was effective
and because of pending changes to payment policies for other postacute
care settings such as hospital outpatient departments, we have limited
data to assess whether additional postacute care settings should be
included. We will continue to closely monitor this issue as more data
become available.
In its analysis, HER relied on HCFA's Standard Analytic Files
containing claims submission data through September 1999. However, the
second and third quarter submissions for calendar year 1999 were not
complete. It was decided that transfer cases would be identified by
linking acute hospital discharges with postacute records based on
Medicare beneficiary numbers and dates of discharge from the acute
hospital with dates of admission or provision of service by the
postacute provider. This method was used rather than selecting cases
based on the discharge status code on the claim even though this code
is being used for payment to these cases because we wanted to also
assess how accurately hospitals are coding this status. However, the
need to link acute and postacute episodes further limited the analytic
data, due to the greater time lag for collecting postacute records.
Therefore, much of HER's analysis focused on only the first two
quarters of FY 1998. The two preceding fiscal years served as a
baseline for purposes of comparison.
HER looked at the 10 DRGs included under the transfer payment
policy and identified a slight decrease in the percentage of short-stay
postacute transfers. Short-stay transfers were defined as those with a
length of stay at least one day below the geometric mean length of stay
for the DRG. Comparing the share of short-stay postacute transfers to
total discharges shows that during the first two quarters of FY 1998,
the resulting percentage was 34 percent. The same comparison during the
first two quarters of FY 1999 yielded 33 percent. When HER examined the
share of short-stay postacute transfers relative to all short-stay
cases, it found that the percentage fell from 59 percent in FY 1998 to
58 percent in FY 1999. According to HER, "[t]hese figures suggest that
the policy change resulted in a moderate decline in the number of
postacute care transfers paid for under the lower per diem
methodology."
Evidence also suggests that hospitals are keeping patients in these
10 DRGs longer prior to transfer. The mean length of stay of short-stay
postacute transfers remained fairly constant prior to the change and
after the change, declining less than one-half percent. On the other
hand, the mean length of stay of nontransfer short-stay patients fell
by
[[Page 26304]]
1.8 percent. By comparison, the mean length of stay of long-stay
postacute transfers fell by 3.4 percent, while it fell only 2.1 percent
for long-stay nontransfers. The report suggests "[t]he relative
decline in the length of stay of transfers among all long-stay cases
suggests that (prospective payment system) hospitals may have responded
to the policy change by holding such patients until they exceeded the
geometric mean minus one day threshold prior to post-discharge
referral."
We believe these marginal reactions by hospitals to the postacute
transfer policy suggest that the increase in the rate of postacute
transfers over the past several years has been due to a number of
factors, of which Medicare payment policy has been only one. As
indicated in the Conference report accompanying Public Law 105-33 (H.R.
Conf. Rept. No. 105-217, 105th Cong., 1st Sess., at 740 (1997)),
Congress' intent was to "continue to provide hospitals with strong
incentives to treat patients in the most effective and efficient
manner, while at the same time, adjust PPS payments in a manner that
accounts for reduced hospital lengths of stay because of a discharge to
another setting." The preliminary results of HER's report suggest that
the policy resulting from Public Law 105-33 has not had a disruptive
impact on existing clinical practices.
To assess the adequacy of payments under the new policy, HER
examined average profits per case prior to and after the policy change.
Prior to the policy change, HER found average profits for short-stay
transfers in the 10 DRGs to be $2,454 per case. Across the 10 DRGs the
average profits ranged from $32,007 per case for DRG 483 to minus $26
per case for DRG 211 (the only one of the 10 DRGs with a negative
profit margin prior to implementing the policy). After the policy
change, the average profit per case was $1,180 per case. However, 3 of
the 10 DRGs had negative average profits after implementation of the
policy. The average margin for DRG 483 declined to $16,672 per case.
The study also attempted to ascertain whether there was any
concerted effort to circumvent the policy by delaying transfers to
avoid having a case defined as a transfer, or by not coding the case
correctly on the discharge status indicator on the bill. To assess
whether postacute care was being delayed, HER considered, for the
periods preceding and subsequent to the policy change, the number and
percent of cases admitted to either a hospital or distinct-part unit of
a hospital excluded from the prospective payment system or to a skilled
nursing facility 2 or 3 days following the discharge, and the number
and percent of patients who received services from a home health agency
4 or 5 days after discharge from an acute care hospital. The
percentages are based on the share of transferred patients falling into
the time windows described above relative to all such transfers.
The analysis identified 699 patients transferred to an excluded
hospital or unit 2 or 3 days following discharge from an acute care
hospital during the first two quarters of FY 1998, and 660 such cases
during the first two quarters of FY 1999. Similarly, there were 2,219
transfers to skilled nursing facilities 2 or 3 days after discharge
during the first two quarters of FY 1998, and 1,759 during the first
two quarters of FY 1999. The percentage of such transfers was constant
for both excluded hospitals and units and for skilled nursing
facilities. The analysis found that home health referral on the 4th or
5th day following discharge fell from 17.5 percent to 16.5 percent
between the two study periods, from 12,667 cases to 9,745 cases. On the
basis of these findings, HER believes "[t]hese results do not support
the contention that (prospective payment system) hospitals (would)
circumvent the lower per diem payments by delaying the date of
postacute care admission or visit."
The study also examined the discharge destination codes as reported
on the acute care hospital claims against postacute care transfers
identified on the basis of a postacute care claim indicating the
patient qualifies as a transfer. This analysis found that in 1998, only
74 percent of transfer cases had discharge destination codes on the
acute care hospital claim that were consistent with whether there was a
postacute care claim for the case matching the date of discharge. In FY
1999, the year the postacute care transfer policy went into effect,
this rate rose to 79 percent. This indicates that hospitals are
improving the accuracy of coding transfer cases.
Transfers to hospitals or units excluded from the prospective
payment system must have a discharge destination code (Patient Status)
of 05. Transfers to a skilled nursing facility must have a discharge
destination code of 03. Transfers to a home health agency must have a
discharge destination code of 06. If the hospital's continuing care
plan for the patient is not related to the purpose of the inpatient
hospital admission, a condition code 42 must be entered on the claim.
If the continuing care plan is related to the purpose of the inpatient
hospital admission, but care did not start within 3 days after the date
of discharge, a condition code 43 must be entered on the claim. The
presence of either of these condition codes in conjunction with
discharge destination code 06 will result in full payment rather than
the transfer payment amount. We intend to closely monitor the accuracy
of hospitals' discharge destination coding in this regard and take
whatever steps are necessary to ensure that accurate payment is made
under this policy.
Section 1886(d)(5)(J)(iv)(II) of the Act authorized but did not
require the Secretary to include as part of this proposed rule
additional DRGs to include under the postacute care transfer provision.
As part of "The President's Plan to Modernize and Strengthen Medicare
for the 21st Century" (July 2, 1999), the Administration committed to
not expanding the number of DRGs included in the policy until FY 2003.
Therefore, we are not proposing any change to the postacute care
settings or the 10 DRGs.
HER did undertake an analysis of how additional DRGs might be
considered for inclusion under the policy. The analysis supports the
initial 10 DRGs selected as being consistent with the nature of the
Congressional mandate. According to HER, "[t]he top 10 DRGs chosen
initially by HCFA exhibit very large PAC [postacute care] levels and
PAC discharge rates (except for DRG 264, Skin Graft and/or Debridement
for Skin Ulcer or Cellulitis without CC, which was paired with DRG
263). All 10 appear to be excellent choices based on the other criteria
as well. Most have fairly high short-stay PAC rates (except possibly
for Strokes, DRG 14, and Mental Retardation, DRG 429)."
Extending the policy beyond these initial DRGs, however, may well
require more extensive analysis and grouping of like-DRGs. One concern
raised in the analysis relates to single DRGs including multiple
procedures with varying lengths of stay. Because the transfer payment
methodology only considers the DRG overall geometric mean length of
stay for a DRG, certain procedures with short lengths of stay relative
to other procedures in the same DRG may be more likely to be treated as
transfers. The analysis also considers pairs of DRGs, such as DRGs 263
and 264, as well as larger bundles of DRGs (grouped by common elements
such as trauma, infections, and major organ procedures). According to
HER, "[i]n extending the PAC transfer policy, it is necessary to go
beyond the flawed concept of a single DRG to discover multiple DRGs
with a common link that
[[Page 26305]]
exhibit similar PAC statistics. Aggregation of this sort provides a
logical bridge in expanding the PAC transfer policy that is easily
justified to Congress and that avoids unintended inequities in the way
DRGs--and potentially hospitals--are treated under this policy.
Hospitals can be inadvertently penalized or not under the current
implementation criteria due to systematic differences in the DRG mix."
Finally, the HER report concludes with a discussion of the issues
related to potentially expanding the postacute care transfer policy to
all DRGs. On the positive side, HER points to the benefits of expanding
the policy to include all DRGs:
A simple, uniform formula-driven policy;
Same policy rationale exists for all DRGs--the statutory
provision requiring the Secretary to select only 10 DRGs was a
political compromise;
DRGs with little utilization of short-stay postacute care
would not be harmed by the policy;
Less confusion in discharge destination coding; and
Hospitals that happen to be disproportionately treating
the current 10 DRGs may be harmed more than hospitals with an
aggressive short-stay postacute care transfer policy for other DRGs.
According to HER, the negative implications of expanding the policy
to all DRGs include:
The postacute care transfer policy is irrelevant for many
DRGs;
Added burden for the fiscal intermediaries to verify
discharge destination codes;
Diluted program savings beyond the initial 10 DRGs;
Difficult to identify ongoing postacute care that resumes
after discharge; and
Heterogeneous procedures within single DRGs having varying
lengths of stay.
At the time we developed this proposed rule, HER's report was not
yet in final format. We anticipate that, by the time the final FY 2001
rule is published, this report will be available in final format. We
will announce in that rule how to attain copies of the complete report.
B. Sole Community Hospitals (SCHs) (412.63, 412.73, and 413.75,
Proposed New Sec. 412.77, and Sec. 412.92)
Under the hospital inpatient prospective payment system, special
payment protections are provided to sole community hospitals (SCHs).
Section 1886(d)(5)(D)(iii) of the Act defines an SCH as, among other
things, a hospital that, by reason of factors such as isolated
location, weather conditions, travel conditions, or absence of other
hospitals (as determined by the Secretary), is the sole source of
inpatient hospital services reasonably available to Medicare
beneficiaries. The regulations that set forth the criteria a hospital
must meet to be classified as an SCH are located at Sec. 412.92(a).
Currently SCHs are paid based on whichever of the following rates
yields the greatest aggregate payment to the hospital for the cost
reporting period: the Federal national rate applicable to the hospital;
or the hospital's "target amount";--that is, either the updated
hospital-specific rate based on FY 1982 costs per discharge, or the
updated hospital-specific rate based on FY 1987 costs per discharge.
Section 405 of Public Law 106-113, which amended section 1886(b)(3)
of the Act, provides that an SCH that was paid for its cost reporting
period beginning during 1999 on the basis of either its FY 1982 or FY
1987 target amount (the hospital-specific rate as opposed to the
Federal rate) may elect to receive payment under a methodology using a
third hospital-specific rate based on the hospital's FY 1996 costs per
discharge. This amendment to the statute means that, for discharges
occurring in FY 2001, eligible SCHs can elect to use the allowable FY
1996 operating costs for inpatient hospital services as the basis for
their target amount, rather than either their FY 1982 or FY 1987 costs.
We are aware that language in the Conference Report accompanying
Public Law 106-113 indicates that the House bill (H.R. 3075) would have
permitted SCHs that were being paid the Federal rate to rebase, not
SCHs that were paid on the basis of either their FY 1982 or FY 1987
target amount (H.R. Conf. Rep. No. 106-479, 106th Cong., 1st Sess. at
890 (1999)). The language of the section 405 amendment to section
1886(b)(3) (which added new subparagraph (I)(ii)) clearly limits the
option to substitute the FY 1996 base year to SCHs that were paid for
their cost reporting periods beginning during 1999 on the basis of the
target amount applicable to the hospital under section 1886(b)(3)(C).
When calculating an eligible SCH's FY 1996 hospital-specific rate,
we propose to utilize the same basic methodology used to calculate FY
1982 and FY 1987 bases. That methodology is set forth in Secs. 412.71
through 412.75 of the regulations and discussed in detail in several
prospective payment system documents published in the Federal Register
on September 1, 1983 (48 FR 3977); January 3, 1984 (49 FR 256); June 1,
1984 (49 FR 23010); and April 20, 1990 (55 FR 15150).
Since we anticipate that eligible hospitals will elect the option
to rebase using their FY 1996 cost reporting periods, we are
instructing our fiscal intermediaries to identify those SCHs that were
paid for their cost reporting periods beginning during 1999 on the
basis of their target amounts. For these hospitals, fiscal
intermediaries will calculate the FY 1996 hospital-specific rate as
described below in this section IV.B. If this rate exceeds a hospital's
current target amount based on the greater of the FY 1982 or FY 1987
hospital-specific rate, the hospital will receive payment based on the
FY 1996 hospital-specific rate (based on the blended amounts described
at section 1886(b)(3)(I)(i) of the Act) unless the hospital notifies
its fiscal intermediary in writing prior to the end of the cost
reporting period that it does not wish to be paid on the basis of the
FY 1996 hospital-specific rate. Thus, if a hospital does not notify its
fiscal intermediary before the end of the cost reporting period that it
declines the rebasing option, we will deem the lack of such
notification as an election to have section 1886(b)(3)(I) of the Act
apply to the hospital.
An SCH's decision to decline this option for a cost reporting
period will remain in effect for subsequent periods until such time as
the hospital notifies its fiscal intermediary otherwise.
The FY 1996 hospital-specific rate will be based on FY 1996 cost
reporting periods beginning on or after October 1, 1995 and before
October 1, 1996, that are 12 months or longer. If the hospital's last
cost reporting period ending on or before September 30, 1996 is less
than 12 months, the hospital's most recent 12-month or longer cost
reporting period ending before the short period report would be
utilized in the computations. If a hospital has no cost reporting
period beginning in FY 1996, it would not have a hospital-specific rate
based on FY 1996.
For each hospital eligible for FY 1996 rebasing, the fiscal
intermediary would calculate a hospital-specific rate based on the
hospital's FY 1996 cost report as follows:
Determine the hospital's total allowable Medicare
inpatient operating cost, as stated on the FY 1996 cost report.
Divide the total Medicare operating cost by the number of
Medicare discharges in the cost reporting period to determine the FY
1996 base period cost per case. For this purpose, transfers are
considered to be discharges.
[[Page 26306]]
In order to take into consideration the hospital's
individual case-mix, divide the base year cost per case by the
hospital's case-mix index applicable to the FY 1996 cost reporting
period. This step is necessary to standardize the hospital's base
period cost for case-mix and is consistent with our treatment of both
FY 1982 and FY 1987 base-period costs per case. A hospital's case-mix
is computed based on its Medicare patient discharges subject to DRG-
based payment.
The fiscal intermediary will notify eligible hospitals of their FY
1996 hospital-specific rate prior to October 1, 2000. Consistent with
our policies relating to FY 1982 and FY 1987 hospital-specific rates,
we propose to permit hospitals to appeal a fiscal intermediary's
determination of the FY 1996 hospital-specific rate under the
procedures set forth in 42 CFR part 405, subpart R, which concern
provider payment determinations and appeals. In the event of a
modification of base period costs for FY 1996 rebasing due to a final
nonappealable court judgment or certain administrative actions (as
defined in Sec. 412.72(a)(3)(i)), the adjustment would be retroactive
to the time of the intermediary's initial calculation of the base
period costs, consistent with the policy for rates based on FY 1982 and
FY 1987 costs.
Section 405 prescribes the following formula to determine the
payment for SCHs that elect rebasing:
For discharges during FY 2001:
75 percent of the updated FY 1982 or FY 1987 former target
(identified in the statute as the "subparagraph (C) target amount"),
plus
25 percent of the updated FY 1996 amount (identified in
the statute as the ""rebased target amount").
For discharges during FY 2002:
50 percent of the updated FY 1982 or FY 1987 former
target, plus
50 percent of the updated FY 1996 amount.
For discharges during FY 2003:
25 percent of the updated FY 1982 or FY 1987 former
target, plus
75 percent of the updated FY 1996 amount.
For discharges during FY 2004 or any subsequent fiscal year, the
hospital-specific rate would be determined based on 100 percent of the
updated FY 1996 amount.
We are proposing to add a new Sec. 412.77 and amend Sec. 412.92(d)
to incorporate the provisions of section 1886(b)(3)(I) of the Act, as
added by section 405 of Public Law 106-113.
Section 406 of Public Law 106-113 amended section
1886(b)(3)(B)(i)(XVI) of the Act to provide, for fiscal year 2001, for
full market basket updates to both the Federal and hospital-specific
payment rates applicable to sole community hospitals. We are proposing
to amend Sec. Sec. 412.63, 412.73, and 412.75 to incorporate the
amendment made by section 406 of Public Law 106-113.
C. Rural Referral Centers (Sec. 412.96)
Under the authority of section 1886(d)(5)(C)(i) of the Act, the
regulations at Sec. 412.96 set forth the criteria a hospital must meet
in order to receive special treatment under the prospective payment
system as a rural referral center. For discharges occurring before
October 1, 1994, rural referral centers received the benefit of payment
based on the other urban amount rather than the rural standardized
amount. Although the other urban and rural standardized amounts were
the same for discharges beginning with that date, rural referral
centers would continue to receive special treatment under both the
disproportionate share hospital (DSH) payment adjustment and the
criteria for geographic reclassification.
As discussed in 62 FR 45999 and 63 FR 26317, under section 4202 of
Public Law 105-33, a hospital that was classified as a rural referral
center for FY 1991 is to be classified as a rural referral center for
FY 1998 and later years so long as that hospital continued to be
located in a rural area and did not voluntarily terminate its rural
referral center status. Otherwise, a hospital seeking rural referral
center status must satisfy applicable criteria. One of the criteria
under which a hospital may qualify as a rural referral center is to
have 275 or more beds available for use. A rural hospital that does not
meet the bed size requirement can qualify as a rural referral center if
the hospital meets two mandatory prerequisites (specifying a minimum
case-mix index and a minimum number of discharges) and at least one of
three optional criteria (relating to specialty composition of medical
staff, source of inpatients, or referral volume). With respect to the
two mandatory prerequisites, a hospital may be classified as a rural
referral center if its--
Case-mix index is at least equal to the lower of the
median case-mix index for urban hospitals in its census region,
excluding hospitals with approved teaching programs, or the median
case-mix index for all urban hospitals nationally; and
Number of discharges is at least 5,000 per year, or if
fewer, the median number of discharges for urban hospitals in the
census region in which the hospital is located. (The number of
discharges criterion for an osteopathic hospital is at least 3,000
discharges per year.)
1. Case-Mix Index
Section 412.96(c)(1) provides that HCFA will establish updated
national and regional case-mix index values in each year's annual
notice of prospective payment rates for purposes of determining rural
referral center status. The methodology we use to determine the
proposed national and regional case-mix index values is set forth in
regulations at Sec. 412.96(c)(1)(ii). The proposed national case-mix
index value includes all urban hospitals nationwide, and the proposed
regional values are the median values of urban hospitals within each
census region, excluding those with approved teaching programs (that
is, those hospitals receiving indirect medical education payments as
provided in Sec. 412.105). These values are based on discharges
occurring during FY 1999 (October 1, 1998 through September 30, 1999)
and include bills posted to HCFA's records through December 1999.
We are proposing that, in addition to meeting other criteria,
hospitals with fewer than 275 beds, if they are to qualify for initial
rural referral center status for cost reporting periods beginning on or
after October 1, 2000, must have a case-mix index value for FY 1999
that is at least--
1.3401; or
The median case-mix index value for urban hospitals
(excluding hospitals with approved teaching programs as identified in
Sec. 412.105) calculated by HCFA for the census region in which the
hospital is located.
The median case-mix values by region are set forth in the following
table:
------------------------------------------------------------------------
Case-mix
Region index value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................... 1.2291
2. Middle Atlantic (PA, NJ, NY)............................ 1.2387
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..... 1.3116
4. East North Central (IL, IN, MI, OH, WI)................. 1.2602
5. East South Central (AL, KY, MS, TN)..................... 1.2692
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......... 1.1881
7. West South Central (AR, LA, OK, TX)..................... 1.2800
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............... 1.3302
9. Pacific (AK, CA, HI, OR, WA)............................ 1.3076
------------------------------------------------------------------------
The preceding numbers will be revised in the final rule to the
extent required to reflect the updated FY 1999 MedPAR file, which will
contain data
[[Page 26307]]
from additional bills received through March 31, 2000.
