[Federal Register: August 1, 2001 (Volume 66, Number 148)]
[Rules and Regulations]
[Page 39827-39876]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01au01-18]
Table of Contents
Medicare Program; Changes to the Hospital Inpatient Prospective 
Payment Systems and Rates and Costs of Graduate Medical Education; Fiscal Year 
2002 Rates, Etc.; Final Rules 

  
SUMMARY
  
I. Background

  
 II. Changes to DRG Classifications and Relative Weights
  
 III. Changes to the Hospital Wage Index
  
 IV. Other Decisions and Changes to the Prospective Payment 
    System for Inpatient Operating Costs and Graduate Medical Education Costs
  
 V. Changes to the Prospective Payment System for 
    Capital-Related Costs
  
 VI. Changes for Hospitals and Hospital Units 
    Excluded From the Prospective Payment System

  
 VII. MedPAC Recommendations
  
 VIII. Other Required Information

V. Tables

  Note: For purposes of this final rule, and to avoid confusion, we have retained 
  the designations of Tables 1 and 5 that were first used in the September 1, 
  1983 initial prospective payment final rule (48 FR 39844). Tables 1A, 1C, 1D, 
  2, 3A, 3B, 4A, 4B, 4C, 4F, 4G, 4H, 5, 6A, 6B, 6C, 6D, 6E, 6F, 6G, 6H, 7A, 7B, 
  8A, and 8B are presented below. The tables presented below are as follows:

  
Table 1A--National Adjusted Operating Standardized 
    Amounts, Labor/ Nonlabor

  
 Table 1C--Adjusted Operating Standardized 
    Amounts for Puerto Rico, Labor/Nonlabor
  
 Table 1D--Capital Standard Federal Payment 
    Rate
  
 Table 2--Hospital Average Hourly Wage for 
    Federal Fiscal Years 2000 (1996 Wage Data), 2001 (1997 Wage Data) and 2002 
    (1998 Wage Data) Wage Indexes and 3-Year Average of Hospital Average Hourly 
    Wages
  
 Table 3A--FY 2002 and 3-Year Average Hourly 
    Wage for Urban Areas
  
 Table 3B--FY 2002 and 3-Year Average Hourly 
    Wage for Rural Areas

  
 Table 4A--Wage Index and Capital Geographic 
    Adjustment Factor (GAF) for Urban Areas
  
 Table 4B--Wage Index and Capital Geographic 
    Adjustment Factor (GAF) for Rural Areas
  
 Table 4C--Wage Index and Capital Geographic 
    Adjustment Factor (GAF) for Hospitals That Are Reclassified
  
 Table 4F--Puerto Rico Wage Index and Capital 
    Geographic Adjustment Factor (GAF)
  
 Table 4G--Pre-Reclassified Wage Index for 
    Urban Areas

  
 Table 4H--Pre-Reclassified Wage Index for 
    Rural Areas
  
 Table 5--List of Diagnosis Related Groups 
    (DRGs), Relative Weighting Factors, Geometric and Arithmetic Mean Length of 
    Stay
  
 Table 6A--New Diagnosis Codes
  
 Table 6B--New Procedure Codes
  
 Table 6C--Invalid Diagnosis Codes

  
 Table 6D--Invalid Procedure Codes
  
 Table 6E--Revised Diagnosis Code Titles
  
 Table 6F--Revised Procedure Code Titles
  
 Table 6G--Additions to the CC Exclusions 
    List
  
 Table 6H--Deletions to the CC Exclusions 
    List

  
 Table 7A--Medicare Prospective Payment System 
    Selected Percentile Lengths of Stay FY 2000 MedPAR Update 3/01 GROUPER V18.0
  
 Table 7B--Medicare Prospective Payment System 
    Selected Percentile Lengths of Stay FY 2000 MedPAR Update 3/01 GROUPER V19.0
  
 Table 8A--Statewide Average Operating Cost-to-Charge 
    Ratios for Urban and Rural Hospitals (Case Weighted) July 2001
  
 Table 8B--Statewide Average Capital Cost-to-Charge 
    Ratios (Case Weighted) July 2001


Appendices 

  
 Appendix A--Regulatory Impact Analysis
  
 Appendix B--Technical Appendix on the 
    Capital Cost Model and Required Adjustments
  
 Appendix C--Recommendation of Update Factors 
    for Operating Cost Rates of Payment for Inpatient Hospital Services



[[Page 39827]]

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Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 405, 410, 412, et al.

Medicare Program; Changes to the Hospital Inpatient Prospective Payment
Systems and Rates and Costs of Graduate Medical Education; Fiscal Year
2002 Rates, Etc.; Final Rules

[[Page 39828]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 410, 412, 413, 482, 485, and 486

[CMS 1131-F, CMS 1158-F, and CMS 1178-F]
RINs 0938-AK20; 0938-AK73; and 0938-AK74


Medicare Program; Changes to the Hospital Inpatient Prospective
Payment Systems and Rates and Costs of Graduate Medical Education:
Fiscal Year 2002 Rates; Provisions of the Balanced Budget Refinement
Act of 1999; and Provisions of the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rules.