For the benefit of hospitals seeking to qualify as rural referral
centers or those wishing to know how their case-mix index value
compares to the criteria, we are publishing each hospital's FY 1999
case-mix index value in Table 3C in section VI. of the Addendum to this
proposed rule. In keeping with our policy on discharges, these case-mix
index values are computed based on all Medicare patient discharges
subject to DRG-based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that HCFA will set forth the
national and regional numbers of discharges in each year's annual
notice of prospective payment rates for purposes of determining rural
referral center status. As specified in section 1886(d)(5)(C)(ii) of
the Act, the national standard is set at 5,000 discharges. We are
proposing to update the regional standards based on discharges for
urban hospitals' cost reporting periods that began during FY 1998 (that
is, October 1, 1997 through September 30, 1998). That is the latest
year for which we have complete discharge data available.
Therefore, we are proposing that, in addition to meeting other
criteria, a hospital, if it is to qualify for initial rural referral
center status for cost reporting periods beginning on or after October
1, 2000, must have as the number of discharges for its cost reporting
period that began during FY 1999 a figure that is at least--
5,000; or
The median number of discharges for urban hospitals in the
census region in which the hospital is located, as indicated in the
following table:
------------------------------------------------------------------------
Number of
Region discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................... 6,733
2. Middle Atlantic (PA, NJ, NY)............................ 8,681
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..... 7,845
4. East North Central (IL, IN, MI, OH, WI)................. 7,526
5. East South Central (AL, KY, MS, TN)..................... 6,852
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......... 5,346
7. West South Central (AR, LA, OK, TX)..................... 5,380
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............... 8,026
9. Pacific (AK, CA, HI, OR, WA)............................ 6,160
------------------------------------------------------------------------
We note that the number of discharges for hospitals in each census
region is greater than the national standard of 5,000 discharges.
Therefore, 5,000 discharges is the minimum criterion for all hospitals.
These numbers will be revised in the final rule based on the latest FY
1998 cost report data.
We reiterate that an osteopathic hospital, if it is to qualify for
rural referral center status for cost reporting periods beginning on or
after October 1, 2000, must have at least 3,000 discharges for its cost
reporting period that began during FY 1999.
D. Indirect Medical Education (IME) Adjustment (Sec. 412.105)
Section 1886(d)(5)(B) of the Act provides that prospective payment
hospitals that have residents in an approved graduate medical education
(GME) program receive an additional payment to reflect the higher
indirect operating costs associated with GME. The regulations regarding
the calculation of this additional payment, known as the indirect
medical education (IME) adjustment, are located at Sec. 412.105.
Section 111 of Public Law 106-113 modified the transition for the
IME adjustment that was established by Public Law 105-33. We will
publish these changes in a separate interim final rule with comment
period. However, for discharges occurring during FY 2001, the
adjustment formula equation used to calculate the IME adjustment factor
is 1.54 x [(1 + r) \.405\ -1]. (The variable r represents the
hospital's resident-to-bed ratio.)
In the July 30, 1999 final rule (64 FR 41517), we set forth certain
policies that affected payment for both direct and indirect GME. These
policies related to adjustments to full-time equivalent (FTE) resident
caps for new medical residency programs affecting both direct and
indirect GME programs; the adjustment to GME caps for certain hospitals
under construction prior to August 5, 1997 (the enactment date of
Public Law 105-33) to account for residents in new medical residency
training programs; and the temporary adjustment to FTE caps to reflect
residents affected by hospital closures. When we amended the
regulations under Sec. 413.86 for direct GME, we inadvertently did not
make the corresponding changes in Sec. 412.105 for IME. We are
proposing to make the following conforming changes:
To amend Sec. 412.105(f)(1)(vii) to provide for an
adjustment to the FTE caps for new medical residency programs as
specified under Sec. 413.86(g)(6).
To add a new Sec. 412.105(f)(1)(viii) related to the
adjustment to the FTE caps for newly constructed hospitals that sponsor
new residency programs in effect on or after January 1, 1995, and on or
before August 5, 1997, that either received initial accreditation by
the appropriate accrediting body or temporarily trained residents at
another hospital(s) until the facility was completed, to conform to the
provisions of Sec. 413.86(g)(7).
To add a new Sec. 412.105(f)(1)(ix) to specify that a
hospital may receive a temporary adjustment to its FTE cap to take into
account residents added because of another hospital's closure if the
hospital meets the criteria listed under Sec. 413.86(g)(8).
In addition, we are proposing to add a cross-reference to
"Sec. 413.86(d)(3)(i) through (v)" in Sec. 412.105(g), and to correct
the applicable period in both Secs. 412.105(g) and 413.86(d)(3) by
revising the phrase "For portions of cost reporting periods beginning
on or after January 1, 1998" to read "For portions of cost reporting
periods occurring on or after January 1, 1998".
E. Payments to Disproportionate Share Hospitals (Sec. 412.106)
Effective for discharges beginning on or after May 1, 1986,
hospitals that treat a disproportionately large number of low-income
patients (as defined in section 1886(d)(5)(F) of the Act) receive
additional payments through the DSH adjustment. Section 4403(a) of
Public Law 105-33 amended section 1886(d)(5)(F) of the Act to reduce
the payment a hospital would otherwise receive under the current
disproportionate share formula by 1 percent for FY 1998, 2 percent for
FY 1999, 3 percent for FY 2000, 4 percent for FY 2001, 5 percent for
2002, and 0 percent for FY 2003 and each subsequent fiscal year.
Subsequently, section 112 of Public Law 106-113 modified the amount of
the reductions under Public Law 105-33 by changing the reduction to 3
percent for FY 2001 and 4 percent for FY 2002. The reduction continues
to be 0 percent for FY 2003 and each subsequent fiscal year. We are
proposing to revise Sec. 412.106(e) to reflect the changes in the
statute made by Public Law 106-113.
Section 112 of Public Law 106-113 also directs the Secretary to
require prospective payment system hospitals to submit data on the
costs incurred by the hospitals for providing inpatient and outpatient
hospital services for which the hospitals are not compensated,
including non-Medicare bad debt, charity care, and charges for medical
and indigent care to the Secretary as part of hospitals' cost reports.
These data are required for cost reporting periods beginning on or
after October 1,
[[Page 26308]]
2001. We will be revising our instructions to hospitals for cost
reports for FY 2002 to capture these data.
F. Medicare Geographic Classification Review Board (Secs. 412.256 and
412.276)
With the creation of the Medicare Geographic Classification Review
Board (MGCRB), beginning in FY 1991, under section 1886(d)(10) of the
Act, hospitals could request reclassification from one geographic
location to another for the purpose of using the other area's
standardized amount for inpatient operating costs or the wage index
value, or both (September 6, 1990 interim final rule with comment
period (55 FR 36754), June 4, 1991 final rule with comment period (56
FR 25458), and June 4, 1992 proposed rule (57 FR 23631)). Implementing
regulations in Subpart L of Part 412 (412.230 et seq.) set forth
criteria and conditions for redesignations from rural to urban, rural
to rural, or from an urban area to another urban area with special
rules for SCHs and rural referral centers.
1. Provisions of Public Law 106-113
Section 401 of Public Law 106-113 amended section 1886(d)(8) of the
Act by adding subparagraph (E), which creates a mechanism, separate and
apart from the MGCRB, permitting an urban hospital to apply to the
Secretary to be treated as being located in the rural area of the State
in which the hospital is located. The statute directs the Secretary to
treat a qualifying hospital as being located in a rural area for
purposes of provisions under section 1886(d) of the Act. In addition,
section 401 of Public Law 106-113 went on to incorporate the effects of
such reclassifications from urban to rural for purposes of Medicare
payments to outpatient departments and to hospitals that would qualify
to become critical access hospitals.
Regulations implementing section 1886(d)(8)(E) of the Act are
currently under development and will be published in a separate
document. However, we note that the statutory language of section
1886(d)(8)(E) of the Act does not address the issue of interactions
between changes in classification under section 1886(d)(8)(E) of the
Act and the MGCRB reclassification process under section 1886(d)(10) of
the Act. The Secretary has extremely broad authority under section
1886(d)(10) of the Act to establish criteria for reclassification under
the MGCRB process. Section 401 of Public Law 106-113 does not amend
section 1886(d)(10) of the Act to limit the agency's discretion under
the provision in any way, nor does section 1886(d)(8)(E) of the Act (as
added by section 401) refer to section 1886(d)(10) of the Act. However,
we note that in the Conference Report accompanying Public Law 106-113,
the language discussing the House bill (H.R. 3075, as passed) indicated
that: "[H]ospitals qualifying under this section shall be eligible to
qualify for all categories and designations available to rural
hospitals, including sole community, Medicare dependent, critical
access, and referral centers. Additionally, qualifying hospitals shall
be eligible to apply to the Medicare Geographic Reclassification Review
Board for geographic reclassification to another area".
We are concerned that section 1886(d)(8)(E) might create an
opportunity for some urban hospitals to take advantage of the MGCRB
process by first seeking to be reclassified as rural under section
1886(d)(8)(E) (and receiving the benefits afforded to rural hospitals)
and in turn seek reclassification through the MGCRB back to the urban
area for purposes of their standardized amount and wage index (and thus
also receive the higher payments that might result from being treated
as being located in an urban area). That is, we are concerned that some
hospitals might inappropriately seek to be treated as being located in
a rural area for some purposes and as being located in an urban area
for other purposes. In light of the Conference Report language noted
above discussing the House bill on the one hand, and the potential for
inappropriately inconsistent treatment of the same hospital on the
other hand, we are seeking public comment on this issue, and indicating
our position that we may impose a limitation on such MGCRB
reclassifications in the final rule for FY 2001, if such action appears
warranted. We also are seeking specific comments on how such a
limitation, if any, should be imposed.
For example, it could be argued that if a hospital has applied to
be treated as being located in a rural area under section 1886(d)(8)(E)
of the Act, then the hospital should be treated as rural for all
purposes under section 1886(d), and it would be inappropriate to permit
the hospital to be reclassified back to an urban area for any purpose.
Under this approach, hospitals seeking reclassification under section
1886(d)(8)(E) of the Act would be treated as rural for all purposes
under section 1886(d) and would be able to benefit from special
provisions that apply to rural hospitals. They would not, however, be
eligible for reclassification back to an urban area for either the wage
index or the standardized amount. This would apply to hospitals seeking
to reclassify either to their original MSA or to another MSA.
Under an alternative approach, hospitals reclassifying from urban
to rural under section 1886(d)(8)(E) of the Act would be eligible to
apply and be reclassified by the MGCRB like any other rural hospital
(as long as applicable regulations governing MGCRB are met). This might
allow hospitals to effectively pick from an array of urban and rural
payment policies to maximize their Medicare payments. It could be
argued that this would be the policy most consistent with the
Conference Report language but we believe that it might lead to
inappropriate, inconsistent classifications.
We are very concerned that the effect of unlimited MGCRB
reclassifications back to the area from which a hospital was
reclassified under section 1886(d)(8)(E) of the Act could have
implications beyond those envisioned by Congress when it passed Public
Law 106-113. However, in light of the Conference Report language, we
are seeking comments on this issue. In the final rule, we might adopt
one of the approaches discussed above or some other approach for
addressing this issue.
Under section 152 of Public Law 106-113, certain counties are
deemed to be located in specified areas for purposes of payment under
the hospital inpatient prospective payment system, effective for
discharges occurring on or after October 1, 2000. For payment purposes,
these hospitals are to be treated as though they were reclassified for
purposes of both the standardized amount and the wage index. These
provisions are addressed in section III.B. of this preamble, as they
relate to calculation of the FY 2001 wage indexes for hospitals in the
affected counties as if they were reclassified to the specified area;
and in the Addendum to this preamble as they relate to the standardized
amounts.
2. Revised Thresholds Applicable to Rural Hospitals for Wage Index
Reclassifications
Existing Secs. 412.230(e)(1)(iii) and (e)(1)(iv) provide that
hospitals may obtain reclassification to another area for purposes of
calculating and applying the wage index if the hospital's average
hourly wages are at least 108 percent of the average hourly wages in
the area where it is physically located, and at least 84 percent of the
average hourly wages in a proximate area to which the hospital seeks
reclassification. These thresholds apply equally to urban and rural
hospitals seeking reclassification.
[[Page 26309]]
Historically, the financial performance of rural hospitals under
the prospective payment system has lagged behind that of urban
hospitals. Despite an overall increase in recent years of Medicare
inpatient operating profit margins, some rural hospitals continue to
struggle financially (as measured by Medicare inpatient operating
prospective payment system payments minus costs, divided by payments).
For example, during FY 1997, while the national average hospital margin
was 15.1 percent, it was 8.9 percent for rural hospitals. In addition,
approximately one-third of rural hospitals continue to experience
negative Medicare inpatient margins despite this relatively high
average margin.
In response to the lower margins of rural hospitals and the
potential for a negative impact on beneficiaries' access to care if
these hospitals were to close, we considered potential administrative
changes that could help improve payments for rural hospitals. One
approach in that regard would be to make it easier for rural hospitals
to reclassify for purposes of receiving a higher wage index. The
current thresholds for applying for wage index reclassification are
based on our previous analysis showing the average hospital wage as a
percentage of its area wage was 96 percent, and one standard deviation
from that average was equal to 12 percentage points (see the June 4,
1992 proposed rule (57 FR 23635) and the September 1, 1992 final rule
(57 FR 39770)). Because rural hospitals' financial performance has
consistently remained below that of urban hospitals, we now believe
that rural hospitals merit special dispensation with respect to
qualifying for reclassification for purposes of the wage index.
Therefore, we are proposing to change those average wage threshold
percentages so more rural hospitals can be reclassified. Specifically,
we are proposing to lower the upper threshold for rural hospitals to
106 percent and the lower threshold to 82 percent. The thresholds for
urban hospitals seeking reclassification for purposes of the wage index
would be unchanged. We would note that rural hospitals comprised nearly
90 percent of FY 2000 wage index reclassifications. Under this
proposal, beginning October 1, 2000, rural hospitals would be able to
reclassify for the wage index if, among other things, their average
hourly wages are at least 106 percent of the area in which they are
physically located, and at least 82 percent of the average hourly wages
in the proximate area to which it seeks reclassification.
Although it is difficult to estimate precisely how many additional
hospitals might qualify by lowering the thresholds because we do not
have data indicating which hospitals meet all of the other
reclassification criteria (e.g., proximity), our analysis indicates
that, if we were to raise the 108 percent threshold to 109 percent,
approximately 20 rural hospitals would no longer qualify. If the upper
threshold were to be raised to 110 percent, another 16 hospitals would
not qualify. On the other hand, increasing the lower threshold from 84
percent to 85 percent would result in only 2 rural hospitals becoming
ineligible to reclassify. Only 1 additional hospital would be affected
by raising the threshold to 86 percent. Based on this analysis, we
anticipate approximately 50 rural hospitals are likely to benefit from
this proposed change.
We believe this proposal achieves an appropriate balance between
allowing certain hospitals that are currently just below the thresholds
to become eligible for reclassification, while not liberalizing the
criteria so much that an excessive number of hospitals begin to
reclassify. Because these reclassifications are budget neutral,
nonreclassified hospitals' payments are negatively impacted by
reclassification.
We believe there are many factors associated with lower margins
among rural hospitals. We would note that section 410 of Public Law
106-113 requires the Comptroller General of the United States to
"conduct a study of the current laws and regulations for geographic
reclassification of hospitals to determine whether such
reclassification is appropriate for purposes of applying wage
indices." In addition, section 411 of Public Law 106-113 requires
MedPAC to conduct a study on the adequacy and appropriateness of the
special payment categories and methodologies established for rural
hospitals. We anticipate that the results of these studies will help
identify other areas to help improve payments for rural hospitals,
either through reclassifications or other means.
G. Payment for Direct Costs of Graduate Medical Education (Sec. 413.86)
1. Background
Under section 1886(h) of the Act, Medicare pays hospitals for the
direct costs of graduate medical education (GME). The payments are
based on the number of residents trained by the hospital. Section
1886(h) of the Act, as amended by section 4623 of Public Law 105-33,
caps the number of residents that hospitals may count for direct GME.
Section 9202 of the Consolidated Omnibus Reconciliation Act (COBRA)
of 1985 (Public Law 99-272) established a methodology for determining
payments to hospitals for the costs of approved GME programs at section
1886(h)(2) of the Act. Section 1886(h)(2) of the Act, as implemented in
regulations at Sec. 413.86(e), sets forth a payment methodology for the
determination of a hospital-specific, base-period per resident amount
(PRA) that is calculated by dividing a hospital's allowable costs of
GME for a base period by its number of residents in the base period.
The base period is, for most hospitals, the hospital's cost reporting
period beginning in FY 1984 (that is, the period of October 1, 1983
through September 30, 1984). The PRA is multiplied by the number of
full-time equivalent (FTE) residents working in all areas of the
hospital complex (or non-hospital sites, when applicable), and the
hospital's Medicare share of total inpatient days to determine
Medicare's direct GME payments. In addition, as specified in section
1886(h)(2)(D)(ii) of the Act, for cost reporting periods beginning on
or after October 1, 1993, through September 30, 1995, each hospital's
PRA for the previous cost reporting period is not adjusted for any FTE
residents who are not either a primary care or an obstetrics and
gynecology resident. As a result, hospitals with both primary care/
obstetrics and gynecology residents and non-primary care residents have
two separate PRAs for FY 1994 and, thereafter, one for primary care and
one for non-primary care. (Thus, for purposes of this proposed rule,
when we refer to a hospital's PRA, this amount is inclusive of any CPI-
U adjustments the hospital may have received since the hospital's base-
year, including any CPI-U adjustments the hospital may have received
because the hospital trains primary care/non-primary care residents, as
specified under existing Sec. 413.86(e)(3)(ii)).
2. Use of National Average Per Resident Amount Methodology in Computing
Direct GME Payments
Section 311 of Public Law 106-113 amended section 1886(h)(2) of the
Act to establish a methodology for the use of a national average PRA in
computing direct GME payments for cost reporting periods beginning on
or after October 1, 2000 and on or before September 30, 2005.
Generally, section 311 establishes a "floor" and a "ceiling" based
on a locality-adjusted, updated, weighted average PRA. Each hospital's
PRA is compared to the floor and ceiling to determine whether its PRA
should be
[[Page 26310]]
revised. Accordingly, we are proposing to implement section 311 by
setting forth the prescribed methodology for calculation of the
weighted average PRA. We then discuss the proposed steps for
determining whether a hospital's PRA will be adjusted based upon the
proposed calculated weighted average PRA, in accordance with the
methodology specified under section 311 of Public Law 106-113.
We propose to calculate the weighted average PRA based upon data
from hospitals' cost reporting periods ending during FY 1997 (October
1, 1996 through September 30, 1997), as directed by section 311 of
Public Law 106-113. We accessed these FY 1997 cost reporting data from
the Hospital Cost Report Information System (HCRIS) and also obtained
the necessary data for those hospitals that are not included in HCRIS
(because they file manual cost reports), from those hospitals' fiscal
intermediaries. If a hospital had more than one cost reporting period
ending in FY 1997, we propose to include all of its cost reports ending
in FY 1997 in our calculations. However, if a hospital did not have a
cost reporting period ending in FY 1997, such as a hospital with a long
cost reporting period beginning in FY 1996 and ending in FY 1998, the
hospital is excluded from our calculations. One hospital is excluded
from our calculation even though it did have a cost reporting period
ending during FY 1997 because, at that time, it was a new teaching
hospital with no established PRA (the first year of training for a new
teaching hospital is paid for by Medicare on a cost basis; a PRA is
applied in calculating a hospital's payment beginning with the
hospital's second year of residency training). The total number of
hospitals that we include in our calculation is 1,235. Thirty-five of
these hospitals are hospitals with more than one cost report.
In accordance with section 311 of Public Law 106-113, we propose to
calculate the weighted average PRA in the following manner:
Step 1: We determine each hospital's single PRA by adding each
hospital's primary care and non-primary care PRAs, weighted by its
respective FTEs, and dividing by the sum of the FTEs for primary care
and non-primary care residents.
Step 2: We standardize each hospital's single PRA by dividing it by
the 1999 geographic adjustment factor (GAF) (which is an average of the
three geographic index values (weighted by the national average weight
for the work component, practice expense component, and malpractice
component)) in accordance with section 1848(e) of the Act and 42 CFR
414.26 (which is used to adjust physician payments for the different
wage areas), for the physician fee schedule area in which the hospital
is located.
Step 3: We add all the standardized hospital PRAs (as calculated in
Step 2), each weighted by hospitals' respective FTEs, and then divide
by the total number of FTEs.
Based upon this three-step calculation, we have determined the
proposed weighted average PRA (for cost reporting periods ending during
FY 1997) to be $68,487.
For cost reporting periods beginning on or after October 1, 2000
and on or before September 30, 2005 (FY 2001 through FY 2005), the
national average PRA is applied using the following three steps:
Step 1: Update the weighted average PRA for inflation. Under
section 1886(h)(2) of the Act, as amended by section 311 of Public Law
106-113, the weighted average PRA is updated by the estimated
percentage increase in the consumer price index for all urban consumers
(CPI-U) during the period beginning with the month that represents the
midpoint of the cost reporting periods ending during FY 1997 and ending
with the midpoint of the hospital's cost reporting period that begins
in FY 2001. Therefore, the weighted average standardized PRA ($68,487)
would be updated by the increase in CPI-U for the period beginning with
the midpoint of all cost reporting periods for hospitals with cost
reporting periods ending during FY 1997 (October 1, 1996), and ending
with the midpoint of the individual hospital's cost reporting period
that begins during FY 2001.
For example, Hospital A has a calendar year cost reporting period.
Thus, for Hospital A, the weighted average PRA is updated from October
1, 1996 to July 1, 2001, because July 1 is the midpoint of its cost
reporting period beginning on or after October 1, 2000. Or, for
example, if Hospital B has a cost reporting period starting October 1,
the weighted average PRA is updated from October 1, 1996 to April 1,
2001, the midpoint of the cost reporting period for Hospital B.
Therefore, the starting point for updating the weighted average PRA is
the same date for all hospitals (October 1, 1996), but the ending date
is different because it is dependent upon the cost reporting period for
each hospital.
Step 2: Adjust for locality. In accordance with section 1886(h)(2)
of the Act, as amended by section 311 of Public Law 106-113, once the
weighted average PRA is updated according to each hospital's cost
reporting period, the updated weighted average PRA (the national
average PRA) would be further adjusted to calculate a locality-adjusted
national average PRA for each hospital. This is done by multiplying the
updated national average PRA by the 1999 GAF (as specified in the
October 31, 1997 Federal Register (62 FR 59257)) for the fee schedule
area in which the hospital is located.
Step 3: Determine possible revisions to the PRA. For cost reporting
periods beginning on or after October 1, 2000 and on or before
September 30, 2005, the locality-adjusted national average PRA, as
calculated in Step 2, is then compared to the hospital's individual
PRA. Based upon the provisions of section 1886(h)(2) of the Act, as
amended by section 311 of Public Law 106-113, a hospital's PRA would be
revised, if appropriate, according to the following:
Floor--For cost reporting periods beginning in FY 2001, to
determine which PRAs (primary care and non-primary care separately) are
below the 70 percent floor, a hospital's locality-adjusted national
average PRA is multiplied by 70 percent. This resulting number is then
compared to the hospital's PRA that is updated for inflation to the
current cost reporting period. If the hospital's PRA would be less than
70 percent of the locality-adjusted national average PRA, the
individual PRA is replaced by 70 percent of the locality-adjusted
national average PRA for that cost reporting period and would be
updated for inflation in future years by the CPI-U.
We note that there may be some hospitals with primary care and non-
primary care PRAs where both PRAs are replaced by 70 percent of the
locality-adjusted national average PRA. In these situations, the
hospital would receive identical PRAs; no distinction in PRAs would be
made for differences in inflation (because a hospital has both primary
care and non-primary care PRAs, each of which is updated as described
in Sec. 413.86(e)(3)(ii)) as of cost reporting periods beginning on or
after October 1, 2000.
For example, if the FY 2001 locality-adjusted national average PRA
for Area X is $100,000, then 70 percent of that amount is $70,000. If,
in Area X, Hospital A has a primary care FY 2001 PRA of $69,000 and a
non-primary care FY 2001 PRA of $67,000, both of Hospital A's FY 2001
PRAs are replaced by the $70,000 floor. Thus, $70,000 is the amount
that would be used to determine Hospital A's direct GME payments for
both primary care and
[[Page 26311]]
non-primary care FTEs in its cost reporting period beginning in FY
2001, and the $70,000 PRA would be updated for inflation by the CPI-U
in subsequent years.
Ceiling--For cost reporting periods beginning on or after
October 1, 2000 and on or before September 30, 2005 (FY 2001 through FY
2005), a ceiling that is equal to 140 percent of each locality-adjusted
national average PRA would be calculated and compared to each
individual hospital's PRA. If the hospital's PRA is greater than 140
percent of the locality-adjusted national average PRA, the PRA would be
adjusted depending on the fiscal year as follows:
a. FY 2001
For cost reporting periods beginning in FY 2001, each hospital's
PRA from the preceding cost reporting period (that is, FY 2000) is
compared to the FY 2001 locality-adjusted national average PRA. If the
individual hospital's FY 2000 PRA exceeds 140 percent of the FY 2001
locality-adjusted national average PRA, the PRA is frozen at the FY
2000 PRA, and is not updated in FY 2001 by the CPI-U factor, subject to
the limitation in section IV.G.2.d. of this preamble.
For example, if the FY 2001 locality-adjusted national average PRA
"ceiling" for Area Y is $140,000 (that is, 140 percent of $100,000,
the hypothetical locality-adjusted national average PRA), and if, in
this area, Hospital B has a FY 2000 PRA of $140,001, then for FY 2001,
Hospital B's PRA is frozen at $140,001 and is not updated by the CPI-U
for FY 2001.
b. FY 2002
For cost reporting periods beginning in FY 2002, the methodology
used to calculate each hospital's individual PRA would be the same as
described in section IV.G.2.a. above for FY 2001. Each hospital's PRA
from the preceding cost reporting period (that is, FY 2001) is compared
to the FY 2002 locality-adjusted national average PRA. If the
individual hospital's FY 2001 PRA exceeds 140 percent of the FY 2002
locality-adjusted national average PRA, the PRA is frozen at the FY
2001 PRA, and is not updated in FY 2002 by the CPI-U factor, subject to
the limitation in section IV.G.2.d. of this preamble.
c. FY 2003, FY 2004, and FY 2005
For cost reporting periods beginning in FY 2003, FY 2004, and FY
2005, if the hospital's PRA for the previous cost reporting period is
greater than 140 percent of the locality-adjusted national average PRA
for that same previous cost reporting period (for example, for the cost
reporting period beginning in FY 2003, compare the hospital's PRA from
the FY 2002 cost reporting period to the locality-adjusted national
average PRA from FY 2002), then, subject to the limitation in section
IV.G.2.d. of this preamble, the hospital's PRA is updated in accordance
with section 1886(h)(2)(D)(i) of the Act, except that the CPI-U applied
is reduced (but not below zero) by 2 percentage points.
For example, for purposes of Hospital A's FY 2003 cost report,
Hospital A's PRA for FY 2002 is compared to Hospital A's locality-
adjusted national average PRA ceiling for FY 2002. If, in FY 2002,
Hospital A's PRA is $100,001 and the FY 2002 locality-adjusted national
average PRA ceiling is $100,000, then for FY 2003, Hospital A's PRA is
updated with the FY 2003 CPI-U minus 2 percent. If, in this scenario,
the CPI-U for FY 2003 is 1.024, Hospital A would update its PRA in FY
2003 by 1.004 (the CPI-U minus 2 percentage points). However, if the
CPI-U factor for FY 2003 is 1.01 and subtracting 2 percentage points of
1.01 yields 0.99, the PRA for FY 2003 would not be updated, and would
remain $100,001.
We note that, while the language in section 1886(h)(2)(D)(iv)(I)
and in section 1886(h)(2)(D)(iv)(II) of the Act (the sections that
describe the adjustments to PRAs for hospitals that exceed 140 percent
of the locality-adjusted national average PRA) is very similar, the
language does differ. Section 1886(h)(2)(D)(iv)(I) of the Act states
that for a cost reporting period beginning during FY 2000 or FY 2001,
"if the approved FTE resident amount for a hospital for the preceding
cost reporting period exceeds 140 percent of the locality-adjusted
national average per resident amount * * * for that hospital and period
* * *, the approved FTE resident amount for the period involved shall
be the same as the approved FTE resident amount for such preceding cost
reporting period." (Emphasis added.) Section 1886(h)(2)(D)(iv)(II) of
the Act states that for a cost reporting period beginning during FY
2003, FY 2004, or FY 2005, "if the approved FTE resident amount for a
hospital for the preceding cost reporting period exceeds 140 percent of
the locality-adjusted national average per resident amount * * * for
that hospital and preceding period, the approved FTE resident amount
for the period involved shall be updated * * . *." (Emphasis added.)
Accordingly, for FYs 2001 and 2002, a hospital's PRA from the previous
cost reporting period is compared to the locality-adjusted national
average PRA of the current cost reporting period. For FY 2003, FY 2004,
or FY 2005, a hospital's PRA from the previous cost reporting period is
compared to the locality-adjusted national average PRA from the
previous cost reporting period.
d. General Rule for Hospitals That Exceed the Ceiling
For cost reporting periods beginning in FY 2001 through FY 2005, if
a hospital's PRA exceeds 140 percent of the locality-adjusted national
average PRA and it is adjusted under any of the above criteria, the
current year PRA cannot be reduced below 140 percent of the locality-
adjusted national average PRA.
For example, to determine the PRA of Hospital A, in FY 2003,
Hospital A had a FY 2002 PRA of $100,001 and the FY 2002 locality-
adjusted national average PRA ceiling is $100,000. For FY 2003,
applying an update of the CPI-U factor minus 2 percentage points (for
example, 1.024 - .02 = 1.004 would yield an updated PRA of $100,401)
while the locality-adjusted national average PRA (before calculation of
the ceiling) is updated for FY 2003 with the full CPI-U factor (1.024)
so that the ceiling of $100,000 is now increased to $102,400 (that is,
$100,000 x 1.024 = $102,400). Therefore, applying the adjustment
would result in a PRA of $100,401, which is under the ceiling of
$102,400 for FY 2003. In this situation, for purposes of the FY 2003
cost report, Hospital A's PRA equals $102,400.
We note that if the hospital's PRA does not exceed 140 percent of
the locality-adjusted national average PRA, the PRA is updated by the
CPI-U for the respective fiscal year. If a hospital's PRA is updated by
the CPI-U because it is less than 140 percent of the locality-adjusted
national average PRA for a respective fiscal year, and once updated,
the PRA exceeds the 140 percent ceiling for the respective fiscal year,
the updated PRA would still be used to calculate the hospital's direct
GME payments. Whether a hospital's PRA exceeds the ceiling is
determined before the application of the update factors; if a
hospital's PRA exceeds the ceiling only because of the application of
the update factors, the hospital's PRA would retain the CPI-U factors.
For example, if, in FY 2001, the locality-adjusted national average
PRA ceiling for Area Y is $140,000, and if, in this area, Hospital B
has a FY 2000 PRA of $139,000, then for FY 2001, Hospital B's PRA is
updated for inflation for FY 2001 because the PRA is below the ceiling.
However, once the update factors are applied, Hospital B's PRA is now
$142,000 (that is, above the $140,000 ceiling). In this scenario,
[[Page 26312]]
Hospital B's inflated PRA would be used to calculate its direct GME
payments because Hospital B has only exceeded the ceiling after the
application of the inflation factors.
PRAs greater than or equal to the floor and less than or
equal to the ceiling. For cost reporting periods beginning in FY 2001
through FY 2005, if a hospital's PRA is greater than or equal to 70
percent and less than or equal to 140 percent of the locality-adjusted
national average PRA, the hospital's PRA is updated using the existing
methodology specified in Sec. 413.86(e)(3)(i).
For cost reporting periods beginning in FY 2006 and thereafter, a
hospital's PRA for its preceding cost reporting period would be updated
using the existing methodology specified in Sec. 413.86(e)(3)(i).
We are proposing to redesignate the existing Sec. 413.86(e)(4) as
Sec. 413.86(e)(5) and add the rules implementing section 1886(h)(2) of
the Act, as amended by section 311 of Public Law 106-113, in the
vacated Sec. 413.86(e)(4). Because we are proposing to apply the
methodology for updating the PRA for inflation that is described in
existing Sec. 413.86(e)(3), we also are proposing to amend
Sec. 413.86(e)(3) to make those rules applicable to the cost reporting
periods (FY 2001 through FY 2005) specified in the proposed
Sec. 413.86(e)(4), and in subsequent cost reporting periods.
In addition, we are proposing to make a conforming change by
amending proposed redesignated Sec. 413.86(e)(5) to account for
situations in which hospitals do not have a 1984 base period and
establish a PRA in a cost reporting period beginning on or after
October 1, 2000. We believe there are two factors to consider when a
new teaching hospital establishes its PRA under proposed redesignated
Sec. 413.86(e)(5). First, for example, when calculating the weighted
mean value of PRAs of hospitals located in the same geographic area or
the weighted mean of the PRAs in the hospital's census region (as
specified in Sec. 412.62(f)(1)(i)), the hospitals' PRAs used to
calculate the weighted mean values are subject to the provisions of
proposed Sec. 413.86(e)(4), the national average PRA methodology.
Second, the resulting PRA established under proposed redesignated
Sec. 413.86(e)(5) also would be subject to the national average PRA
methodology specified in proposed Sec. 413.86(e)(4).
We also are making a clarifying amendment to the proposed
redesignated Sec. 413.86(e)(5)(i)(B) to account for an oversight in the
regulations text when we amended our regulations on August 29, 1997 (62
FR 46004). In the preamble of the August 29, 1997 final rule, in
setting forth our policy on the determination of per resident amounts
for hospitals that did not have residents in the 1984 GME base period,
we stated that we would use a "weighted" average of the per resident
amounts for hospitals located in the same geographic area. However, we
inadvertently did not include a specific reference to "weighted" in
the language of the regulation text. Therefore, we are proposing to
specify that the "weighted mean value" of per resident amounts of
hospitals located in the same geographic wage area is used for
determining the base period for certain hospitals for cost reporting
periods beginning in the same fiscal years.
H. Outliers: Miscellaneous Change
Under the provisions of section 1886(d)(5)(A)(i) of the Act, the
Secretary does not pay for day outliers for discharges from hospitals
paid under the prospective payment systems that occur after September
30, 1997. We are proposing to make a conforming change to Sec. 412.2(a)
by deleting the reference to an additional payment for both inpatient
operating and inpatient capital-related costs for cases that have an
atypically long length of stay.
V. The Prospective Payment System for Capital-Related Costs: The
Last Year of the Transition Period
Since FY 2001 is the last year of the 10-year transition period
established to phase in the prospective payment system for hospital
capital-related costs, for the readers' benefit, we are providing a
summary of the statutory basis for the system, the development and
evolution of the system, the methodology used to determine capital-
related payments to hospitals, and the policy for providing exceptions
payments during the transition period.
Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient hospital services "in accordance
with a prospective payment system established by the Secretary." Under
the statute, the Secretary has broad authority in establishing and
implementing the capital prospective payment system. We initially
implemented the capital prospective payment system in the August 30,
1991 final rule (56 FR 43409), in which we established a 10-year
transition period to change the payment methodology for Medicare
inpatient capital-related costs from a reasonable cost-based
methodology to a prospective methodology (based fully on the Federal
rate).
The 10-year transition period established to phase in the
prospective payment system for capital-related costs is effective for
discharges occurring on or after October 1, 1991 (FY 1992) through
discharges occurring on or before September 30, 2001. For FY 2001,
hospitals paid under the fully prospective transition period
methodology will be paid 100 percent of the Federal rate and zero
percent of their hospital-specific rate, while hospitals paid under the
hold-harmless transition period methodology will be paid 85 percent of
their allowable old capital costs (100 percent for sole community
hospitals) plus a payment for new capital costs based on the Federal
rate. Fiscal year 2001 is the final year of the capital transition
period and, therefore, the last fiscal year for which a portion of a
hold-harmless hospital's capital costs per discharge will be paid on a
cost basis (except for new hospitals). Also, since fully prospective
hospitals will be paid based on 100 percent of the Federal rate and
zero percent of their hospital-specific rate, we will not determine a
hospital-specific rate update for FY 2001 in section IV of the Addendum
of this proposed rule. Beginning with discharges occurring on or after
October 1, 2001 (FY 2002), payment for capital-related costs will be
determined based solely on the capital standard Federal rate. Hospitals
that were defined as "Anew" for the purposes of capital payments
during the transition period (Sec. 412.30(b)) will continue to be paid
according to the applicable payment methodology outlined in
Sec. 412.324.
Generally, during the transition period, inpatient capital-related
costs are paid on a per discharge basis, and the amount of payment
depends on the relationship between the hospital-specific rate and the
Federal rate during the hospital's base year. A hospital with a base
year hospital-specific rate lower than the Federal rate is paid under
the fully prospective payment methodology during the transition period.
This method is based on a dynamic blend percentage of the hospital's
hospital-specific rate and the applicable Federal rate for each year
during the transition period. A hospital with a base period hospital-
specific rate greater than the Federal rate is paid under the hold-
harmless payment methodology during the transition period. A hospital
paid under the hold-harmless payment methodology receives the higher of
(1) a blended payment of 85 percent of reasonable cost for old capital
plus an amount for new capital based on a portion of the Federal rate
or (2) a
[[Page 26313]]
payment based on 100 percent of the adjusted Federal rate. The amount
recognized as old capital is generally limited to the allowable
Medicare capital-related costs that were in use for patient care as of
December 31, 1990. Under limited circumstances, capital-related costs
for assets obligated as of December 31, 1990, but put in use for
patient care after December 31, 1990, also may be recognized as old
capital if certain conditions are met. These costs are known as
obligated capital costs. New capital costs are generally defined as
allowable Medicare capital-related costs for assets put in use for
patient care after December 31, 1990. Beginning in FY 2001, at the
conclusion of the transition period for the capital prospective payment
system, capital payments will be based solely on the Federal rate for
the vast majority of hospitals.
During the transition period, new hospitals are exempt from the
prospective payment system for capital-related costs for their first 2
years of operation and are paid 85 percent of their reasonable cost
during that period. The hospital's first 12-month cost reporting period
(or combination of cost reporting periods covering at least 12 months)
beginning at least 1 year after the hospital accepts its first patient
serves as the hospital's base period. Those base year costs qualify as
old capital and are used to establish its hospital-specific rate used
to determine its payment methodology under the capital prospective
payment system. Effective with the third year of operation, the
hospital is paid under either the fully prospective methodology or the
hold-harmless methodology. If the fully prospective methodology is
applicable, the hospital is paid using the appropriate transition blend
of its hospital-specific rate and the Federal rate for that fiscal year
until the conclusion of the transition period, at which time the
hospital will be paid based on 100 percent of the Federal rate. If the
hold-harmless methodology is applicable, the hospital will receive
hold-harmless payment for assets in use during the base period for 8
years, which may extend beyond the transition period.
The basic methodology for determining capital prospective payments
based on the Federal rate is set forth in Sec. 412.312. For the purpose
of calculating payments for each discharge, the standard Federal rate
is adjusted as follows:
(Standard Federal Rate) x (DRG Weight) x (GAF) x (Large Urban
Add-on, if applicable) x (COLA Adjustment for Hospitals Located in
Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME Adjustment
Factor).
Hospitals may also receive outlier payments for those cases that
qualify under the thresholds established for each fiscal year. Section
412.312(c) provides for a single set of thresholds to identify outlier
cases for both inpatient operating and inpatient capital-related
payments.
During the capital prospective payment system transition period, a
hospital may also receive an additional payment under an exceptions
process if its total inpatient capital-related payments are less than a
minimum percentage of its allowable Medicare inpatient capital-related
costs for qualifying classes of hospitals. For up to 10 years after the
conclusion of the transition period, a hospital may also receive an
additional payment under a special exceptions process if certain
qualifying criteria are met and its total inpatient capital-related
payments are less than the 70 percent minimum percentage of its
allowable Medicare inpatient capital-related costs.
In accordance with section 1886(d)(9)(A) of the Act, under the
prospective payment system for inpatient operating costs, hospitals
located in Puerto Rico are paid for operating costs under a special
payment formula. Prior to FY 1998, hospitals in Puerto Rico were paid a
blended rate that consisted of 75 percent of the applicable
standardized amount specific to Puerto Rico hospitals and 25 percent of
the applicable national average standardized amount. However, effective
October 1, 1997, under amendments to the Act enacted by section 4406 of
Public Law 105-33, operating payments to hospitals in Puerto Rico are
based on a blend of 50 percent of the applicable standardized amount
specific to Puerto Rico hospitals and 50 percent of the applicable
national average standardized amount. In conjunction with this change
to the operating blend percentage, effective with discharges on or
after October 1, 1997, we compute capital payments to hospitals in
Puerto Rico based on a blend of 50 percent of the Puerto Rico rate and
50 percent of the Federal rate. Section 412.374 provides for the use of
this blended payment system for payments to Puerto Rico hospitals under
the prospective payment system for inpatient capital-related costs.