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SUMMARY: We are revising the Medicare hospital inpatient prospective
payment systems for operating and capital costs to: implement
applicable statutory requirements, including a number of provisions of
the Medicare, Medicaid, and SCHIP [State Children's Health Insurance
Program] Benefits Improvement and Protection Act of 2000 (Public Law
106-554); and implement changes arising from our continuing experience
with these systems. In addition, in the Addendum to this final rule, we
describe 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 apply to discharges occurring on
or after October 1, 2001. We also set forth the rate-of-increase limits
as well as policy changes for hospitals and hospital units excluded
from the prospective payment systems.
    We are making changes to the policies governing payments to
hospitals for the direct costs of graduate medical education and
critical access hospitals.
    Lastly, we are responding to public comments received on the
following two related interim final rules that we published in the
Federal Register and finalizing those interim rules:
     An August 1, 2000 interim final rule with comment period
(65 FR 47026, HCFA-1131-IFC) that implemented, or conformed the
regulations to, certain statutory provisions relating to Medicare
payments to hospitals for inpatient services that were contained in the
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999
(Public Law 106-113), and that were effective during FY 2000. These
provisions related to reclassification of hospitals from urban to rural
status, reclassification of certain hospitals for purposes of payment
during fiscal year 2000, critical access hospitals, payments to
hospitals excluded from the prospective payment system, and payments
for indirect and direct graduate medical education costs.
     A June 13, 2001 interim final rule with comment period (66
FR 32172, HCFA-1178-IFC) that implemented, or conformed the regulations
to, certain statutory provisions relating to Medicare payments to
hospitals for inpatient services that were contained in Public Law 106-
554, and that were effective prior to passage of Public Law 106-554 on
December 21, 2000; on April 1, 2001; or on July 1, 2001. Many of the
provisions of Public Law 106-554 modified changes to the Social
Security Act made by Public Law 106-113 or the Balanced Budget Act of
1997 (Public Law 105-33), or both.

EFFECTIVE DATE: The provisions of this final rule are effective October
1, 2001. This rule is a major rule as defined in 5 U.S.C. 804(2).
Pursuant to 5 U.S.C. 801(a)(1)(A), we are submitting a report to
Congress on this rule on August 1, 2001.

FOR FURTHER INFORMATION CONTACT: Stephen Phillips, (410) 786-4548,
Operating Prospective Payment, Diagnosis-Related Groups (DRGs), Wage
Index, Hospital Geographic Reclassifications, Sole Community Hospitals,
Disproportionate Share Hospitals, and Medicare-Dependent, Small Rural
Hospitals Issues; Tzvi Hefter, (410) 786-4487, Capital Prospective
Payment, Excluded Hospitals, Graduate Medical Education and Critical
Access Hospitals Issues.

SUPPLEMENTARY INFORMATION:

Availability of Copies and Electronic Access

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I. Background

A. Summary

    Section 1886(d) of the Social Security Act (the Act) sets forth a
system of payment for the operating costs of acute care hospital
inpatient stays under Medicare Part A (Hospital Insurance) based on
prospectively set rates. Section 1886(g) of the Act requires the
Secretary to pay for the capital-related costs of hospital inpatient
stays under a prospective payment system. Under these prospective
payment systems, Medicare payment for hospital inpatient operating and
capital-related costs is made at predetermined, specific rates for each
hospital discharge. Discharges are classified according to a list of
diagnosis-related groups (DRGs). Each DRG has a payment weight assigned
to it, based on the average resources used to treat Medicare patients
in that DRG.
    Under section 1886(d)(1)(B) of the Act in effect without
consideration of the amendments made by Public Law 105-33, Public Law
106-113, and Public Law 106-554, certain specialty hospitals are
excluded from the hospital inpatient prospective payment system:
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,
until the payment provisions of Public Laws 105-33, 106-113, and 106-
554 that are applicable to three classes of these hospitals are
implemented, as discussed below.

[[Page 39829]]

    Various sections of Public Laws 105-33, 106-113, and 106-554
provide for the transition of rehabilitation hospitals and units,
psychiatric hospitals and units, and long-term care hospitals from
being paid on an excluded hospital basis to being paid on an individual
prospective payment system basis. These provisions are as follows:
     Rehabilitation Hospitals and Units. Section 1886(j) of the
Act, as added by section 4421 of Public Law 105-33 and amended by
section 125 of Public Law 106-113 and section 305 of Public Law 106-
554, authorizes the implementation of a prospective payment system for
inpatient hospital services furnished by rehabilitation hospitals and
units. Section 4421 of Public Law 105-33 amended the Act by adding
section 1886(j). 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 during or after October 2002, with payment provisions
during a transitional period based on target amounts specified in
section 1886(b) of the Act. Section 125 of Public Law 106-113 amended
section 1886(j) of the Act to require the Secretary to use a discharge
as the payment unit for inpatient rehabilitation services under the
prospective payment system and to establish classes of patient
discharges by functional-related groups. Section 305 of Public Law 106-
554 further amended section 1886(j) of the Act to allow hospitals to
elect to be paid the full Federal prospective payment rather than the
transitional period payments specified in the Act. A final rule
implementing the prospective payment system for inpatient
rehabilitation hospitals will be published in the Federal Register
shortly.
     Psychiatric Hospitals and Units. Sections 124(a) and (c)
of Public Law 106-113 provide for the development of a per diem
prospective payment system for payment for inpatient hospital services
of psychiatric hospitals and units under the Medicare program,
effective for cost reporting periods beginning on or after October 1,
2002. This system must include an adequate patient classification
system that reflects the differences in patient resource use and costs
among these hospitals and must maintain budget neutrality. We are in
the process of developing a proposed rule, to be followed by a final
rule, to implement the prospective payment system for psychiatric
hospitals and units, effective for October 1, 2002.
     Long-Term Care Hospitals. Sections 123(a) and (c) of
Public Law 106-113 provide for the development of a per discharge
prospective payment system for payment for inpatient hospital services
furnished by long-term care hospitals under the Medicare program,
effective for cost reporting periods beginning on or after October 1,
2002. Section 307(b)(1) of Public Law 106-554 provides that payments
under the long-term care prospective payment system will be made on a
prospective payment basis rather than a cost basis. The long-term care
hospital prospective payment system must include a patient
classification system that reflects the differences in patient resource
use and costs, and must maintain budget neutrality. We are planning to
develop a proposed rule, to be followed by a final rule, to implement
the prospective payment system for long-term care hospitals, effective
for October 1, 2002. Section 307 of Public Law 106-554 provides that if
the Secretary is unable to develop a prospective payment system for
long-term care hospitals that can be implemented by October 1, 2002,
the Secretary must implement a prospective payment system that bases
payment under the system using the existing acute hospital DRGs,
modified where feasible to account for resource use of long-term care
hospital patients using the most recently available hospital discharge
data for long-term care services.
    Under sections 1820 and 1834(g) of the Act, payments are made to
critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services 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 acute care 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. The regulations governing GME payments are
located in Part 413. The regulations governing CAHs are located in
Parts 413 and 485.
    This final rule implements amendments enacted by Public Law 106-554
relating to updates to FY 2002 payments for hospital inpatient
services, hospitals' geographic reclassifications and wage indexes, GME
costs, the payment adjustment for disproportionate share hospitals
(DSHs), the indirect medical education (IME) adjustment for teaching
hospitals, and CAHs. It also implements other changes affecting DRG
classifications and relative weights, annual updates to the data used
to calculate the wage index, sole community hospitals (SCHs), payments
under the inpatient capital prospective payment system, and policies
related to hospitals and units excluded from the prospective payment
system. These changes are addressed in sections II., III., IV., and VI.
of this preamble.
    Section 533 of Public Law 106-554 requires the Secretary to
establish a mechanism to recognize the costs of new medical services
and technologies by October 1, 2001. We proposed a mechanism in the May
4, 2001 proposed rule. We received 61 comments on our proposed criteria
to qualify for this special payment and on the proposed mechanism to
pay for qualifying new technologies. Due to this large number of
comments, we will publish a separate final rule to respond to comments
received on our proposal, and to establish a mechanism, by October 1,
2001.
    Although we intend to establish the mechanism by October 1, 2001,
we will not make additional payments under the mechanism for cases
involving new technology during FY 2002 because it is not feasible.
This is due to the timing of the enactment of Public Law 106-554 on
December 21, 2000, the requirement that we establish the mechanism
through notice and an opportunity for public comment, and the
requirement that the payments be implemented in a budget neutral
manner. That is, it was not feasible to establish the criteria by which
new technologies would qualify through a proposed rule with opportunity
for public comment as part of the May 4, 2001 proposed rule, finalize
those criteria in response to public comments, allow technologies to
qualify under those criteria, and implement payments for any qualified
technologies in a budget neutral manner. This is because making the
special payments in a budget neutral manner requires an adjustment to
the standardized amounts (which must be published in final by August 1
each year).

[[Page 39830]]

    Representatives of new technologies seeking to qualify for special
payments under this provision for FY 2003 should proceed with their
application by contacting us at the telephone numbers listed in the
``For Further Information Contact'' section of this preamble. As
indicated previously, a final rule containing the specific qualifying
criteria and payment mechanism will be published shortly.
    This final rule also responds to public comments on, and finalizes
implementation of, provisions of Public Law 106-113 that relate to
Medicare payments to hospitals for FY 2001 that were addressed in a
separate interim final rule with comment period (HCFA-1131-IFC),
published in the Federal Register on August 1, 2000 (65 FR 47026).
    Lastly, this final rule responds to public comments on, and
finalizes implementation of, other provisions of Public Law 106-554
that relate to Medicare payments to hospitals effective prior to
October 1, 2001 (that is, for FY 2001 or for the period between April
l, 2001 and September 30, 2001) that were addressed in a separate
interim final rule with comment period (HCFA-1178-IFC), published in
the Federal Register on June 13, 2001 (66 FR 32172).
    In summary, this final rule responds to public comments on, and
finalizes, three documents published in the Federal Register: The
August 1, 2000 interim final rule with comment period, the May 4, 2001
proposed rule (HCFA-1158-P), and the June 13, 2001 interim final rule
with comment period, as discussed below.
    The charts below specify the effective dates of the various
provisions of Public Law 106-113 and Public Law 106-554.