Accordingly, for capital-related costs, we compute a separate payment
rate specific to Puerto Rico hospitals using the same methodology used
to compute the national Federal rate for capital-related costs.
In the August 30, 1991 final rule, we established a capital
exceptions policy, which provides for exceptions payments during the
transition period (Sec. 412.348). Section 412.348 provides that, during
the transition period, a hospital may receive additional payment under
an exceptions process when its regular payments are less than a minimum
percentage, established by class of hospital, of the hospital's
reasonable capital-related costs. The amount of the exceptions payment
is the difference between the hospital's minimum payment level and the
payments the hospital would receive under the capital prospective
payment system in the absence of an exceptions payment. The comparison
is made on a cumulative basis for all cost reporting periods during
which the hospital is subject to the capital prospective payment
transition rules. The minimum payment percentages for regular capital
exceptions payments by class of hospitals for FY 2001 are:
For sole community hospitals, 90 percent;
For urban hospitals with at least 100 beds that have a
disproportionate share patient percentage of at least 20.2 percent or
that received more than 30 percent of their net inpatient care revenues
from State or local governments for indigent care, 80 percent;
For all other hospitals, 70 percent of the hospital's
reasonable inpatient capital-related costs.
The provision for regular exceptions payments will expire at the
end of the transition period. Payments will no longer be adjusted to
reflect regular exceptions payments at Sec. 412.348. Accordingly, for
cost reporting periods beginning on or after October 1, 2001, hospitals
will receive only the per discharge payment based on the Federal rate
for capital costs (plus any applicable DSH or IME and outlier
adjustments) unless a hospital qualifies for a special exceptions
payment under Sec. 412.348(g).
Under the special exceptions provision at Sec. 412.348(g), an
additional payment may be made for up to 10 years beyond the end of the
capital prospective payment system transition period for eligible
hospitals. The capital special exceptions process is budget neutral;
that is, even after the end of the capital prospective payment system
transition, we will continue to make an adjustment to the capital
Federal rate in a budget neutral manner to pay for exceptions, as long
as an exceptions policy is in force. Currently, the limited
[[Page 26314]]
special exceptions policy will allow for exceptions payments for 10
years beyond the conclusion of the 10-year capital transition period or
through September 30, 2011.
VI. Proposed Changes for Hospitals and Hospital Units Excluded From
the Prospective Payment System
A. Limits on and Adjustments to the Target Amounts for Excluded
Hospitals and Units (Sec. 413.40(b)(4) and (g))
1. Updated Caps
Section 1886(b)(3) of the Act (as amended by section 4414 of Public
Law 105-33) establishes caps on the target amounts for certain existing
excluded hospitals and units for cost reporting periods beginning on or
after October 1, 1997 through September 30, 2002. The caps on the
target amounts apply to the following three classes of excluded
hospitals: Psychiatric hospitals and units, rehabilitation hospitals
and units, and long-term care hospitals.
A discussion of how the caps on the target amounts were calculated
can be found in the August 29, 1997 final rule with comment period (62
FR 46018); the May 12, 1998 final rule (63 FR 26344); the July 31, 1998
final rule (63 FR 41000), and the July 30, 1999 final rule (64 FR
41529). For purposes of calculating the caps on existing facilities,
the statute required us to calculate the national 75th percentile of
the target amounts for each class of hospital (psychiatric,
rehabilitation, or long-term care) for cost reporting periods ending
during FY 1996. Under section 1886(b)(3)(H)(iii) of the Act, the
resulting amounts are updated by the market basket percentage to the
applicable fiscal year. However, section 121 of Public Law 106-113
amended section 1886(b)(3)(H) of the Act to provide for an appropriate
wage adjustment to the caps on the target amounts for psychiatric
hospitals and units, rehabilitation hospitals and units, and long-term
care hospitals, effective for cost reporting periods beginning on or
after October 1, 1999, through September 30, 2002. We intend to publish
an interim final rule with comment period implementing this provision
for cost reporting periods beginning on or after October 1, 1999 and
before October 1, 2000. This proposed rule addresses the wage
adjustment to the caps for cost reporting periods beginning on or after
October 1, 2000.
For purposes of calculating the caps, section 1886(b)(3)(H)(ii) of
the Act requires the Secretary to first "estimate the 75th percentile
of the target amounts for such hospitals within such class for cost
reporting periods ending during fiscal year 1996." Furthermore,
section 1886(b)(3)(H)(iii), as added by Public Law 106-113, requires
the Secretary to provide for "an appropriate adjustment to the labor-
related portion of the amount determined under such subparagraph to
take into account the differences between average wage-related costs in
the area of the hospital and the national average of such costs within
the same class of hospital."
Consistent with the broad authority conferred on the Secretary by
section 1886(b)(3)(H)(iii) of the Act to determine the appropriate wage
adjustment, we propose to account for differences in wage-related costs
by adjusting the caps to account for the following:
First, we would adjust each hospital's target amount to account for
area differences in wage-related costs. For each class of hospitals
(psychiatric, rehabilitation, and long-term care), we would determine
the labor-related portion of each hospital's FY 1996 target amount by
multiplying its target amount by the actuarial estimate of the labor-
related portion of costs (or 0.71553). Similarly, we would determine
the nonlabor-related portion of each hospital's FY 1996 target amount
by multiplying its target amount by the actuarial estimate of the
nonlabor-related portion of costs (or 0.28447).
Next, we would account for wage differences among hospitals within
each class by dividing the labor-related portion of each hospital's
target amount by the hospital's FY 1998 hospital wage index under the
hospital inpatient prospective payment system (see Sec. 412.63), as
shown in Tables 4A and 4B of the August 29, 1997 final rule (62 FR
46070). Within each class, each hospital's wage-adjusted target amount
would be calculated by adding the wage-adjusted labor-related portion
of its target amount and the nonlabor-related portion of its target
amount. Then, the wage-adjusted target amounts for hospitals within
each class would be arrayed in order to determine the national 75th
percentile caps on the target amounts for each class.
This adjustment methodology for the national 75th percentile of the
target amounts is identical to the methodology we utilized for the wage
index adjustment described in the August 29, 1997 final rule (62 FR
46020) to calculate the wage-adjusted 110 percent of the national
median target amounts for new excluded hospitals and units. Again, we
recognize that wages may differ for prospective payment hospitals and
excluded hospitals, but we believe that the wage data reflect area
differences in wage-related costs. Moreover, in light of the short
timeframe for implementing this provision, we would use the wage data
for acute hospitals since they are the most feasible data source.
In the July 30, 1999 final rule (64 FR 41529), we established the
FY 2000 caps on the target amounts as follows:
Psychiatric hospitals and units: $11,110.
Rehabilitation hospitals and units: $20,129.
Long-term care hospitals: $39,712.
Therefore, based on these previously calculated caps on the target
amounts and consistent with the broad authority conferred on the
Secretary by section 1886(b)(3)(H)(iii) of the Act to determine the
appropriate wage adjustment to the caps, we have determined the labor-
related and nonlabor-related portions of the proposed caps on the
target amounts for FY 2001 using the methodology outlined above.
------------------------------------------------------------------------
Labor- Nonlabor-
Class of excluded hospital or unit related related
share share
------------------------------------------------------------------------
Psychiatric................................... $8,106 $3,223
Rehabilitation................................ 15,108 6,007
Long-Term Care................................ 29,312 11,654
------------------------------------------------------------------------
These labor-related and nonlabor-related portions of the proposed
caps on the target amounts for FY 2001 are based on the current
estimate of the market basket increase for excluded hospitals and units
for FY 2001 of 3.1 percent.
In the interim final rule with comment period that we plan to
publish, we will revise Secs. 413.40(c)(4)(i) and (c)(4)(ii) to
incorporate the changes in the formula used to determine the limitation
on the target amounts for excluded hospitals and units, as provided for
by section 121 of Public Law 106-113.
Finally, to determine payments described in Sec. 413.40(c), the cap
on the hospital's target amount per discharge is determined by adding
the hospital's nonlabor-related portion of the national 75th percentile
cap to its wage-adjusted, labor-related portion of the national 75th
percentile cap. A hospital's wage-adjusted, labor-related portion of
the target amount is calculated by multiplying the labor-related
portion of the national 75th percentile cap for the hospital's class by
the hospital's applicable wage index. For FY 2001, a hospital's
applicable wage index is the wage index under the hospital inpatient
prospective payment system (see Sec. 412.63), for cost reporting
periods beginning on or after October 1, 2000 and ending on or before
September 30,
[[Page 26315]]
2001 as shown in Tables 4A and 4B of this proposed rule. A hospital's
applicable wage index corresponds to the area in which the hospital or
unit is physically located (MSA or rural area) and is not subject to
prospective payment system hospital reclassification under section
1886(d)(10) of the Act.
2. Updated Caps for New Excluded Hospitals and Units (Sec. 413.40(f))
Section 1886(b)(7) of the Act establishes a payment methodology for
new psychiatric hospitals and units, rehabilitation hospitals and
units, and long-term care hospitals. Under the statutory methodology,
for a hospital that is within a class of hospitals specified in the
statute and that first receives payments as a hospital or unit excluded
from the prospective payment system on or after October 1, 1997, the
amount of payment will be determined as follows: For the first two 12-
month cost reporting periods, the amount of payment is the lesser of
(1) the operating costs per case; or (2) 110 percent of the national
median of target amounts for the same class of hospitals for cost
reporting periods ending during FY 1996, updated to the first cost
reporting period in which the hospital receives payments and adjusted
for differences in area wage levels.
The proposed amounts included in the following table reflect the
updated 110 percent of the wage neutral national median target amounts
for each class of excluded hospitals and units for cost reporting
periods beginning during FY 2001. These figures are updated to reflect
the projected market basket increase of 3.1 percent. For a new
provider, the labor-related share of the target amount is multiplied by
the appropriate geographic area wage index and added to the nonlabor-
related share in order to determine the per case limit on payment under
the statutory payment methodology for new providers.
------------------------------------------------------------------------
Labor- Nonlabor-
Class of excluded hospital or unit related related
share share
------------------------------------------------------------------------
Psychiatric................................... $6,592 $2,623
Rehabilitation................................ 12,964 5,154
Long-Term Care................................ 16,708 6,643
------------------------------------------------------------------------
3. Development of Prospective Payment System for Inpatient
Rehabilitation Hospitals and Units
Section 4421 of Public Law 105-33 added section 1886(j) to the Act.
Section 1886(j) of the Act mandates the phase-in of a case-mix adjusted
prospective payment system for inpatient rehabilitation services
(freestanding hospitals and units) for cost reporting periods beginning
on or after October 1, 2000 and before October 1, 2002. The prospective
payment system will be fully implemented for cost reporting periods
beginning on or after October 1, 2002. Section 1886(j) was amended by
section 125 of Public Law 106-113 to require the Secretary to use the
discharge as the payment unit under the prospective payment system for
inpatient rehabilitation services and to establish classes of patient
discharges by functional-related groups.
We will issue a separate notice of proposed rulemaking in the
Federal Register on the prospective payment system for inpatient
rehabilitation facilities. That document will discuss the requirements
in section 1886(j)(1)(A)(i) of the Act for a transition phase covering
the first two cost reporting periods under the prospective payment
system. During this transition phase, inpatient rehabilitation
facilities will receive a payment rate comprised of a blend of the
facility specific rate (the TEFRA percentage) based on the amount that
would have been paid under Part A with respect to these costs if the
prospective payment system would not be implemented and the inpatient
rehabilitation facility prospective payment rate (prospective payment
percentage). As set forth in sections 1886(j)(1)(C)(i) and (ii) of the
Act, the TEFRA percentage for a cost reporting period beginning on or
after October 1, 2000, and before October 1, 2001, is 66\2/3\ percent;
the prospective payment percentage is 33\1/3\ percent. For cost
reporting periods beginning on or after October 1, 2001 and before
October 1, 2002, the TEFRA percentage is 33\1/3\ percent and the
prospective payment percentage is 66\2/3\ percent.
As provided in section 1886(j)(3)(A) of the Act, the prospective
payment rates will be based on the average inpatient operating and
capital costs of rehabilitation facilities and units. Payments will be
adjusted for case-mix using patient classification groups, area wages,
inflation, outlier status and any other factors the Secretary
determines necessary. We will propose to set prospective payment
amounts in effect during FY 2001 so that total payments under the
system are projected to equal 98 percent of the amount of payments that
would have been made under the current payment system. Outlier payments
in a fiscal year may not be projected or estimated to exceed 5 percent
of the total payments based on the rates for that fiscal year.
4. Continuous Improvement Bonus Payment
Under Sec. 413.40(d)(4), for cost reporting periods beginning on or
after October 1, 1997, an "eligible" hospital may receive continuous
improvement bonus payments in addition to its payment for inpatient
operating costs plus a percentage of the hospital's rate-of-increase
ceiling (as specified in Sec. 413.40(d)(2)). An eligible hospital is a
hospital that has been a provider excluded from the prospective payment
system for at least three full cost reporting periods prior to the
applicable period and the hospital's operating costs per discharge for
the applicable period are below the lowest of its target amount,
trended costs, or expected costs for the applicable period. Prior to
enactment of Public Law 106-113, the amount of the continuous
improvement bonus payment was equal to the lesser of--
(a) 50 percent of the amount by which operating costs were less
than the expected costs for the period; or
(b) 1 percent of the ceiling.
Section 122 of Public Law 106-113 amended section 1886(b)(2) of the
Act to provide, for cost reporting periods beginning on or after
October 1, 2000, and before September 30, 2001, for an increase in the
continuous improvement bonus payment for long-term care and psychiatric
hospitals and units. Under section 1886(b)(2) of the Act, as amended, a
hospital that is within one of these two classes of hospitals
(psychiatric hospitals or units and long-term-care hospitals) will
receive the lesser of 50 percent of the amount by which the operating
costs are less than the expected costs for the period, or the increased
percentages mandated by statute as follows:
(a) For a cost reporting period beginning on or after October 1,
2000 and before September 30, 2001, 1.5 percent of the ceiling; and
(b) For a cost reporting period beginning on or after October 1,
2001, and before September 30, 2002, 2 percent of the ceiling.
We are proposing to revise Sec. 413.40(d)(4) to incorporate this
provision of the statute.
B. Responsibility for Care of Patients in Hospitals-Within-Hospitals
(Sec. 413.40(a)(3))
Effective October 1, 1999, for hospitals-within-hospitals, we
implemented a policy that allows for a 5-percent threshold for cases in
which a patient discharged from an excluded hospital-within-a-hospital
and admitted to the host hospital was subsequently
[[Page 26316]]
readmitted to the excluded hospital-within-a-hospital. With respect to
these cases, if the excluded hospital exceeds the 5-percent threshold,
we do not include any previous discharges to the prospective payment
hospital in calculating the excluded hospital's cost per discharge.
That is, the entire stay is considered one Medicare "discharge" for
purposes of payments to the excluded hospital. The effect of this rule,
as explained more fully in the May 7, 1999 proposed rule (64 FR 24716)
and in the July 30, 1999 final rule (64 FR 41490), is to prevent
inappropriate Medicare payment to hospitals having a large number of
such stays.
In the existing regulations at Sec. 413.40(a)(3), we state that the
5-percent threshold is determined based on the total number of
discharges from the hospital-within-a-hospital. We have received
questions as to whether, in determining whether the threshold is met,
we consider Medicare patients only or all patients (Medicare and non-
Medicare). To avoid any further misunderstanding, we are clarifying the
definition of "ceiling" in Sec. 413.40(a)(3) by specifying that the
5-percent threshold is based on the Medicare inpatients discharged from
the hospital-within-a-hospital in a particular cost reporting period,
not on total Medicare and non-Medicare inpatient discharges.
C. Critical Access Hospitals (CAHs)
1. Election of Payment Method (Sec. 413.70)
Section 1834(g) of the Act, as in effect before enactment of Public
Law 106-113, provided that the amount of payment for outpatient CAH
services is the reasonable costs of the CAH in providing such services.
However, the reasonable costs of the CAH's services to outpatients
included only the CAH's costs of providing facility services, and did
not include any payment for professional services. Physicians and other
practitioners who furnished professional services to CAH outpatients
billed the Part B carrier for these services and were paid under the
physician fee schedule in accordance with the provisions of section
1848 of the Act.
Section 403(d) of Public Law 106-113 amended section 1834(g) of the
Act to permit the CAH to elect to be paid for its outpatient services
under another option. CAHs making this election would be paid amounts
equal to the sum of the following, less the amount that the hospital
may charge as described in section 1866(a)(2)(A) of the Act (that is,
Part A and Part B deductibles and coinsurance):
(1) For facility services, not including any services for which
payment may be made as outpatient professional services, the reasonable
costs of the CAH in providing the services; and
(2) For professional services otherwise included within outpatient
CAH services, the amounts that would otherwise be paid under Medicare
if the services were not included in outpatient CAH services.
Section 403(d) of Public Law 106-113 added section 1834(g)(3) to
the Act to further specify that payment amounts under this election are
be determined without regard to the amount of the customary or other
charge.
The amendment made by section 403(d) is effective for cost
reporting periods beginning on or after October 1, 2000.
We are proposing to revise Sec. 413.70 to incorporate the
provisions of section 403(d) of Public Law 106-113. The existing
Sec. 413.70 specifies a single set of reasonable cost basis payment
rules applicable to both inpatient and outpatient services furnished by
CAHs. As section 403(d) of Public Law 106-113 provides that CAHs may
elect to be paid on a reasonable cost basis for facility services and
on a fee schedule basis for professional services, we are proposing to
revise the section to allow for separate payment rules for CAH
inpatient and outpatient services.
We are proposing to place the provisions of existing Sec. 413.70(a)
and (b) that relate to payment on a reasonable cost basis for inpatient
services furnished by a CAH under proposed Sec. 413.70(a). Proposed
Sec. 413.70(a)(2) would also state that payment to a CAH for inpatient
services does not include professional services to CAH inpatients and
is subject to the Part A hospital deductible and coinsurance determined
under 42 CFR part 409, Subpart G.
We are proposing to include under Sec. 413.70(b) the payment rules
for outpatient services furnished by CAHs, including the option for
CAHs to elect to be paid on the basis of reasonable costs for facility
services and on the basis of the physician fee schedule for
professional services. Under proposed Sec. 413.70(b)(2), we would
retain the existing provision that unless the CAH elects the option
provided for under section 403 of Public Law 106-113, payment for
outpatient CAH services is on a reasonable cost basis, as determined in
accordance with section 1861(v)(1)(A) of the Act and the applicable
principles of cost reimbursement in Parts 413 and 415 (except for
certain payment principles that do not apply; that is, the lesser of
costs or charges, RCE limits, any type of reduction to operating or
capital costs under Sec. 413.124 or Sec. 413.130(j)(7), and blended
payment amounts for ambulatory surgical center services, radiology
services, and other diagnostic services.
Under proposed Sec. 413.70(b)(3), we would specify that any CAH
that elects to be paid under the optional method must make an annual
request in writing, and deliver the request for the election to the
fiscal intermediary at least 60 days before the start of the affected
cost reporting period. In addition, proposed Sec. 413.70(b)(3) states
that if a CAH elects payment under this method, payment to the CAH for
each outpatient visit will be the sum of the following two amounts:
For facility services, not including any outpatient
professional services for which payment may be made on a fee schedule
basis, the amount would be the reasonable costs of the services as
determined in accordance with applicable principles of cost
reimbursement in 42 CFR Parts 413 and 415, except for certain payment
principles that would not apply as specified above; and
For professional services, otherwise payable to the
physician or other practitioner on a fee schedule basis, the amounts
would be those amounts that would otherwise be paid for the services if
the CAH had not elected payment under this method.
We would also specify that payment to a CAH for outpatient services
would be subject to the Part B deductible and coinsurance amounts, as
determined under Secs. 410.152, 410.160, and 410.161. Final payment to
the CAH for its facility services to inpatients and outpatients
furnished during a cost reporting would be based on a cost report for
that period, as required under Sec. 413.20(b).
2. Condition of Participation: Organ, Tissue, and Eye Procurement
(Sec. 485.643)
Sections 1820(c)(2)(B) and 1861(mm) of the Act set forth the
criteria for designating a CAH. Under this authority, the Secretary has
established in regulations the minimum requirements a CAH must meet to
participate in Medicare (42 CFR part 485, Subpart F).
Section 1905(a) of the Act provides that Medicaid payments may be
made for any other medical care, and any other type of remedial care
recognized under State law, specified by the Secretary. The Secretary
has specified CAH services as Medicaid services in regulations,
specifically, the regulations at 42 CFR 440.170(g)(1)(i), and defined
CAH services under Medicaid as those services furnished by a provider
[[Page 26317]]
meeting the Medicare conditions of participation (CoP).