Effective Dates of the Provisions of Public Law 106-113 Included in This
                               Final Rule
------------------------------------------------------------------------
         Section No.                  Title            Effective date
------------------------------------------------------------------------
111.........................  Indirect Medical      10/01/1999.
                               Education
                               Adjustment Formula.
121.........................  Wage Adjustment to    10/01/1999.
                               Caps on Target
                               Amounts for
                               Excluded Hospitals
                               and Units.
152(a)......................  Reclassified          10/01/1999.
                               Hospitals in
                               Certain Designated
                               Counties.
153.........................  Calculation of Wage   10/01/1999.
                               Index for
                               Hattiesburg,
                               Mississippi.
154.........................  Calculation of Wage   10/01/1999.
                               Index for Allentown-
                               Bethlehem-Easton,
                               Pennsylvania MSA.
312.........................  Initial Residency     7/01/2000, for
                               Period for Child      residency programs
                               Neurology Residency   that began before,
                               Programs.             on, or after 11/29/
                                                     1999.
401(a)......................  Reclassification of   01/01/2000.
                               Certain Urban
                               Hospitals to Rural.
401(b)(2)...................  Application of        01/01/2000.
                               Reclassifications
                               under Section
                               401(a) to Critical
                               Access Hospitals.
403(a)......................  Length of Stay        11/29/1999.
                               Restrictions on
                               Inpatient Stays in
                               Critical Access
                               Hospitals.
403(b)......................  Qualifications of     11/29/1999.
                               For-Profit
                               Hospitals for
                               Critical Access
                               Hospital Status.
403(c)......................  Qualification of      11/29/1999 for
                               Closed Hospitals or   hospitals that
                               Hospitals Downsized   closed after 11/29/
                               to Health Clinics     1989; 11/29/1999
                               for Critical Access   for hospitals that
                               Hospital              downsized to health
                               Designation.          clinics.
403(e)......................  Elimination of        11/29/1999.
                               Medicare Part B
                               Deductible and
                               Coinsurance for
                               Clinical Diagnostic
                               Laboratory Tests
                               Furnished in
                               Critical Access
                               Hospitals.
403(f)......................  Provisions on Swing-  11/29/1999.
                               Beds in Critical
                               Access Hospitals.
404.........................  Extension of          10/01/2002 through 9/
                               Medicare-Dependent,   30/2006.
                               Small Rural
                               Hospital Program.
407(a)......................  Residents on          11/29/1999.
                               Approved Leaves of
                               Absence--GME and
                               IME.
407(b)......................  Expansion of Number   04/01/2000.
                               of Unweighted
                               Residents in Rural
                               Hospitals--GME and
                               IME.
407(c)......................  Urban Hospitals with  04/01/2000.
                               Rural Training
                               Tracks or
                               Integrated Rural
                               Tracks--GME and IME.
407(d)......................   Residents Training   10/01/1997
                               at Certain Veterans
                               Hospitals--GME and
                               IME.
408(a)......................  Swing Beds for        07/01/1998 through
                               Skilled Nursing       the end of the
                               Facility Level of     facility's third
                               Care Patients.        cost reporting
                                                     period after this
                                                     date.
408(b)......................  Elimination of        07/01/1998 through
                               Constraints on        the end of the
                               Length of Stay in     facility's third
                               Swing Beds in Rural   cost reporting
                               Hospitals.            period after this
                                                     date.
541.........................  Additional Payments   01/01/2000.
                               to Hospitals for
                               Approved Nursing
                               and Allied Health
                               Education to
                               Reflect Utilization
                               of Medicare+Choice
                               Enrollees.
------------------------------------------------------------------------

               Effective Dates of the Provisions of Public Law 106-113 Included in This Final Rule
----------------------------------------------------------------------------------------------------------------
           Section No.                     Title                               Effective date
----------------------------------------------------------------------------------------------------------------
201.............................  Clarification of No      11/29/1999.
                                   Beneficiary Cost-
                                   Sharing for Clinical
                                   Diagnostic Laboratory
                                   Tests Furnished by
                                   Critical Access
                                   Hospitals.
202.............................  Assistance with Fee      07/01/2001.
                                   Schedule Payment for
                                   Professional Services
                                   under All-Inclusive
                                   Rate.
211.............................  Threshold for            04/01/2001.
                                   Disproportionate Share
                                   Hospitals.

[[Page 39831]]

212.............................  Option to Base           04/01/2001.
                                   Eligibility for
                                   Medicare-Dependent,
                                   Small Rural Hospital
                                   Program on Discharges
                                   during Two of the
                                   Three Most Recently
                                   Audited Cost Reporting
                                   Periods.
213.............................  Extension of Option to   10/01/2000.
                                   use Rebased Target
                                   Amounts to All Sole
                                   Community Hospitals.
301.............................  Revision of Acute Care   04/01/2001.
                                   Hospital Payment
                                   Update for 2001.
302.............................  Additional Modification  04/01/2001.
                                   in Transition for
                                   Indirect Medical
                                   Education Adjustment.
303.............................  Decrease in Reductions   04/01/2001.
                                   for Disproportionate
                                   Share Hospitals.
304(a)..........................  Three-Year Wage Index    10/01/2001.
                                   Reclassifications; Use
                                   of 3 Years of Wage
                                   Data for Evaluating
                                   Reclassifications.
304(b)..........................  Statewide Wage Index     10/01/2001 for reclassification beginning 10/01/2002.
                                   for Reclassifications.
304(c)..........................  Collection of            09/30/2003 for application 10/1/2004.
                                   Occupational Case Mix
                                   Data.
306.............................  Payment for Inpatient    10/01/2000.
                                   Services of
                                   Psychiatric Hospitals.
307.............................  Payment for Inpatient    10/01/2000.
                                   Services of Long-Term
                                   Care Hospitals.
511.............................  Increase in Floor for    10/01/2001.
                                   Payments for Direct
                                   Costs of Graduate
                                   Medical Education.
512.............................  Change in Distribution   01/01/2001.
                                   Formula for
                                   Medicare+Choice-
                                   Related Nursing and
                                   Allied Health
                                   Education Costs.
541.............................  Increase in              10/01/2000.
                                   Reimbursement for Bad
                                   Debt.
----------------------------------------------------------------------------------------------------------------

B. Summary of the Provisions of the May 4, 2001 Proposed Rule

    On May 4, 2001, we published a proposed rule in the Federal
Register (66 FR 22646) that set forth proposed changes to the Medicare
hospital inpatient prospective payment system for operating and
capital-related costs for FY 2002. We set forth proposed changes to the
amounts and factors used in determining the rates for these costs. In
addition, we proposed changes relating to payments for GME costs and
payments to excluded hospitals and units, SCHs, and CAHs.
    The following is a summary of the major changes that we proposed
and the issues we addressed in the May 4, 2001 proposed rule:
1. Changes to the DRG Reclassifications and Recalibrations of Relative
Weights
    As required by section 1886(d)(4)(C) of the Act, we proposed annual
adjustments to the DRG classifications and relative weights. Based on
analyses of Medicare claims data, we proposed to establish a number of
new DRGs and make changes to the designation of diagnosis and procedure
codes under other existing DRGs for FY 2002.
    We also addressed the provisions of section 533 of Public Law 106-
544 regarding development of a mechanism for increased payment for new
medical services and technologies and the required report to Congress
on expeditiously introducing new medical services and technology into
the DRGs.
2. Changes to the Hospital Wage Index
    We proposed to use wage data taken from hospitals' FY 1998 cost
reports in the calculation of the FY 2002 wage index. We also proposed
to implement the third year of the phaseout of wage costs related to
GME or Part A certified registered nurse anesthetists (CRNA) from the
FY 2002 wage index calculation.
    We proposed several changes to the wage index methodology that
would apply in calculating the FY 2003 wage index, and addressed new
procedures for requesting wage data corrections and a modification of
the process and timetable for updating the wage index.
     We also discussed the collection of hospital occupational
mix data as required by section 304(c) of Public Law 106-554.
     In addition, we discussed revisions to the wage index
based on hospital redesignations and reclassifications for purposes of
the wage index, including changes to reflect the provisions of sections
304(a) and (b) of Public Law 106-554 relating to 3-year wage index
reclassifications by the MGCRB, the use of 3 years of wage data for
evaluating reclassification requests for FYs 2003 and later, and the
application of a statewide wage index for reclassifications beginning
in FY 2003.
3. Other Decisions and Changes to the Prospective Payment System for
Inpatient Operating and Graduate Medical Education Costs
    We discussed several provisions of the regulations in 42 CFR parts
412 and 413 and set forth certain proposed changes concerning SCHs;
rural referral centers; changes relating to the IME adjustment as a
result of section 302 of Public Law 106-554; changes relating to the
DSH adjustment as a result of section 303 of Public Law 106-554; the
establishment of policies relating to the 3-year application of wage
index reclassifications by the MGCRB, the use of 3 years of wage data
in evaluating reclassification requests to the MGCRB for FYs 2003 and
later, and the use of a statewide wage index for reclassifications
beginning in FY 2003, as required by sections 304(a) and (b) of Public
Law 106-554.
    We discussed proposed requirements for qualifying for additional
payments for new medical services and technology, as required by
section 533(b) of Public Law 106-554.
    Lastly, we proposed changes relating to payment for the direct
costs of GME, including changes as a result of section 511 of Public
Law 106-554.
4. Prospective Payment System for Capital-Related Costs
    We proposed payment requirements for capital-related costs,
including the special exceptions payment, beginning October 1, 2001.
5. Proposed Changes for Hospitals and Hospital Units Excluded from the
Prospective Payment Systems
    We discussed the following proposals concerning excluded hospitals
and hospital units and CAHs:
     Limits on and adjustments to the proposed target amounts
for FY 2002.
     Revision of the methodology for wage neutralizing the
hospital-specific target amounts using preclassified wage data.
     Updated caps for new excluded hospitals and units as well
as changes

[[Page 39832]]

in the effective date of classifications of excluded hospitals and
units.
     The prospective payment system for inpatient
rehabilitation hospitals and units.
     Payments to CAHs, including exclusion from the payment
window requirements; the availability of CRNA pass-through payments;
payment for emergency room on-call physicians; treatment of ambulance
services; the use of certain qualified practitioners for preanesthesia
and postanesthesia evaluations; and clarification of location
requirements for CAHs.
6. Determining Prospective Payment Operating and Capital Rates and
Rate-of-Increase Limits
    In the Addendum to the proposed rule, we set forth proposed changes
to the amounts and factors for determining the FY 2002 prospective
payment rates for operating costs and capital-related costs. We also
proposed threshold amounts for outlier cases. In addition, we proposed
update factors for determining the rate-of-increase limits for cost
reporting periods beginning in FY 2002 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 of the
proposed changes on affected entities.
8. Capital Acquisition Model
    In Appendix B of the proposed rule, we set forth the technical
appendix on the proposed FY 2002 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
    In Appendix C of the proposed rule, as required by section
1886(e)(3) of the Act, we set forth our report to Congress on our
initial estimate of a recommended update factor for FY 2002 for
payments to hospitals included in the prospective payment systems, and
hospitals excluded from the prospective payment systems.
10. Recommendation of Update Factor for Hospital Inpatient Operating
Costs
    In Appendix D, as required by sections 1886(e)(4) and (e)(5) of the
Act, we included our recommendation of the appropriate percentage
change for FY 2002 for the following:
     Large urban area and other area average standardized
amounts (and hospital-specific rates applicable to SCHs 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
    In the proposed rule, we discussed recommendations by the Medicare
Payment Advisory Commission (MedPAC) concerning hospital inpatient
payment policies and presented our responses to those recommendations.
Under section 1805(b) of the Act, MedPAC is required to submit a report
to Congress, not later than March 1 of each year, that reviews and
makes recommendations on Medicare payment policies. We respond to those
recommendations in section VII. of this preamble. 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 or visit
MedPAC's website at: www.medpac.gov.
12. Public Comments Received in Response to the May 4, 2001 Proposed
Rule
    We received a total of 232 timely items of correspondence
containing multiple comments on the proposed rule. Major issues
addressed by the commenters included: additional payments for new
medical services and technologies, geographic reclassifications of
hospitals for purposes of the wage index, DRG reclassifications,
payments for GME, and payments to CAHs.
    Summaries of the public comments received and our responses to
those comments are set forth below under the appropriate heading, with
the exception of comments and responses pertaining to specific payments
for new technologies under section 533 of Public Law 106-554. As
described previously, this provision will be implemented through a
separate final rule.