Section 1138 of the Act provides that a CAH participating in
Medicare must establish written protocols to identify potential organ
donors that: (1) Assures that potential donors and their families are
made aware of the full range of options for organ or tissue donation as
well as their rights to decline donation; (2) encourage discretion and
sensitivity with respect to the circumstances, views, and beliefs of
those families; and (3) require that an organ procurement agency
designated by the Secretary be notified of potential organ donors.
On June 22, 1998, as part of the Medicare hospital conditions of
participation under Part 482, subpart C, we added to the regulations at
Sec. 482.45, a condition that specifically addressed organ, tissue, and
eye procurement. However, Part 482 does not apply to CAHs, as CAHs are
a distinct type of provider with separate CoP under Part 485.
Therefore, we are proposing to add a CoP for organ, tissue, and eye
procurement for CAHs at a new Sec. 485.643 that generally parallels the
CoP at Sec. 482.45 for all Medicare hospitals with respect to the
statutory requirement in section 1138 of the Act concerning organ
donation. CAHs are not full service hospitals and therefore are not
equipped to perform organ transplantations. Therefore, we are not
including the standard applicable to Medicare hospitals that CAHs must
be a member of the Organ Procurement and Transplantation Network
(OPTN), abide by its rules and provide organ transplant-related data to
the OPTN, the Scientific Registry, organ procurement agencies, or
directly to the Department on request of the Secretary.
The proposed CoP for CAHs includes several requirements designed to
increase organ donation. One of these requirements is that a CAH must
have an agreement with the Organ Procurement Organization (OPO)
designated by the Secretary, under which the CAH will contact the OPO
in a timely manner about individuals who die or whose death is
imminent. The OPO will then determine the individual's medical
suitability for donation. In addition, the CAH must have an agreement
with at least one tissue bank and at least one eye bank to cooperate in
the retrieval, processing, preservation, storage, and distribution of
tissues and eyes, as long as the agreement does not interfere with
organ donation. The proposed CoP would require a CAH to ensure, in
collaboration with the OPO with which it has an agreement, that the
family of every potential donor is informed of its option to either
donate or not donate organs, tissues, or eyes. The CAH may choose to
have OPO staff perform this function, have CAH and OPO staff jointly
perform this function, or rely exclusively on CAH staff. Research
indicates that consent to organ donation is highest when the formal
request is made by OPO staff or by OPO staff and hospital staff
together. While we require collaboration, we also recognize that CAH
staff may wish to perform this function and may do so when properly
trained. Moreover, the CoP would require the CAH to ensure that CAH
employees who initiate a request for donation to the family of a
potential donor have been trained as designated requestors.
Finally, the CoP would require the CAH to work with the OPO and at
least one tissue bank and one eye bank in educating staff on donation
issues, reviewing death records to improve identification of potential
donors, and maintaining potential donors while necessary testing and
placement of organs and tissues is underway.
We are sensitive to the possible burden this proposed CoP may place
on CAHs. Therefore, we are particularly interested in comments and
information concerning the following requirements: (1) Developing
written protocols for donations; (2) developing agreements with OPOs,
tissue banks, and eye banks; (3) referring all deaths to the OPO; (4)
working cooperatively with the designated OPO, tissue bank, and eye
bank in educating staff on donation issues, reviewing death records,
and maintaining potential donors. We note that the proposed requirement
allow some degree of flexibility for the CAH. For example, the CAH
would have the option of using an OPO-approved education program to
train its own employees as routine requestors or deferring requesting
services to the OPO, the tissue bank, or the eye bank to provide
requestors.
VII. MedPAC Recommendations
We have reviewed the March 1, 2000 report submitted by MedPAC to
Congress and have given it careful consideration in conjunction with
the proposals set forth in this document. MedPAC's recommendations and
our responses are set forth below.
We note that MedPAC's March 1, 2000 report did not contain a
recommendation concerning the update factors for inpatient hospital
operating costs under the prospective payment system or for hospitals
and hospital units excluded from the prospective payment system.
However, at its April 13, 2000 public meeting, MedPAC announced that it
was recommending a combined update of between 3.5 percent and 4.0
percent for operating and capital-related payments for FY 2001. This
recommendation is higher than the current law amount as prescribed by
Public Law 105-33 and proposed in this rule. Because of the timing of
MedPAC's announcement in relation to the publication of this proposed
rule, we intend to respond to MedPAC's recommendation in the FY 2001
final rule to be issued in August 2000 when we will have had the
opportunity to review the data analyses that substantiate MedPAC's
recommendation.
A. Combined Operating and Capital Prospective Payment Systems
(Recommendation 3J)
Recommendation: The Congress should combine prospective payment
system operating and capital payment rates to create a single
prospective rate for hospital inpatient care. This change would require
a single set of payment adjustments--in particular, for indirect
medical education and disproportionate share hospital payments--and a
single payment update.
Response: We responded to a similar comment in the July 30, 1999
final rule (64 FR 41552), the July 31, 1998 final rule (63 FR 41013),
and the September 1, 1995 final rule (60 FR 45816). In those rules, we
stated that our long-term goal was to develop a single update framework
for operating and capital prospective payments and that we would begin
development of a unified framework. However, we have not yet developed
such a single framework as the actual operating system update has been
determined by Congress through FY 2002. In the meantime, we intend to
maintain as much consistency as possible with the current operating
framework in order to facilitate the eventual development of a unified
framework. We maintain our goal of combining the update frameworks at
the end of the 10-year capital transition period (the end of FY 2001)
and may examine combining the payment systems post-transition. Because
of the similarity of the update frameworks, we believe that they could
be combined with little difficulty.
In the discussion of its recommendation, MedPAC notes that it "is
examining broad reforms to the prospective payment system, including
DRG refinement and modifications of the graduate medical education
payment and the IME and DSH adjustments. The Commission believes that a
combined hospital prospective payment rate should be established
[[Page 26318]]
whether or not broader reforms are undertaken. However, if the Congress
acts on any or all of the Commission's recommendations, it should
consider combining operating and capital payments as part of a larger
package."
We agree that ultimately the operating and capital prospective
payment systems should be combined into a single system. However, we
believe that, because of MedPAC's ongoing analysis and the
Administration's pending DSH report to Congress, any such unification
should occur within the context of other system refinements.
B. Continuing Postacute Transfer Payment Policy (Recommendation 3K)
Recommendation: The Commission recommends continuing the existing
policy of adjusting per case payments through an expanded transfer
policy when a short length of stay results from a portion of the
patient's care being provided in another setting.
Response: As noted in section IV.A. of this preamble, we have
undertaken (through a contract with HER) an analysis of the impact on
hospitals and hospital payments of the postacute transfer provision.
That analysis (based on preliminary data covering only approximately 6
months of discharge data) showed a minimal impact on the rate of short-
stay postacute transfers after implementation of the policy. However,
average profit margins as measured by HER declined from $2,454 prior to
implementation of the policy to $1,180 after implementation. We believe
these preliminary findings demonstrate that the postacute transfer
provision has had only marginal impact on existing practice patterns
while more closely aligning the payments to hospitals for these cases
with the costs incurred. Therefore, we agree with MedPAC's
recommendation that the policy should be continued.
C. Disproportionate Share Hospitals (DSH) (Recommendations 3L and 3M)
Recommendation: To address longstanding problems and current legal
and regulatory developments, Congress should reform the
disproportionate share adjustment to: include the costs of all poor
patients in calculating low-income shares used to distribute
disproportionate share payments, and use the same formula to distribute
payments to all hospitals covered by prospective payment.
Response: As we noted in section IV.E. of this preamble, Public Law
106-113 directed the Secretary to require subsection (d) hospitals (as
defined in section 1886(d)(1)(B) of the Act) to submit data on costs
incurred for providing inpatient and outpatient hospital services for
which the hospital is not compensated, including non-Medicare bad debt,
charity care, and charges for Medicaid and indigent care. These data
must be reported on the hospital's cost reports for cost reporting
periods beginning on or after October 1, 2001, and will provide
information that will enable MedPAC and us to evaluate potential
refinements to the DSH formula to address issues referred to by MedPAC.
Medicare fiscal intermediaries will audit these data to ensure
their accuracy and consistency. Our experience with administering the
current DSH formula leads us to believe that this auditing function
would necessarily be extensive, because the non-Medicare data that
would be collected have never before been collected and reviewed by
Medicare's fiscal intermediaries. The data would have to be determined
to be accurate and usable, and corrected if necessary.
We agree that the current statutory payment formula could be
improved, largely because of different threshold levels and different
formula parameters applicable to different groups of hospitals. We are
in the process of preparing a report to Congress on the Medicare DSH
adjustment that includes several options for amending the statutory
formula.
Recommendation: To provide further protection for the primarily
voluntary hospitals with mid-level low-income shares, the minimum
value, or threshold, for the low-income share that a hospital must have
before payment is made should be set to make 60 percent of hospitals
eligible to receive disproportionate share payments.
Response: Currently, approximately less than 40 percent of all
prospective payment system hospitals receive DSH payments. Therefore,
this recommendation would entail significant redistributions of
existing DSH payments if implemented in a budget neutral manner. We are
particularly concerned about the effect of this recommendation on
hospitals receiving substantial DSH payments currently, including major
teaching hospitals and public hospitals. The analysis by MedPAC
demonstrates that these hospitals would be negatively impacted if more
hospitals were made eligible for DSH payments.
VIII. Other Required Information
A. Requests for Data From the Public
In order to respond promptly to public requests for data related to
the prospective payment system, we have set up a process under which
commenters can gain access to the raw data on an expedited basis.
Generally, the data are available in computer tape or cartridge format;
however, some files are available on diskette as well as on the
Internet at http://www.hcfa.gov/stats/pubfiles.html. Data files are
listed below with the cost of each. Anyone wishing to purchase data
tapes, cartridges, or diskettes should submit a written request along
with a company check or money order (payable to HCFA-PUF) to cover the
cost to the following address: Health Care Financing Administration,
Public Use Files, Accounting Division, P.O. Box 7520, Baltimore,
Maryland 21207-0520, (410) 786-3691. Files on the Internet may be
downloaded without charge.
1. Expanded Modified MedPAR-Hospital (National)
The Medicare Provider Analysis and Review (MedPAR) file contains
records for 100 percent of Medicare beneficiaries using hospital
inpatient services in the United States. (The file is a Federal fiscal
year file, that is, discharges occurring October 1 through September 30
of the requested year.) The records are stripped of most data elements
that would permit identification of beneficiaries. The hospital is
identified by the 6-position Medicare billing number. The file is
available to persons qualifying under the terms of the Notice of
Proposed New Routine Uses for an Existing System of Records published
in the Federal Register on December 24, 1984 (49 FR 49941), and amended
by the July 2, 1985 notice (50 FR 27361). The national file consists of
approximately 11 million records. Under the requirements of these
notices, an agreement for use of HCFA Beneficiary Encrypted Files must
be signed by the purchaser before release of these data. For all files
requiring a signed agreement, please write or call to obtain a blank
agreement form before placing an order. Two versions of this file are
created each year. They support the following:
Notice of Proposed Rulemaking (NPRM) published in the
Federal Register. This file, scheduled to be available by the end of
April, is derived from the MedPAR file with a cutoff of 3 months after
the end of the fiscal year (December file).
Final Rule published in the Federal Register. The FY 1999
MedPAR file used for the FY 2001 final rule will be cut off 6 months
after the end of the fiscal year (March file) and is scheduled to be
available by the end of April.
Media: Tape/Cartridge
File Cost: $3,655.00 per fiscal year
[[Page 26319]]
Periods Available: FY 1988 through FY 1999
2. Expanded Modified MedPAR-Hospital (State)
The State MedPAR file contains records for 100 percent of Medicare
beneficiaries using hospital inpatient services in a particular State.
The records are stripped of most data elements that will permit
identification of beneficiaries. The hospital is identified by the 6-
position Medicare billing number. The file is available to persons
qualifying under the terms of the Notice of Proposed New Routine Uses
for an Existing System of Records published in the December 24, 1984
Federal Register notice, and amended by the July 2, 1985 notice. This
file is a subset of the Expanded Modified MedPAR-Hospital (National) as
described above. Under the requirements of these notices, an agreement
for use of HCFA Beneficiary Encrypted Files must be signed by the
purchaser before release of these data. Two versions of this file are
created each year. They support the following:
NPRM published in the Federal Register. This file,
scheduled to be available by the end of April, is derived from the
MedPAR file with a cutoff of 3 months after the end of the fiscal year
(December file).
Final Rule published in the Federal Register. The FY 1999
MedPAR file used for the FY 2001 final rule will be cut off 6 months
after the end of the fiscal year (March file) and is scheduled to be
available by the end of April.
Media: Tape/Cartridge
File Cost: $1,130.00 per State per year
Periods Available: FY 1988 through FY 1999
3. HCFA Wage Data
This file contains the hospital hours and salaries for FY 1997 used
to create the proposed FY 2001 prospective payment system wage index.
The file will be available by the beginning of February for the NPRM
and the beginning of May for the final rule.
------------------------------------------------------------------------
Processing year Wage data year PPS fiscal year
------------------------------------------------------------------------
2000 1997 2001
1999 1996 2000
1998 1995 1999
1997 1994 1998
1996 1993 1997
1995 1992 1996
1994 1991 1995
1993 1990 1994
1992 1989 1993
1991 1988 1992
------------------------------------------------------------------------
These files support the following:
NPRM published in the Federal Register.
Final Rule published in the Federal Register.
Media: Diskette/most recent year on the Internet
File Cost: $165.00 per year
Periods Available: FY 2001 PPS Update
4. HCFA Hospital Wages Indices (Formerly: Urban and Rural Wage Index
Values Only)
This file contains a history of all wage indices since October 1,
1983.
Media: Diskette/most recent year on the Internet
File Cost: $165.00 per year
Periods Available: FY 2001 PPS Update
5. PPS SSA/FIPS MSA State and County Crosswalk
This file contains a crosswalk of State and county codes used by
the Social Security Administration (SSA) and the Federal Information
Processing Standards (FIPS), county name, and a historical list of
Metropolitan Statistical Area (MSA).
Media: Diskette/Internet
File Cost: $165.00 per year
Periods Available: FY 2001 PPS Update
6. Reclassified Hospitals New Wage Index (Formerly: Reclassified
Hospitals by Provider Only)
This file contains a list of hospitals that were reclassified for
the purpose of assigning a new wage index. Two versions of these files
are created each year. They support the following:
NPRM published in the Federal Register.
Final Rule published in the Federal Register.
Media: Diskette/Internet
File Cost: $165.00 per year
Periods Available: FY 2001 PPS Update
7. PPS-IV to PPS-XII Minimum Data Set
The Minimum Data Set contains cost, statistical, financial, and
other information from Medicare hospital cost reports. The data set
includes only the most current cost report (as submitted, final
settled, or reopened) submitted for a Medicare participating hospital
by the Medicare fiscal intermediary to HCFA. This data set is updated
at the end of each calendar quarter and is available on the last day of
the following month.
Media: Tape/Cartridge
------------------------------------------------------------------------
Periods
beginning and before
on or after
------------------------------------------------------------------------
PPS-IV........................................ 10/01/86 10/01/87
PPS-V......................................... 10/01/87 10/01/88
PPS-VI........................................ 10/01/88 10/01/89
PPS-VII....................................... 10/01/89 10/01/90
PPS-VIII...................................... 10/01/90 10/01/91
PPS-IX........................................ 10/01/91 10/01/92
PPS-X......................................... 10/01/92 10/01/93
PPS-XI........................................ 10/01/93 10/01/94
PPS-XIII...................................... 10/01/94 10/01/95
------------------------------------------------------------------------
(Note: The PPS-XIII, PPS-XIV, and PPS-XV Minimum Data Sets are part of
the PPS-XIII, PPS-XIV, and PPS-XV Hospital Date Set Files).
File Cost: $770.00 per year
8. PPS-IX to PPS-XII Capital Data Set
The Capital Data Set contains selected data for capital-related
costs, interest expense and related information and complete balance
sheet data from the Medicare hospital cost report. The data set
includes only the most current cost report (as submitted, final settled
or reopened) submitted for a Medicare certified hospital by the
Medicare fiscal intermediary to HCFA. This data set is updated at the
end of each calendar quarter and is available on the last day of the
following month.
Media: Tape/Cartridge
------------------------------------------------------------------------
Periods
beginning and before
on or after
------------------------------------------------------------------------
PPS-IX........................................ 10/01/91 10/01/92
PPS-X......................................... 10/01/92 10/01/93
PPS-XI........................................ 10/01/93 10/01/94
PPS-XII....................................... 10/01/94 10/01/95
------------------------------------------------------------------------
(Note: The PPS-XIII, PPS-XIV, and PPS-XV Capital Data Sets are part of
the PPS-XIII, PPS-XIV, PPS-XV Hospital Data Set files.)
File Cost: $770.00 per year
9. PPS-XIII to PPS-XV Hospital Data Set
The file contains cost, statistical, financial, and other data from
the Medicare Hospital Cost Report. The data set includes only the most
current cost report (as submitted, final settled, or reopened)
submitted for a Medicare-certified hospital by the Medicare fiscal
intermediary to HCFA. The data set are updated at the end of each
calendar quarter and is available on the last day of the following
month.
Media: Diskette/Internet
File Cost: $2,500.00
[[Page 26320]]
------------------------------------------------------------------------
Periods
beginning and before
on or after
------------------------------------------------------------------------
PPS-XIII...................................... 10/01/95 10/01/96
PPS-XIV....................................... 10/01/96 10/01/97
PPS-XV........................................ 10/01/97 10/01/98
------------------------------------------------------------------------
10. Provider-Specific File
This file is a component of the PRICER program used in the fiscal
intermediary's system to compute DRG payments for individual bills. The
file contains records for all prospective payment system eligible
hospitals, including hospitals in waiver States, and data elements used
in the prospective payment system recalibration processes and related
activities. Beginning with December 1988, the individual records were
enlarged to include pass-through per diems and other elements.
Media: Diskette/Internet
File Cost: $265.00
Periods Available: FY 2001 PPS Update
11. HCFA Medicare Case-Mix Index File
This file contains the Medicare case-mix index by provider number
as published in each year's update of the Medicare hospital inpatient
prospective payment system. The case-mix index is a measure of the
costliness of cases treated by a hospital relative to the cost of the
national average of all Medicare hospital cases, using DRG weights as a
measure of relative costliness of cases. Two versions of this file are
created each year. They support the following:
NPRM published in the Federal Register.
Final rule published in the Federal Register.
Media: Diskette/most recent year on Internet
Price: $165.00 per year/per file
Periods Available: FY 1985 through FY 1999
12. DRG Relative Weights (Formerly Table 5 DRG)
This file contains a listing of DRGs, DRG narrative description,
relative weights, and geometric and arithmetic mean lengths of stay as
published in the Federal Register. The hard copy image has been copied
to diskette. There are two versions of this file as published in the
Federal Register:
NPRM.
Final rule.
Media: Diskette/Internet
File Cost: $165.00
Periods Available: FY 2001 PPS Update
13. PPS Payment Impact File
This file contains data used to estimate payments under Medicare's
hospital inpatient prospective payment systems for operating and
capital-related costs. The data are taken from various sources,
including the Provider-Specific File, Minimum Data Sets, and prior
impact files. The data set is abstracted from an internal file used for
the impact analysis of the changes to the prospective payment systems
published in the Federal Register. This file is available for release 1
month after the proposed and final rules are published in the Federal
Register.
Media: Diskette/Internet
File Cost: $165.00
Periods Available: FY 2001 PPS Update
14. AOR/BOR Tables
This file contains data used to develop the DRG relative weights.
It contains mean, maximum, minimum, standard deviation, and coefficient
of variation statistics by DRG for length of stay and standardized
charges. The BOR tables are "Before Outliers Removed" and the AOR is
"After Outliers Removed." (Outliers refers to statistical outliers,
not payment outliers.) Two versions of this file are created each year.
They support the following:
NPRM published in the Federal Register.
Final rule published in the Federal Register.
Media: Diskette/Internet
File Cost: $165.00
Periods Available: FY 2001 PPS Update
For further information concerning these data tapes, contact The
HCFA Public Use Files Hotline at (410) 786-3691.
Commenters interested in obtaining or discussing any other data
used in constructing this rule should contact Stephen Phillips at (410)
786-4531.
B. Information Collection Requirements
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comment on each of these issues
for the sections that contain information collection requirements.
Section 412.77, Determination of the Hospital-Specific Rate for
Inpatient Operating Costs for Certain Sole Community Hospitals Based on
a Federal Fiscal Year 1996 Base Period, and 412.92, Special Treatment:
Sole Community Hospitals
Sections 412.77(a)(2) and 412.92(d)(1)(ii) state that an otherwise
eligible hospital that elects not to receive payment based on its
hospital-specific rate as determined under Sec. 412.77 must notify its
fiscal intermediary of its decision prior to the beginning of its cost
reporting period beginning on or after October 1, 2000.
We estimate that it will take each hospital that notifies its
intermediary of its election not to receive payments based on its
hospital-specific rate as determined under Sec. 412.77 an hour to draft
and send its notice. However, we are unable at this time to determine
how many hospitals will make this election and, therefore, will need to
notify their intermediaries of their decision.
Section 485.643, Condition of Participation: Organ, Tissue, and Eye
Procurement
It is important to note that because of the inherent flexibility of
this proposed regulation, the extent of the information collection
requirements is dependent upon decisions that will be made either by
the CAH or by the CAH in conjunction with the OPO or the tissue and eye
banks, or both. Thus, the paperwork burden on individual CAHs will vary
and is subject, in large part, to their decisionmaking.
The burden associated with the requirements of this section
include: (1) The requirement to maintain protocol documentation
demonstrating that the five requirements of this section have been met;
(2) the requirement for a CAH to notify an OPO, a tissue bank, or an
eye bank of any imminent or actual death; and (3) the time required for
a hospital to document and maintain OPO referral information.
We estimate that, on average, the requirement to maintain protocol
documentation demonstrating that the requirements of this section have
been met will impose one hour of burden on each CAH (on 161 CAHs) on an
annual basis (a total of 161 annual burden hours).
The CoP in this section would require CAHs to notify the OPO about
every
[[Page 26321]]
death that occurs in the CAH. The average Medicare hospital has
approximately 165 beds and 200 deaths per year. However, by statute and
regulation, CAHs may use no more than 15 beds for acute care services.
Assuming that the number of deaths in a hospital is related to the
number of acute care beds, there should be approximately 18 deaths per
year in the average CAH. We estimated that the average notification
telephone call to the OPO takes 5 minutes. Based on this estimate, a
CAH would need approximately 90 minutes per year to notify the OPO
about all deaths and imminent deaths.
Under the proposed CoP, a CAH may agree to have the OPO determine
medical suitability for tissue and eye donation or may have alternative
arrangements with a tissue bank and an eye bank. These alternative
arrangements could include the CAH's direct notification of the tissue
and eye bank of potential tissue and eye donors or direct notification
of all deaths. If a CAH chose to contact both a tissue bank and an eye
bank directly on all deaths, it would need an additional 6 hours per
year (that is, 5 minutes per call) in order to call both the tissue and
eye bank directly. Again, the impact is small, and the proposed
regulation permits the CAH to decide how this process will take place.
Note that many communities already have a one-phone call system in
place. In addition, some OPOs are also tissue banks or eye banks, or
both. A CAH that chose to use the OPO's tissue and eye bank services in
these localities would need to make only one telephone call on every
death.
We estimate that additional time would be needed by the CAH to
annotate the patient record or fill out a form regarding the
disposition of a call to the OPO or the tissue bank or the eye bank, or
both. This recordkeeping should take no more than 5 minutes per call.
Therefore, the paperwork burden associated with the call(s) would add
up to an additional 270 minutes per year per CAH.
In summary, the information collection requirements of this section
would be a range of from 3 to 9 hours per CAH, or 483 to 1,449 hours
annually nationally.
If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following addresses:
Health Care Financing Administration, Office of Information Services,
Security and Standards Group, Division of HCFA Enterprise Standards,
Room N2-14-26, 7500 Security Boulevard, Baltimore, Maryland 21244-1850.
Attn: John Burke HCFA-1118-P; and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 3001, New Executive Office Building, Washington, DC 20503.
Attn: Allison Herron Eydt, HCFA Desk Officer.
These new information collection and recordkeeping requirements
have been submitted to the Office of Management and Budget (OMB) for
review under the authority of PRA. We have submitted a copy of the
proposed rule to OMB for its review of the information collection
requirements. These requirements will not be effective until they have
been approved by OMB.
The requirements associated with a hospital's application for a
geographic redesignation, codified in Part 412, are currently approved
by OMB under OMB approval number 0938-0573, with an expiration date of
September 30, 2002.
C. Public Comments
Because of the large number of items of correspondence we normally
receive on a proposed rule, we are not able to acknowledge or respond
to them individually. However, in preparing the final rule, we will
consider all comments concerning the provisions of this proposed rule
that we receive by the date and time specified in the DATES section of
this preamble and respond to those comments in the preamble to that
rule. We emphasize that section 1886(e)(5) of the Act requires the
final rule for FY 2001 to be published by August 1, 2000, and we will
consider only those comments that deal specifically with the matters
discussed in this proposed rule.
List of Subjects
42 CFR Part 412
Administrative practice and procedure, Health facilities, Medicare,
Puerto Rico, Reporting and recordkeeping requirements.
42 CFR Part 413
Health facilities, Kidney diseases, Medicare, Puerto Rico,
Reporting and recordkeeping requirements.
42 CFR Part 485
Grant programs--health, Health facilities, Medicaid, Medicare,
Reporting and recordkeeping requirements.
42 CFR Chapter IV is proposed to be amended as set forth below:
PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES
A. Part 412 is amended as follows:
1. The authority citation for Part 412 continues to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
2. Section 412.2 is amended by revising the last sentence of
paragraph (a) to read as follows:
Sec. 412.2 Basis of payment.
(a) Payment on a per discharge basis. * * * An additional payment
is made for both inpatient operating and inpatient capital-related
costs, in accordance with subpart F of this part, for cases that are
extraordinarily costly to treat.
* * * * *
Sec. 412.4 [Amended]
3. In Sec. 412.4(f)(3), the reference to "Sec. 412.2(e)" is
removed and " 412.2(b)" is added in its place.
4. Section 412.63 is amended by:
a. Revising paragraph (s);
b. Redesignating paragraphs (t), (u), (v), and (w) as paragraphs
(u), (v), (w), and (x) respectively; and
c. Adding a new paragraph (t), to read as follows:
Sec. 412.63 Federal rates for inpatient operating costs for fiscal
years after Federal fiscal year 1984.
* * * * *
(s) Applicable percentage change for fiscal year 2001. The
applicable percentage change for fiscal year 2001 is the percentage
increase in the market basket index for prospective payment hospitals
(as defined in Sec. 413.40(a) of this subchapter) for sole community
hospitals and the increase in the market basket index minus 1.1
percentage points for other hospitals in all areas.
(t) Applicable percentage change for fiscal year 2002. The
applicable percentage change for fiscal year 2002 is the percentage
increase in the market basket index for prospective payment hospitals
(as defined in Sec. 413.40(a) of this subchapter) minus 1.1 percentage
points for hospitals in all areas.
* * * * *
5. Section 412.73 is amended by revising paragraph (c)(12) and
adding paragraphs (c)(13), (c)(14), and (c)(15), to read as follows:
Sec. 412.73 Determination of the hospital-specific rate based on a
Federal fiscal year 1982 base period.
* * * * *
(c) Updating base-year costs * * *
(12) For Federal fiscal years 1996 through 2000. For Federal fiscal
years
[[Page 26322]]
1996 through 2000, the update factor is the applicable percentage
change for other prospective payment hospitals in each respective year
as set forth in Secs. 412.63(n) through (r).
(13) For Federal fiscal year 2001. For Federal fiscal year 2001,
the update factor is the percentage increase in the market basket index
for prospective payment hospitals (as defined in Sec. 413.40(a) of this
chapter).
(14) For Federal fiscal year 2002. For Federal fiscal year 2002,
the update factor is the percentage increase in the market basket index
for prospective payment hospitals (as defined in Sec. 413.40(a) of this
chapter) minus 1.1 percentage points.
(15) For Federal fiscal year 2003 and for subsequent years. For
Federal fiscal year 2003 and subsequent years, the update factor is the
percentage increase in the market basket index for prospective payment
hospitals (as defined in Sec. 413.40(a) of this chapter).
* * * * *
Sec. 412.75 [Amended]
6. In Sec. 412.75(d), the cross reference "Sec. 412.73 (c)(5)
through (c)(12)" is removed and "Sec. 412.75(c)(15)" is added in its
place.
Sec. 412.76 [Redesignated]
7. Section 412.76 is redesignated as a new Sec. 412.78.
8. A new Sec. 412.77 is added to read as follows:
Sec. 412.77 Determination of the hospital-specific rate for inpatient
operating costs for certain sole community hospitals based on a Federal
fiscal year 1996 base period.
(a) Applicability. (1) This section applies to a hospital that has
been designated as a sole community hospital, as described in
Sec. 412.72, that received payment for its cost reporting period
beginning during 1999 based on its hospital-specific rate for either
fiscal year 1982 under Sec. 412.73 or fiscal year 1987 under
Sec. 412.75, and that elects under paragraph (a)(2) of this section to
be paid based on a fiscal year 1996 base period.
(2) Hospitals that are otherwise eligible for but elect not to
receive payment on the basis of their Federal fiscal year 1996 updated
costs per case must notify their fiscal intermediary of this decision
prior to the beginning of their cost reporting period beginning on or
after October 1, 2000, for which such payments would otherwise be made.
If a hospital does not make the notification to its fiscal intermediary
before the end of the cost reporting period, the hospital is deemed to
have elected to have section 1886(b)(3)(I) of the Act apply to the
hospital.
(3) This section applies only to cost reporting periods beginning
on or after October 1, 2000.
(4) The formula for determining the hospital-specific costs for
hospitals described under paragraph (a)(1) of this section is set forth
in paragraph (f) of this section.
(b) Base-period costs for hospitals subject to fiscal year 1996
rebasing. (1) General rule. Except as provided in paragraph (b)(2) of
this section, for each hospital eligible under paragraph (a) of this
section, the intermediary determines the hospital's Medicare Part A
allowable inpatient operating costs, as described in Sec. 412.2(c), for
the 12-month or longer cost reporting period ending on or after
September 30, 1996 and before September 30, 1997, and computes the
hospital-specific rate for purposes of determining prospective payment
rates for inpatient operating costs as determined under Sec. 412.92(d).
(2) Exceptions. (i) If the hospital's last cost reporting period
ending before September 30, 1997 is for less than 12 months, the base
period is the hospital's most recent 12-month or longer cost reporting
period ending before the short period report.
(ii) If the hospital does not have a cost reporting period ending
on or after September 30, 1996 and before September 30, 1997, and does
have a cost reporting period beginning on or after October 1, 1995 and
before October 1, 1996, that cost reporting period is the base period
unless the cost reporting period is for less than 12 months. If that
cost reporting period is for less than 12 months, the base period is
the hospital's most recent 12-month or longer cost reporting period
ending before the short cost reporting period. If a hospital has no
cost reporting period beginning in fiscal year 1996, the hospital will
not have a hospital-specific rate based on fiscal year 1996.
(c) Costs on a per discharge basis. The intermediary determines the
hospital's average base-period operating cost per discharge by dividing
the total operating costs by the number of discharges in the base
period. For purposes of this section, a transfer as defined in
Sec. 412.4(b) is considered to be a discharge.
(d) Case-mix adjustment. The intermediary divides the average base-
period cost per discharge by the hospital's case-mix index for the base
period.
(e) Updating base-period costs. For purposes of determining the
updated base-period costs for cost reporting periods beginning in
Federal fiscal year 1996, the update factor is determined using the
methodology set forth in Sec. 412.73(c)(12) through (c)(15).
(f) DRG adjustment. The applicable hospital-specific cost per
discharge is multiplied by the appropriate DRG weighting factor to
determine the hospital-specific base payment amount (target amount) for
a particular covered discharge.
(g) Phase-in of fiscal year 1996 base-period rate. The intermediary
calculates the hospital-specific rates determined on the basis of the
fiscal year 1996 base period rate as follows:
(1) For Federal fiscal year 2001, the hospital-specific rate is the
sum of 75 percent of the hospital-specific rate for fiscal year 1982 or
fiscal year 1987 (the Sec. 412.73 or Sec. 412.75 target amount), plus
25 percent of the hospital-specific rate for fiscal year 1996 (the
Sec. 412.77 target amount).
(2) For Federal fiscal year 2002, the hospital-specific rate is the
sum of 50 percent of the Sec. 412.73 or Sec. 412.75 target amount and
50 percent of the Sec. 412.77 target amount.
(3) For Federal fiscal year 2003, the hospital-specific rate is the
sum of 25 percent of the Sec. 412.73 or Sec. 412.75 target amount and
75 percent of the Sec. 412.77 target amount.
(4) For Federal fiscal year 2004 and any subsequent fiscal years,
the hospital-specific rate is 100 percent of the Sec. 412.77 target
amount.
(h) Notice of hospital-specific rates. The intermediary furnishes a
hospital eligible for rebasing a notice of the hospital-specific rate
as computed in accordance with this section. The notice will contain a
statement of the hospital's Medicare Part A allowable inpatient
operating costs, the number of Medicare discharges, and the case-mix
index adjustment factor used to determine the hospital's cost per
discharge for the Federal fiscal year 1996 base period.
(i) Right to administrative and judicial review. An intermediary's
determination of the hospital-specific rate for a hospital is subject
to administrative and judicial review. Review is available to a
hospital upon receipt of the notice of the hospital-specific rate. This
notice is treated as a final intermediary determination of the amount
of program reimbursement for purposes of subpart R of part 405 of this
chapter.
(j) Modification of hospital-specific rate. (1) The intermediary
recalculates the hospital-specific rate to reflect the following:
(i) Any modifications that are determined as a result of
administrative or judicial review of the hospital-specific rate
determinations; or
(ii) Any additional costs that are recognized as allowable costs
for the
[[Page 26323]]
hospital's base period as a result of administrative or judicial review
of the base-period notice of amount of program reimbursement.
(2) With respect to either the hospital-specific rate determination
or the amount of program reimbursement determination, the actions taken
on administrative or judicial review that provide a basis for the
recalculations of the hospital-specific rate include the following:
(i) A reopening and revision of the hospital's base-period notice
of amount of program reimbursement under Secs. 405.1885 through
405.1889 of this chapter.
(ii) A prehearing order or finding issued during the provider
payment appeals process by the appropriate reviewing authority under
Sec. 405.1821 or Sec. 405.1853 of this chapter that resolved a matter
at issue in the hospital's base-period notice of amount of program
reimbursement.
(iii) An affirmation, modification, or reversal of a Provider
Reimbursement Review Board decision by the Administrator of HCFA
underSec. 405.1875 of this chapter that resolved a matter at issue in
the hospital's base-period notice of amount of program reimbursement.
(iv) An administrative or judicial review decision under
Sec. 405.1831, Sec. 405.1871, or Sec. 405.1877 of this chapter that is
final and no longer subject to review under applicable law or
regulations by a higher reviewing authority, and that resolved a matter
at issue in the hospital's base-period notice of amount of program
reimbursement.
(v) A final, nonappealable court judgment relating to the base-
period costs.
(3) The adjustments to the hospital-specific rate made under
paragraphs (i)(1) and (i)(2) of this section are effective
retroactively to the time of the intermediary's initial determination
of the rate.
9. Section 412.92 is amended by revising paragraph (d)(1) to read
as follows:
Sec. 412.92 Special treatment: sole community hospitals.
* * * * *
(d) Determining prospective payment rates for inpatient operating
costs for sole community hospitals. (1) General rules. (i) Except as
provided in paragraph (d)(1)(ii) of this section, for cost reporting
periods beginning on or after April 1, 1990, a sole community hospital
is paid based on whichever of the following amounts yields the greatest
aggregate payment for the cost reporting period:
(A) The Federal payment rate applicable to the hospitals as
determined under Sec. 412.63.
(B) The hospital-specific rate as determined under Sec. 412.73.
(C) The hospital-specific rate as determined under Sec. 412.75.
(ii) For cost reporting periods beginning on or after October 1,
2000, a sole community hospital that was paid for its cost reporting
period beginning during 1999 on the basis of the hospital-specific rate
specified in paragraph (d)(1)(i)(B) or (d)(1)(i)(C) of this section,
may elect to use the hospital-specific rate as determined under
Sec. 412.77.
* * * * *
10. Section 412.105 is amended by:
a. Revising paragraph (d)(3)(v);
b. Republishing paragraph (f)(1) introductory text and revising
paragraph (f)(1)(vii);
c. Adding new paragraphs (f)(1)(viii) and (f)(1)(ix); and
d. Revising paragraph (g), to read as follows:
Sec. 412.105 Special treatment: Hospitals that incur indirect costs
for graduate medical education programs.
* * * * *
(d) Determination of education adjustment factor * * *
(3) * * *
(v) For discharges occurring during fiscal year 2001, 1.54.
* * * * *
(f) Determining the total number of full-time equivalent residents
for cost reporting periods beginning on or after July 1, 1991. (1) For
cost reporting periods beginning on or after July 1, 1991, the count of
full-time equivalent residents for the purpose of determining the
indirect medical education adjustment is determined as follows:
* * * * *
(vii) If a hospital establishes a new medical residency training
program, as defined in Sec. 413.86(g)(9) of this subchapter, the
hospital's full-time equivalent cap may be adjusted in accordance with
the provisions of Secs. 413.86(g)(6) (i) through (iv) of this
subchapter.
(viii) A hospital that began construction of its facility prior to
August 5, 1997, and sponsored new medical residency training programs
on or after January 1, 1995 and on or before August 5, 1997, that
either received initial accreditation by the appropriate accrediting
body or temporarily trained residents at another hospital(s) until the
facility was completed, may receive an adjustment to its full-time
equivalent cap in accordance with the provisions of Sec. 413.86(g)(7)
of this subchapter.
(ix) A hospital may receive a temporary adjustment to its full-time
equivalent cap to reflect residents added because of another hospital's
closure if the hospital meets the criteria specified in
Sec. 413.86(g)(8) of this subchapter.
* * * * *
(g) Indirect medical education payment for managed care enrollees.
For portions of cost reporting periods occurring on or after January 1,
1998, a payment is made to a hospital for indirect medical education
costs, as determined under paragraph (e) of this section, for
discharges associated with individuals who are enrolled under a risk-
sharing contract with an eligible organization under section 1876 of
the Act or with a Medicare+Choice organization under title XVIII, Part
C of the Act during the period, according to the applicable payment
percentages described in Secs. 413.86(d)(3)(i) through (d)(3)(v) of
this subchapter.
11. In Sec. 412.106, the introductory text of paragraph (e) is
republished and paragraphs (e)(4) and (e)(5) are revised to read as
follows:
Sec. 412.106 Special treatment: Hospitals that serve a
disproportionate share of low-income patients.
* * * * *
(e) Reduction in payment for FYs 1998 through 2002. The amounts
otherwise payable to a hospital under paragraph (d) of this section are
reduced by the following:
* * * * *
(4) For FY 2001, 3 percent.
(5) For FY 2002, 4 percent.
* * * * *
12. Section 412.230 is amended by:
a. Republishing the introductory text of paragraph (e)(1); and
b. Revising paragraph (e)(1)(iii) and (e)(1)(iv)(A), to read as
follows:
Sec. 412.230 Criteria for an individual hospital seeking redesignation
to another rural area or an urban area.
* * * * *
(e) Use of urban or other rural area's wage index--(1) Criteria for
use of area's wage index. Except as provided in paragraphs (e)(3) and
(e)(4) of this section, to use an area's wage index, a hospital must
demonstrate the following:
* * * * *
(iii) The hospital's average hourly wage is, in the case of a
hospital located in a rural area, at least 106 percent, and, in the
case of a hospital located in an urban area, at least 108 percent of
the average hourly wage of hospitals in the
[[Page 26324]]
area in which the hospital is located; and
(iv) * * *
(A) The hospital's average hourly wage is equal to, in the case of
a hospital located in a rural area, at least 82 percent, and in the
case of a hospital located in an urban area, at least 84 percent of the
average hourly wage of hospitals in the area to which it seeks
redesignation.
* * * * *
PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED NURSING FACILITIES
B. Part 413 is amended as follows:
1. The authority citation for Part 413 is revised to read as
follows:
Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and
(n), 1871, 1881, 1883, and 1886 of the Social Security Act (42
U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n),
1395hh, 1395rr, 1395tt, and 1395ww).
2. In Sec. 413.40, paragraph (a)(3) is amended by revising
paragraph (B) in the definition of "ceiling" and paragraph (d)(4) is
revised, to read as follows:
Sec. 413.40 Ceiling on the rate of increase in hospital inpatient
costs.
(a) Introduction. * * *
(3) Definitions. * * *
Ceiling. * * *
(B) The hospital-within-a-hospital has discharged to the other
hospital and subsequently readmitted more than 5 percent (that is, in
excess of 5.0 percent) of the total number of Medicare inpatients
discharged from the hospital-within-a-hospital in that cost reporting
period.