C. Summary of the Provisions of the August 1, 2000 Interim Final Rule
with Comment Period

    On August 1, 2000, we published in the Federal Register (65 FR
47026) an interim final rule with comment period that implemented, or
conformed the regulations to, certain statutory provisions relating to
Medicare payments to hospitals for inpatient services that were
contained in Public Law 106-113, that were effective for FY 2000. The
following is a summary of the policy changes we implemented as a result
of Public Law 106-113:
1. Changes Relating to Payments for Operating Costs Under the Hospital
Inpatient Prospective Payment System
     Reclassification of Certain Counties. We implemented the
provisions of section 152(a) of Public Law 106-113 that reclassified
hospitals in certain designated counties for purposes of making
payments to affected hospitals under section 1886(d) of the Act for FY
2000. The counties affected by this provision are identified under
section III. of this preamble.
     Wage Index. We implemented sections 153 and 154 of Public
Law 106-113 that contain provisions affecting the wage indexes of
specific Metropolitan Statistical Areas (MSA). Under section 153, the
Hattiesburg, Mississippi FY 2000 wage index was calculated including
wage data from Wesley Medical Center. Under section 154, the Allentown-
Bethlehem-Easton, Pennsylvania MSA FY 2000 wage index was calculated
including wage data for Lehigh Valley Hospital.
     Reclassification of Certain Urban Hospitals as Rural
Hospitals. We implemented section 401 of Public Law 106-113 which
directed 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 was effective on January 1, 2000.
     IME Adjustment. We implemented section 111 of Public Law
106-113 which provided for an additional payment to teaching hospitals
equal to the additional amount the hospitals would have been paid for
FY 2000 if the IME adjustment formula (which reflects the higher
indirect operating costs associated with GME) for FY 2000 had remained
the same as for FY 1999.
     Extension of the MDH Provision. We implemented section 404
of Public Law 106-113 which extended the MDH program and its current
payment methodology for an additional 5 years, from FY 2002 through FY
2006.
2. Additional Changes Relating to Direct GME and IME
     Initial Residency Period for Child Neurology Residency
Programs. We implemented section 312 of Public Law 106-113 which
provides that in determining the number of residents for purposes of
GME and IME payments, the period of board eligibility and the initial
residency period for child neurology is the period of board

[[Page 39833]]

eligibility for pediatrics plus 2 years. This provision is effective on
or after July 1, 2000, for residency programs that began before, on, or
after November 29, 1999.
     Residents on Approved Leaves of Absence. We implemented
section 407(a) of Public Law 106-113 which provides that, for purposes
of determining a hospital's full-time equivalent (FTE) cap for direct
GME payments and the IME adjustment, a hospital may 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. The provision relating to direct GME was effective
with cost reporting periods beginning on or after November 29, 1999.
The provision relating to the IME adjustment applied to discharges
occurring in cost reporting periods beginning on or after November 29,
1999.
     Expansion of Number of Unweighted Residents in Rural
Hospitals. We implemented section 407(b) of Public Law 106-113 which
provides that a rural hospital's resident FTE count for direct GME and
IME 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. The provision relating to
direct GME applied to cost reporting periods beginning on or after
April 1, 2000. The provision relating to the IME adjustment applied to
discharges occurring on or after April 1, 2000.
     Urban Hospitals with Rural Training Tracks or Integrated
Rural Tracks. We implemented section 407(c) of Public Law 106-113 which
allows an urban 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 was 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.
     Residents Training at Certain Veterans Affairs Hospitals.
We implemented section 407(d) of PublicLaw 106-113 which provides that
a non-Veterans Affairs (VA) hospital may receive a temporary adjustment
to its FTE cap to reflect residents who were training at a VA hospital
and were transferred on or after January 1, 1997, and before July 31,
1998, to the non-VA hospital because the program at the VA hospital
would lose its accreditation by the Accreditation Council on Graduate
Medical Education if the residents continued to train at the facility.
This provision applies as if it was included in the enactment of Public
Law 105-33, that is, for direct GME, with cost reporting periods
beginning on or after October 1, 1997, and for IME, for 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.
3. Payments for Nursing and Allied Health Education: Utilization of
Medicare+Choice Enrollees
    We implemented section 541 of Public Law 106-113 which provides an
additional payment to hospitals that receive payments under section
1861(v) of the Act for approved nursing and allied health education
programs associated with services to Medicare+Choice enrollees. This
provision is effective for portions of cost reporting periods occurring
on or after January 1, 2000.
4. Changes Relating to Hospitals and Hospital Units Excluded From the
Prospective Payment System
    We implemented section 121 of Public Law 106-113 which amended
section 1886(b)(3)(H) of the Act to direct the Secretary 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 for cost reporting periods beginning on or
after October 1, 1999.
5. Changes Relating to CAHs
    We implemented--
     Section 401(b) of Public Law 106-113, which contained
conforming changes to incorporate the reclassifications made by section
401(a) of Public Law 106-113 to the CAH statute (section
1820(c)(2)(B)(i) of the Act). This provision is effective beginning on
January 1, 2000.
     Section 403(a) of Public Law 106-113, which deleted the
96-hour length of stay restriction on inpatient care in a CAH and
authorized a period of stay that does not exceed, on an annual, average
basis, 96 hours per patient. This provision is effective beginning on
November 29, 1999.
     Section 403(b) of Public Law 106-113, which allows for-
profit hospitals to qualify for CAH status. This provision is effective
beginning on November 29, 1999.
     Section 403(c) of Public Law 106-113, which allows
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 satisfy the established criteria for
designation, other than the requirement for existing hospital status.
     Section 403(e) of Public Law 106-113, which eliminated 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
afterNovember 29, 1999.
     Section 403(f) of Public Law 106-113, entitled
``Participation in Swing Bed Program,'' which amended sections
1883(a)(1) and (c) of the Act.
6. Changes Relating Hospital to Swing Bed Program
    We implemented section 408(a) of Public Law 106-113 which
eliminated the requirement for a hospital to obtain a certification of
need to use acute care beds as swing beds for skilled nursing facility
(SNF) level of care patients; and section 408(b) of Public Law 106-113
which eliminates constraints on the length of stay in swing beds for
rural hospitals with 50 to 100 beds. These provisions were effective on
the first day after the expiration of the transition period for
prospective payments for covered SNF services under the Medicare
program (that is, at the end of the transition period for the SNF
prospective payments system that began with the facility's first cost
reporting period beginning on or after July 1, 1998 and extend through
the end of the facility's third cost reporting period after this date).
    We received a total of eight timely items of correspondence
containing multiple comments on the August 1, 2000 interim final rule
with comment period. Summaries of the public comments received and our
responses to those comments are set forth below under the appropriate
section headings of this final rule.