* * * * *
(d) Application of the target amount in determining the amount of
payment. * * *
(4) Continuous improvement bonus payments. (i) For cost reporting
periods beginning on or after October 1, 1997 and ending before October
1, 2000, eligible hospitals (as defined in paragraph (d)(5) of this
section) receive payments in addition to those in paragraph (d)(2) of
this section, as applicable. These payments are equal to the lesser
of--
(A) 50 percent of the amount by which the operating costs are less
than the expected costs for the period; or
(B) 1 percent of the ceiling.
(ii) For cost reporting periods beginning on or after October 1,
2000, and ending before October 1, 2001, eligible psychiatric hospitals
and units and long-term care hospitals (as defined in paragraph (d)(5)
of this section) receive payments in addition to those in paragraph
(d)(2) of this section, as applicable. These payments are equal to the
lesser of--
(A) 50 percent of the amount by which the operating costs are less
than the expected costs for the period; or
(B) 1.5 percent of the ceiling.
(iii) For cost reporting periods beginning on or after October 1,
2001, and ending before October 1, 2002, eligible psychiatric hospitals
and units and long-term care hospitals receive payments in addition to
those in paragraph (d)(5) of this section, as applicable. These
payments are equal to the lesser of--
(A) 50 percent of the amount by which the operating costs are less
than the expected costs for the periods; or
(B) 2 percent of the ceiling.
* * * * *
3. Section 413.70 is revised to read as follows:
Sec. 413.70 Payment for services of a CAH.
(a) Payment for inpatient services furnished by a CAH. (1) Payment
for inpatient services of a CAH is the reasonable costs of the CAH in
providing CAH services to its inpatients, as determined in accordance
with section 1861(v)(1)(A) of the Act and the applicable principles of
cost reimbursement in this part and in Part 415 of this chapter, except
that the following payment principles are excluded when determining
payment for CAH inpatient services:
(i) Lesser of cost or charges;
(ii) Ceilings on hospital operating costs; and
(iii) Reasonable compensation equivalent (RCE) limits for physician
services to providers.
(2) Payment to a CAH for inpatient services does not include any
costs of physician services or other professional services to CAH
inpatients, and is subject to the Part A hospital deductible and
coinsurance, as determined under subpart G of part 409 of this chapter.
(b) Payment for outpatient services furnished by a CAH. (1)
General. Unless the CAH elects to be paid for services to its
outpatients under the method specified in paragraph (b)(3) of this
section, the amount of payment for outpatient services of a CAH is the
amount determined under paragraph (b)(2) of this section.
(2) Reasonable costs for facility services. (i) Payment for
outpatient services of a CAH is the reasonable costs of the CAH in
providing CAH services to its outpatients, as determined in accordance
with section 1861(v)(1)(A) of the Act and the applicable principles of
cost reimbursement in this part and in Part 415 of this chapter, except
that the following payment principles are excluded when determining
payment for CAH outpatient services:
(A) Lesser of costs or charges;
(B) RCE limits;
(C) Any type of reduction to operating or capital costs under
Sec. 413.124 or Sec. 413.130(j)(7); and
(D) Blended payment amounts for ambulatory surgical services,
radiology services, and other diagnostic services;
(ii) Payment to a CAH under paragraph (b)(2) of this section does
not include any costs of physician services or other professional
services to CAH outpatients, and is subject to the Part B deductible
and coinsurance amounts, as determined under Secs. 410.152(k), 410.160,
and 410.161 of this chapter.
(3) Election to be paid reasonable costs for facility services plus
fee schedule for professional services. (i) A CAH may elect to be paid
for outpatient services in any cost reporting period under the method
described in paragraphs (b)(3)(ii) and (b)(3)(iii) of this section.
This election must be made in writing, made on an annual basis, and
delivered to the intermediary at least 60 days before the start of each
affected cost reporting period. An election of this payment method,
once made for a cost reporting period, remains in effect for all of
that period and applies to all services furnished to outpatients during
that period.
(ii) If the CAH elects payment under this method, payment to the
CAH for each outpatient visit will be the sum of the following amounts:
(A) For facility services, not including any services for which
payment may be made under paragraph (b)(3)(ii)(B) of this section, the
reasonable costs of the services as determined under paragraph
(b)(2)(i) of this section; and
(B) For professional services otherwise payable to the physician or
other practitioner on a fee schedule basis, the amounts that otherwise
would be paid for the services if the CAH had not elected payment under
this method.
(iii) Payment to a CAH is subject to the Part B deductible and
coinsurance amounts, as determined under Secs. 410.152, 410.160, and
410.161 of this chapter.
(c) Final payment based on cost report. Final payment to the CAH
for CAH facility services to inpatients and outpatients furnished
during a cost reporting is based on a cost report for that period, as
required under Sec. 413.20(b).
[[Page 26325]]
4. Section 413.86 is amended by:
a. Revising the first sentence of paragraph (d)(3);
b. Revising the introductory text of paragraph (e)(3);
c. Redesignating paragraph (e)(4) as paragraph (e)(5);
d. Adding a new paragraph (e)(4);
e. Revising newly designated paragraph (e)(5)(i)(B); and
f. Adding a new paragraph (e)(5)(iv), to read as follows:
Sec. 413.86 Direct graduate medical education payments.
* * * * *
(d) Calculating payment for graduate medical education costs. * * *
(3) Step Three. For portions of cost reporting periods occurring on
or after January 1, 1998, the product derived in step one is multiplied
by the proportion of the hospital's inpatient days attributable to
individuals who are enrolled under a risk-sharing contract with an
eligible organization under section 1876 of the Act and who are
entitled to Medicare Part A or with a Medicare+Choice organization
under Title XVIII, Part C of the Act. * * *
* * * * *
(e) Determining per resident amounts for the base period. * * *
(3) For cost reporting periods beginning on or after July 1, 1986.
Subject to the provisions of paragraph (e)(4) of this section, for cost
reporting periods beginning on or after July 1, 1986, a hospital's
base-period per resident amount is adjusted as follows:
* * * * *
(4) For cost reporting periods beginning on or after October 1,
2000 and ending on or before September 30, 2005. For cost reporting
periods beginning on or after October 1, 2000 and ending on or before
September 30, 2005, a hospital's per resident amount for each fiscal
year is adjusted in accordance with the following provisions:
(i) General provisions. For purposes of Sec. 413.86(e)(4)--
(A) Weighted average per resident amount. The weighted average per
resident amount is established as follows:
(1) Using data from hospitals' cost reporting periods ending during
FY 1997, HCFA calculates each hospital's single per resident amount by
adding each hospital's primary care and non-primary care per resident
amounts, weighted by its respective FTEs, and dividing by the sum of
the FTEs for primary care and non-primary care residents.
(2) Each hospital's single per resident amount calculated under
paragraph (e)(4)(i)(A)(1) of this section is standardized by the 1999
geographic adjustment factor for the physician fee schedule area (as
determined under Sec. 414.26 of this chapter) in which the hospital is
located.
(3) HCFA calculates an average of all hospitals' standardized per
resident amounts that are determined under paragraph (e)(4)(i)(A)(2) of
this section. The resulting amount is the weighted average per resident
amount.
(B) Primary care/obstetrics and gynecology and non-primary care per
resident amounts. A hospital's per resident amount is an amount
inclusive of any CPI-U adjustments that the hospital may have received
since the hospital's base year, including any CPI-U adjustments the
hospital may have received because the hospital trains primary care/
obstetrics and gynecology residents and non-primary care residents as
specified under paragraph (e)(3)(ii) of this section.
(ii) Adjustment beginning in FY 2001 and ending in FY 2005. For
cost reporting periods beginning on or after October 1, 2000 and ending
on or before September 30, 2005, a hospital's per resident amount is
adjusted in accordance with paragraphs (e)(4)(ii)(A) through
(e)(4)(ii)(C) of this section, in that order:
(A) Updating the weighted average per resident amount for
inflation. The weighted average per resident amount (as determined
under paragraph (e)(4)(i)(A) of this section) is updated by the
estimated percentage increase in the CPI-U during the period beginning
with the month that represents the midpoint of the cost reporting
periods ending during FY 1997 (that is, October 1, 1996) and ending
with the midpoint of the hospital's cost reporting period that begins
in FY 2001.
(B) Adjusting for locality. The updated weighted average per
resident amount determined under paragraph (e)(4)(ii)(A) of this
section (the national average per resident amount) is adjusted for the
locality of each hospital by multiplying the national average per
resident amount by the 1999 geographic adjustment factor for the
physician fee schedule area in which each hospital is located,
established in accordance with Sec. 414.26 of this subchapter.
(C) Determining necessary revisions to the per resident amount. The
locality-adjusted national average per resident amount, as calculated
in accordance with paragraph (e)(4)(ii)(B) of this section, is compared
to the hospital's per resident amount. Each hospital's per resident
amount is revised, if appropriate, according to the following three
categories:
(1) Floor. For cost reporting periods beginning on or after October
1, 2000 and on or before September 30, 2001, if the hospital's per
resident amount would otherwise be less than 70 percent of the
locality-adjusted national average per resident amount for FY 2001 (as
determined under paragraph (e)(4)(ii)(B) of this section), the per
resident amount is equal to 70 percent of the locality-adjusted
national average per resident amount for FY 2001. For subsequent cost
reporting periods, the hospital's per resident amount is updated using
the methodology specified under paragraph (e)(3)(i) of this section.
(2) Ceiling. If the hospital's per resident amount is greater than
140 percent of the locality-adjusted national average per resident
amount, the per resident amount is adjusted as follows for FY 2001
through FY 2005:
(i) FY 2001. For cost reporting periods beginning on or after
October 1, 2000 and on or before September 30, 2001, if the hospital's
FY 2000 per resident amount exceeds 140 percent of the FY 2001
locality-adjusted national average per resident amount (as calculated
under paragraph (e)(4)(ii)(B) of this section), then, subject to the
provision stated in paragraph (e)(4)(ii)(C)(2)(iv) of this section, the
hospital's per resident amount is frozen at the FY 2000 per resident
amount and is not updated for FY 2001 by the CPI-U factor.
(ii) FY 2002. For cost reporting periods beginning on or after
October 1, 2001 and on or before September 30, 2002, if the hospital's
FY 2001 per resident amount exceeds 140 percent of the FY 2002
locality-adjusted national average per resident amount, then, subject
to the provision stated in paragraph (e)(4)(ii)(C)(2)(iv) of this
section, the hospital's per resident amount is frozen at the FY 2001
per resident amount and is not updated for FY 2002 by the CPI-U factor.
(iii) FY 2003 through FY 2005. For cost reporting periods beginning
on or after October 1, 2002 and on or before September 30, 2005, if the
hospital's per resident amount for the previous cost reporting period
is greater than 140 percent of the locality-adjusted national average
per resident amount for that same previous cost reporting period (for
example, for cost reporting periods beginning in FY 2003, compare the
hospital's per resident amount from the FY 2002 cost report to the
hospital's locality-adjusted national average per resident amount from
FY 2002), then, subject to the provision stated in paragraph
(e)(4)(ii)(C)(2)(iv) of this section, the hospital's per resident
amount is adjusted using the methodology specified in paragraph
[[Page 26326]]
(e)(3)(i) of this section, except that the CPI-U applied for a 12-month
period is reduced (but not below zero) by 2 percentage points.
(iv) General rule for hospitals that exceed the ceiling. For cost
reporting periods beginning on or after October 1, 2000 and on or
before September 30, 2005, if a hospital's per resident amount exceeds
140 percent of the hospital's locality-adjusted national average per
resident amount and it is adjusted under any of the criteria under
paragraphs (e)(4)(ii)(C)(2)(i) through (iii) of this section, the
current year per resident amount resident amount cannot be reduced
below 140 percent of the locality-adjusted national average per
resident amount.
(3) Per resident amounts greater than or equal to the floor and
less than or equal to the ceiling. For cost reporting periods beginning
on or after October 1, 2000 and on or before September 30, 2005, if a
hospital's per resident amount is greater than or equal to 70 percent
and less than or equal to 140 percent of the hospital's locality-
adjusted national average per resident amount for each respective
fiscal year, the hospital's per resident amount is updated using the
methodology specified in paragraph (e)(3)(i) of this section.
(5) Exceptions--(i) Base period for certain hospitals. * * *
(B) The weighted mean value of per resident amounts of hospitals
located in the same geographic wage area, as that term is used in the
prospective payment system under part 412 of this chapter, for cost
reporting periods beginning in the same fiscal years. If there are
fewer than three amounts that can be used to calculate the weighted
mean value, the calculation of the per resident amounts includes all
hospitals in the hospital's region as that term is used in
Sec. 412.62(f)(1)(i) of this chapter.
* * * * *
(iv) Effective October 1, 2000, the per resident amounts
established under paragraphs (e)(5)(i) through (iii) of this section
are subject to the provisions of paragraph (e)(4) of this section.
* * * * *
PART 485B--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS
C. Part 485 is amended as follows:
1. The authority citation for part 485 continues to read as
follows:
Authority: Sec. 1820 of the Act (42 U.S.C. 1395i-4), unless
otherwise noted.
2. A new Sec. 485.643 is added to subpart F to read as follows:
Sec. 485.643 Condition of participation: Organ, tissue, and eye
procurement.
The CAH must have and implement written protocols that:
(a) Incorporate an agreement with an OPO designated under part 486
of this chapter, under which it must notify, in a timely manner, the
OPO or a third party designated by the OPO of individuals whose death
is imminent or who have died in the CAH. The OPO determines medical
suitability for organ donation and, in the absence of alternative
arrangements by the CAH, the OPO determines medical suitability for
tissue and eye donation, using the definition of potential tissue and
eye donor and the notification protocol developed in consultation with
the tissue and eye banks identified by the CAH for this purpose;
(b) Incorporate an agreement with at least one tissue bank and at
least one eye bank to cooperate in the retrieval, processing,
preservation, storage and distribution of tissues and eyes, as may be
appropriate to assure that all usable tissues and eyes are obtained
from potential donors, insofar as such an agreement does not interfere
with organ procurement;
(c) Ensure, in collaboration with the designated OPO, that the
family of each potential donor is informed of its option to either
donate or not donate organs, tissues, or eyes. The individual
designated by the CAH to initiate the request to the family must be a
designated requestor. A designated requestor is an individual who has
completed a course offered or approved by the OPO and designed in
conjunction with the tissue and eye bank community in the methodology
for approaching potential donor families and requesting organ or tissue
donation;
(d) Encourage discretion and sensitivity with respect to the
circumstances, views, and beliefs of the families of potential donors;
(e) Ensure that the CAH works cooperatively with the designated
OPO, tissue bank and eye bank in educating staff on donation issues,
reviewing death records to improve identification of potential donors,
and maintaining potential donors while necessary testing and placement
of potential donated organs, tissues, and eyes take place.
(f) For purposes of these standards, the term "Organ" means a
human kidney, liver, heart, lung, or pancreas.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance)
Dated: April 14, 2000.
Nancy Ann Min DeParle,
Administrator, Health Care Financing Administration
Dated: April 28, 2000.
Donna E. Shalala,
Secretary.
[Editorial Note: The following Addendum and appendixes will not
appear in the Code of Federal Regulations.]
Addendum--Proposed Schedule of Standardized Amounts Effective With
Discharges Occurring On or After October 1, 2000 and Update Factors
and Rate-of-Increase Percentages Effective With Cost Reporting
Periods Beginning On or After October 1, 2000
I. Summary and Background
In this Addendum, we are setting forth the proposed amounts and
factors for determining prospective payment rates for Medicare
inpatient operating costs and Medicare inpatient capital-related costs.
We are also setting forth proposed rate-of-increase percentages for
updating the target amounts for hospitals and hospital units excluded
from the prospective payment system.
For discharges occurring on or after October 1, 2000, except for
sole community hospitals, Medicare-dependent, small rural hospitals,
and hospitals located in Puerto Rico, each hospital's payment per
discharge under the prospective payment system will be based on 100
percent of the Federal national rate.
Sole community hospitals are paid based on whichever of the
following rates yields the greatest aggregate payment: the Federal
national rate, the updated hospital-specific rate based on FY 1982 cost
per discharge, the updated hospital-specific rate based on FY 1987 cost
per discharge, or, if qualified, 25 percent of the updated hospital-
specific rate based on FY 1996 cost per discharge, plus 75 percent of
the updated FY 1982 or FY 1987 hospital-specific rate. Section 405 of
Public Law 106-113 amended section 1886(b)(3) of the Act to allow a
sole community hospital that was paid for its cost reporting period
beginning during FY 1999 on the basis of either its FY 1982 or FY 1987
hospital-specific rate to elect to rebase its hospital-specific rate
based on its FY 1996 cost per discharge.
Section 404 of Public Law 106-113 amended section 1886(d)(5)(G) of
the Act to extend the special treatment for Medicare-dependent, small
rural hospitals. Therefore, Medicare-dependent, small rural hospitals
are paid based on the Federal national rate or, if higher, the Federal
national rate plus 50 percent of the difference
[[Page 26327]]
between the Federal national rate and the updated hospital-specific
rate based on FY 1982 or FY 1987 cost per discharge, whichever is
higher.
For hospitals in Puerto Rico, the payment per discharge is based on
the sum of 50 percent of a Puerto Rico rate and 50 percent of a Federal
national rate.
As discussed below in section II of this Addendum, we are proposing
to make changes in the determination of the prospective payment rates
for Medicare inpatient operating costs for FY 2001. The changes, to be
applied prospectively, would affect the calculation of the Federal
rates. In section III of this Addendum, we discuss updates to the
payments per unit for blood clotting factor provided to hospital
inpatients who have hemophilia. In section IV of this Addendum, we
discuss our proposed changes for determining the prospective payment
rates for Medicare inpatient capital-related costs for FY 2001. Section
V of this Addendum sets forth our proposed changes for determining the
rate-of-increase limits for hospitals excluded from the prospective
payment system for FY 2001. The tables to which we refer in the
preamble to this proposed rule are presented at the end of this
Addendum in section VI.
II. Proposed Changes to Prospective Payment Rates for Inpatient
Operating Costs for FY 2001
The basic methodology for determining prospective payment rates for
inpatient operating costs is set forth at Sec. 412.63 for hospitals
located outside of Puerto Rico. The basic methodology for determining
the prospective payment rates for inpatient operating costs for
hospitals located in Puerto Rico is set forth at Secs. 412.210 and
412.212. Below, we discuss the proposed factors used for determining
the prospective payment rates. The Federal and Puerto Rico rate
changes, once issued as final, will be effective with discharges
occurring on or after October 1, 2000. As required by section
1886(d)(4)(C) of the Act, we must also adjust the DRG classifications
and weighting factors for discharges in FY 2001.
In summary, the proposed standardized amounts set forth in Tables
1A and 1C of section VI of this Addendum reflect--
Updates of 2.0 percent for all areas (that is, the market
basket percentage increase of 3.1 percent minus 1.1 percentage points);
An adjustment to ensure budget neutrality as provided for
in sections 1886(d)(4)(C)(iii) and (d)(3)(E) of the Act by applying new
budget neutrality adjustment factors to the large urban and other
standardized amounts;
An adjustment to ensure budget neutrality as provided for
in section 1886(d)(8)(D) of the Act by removing the FY 2000 budget
neutrality factor and applying a revised factor;
An adjustment to apply the revised outlier offset by
removing the FY 2000 outlier offsets and applying a new offset; and
An adjustment in the Puerto Rico standardized amounts to
reflect the application of a Puerto Rico-specific wage index.
The standardized amounts set forth in table 1E of section VI of
this Addendum, which apply to sole community hospitals, reflect updates
of 3.1 percent (that is, the full market basket percentage increase) as
provided for in section 406 of Public Law 106-113, but otherwise
reflect the same adjustments as the national standardized amounts.
A. Calculation of Adjusted Standardized Amounts
1. Standardization of Base-Year Costs or Target Amounts
Section 1886(d)(2)(A) of the Act required the establishment of
base-year cost data containing allowable operating costs per discharge
of inpatient hospital services for each hospital. The preamble to the
September 1, 1983 interim final rule (48 FR 39763) contains a detailed
explanation of how base-year cost data were established in the initial
development of standardized amounts for the prospective payment system
and how they are used in computing the Federal rates.
Section 1886(d)(9)(B)(i) of the Act required us to determine the
Medicare target amounts for each hospital located in Puerto Rico for
its cost reporting period beginning in FY 1987. The September 1, 1987
final rule (52 FR 33043, 33066) contains a detailed explanation of how
the target amounts were determined and how they are used in computing
the Puerto Rico rates.
The standardized amounts are based on per discharge averages of
adjusted hospital costs from a base period or, for Puerto Rico,
adjusted target amounts from a base period, updated and otherwise
adjusted in accordance with the provisions of section 1886(d) of the
Act. Sections 1886(d)(2)(B) and (d)(2)(C) of the Act required us to
update base-year per discharge costs for FY 1984 and then standardize
the cost data in order to remove the effects of certain sources of cost
variations among hospitals. These effects include case-mix, differences
in area wage levels, cost-of-living adjustments for Alaska and Hawaii,
indirect medical education costs, and payments to hospitals serving a
disproportionate share of low-income patients.