D. Summary of the Provisions of the June 13, 2001 Interim Final Rule
With Comment Period

    On June 13, 2001, we published an interim final rule with comment
period in the Federal Register (66 FR 32172) that implemented changes
to the Act affecting Medicare payments to hospitals for inpatient
services that were made by Public Law 106-554. Some of these changes
were effective before the December 21, 2000 date of enactment of Public
Law 106-554, on April 1, 2001,

[[Page 39834]]

or on July 1, 2001. The changes, on which we requested public comment,
are as follows:
1. Changes Relating to Payments for Operating Costs Under the Hospital
Inpatient Prospective Payment System
     Treatment of Rural and Small Urban Disproportionate Share
Hospitals (DSHs) . We implemented the provisions of section 211 of
Public Law 106-554 which lowered thresholds by which certain classes of
hospitals qualify for DSH payments, with respect to discharges
occurring on or after April 1, 2001.
     Decrease in Reductions for DSH Payments. We implemented
section 303 of Public Law 106-554 which modified the previous reduction
in the DSH payment to be 2 percent in FY 2001 and 3 percent in FY 2002.
     Medicare-Dependent, Small Rural Hospitals (MDHs). We
implemented section 212 of Public Law 106-554 which provided an option
to base eligibility for MDH status on discharges during two of the
three most recently audited cost reporting periods, effective with cost
reporting periods beginning on or after April 1, 2001.
     Revision of Prospective Payment System Standardized
Amounts. We implemented section 301 of Public Law 106-554 which revised
the update factor increase for the inpatient prospective payment rates
for FY 2001.
     Indirect Medical Education Adjustment (IME). We
implemented section 302 of Public Law 106-554 which provided that for
the purposes of making the IME payment for discharges occurring on or
after April 1, 2001 and before October 1, 2001, the adjustment will be
determined as if the adjustment equaled a 6.75 percent increase in
payment for every 10 percent increase in the resident-to-bed ratio,
rather than a 6.25 percent increase.
     SCHs. We implemented section 213 of Public Law 106-554
which further extended the 1996 rebasing option, for hospital cost
reporting periods beginning October 1, 2000, to all SCHs and provides
that this extension is effective as if it had been included in section
405 of Public Law 106-113.
2. Payments for Nursing and Allied Health Education: Utilization of
Medicare+Choice Enrollees
    We implemented section 512 of Public Law 106-554 which revised the
formula for determining the additional payment amounts to hospitals for
Medicare+Choice nursing and allied health education costs to
specifically account for each hospital's Medicare+Choice utilization.
3. Changes Relating to Payments for Capital-Related Costs Under the
Hospital Inpatient Prospective Payment System
    As a result of implementing section 301 of Public Law 106-554,
which provided increased inpatient operating payment rates, we
recalculated the unified outlier threshold for inpatient operating and
inpatient capital-related costs. Therefore, we revised the capital
outlier offset which also required us to revise the capital-related
rates.
4. Changes Relating to Hospitals and Hospital Units Excluded From the
Prospective Payment System
     Increase in the Incentive Payment for Excluded Psychiatric
Hospitals and Units. We implemented section 306 of Public Law 106-554,
which provided that for cost reporting periods beginning on or after
October 1, 2000, for psychiatric hospitals and units, if the allowable
net inpatient operating costs do not exceed the hospital's ceiling,
payment is the lower of: (1) net inpatient operating costs plus 15
percent of the difference between inpatient operating costs and the
ceiling; or, (2) net inpatient costs plus 3 percent of the ceiling.
     Increase in the Wage Adjusted 75th Percentile Cap on the
Target Amounts for Long-Term Care Hospitals. We implemented section
307(a) of Public Law 106-554, which provided a 2-percent increase to
the wage-adjusted 75th percentile cap on the target amount for long-
term care hospitals, effective for cost reporting periods beginning
during FY 2001.
     Increase in the Target Amounts for Long-Term Care
Hospitals. We implemented section 307(a) Public Law 106-554, which
provided a 25 percent increase to the target amounts for long-term care
hospitals for cost reporting periods beginning in FY 2001, up to the
cap on target amounts.
5. Changes Relating to CAHs
     Elimination of Coinsurance for Clinical Diagnostic
Laboratory Tests Furnished by a CAH. We implemented section 201(a) of
Public Law 106-554, which amended section 1834(g) of the Act to state
that there will be no collection of coinsurance, deductible,
copayments, or any other type of cost sharing from Medicare
beneficiaries with respect to outpatient clinical diagnostic laboratory
services furnished as outpatient CAH services and that those services
will be paid for on a reasonable cost basis.
     Assistance with Fee Schedule Payment for Professional
Services under All-Inclusive Rate. We implemented section 202 of Public
Law 106-554, which amended section 1834(g)(2)(B) of the Act to provide
that when a CAH elects to be paid for Medicare outpatient services
under the reasonable costs for facility services plus fee schedule
amounts for professional services method, Medicare will pay 115 percent
of the amount it otherwise pays for the professional services.
     Condition of Participation with Hospital Requirements at
the Time of Application for CAH Designation (Sec. 485.612). We
implemented a conforming change to correct Sec. 485.612 to reflect that
certain entities are not required to have a provider agreement prior to
CAH designation.
6. Other Inpatient Costs
     Increase in Reimbursement for Bad Debts. We implemented
section 541 of Public Law 106-554 which provided a 30 percent decrease
of allowable hospital bad debt reimbursement for cost reporting periods
beginning during FY 2001 and all subsequent fiscal years. This section
modified section 4451 of Public Law 105-33 that reduced the total
allowable bad debt reimbursement for hospitals by 45 percent.
    We received a total of 13 timely pieces of correspondence
containing comments on the June 13, 2001 interim final rule with
comment period. A summary of these public comments and our responses to
them are set forth under sections IV. and VI. of this final rule.