Under sections 1886(d)(2)(H) and (d)(3)(E) of the Act, in making
payments under the prospective payment system, the Secretary estimates
from time to time the proportion of costs that are wages and wage-
related costs. Since October 1, 1997, when the market basket was last
revised, we have considered 71.1 percent of costs to be labor-related
for purposes of the prospective payment system. The average labor share
in Puerto Rico is 71.3 percent. We are proposing to revise the
discharge-weighted national standardized amount for Puerto Rico to
reflect the proportion of discharges in large urban and other areas
from the FY 1999 MedPAR file.
2. Computing Large Urban and Other Area Averages
Sections 1886(d)(2)(D) and (d)(3) of the Act require the Secretary
to compute two average standardized amounts for discharges occurring in
a fiscal year: one for hospitals located in large urban areas and one
for hospitals located in other areas. In addition, under sections
1886(d)(9)(B)(iii) and (d)(9)(C)(i) of the Act, the average
standardized amount per discharge must be determined for hospitals
located in urban and other areas in Puerto Rico. Hospitals in Puerto
Rico are paid a blend of 50 percent of the applicable Puerto Rico
standardized amount and 50 percent of a national standardized payment
amount.
Section 1886(d)(2)(D) of the Act defines "urban area" as those
areas within a Metropolitan Statistical Area (MSA). A "large urban
area" is defined as an urban area with a population of more than 1
million. In addition, section 4009(i) of Public Law 100-203 provides
that a New England County Metropolitan Area (NECMA) with a population
of more than 970,000 is classified as a large urban area. As required
by section 1886(d)(2)(D) of the Act, population size is determined by
the Secretary based on the latest population data published by the
Bureau of the Census. Urban areas that do not meet the definition of a
"large urban area" are referred to as "other urban areas." Areas
that are not included in MSAs are considered "rural areas" under
section 1886(d)(2)(D) of the Act. Payment for discharges from hospitals
located in large urban areas will be based on the large urban
standardized amount. Payment for discharges from hospitals located in
other urban and rural areas will be
[[Page 26328]]
based on the other standardized amount.
Based on 1997 population estimates published by the Bureau of the
Census, 61 areas meet the criteria to be defined as large urban areas
for FY 2001. These areas are identified by a footnote in Table 4A.
3. Updating the Average Standardized Amounts
Under section 1886(d)(3)(A) of the Act, we update the area average
standardized amounts each year. In accordance with section
1886(d)(3)(A)(iv) of the Act, we are proposing to update the large
urban areas' and the other areas' average standardized amounts for FY
2001 using the applicable percentage increases specified in section
1886(b)(3)(B)(i) of the Act. Section 1886(b)(3)(B)(i)(XVI) of the Act
specifies that the update factor for the standardized amounts for FY
2001 is equal to the market basket percentage increase minus 1.1
percentage points for hospitals, except sole community hospitals, in
all areas. The Act, as amended by section 406 of Public Law 106-113,
specifies an update factor equal to the market basket percentage
increase for sole community hospitals.
The percentage change in the market basket reflects the average
change in the price of goods and services purchased by hospitals to
furnish inpatient care. The most recent forecast of the hospital market
basket increase for FY 2001 is 3.1 percent. Thus, for FY 2001, the
proposed update to the average standardized amounts equals 3.1 percent
for sole community hospitals and 2.0 percent for other hospitals.
As in the past, we are adjusting the FY 2000 standardized amounts
to remove the effects of the FY 2000 geographic reclassifications and
outlier payments before applying the FY 2001 updates. That is, we are
increasing the standardized amounts to restore the reductions that were
made for the effects of geographic reclassification and outliers. We
then apply the new offsets to the standardized amounts for outliers and
geographic reclassifications for FY 2001.
Although the update factors for FY 2001 are set by law, we are
required by section 1886(e)(3) of the Act to report to the Congress our
initial recommendation of update factors for FY 2001 for both
prospective payment hospitals and hospitals excluded from the
prospective payment system. For general information purposes, we have
included the report to Congress as Appendix C to this proposed rule.
Our proposed recommendation on the update factors (which is required by
sections 1886(e)(4)(A) and (e)(5)(A) of the Act) is set forth as
Appendix D to this proposed rule.
4. Other Adjustments to the Average Standardized Amounts
a. Recalibration of DRG Weights and Updated Wage Index--Budget
Neutrality Adjustment
Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning in
FY 1991, the annual DRG reclassification and recalibration of the
relative weights must be made in a manner that ensures that aggregate
payments to hospitals are not affected. As discussed in section II of
the preamble, we normalized the recalibrated DRG weights by an
adjustment factor, so that the average case weight after recalibration
is equal to the average case weight prior to recalibration.
Section 1886(d)(3)(E) of the Act requires us to update the hospital
wage index on an annual basis beginning October 1, 1993. This provision
also requires us to make any updates or adjustments to the wage index
in a manner that ensures that aggregate payments to hospitals are not
affected by the change in the wage index.
To comply with the requirement of section 1886(d)(4)(C)(iii) of the
Act that DRG reclassification and recalibration of the relative weights
be budget neutral, and the requirement in section 1886(d)(3)(E) of the
Act that the updated wage index be budget neutral, we used historical
discharge data to simulate payments and compared aggregate payments
using the FY 2000 relative weights and wage index to aggregate payments
using the proposed FY 2001 relative weights and wage index. The same
methodology was used for the FY 2000 budget neutrality adjustment. (See
the discussion in the September 1, 1992 final rule (57 FR 39832).)
Based on this comparison, we computed a budget neutrality adjustment
factor equal to 0.996506. We also adjust the Puerto Rico-specific
standardized amounts for the effect of DRG reclassification and
recalibration. We computed a budget neutrality adjustment factor for
Puerto Rico-specific standardized amounts equal to 0.999753. These
budget neutrality adjustment factors are applied to the standardized
amounts without removing the effects of the FY 2000 budget neutrality
adjustments. We do not remove the prior budget neutrality adjustment
because estimated aggregate payments after the changes in the DRG
relative weights and wage index should equal estimated aggregate
payments prior to the changes. If we removed the prior year adjustment,
we would not satisfy this condition.
In addition, we are proposing to apply these same adjustment
factors to the hospital-specific rates that are effective for cost
reporting periods beginning on or after October 1, 2000. (See the
discussion in the September 4, 1990 final rule (55 FR 36073).)
b. Reclassified Hospitals--Budget Neutrality Adjustment
Section 1886(d)(8)(B) of the Act provides that, effective with
discharges occurring on or after October 1, 1988, certain rural
hospitals are deemed urban. In addition, section 1886(d)(10) of the Act
provides for the reclassification of hospitals based on determinations
by the Medicare Geographic Classification Review Board (MGCRB). Under
section 1886(d)(10) of the Act, a hospital may be reclassified for
purposes of the standardized amount or the wage index, or both.
Under section 1886(d)(8)(D) of the Act, the Secretary is required
to adjust the standardized amounts so as to ensure that aggregate
payments under the prospective payment system after implementation of
the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the
Act are equal to the aggregate prospective payments that would have
been made absent these provisions. Section 152(b) of Public Law 106-113
requires reclassifications under that subsection to be treated as
reclassifications under section 1886(d)(10) of the Act. To calculate
this budget neutrality factor, we used historical discharge data to
simulate payments, and compared total prospective payments (including
IME and DSH payments) prior to any reclassifications to total
prospective payments after reclassifications. Based on these
simulations, we are applying an adjustment factor of 0.994270 to ensure
that the effects of reclassification are budget neutral.
The adjustment factor is applied to the standardized amounts after
removing the effects of the FY 2000 budget neutrality adjustment
factor. We note that the proposed FY 2001 adjustment reflects wage
index and standardized amount reclassifications approved by the MGCRB
or the Administrator as of February 29, 2000. The effects of any
additional reclassification changes resulting from appeals and reviews
of the MGCRB decisions for FY 2001 or from a hospital's request for the
withdrawal of a reclassification request will be reflected in the final
budget neutrality adjustment published in the final rule for FY 2001.
[[Page 26329]]
c. Outliers
Section 1886(d)(5)(A) of the Act provides for payments in addition
to the basic prospective payments for "outlier" cases, cases
involving extraordinarily high costs (cost outliers). Section
1886(d)(3)(B) of the Act requires the Secretary to adjust both the
large urban and other area national standardized amounts by the same
factor to account for the estimated proportion of total DRG payments
made to outlier cases. Similarly, section 1886(d)(9)(B)(iv) of the Act
requires the Secretary to adjust the large urban and other standardized
amounts applicable to hospitals in Puerto Rico to account for the
estimated proportion of total DRG payments made to outlier cases.
Furthermore, under section 1886(d)(5)(A)(iv) of the Act, outlier
payments for any year must be projected to be not less than 5 percent
nor more than 6 percent of total payments based on DRG prospective
payment rates.
i. FY 2001 outlier thresholds. For FY 2000, the fixed loss cost
outlier threshold was equal to the prospective payment for the DRG plus
$14,050 ($12,827 for hospitals that have not yet entered the
prospective payment system for capital-related costs). The marginal
cost factor for cost outliers (the percent of costs paid after costs
for the case exceed the threshold) was 80 percent. We applied an
outlier adjustment to the FY 2000 standardized amounts of 0.948859 for
the large urban and other areas rates and 0.9402 for the capital
Federal rate.
For FY 2001, we propose to establish a fixed loss cost outlier
threshold equal to the prospective payment rate for the DRG plus the
IME and DSH payments plus $17,250 ($15,763 for hospitals that have not
yet entered the prospective payment system for capital-related costs).
In addition, we propose to maintain the marginal cost factor for cost
outliers at 80 percent.
To calculate FY 2001 outlier thresholds, we simulated payments by
applying FY 2001 rates and policies to the December 1999 update of the
FY 1999 MedPAR file and the December 1999 update of the provider-
specific file. As we have explained in the past, to calculate outlier
thresholds, we apply a cost inflation factor to update costs for the
cases used to simulate payments. For FY 1999, we used a cost inflation
factor of minus 1.724 percent. For FY 2000, we used a cost inflation
factor (or cost adjustment factor) of zero percent. To set the proposed
FY 2001 outlier thresholds, we are using a cost inflation factor of 1.0
percent. This factor reflects our analysis of the best available cost
report data as well as calculations (using the best available data)
indicating that the percentage of actual outlier payments for FY 1999
is higher than we projected before the beginning of FY 1999, and that
the percentage of actual outlier payments for FY 2000 will likely be
higher than we projected before the beginning of FY 2000. The
calculations of "actual" outlier payments are discussed further
below.
ii. Other changes concerning outliers. In accordance with section
1886(d)(5)(A)(iv) of the Act, we calculated proposed outlier thresholds
so that outlier payments are projected to equal 5.1 percent of total
payments based on DRG prospective payment rates. In accordance with
section 1886(d)(3)(E), we reduced the proposed FY 2001 standardized
amounts by the same percentage to account for the projected proportion
of payments paid to outliers.
As stated in the September 1, 1993 final rule (58 FR 46348), we
establish outlier thresholds that are applicable to both inpatient
operating costs and inpatient capital-related costs. When we modeled
the combined operating and capital outlier payments, we found that
using a common set of thresholds resulted in a higher percentage of
outlier payments for capital-related costs than for operating costs. We
project that the proposed thresholds for FY 2001 will result in outlier
payments equal to 5.1 percent of operating DRG payments and 5.8 percent
of capital payments based on the Federal rate.
The proposed outlier adjustment factors to be applied to the
standardized amounts for FY 2001 are as follows:
------------------------------------------------------------------------
Operating Capital
standardized federal
amounts rate
------------------------------------------------------------------------
National................................... 0.948865 0.9416
Puerto Rico................................ 0.975408 0.9709
------------------------------------------------------------------------
We apply the proposed outlier adjustment factors after removing the
effects of the FY 2000 outlier adjustment factors on the standardized
amounts.
Table 8A in section VI of this Addendum contains the updated
Statewide average operating cost-to-charge ratios for urban hospitals
and for rural hospitals to be used in calculating cost outlier payments
for those hospitals for which the fiscal intermediary is unable to
compute a reasonable hospital-specific cost-to-charge ratio. These
Statewide average ratios would replace the ratios published in the July
30, 1999 final rule (64 FR 41620). Table 8B contains comparable
Statewide average capital cost-to-charge ratios. These average ratios
would be used to calculate cost outlier payments for those hospitals
for which the fiscal intermediary computes operating cost-to-charge
ratios lower than 0.201132 or greater than 1.308495 and capital cost-
to-charge ratios lower than 0.01266 or greater than 0.16901. This range
represents 3.0 standard deviations (plus or minus) from the mean of the
log distribution of cost-to-charge ratios for all hospitals. We note
that the cost-to-charge ratios in Tables 8A and 8B would be used during
FY 2001 when hospital-specific cost-to-charge ratios based on the
latest settled cost report are either not available or outside the
three standard deviations range.
iii. FY 1999 and FY 2000 outlier payments. In the July 30, 1999
final rule (64 FR 41547), we stated that, based on available data, we
estimated that actual FY 1999 outlier payments would be approximately
6.3 percent of actual total DRG payments. This was computed by
simulating payments using the March 1998 bill data available at the
time. That is, the estimate of actual outlier payments did not reflect
actual FY 1999 bills but instead reflected the application of FY 1999
rates and policies to available FY 1998 bills. Our current estimate,
using available FY 1999 bills, is that actual outlier payments for FY
1999 were approximately 7.5 percent of actual total DRG payments. We
note that the MedPAR file for FY 1999 discharges continues to be
updated. Thus, the data indicate that, for FY 1999, the percentage of
actual outlier payments relative to actual total payments is higher
than we projected before FY 1999 (and thus exceeds the percentage by
which we reduced the standardized amounts for FY 1999). In fact, the
data indicate that the proportion of actual outlier payments for FY
1999 exceeds 6 percent. Nevertheless, consistent with the policy and
statutory interpretation we have maintained since the inception of the
prospective payment system, we do not plan to recoup money and make
retroactive adjustments to outlier payments for FY 1999.
We currently estimate that actual outlier payments for FY 2000 will
be approximately 6.1 percent of actual total DRG payments, higher than
the 5.1 percent we projected in setting outlier policies for FY 2000.
This estimate is based on simulations using the December 1999 update of
the provider-specific file and the December 1999 update of the FY 1999
MedPAR file (discharge data for FY 1999 bills). We used these data to
calculate an estimate of the actual outlier percentage for FY 2000 by
applying FY 2000 rates and policies to available FY 1999 bills.
[[Page 26330]]
5. FY 2001 Standardized Amounts
The adjusted standardized amounts are divided into labor and
nonlabor portions. Table 1A (Table 1E for sole community hospitals)
contains the two national standardized amounts that we are proposing to
be applicable to all hospitals, except hospitals in Puerto Rico. Under
section 1886(d)(9)(A)(ii) of the Act, the Federal portion of the Puerto
Rico payment rate is based on the discharge-weighted average of the
national large urban standardized amount and the national other
standardized amount (as set forth in Table 1A). The labor and nonlabor
portions of the national average standardized amounts for Puerto Rico
hospitals are set forth in Table 1C. This table also includes the
Puerto Rico standardized amounts.
B. Adjustments for Area Wage Levels and Cost of Living
Tables 1A, 1C and 1E, as set forth in this Addendum, contain the
proposed labor-related and nonlabor-related shares that would be used
to calculate the prospective payment rates for hospitals located in the
50 States, the District of Columbia, and Puerto Rico. This section
addresses two types of adjustments to the standardized amounts that are
made in determining the prospective payment rates as described in this
Addendum.
1. Adjustment for Area Wage Levels
Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require
that we make an adjustment to the labor-related portion of the
prospective payment rates to account for area differences in hospital
wage levels. This adjustment is made by multiplying the labor-related
portion of the adjusted standardized amounts by the appropriate wage
index for the area in which the hospital is located. In section III of
this preamble, we discuss the data and methodology for the proposed FY
2001 wage index. The proposed wage index is set forth in Tables 4A
through 4F of this Addendum.
2. Adjustment for Cost-of-Living in Alaska and Hawaii
Section 1886(d)(5)(H) of the Act authorizes an adjustment to take
into account the unique circumstances of hospitals in Alaska and
Hawaii. Higher labor-related costs for these two States are taken into
account in the adjustment for area wages described above. For FY 2001,
we propose to adjust the payments for hospitals in Alaska and Hawaii by
multiplying the nonlabor portion of the standardized amounts by the
appropriate adjustment factor contained in the table below. If the
Office of Personnel Management releases revised cost-of-living
adjustment factors before July 1, 2000, we will publish them in the
final rule and use them in determining FY 2001 payments.
Table of Cost-of-Living Adjustment Factors, Alaska and Hawaii Hospitals
------------------------------------------------------------------------
------------------------------------------------------------------------
Alaska--All areas................................................ 1.25
Hawaii:
County of Honolulu........................................... 1.25
County of Hawaii............................................. 1.15
County of Kauai.............................................. 1.225
County of Maui............................................... 1.225
County of Kalawao............................................ 1.225
------------------------------------------------------------------------
(The above factors are based on data obtained from the U.S. Office of
Personnel Management.)
C. DRG Relative Weights
As discussed in section II of the preamble, we have developed a
classification system for all hospital discharges, assigning them into
DRGs, and have developed relative weights for each DRG that reflect the
resource utilization of cases in each DRG relative to Medicare cases in
other DRGs. Table 5 of section VI of this Addendum contains the
relative weights that we are proposing to use for discharges occurring
in FY 2001. These factors have been recalibrated as explained in
section II of the preamble.
D. Calculation of Prospective Payment Rates for FY 2001
General Formula for Calculation of Prospective Payment Rates for FY
2001
Prospective payment rate for all hospitals located outside of
Puerto Rico except sole community hospitals and Medicare-dependent,
small rural hospitals = Federal rate.
Prospective payment rate for sole community hospitals = Whichever
of the following rates yields the greatest aggregate payment: the
Federal national rate, the updated hospital-specific rate based on FY
1982 cost per discharge, the updated hospital-specific rate based on FY
1987 cost per discharge, or, if the sole community hospital was paid
for its cost reporting period beginning during FY 1999 on the basis of
either its FY 1982 or FY 1987 hospital-specific rate and elects
rebasing, 25 percent of its updated hospital-specific rate based on FY
1996 cost per discharge plus 75 percent of its updated FY 1982 or FY
1987 hospital-specific rate.
Prospective payment rate for Medicare-dependent, small rural
hospitals = 100 percent of the Federal rate, or, if the greater of the
updated FY 1982 hospital-specific rate or the updated FY 1987 hospital-
specific rate is higher than the Federal rate, 100 percent of the
Federal rate plus 50 percent of the difference between the applicable
hospital-specific rate and the Federal rate.
Prospective payment rate for Puerto Rico = 50 percent of the Puerto
Rico rate + 50 percent of a discharge-weighted average of the national
large urban standardized amount and the Federal national other
standardized amount.
1. Federal Rate
For discharges occurring on or after October 1, 2000 and before
October 1, 2001, except for sole community hospitals, Medicare-
dependent, small rural hospitals and hospitals in Puerto Rico, the
hospital's payment is based exclusively on the Federal national rate.
The payment amount is determined as follows:
Step 1--Select the appropriate national standardized amount
considering the type of hospital and designation of the hospital as
large urban or other (see Table 1A or 1E in section VI of this
Addendum).
Step 2--Multiply the labor-related portion of the standardized
amount by the applicable wage index for the geographic area in which
the hospital is located (see Tables 4A, 4B, and 4C of section VI of
this Addendum).
Step 3--For hospitals in Alaska and Hawaii, multiply the nonlabor-
related portion of the standardized amount by the appropriate cost-of-
living adjustment factor.
Step 4--Add the amount from Step 2 and the nonlabor-related portion
of the standardized amount (adjusted, if appropriate, under Step 3).
Step 5--Multiply the final amount from Step 4 by the relative
weight corresponding to the appropriate DRG (see Table 5 of section VI
of this Addendum).
2. Hospital-Specific Rate (Applicable Only to Sole Community Hospitals
and Medicare-Dependent, Small Rural Hospitals)
Section 1886(b)(3)(C) of the Act, as amended by section 405 of
Public Law 106-113, provides that sole community hospitals are paid
based on whichever of the following rates yields the greatest aggregate
payment: the Federal national rate, the updated hospital-specific rate
based on FY 1982 cost per discharge, the updated hospital-specific rate
based on FY 1987 cost per discharge, or, if the sole community hospital
was paid for its cost reporting period beginning during FY 1999 on the
basis of either its FY 1982 or FY 1987 hospital-specific
[[Continued on page 26331]]
Go to next section