II. 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 multiplies an individual
hospital's payment rate per case by the weight of the DRG to which the
case is assigned. Each DRG weight represents the average resources
required to care for cases in that particular DRG relative to the
average resources used to treat cases in all DRGS.
    Congress recognized that it would be necessary to recalculate the
DRG relative weights periodically to account for changes in resource
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires
that the Secretary adjust the DRG classifications and relative weights
at least annually. These adjustments are made to reflect changes

[[Page 39835]]

in treatment patterns, technology, and any other factors that may
change the relative use of hospital resources. Changes to the DRG
classification system and the recalibration of the DRG weights for
discharges occurring on or after October 1, 2001 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 version 18 of the GROUPER (used for FY 2001), cases are assigned
to one of 499 DRGs (including one DRG (469) for a diagnosis that is
invalid as a discharge diagnosis and one DRG (470) 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 is
Diseases and Disorders of the Digestive System. However, some MDCs are
not constructed on this basis because they involve multiple organ
systems (for example, MDC 22 (Burns)).
    In general, cases are assigned to an MDC, based on the principal
diagnosis, before assignment to a DRG. However, there are six DRGs to
which cases are directly assigned on the basis of procedure codes.
These are the DRGs for heart, liver, bone marrow, and lung transplants
(DRGs 103, 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 and
medical DRGs. Surgical DRGs are based on a hierarchy that orders
individual procedures or groups of procedures by resource intensity.
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.
    We proposed numerous changes to the DRG classification system for
FY 2002. The proposed changes, the public comments we received
concerning them, and the final DRG changes are set forth below. Unless
otherwise noted, the changes we are implementing will be effective in
the revised GROUPER software (Version 19.0) to be implemented for
discharges on or after October 1, 2001. Unless noted otherwise, we are
relying on the data analysis in the proposed rule for the changes
discussed here.
    Chart 1 lists the changes we are making by adding new DRGs or
removing old DRGs. Chart 2 summarizes the changes we are making with
respect to the reassignment of procedure codes. Chart 3 presents the
changes we are making to the titles of existing DRGs.
    In Chart 2 of the proposed rule, several procedure codes were
erroneously included in the ``Removed from DRG'' column of the chart
(66 FR 22650). The 11 affected codes are 37.21, 37.22, 37.23, 37.26,
88.52, 88.53, 88.54, 88.55, 88.56, 88.57, and 88.58. Inclusion of these
codes in this chart made it appear as if the codes were being deleted
from DRG 104. In fact, they are being additionally assigned to DRG 514.
We have corrected Chart 2 in this final rule.

                                 Chart 1.--Summary of Changes in DRG Assignments
----------------------------------------------------------------------------------------------------------------
                        Diagnosis related groups (DRGs)                           Added as new       Removed
----------------------------------------------------------------------------------------------------------------
Pre-MDC:
    DRG 512 (Simultaneous Pancreas/Kidney Transplant).........................               X   ...............
    DRG 513 (Pancreas Transplants)............................................               X   ...............
MDC 5 (Diseases and Disorders of the Circulatory System):
    DRG 112 (Percutaneous Cardiovascular Procedures)..........................  ...............               X
    DRG 514 (Cardiac Defibrillator Implant with Cardiac Catheterization)......               X   ...............
    DRG 515 (Cardiac Defibrillator Implant without Cardiac Catheterization)...               X   ...............
    DRG 516 (Percutaneous Cardiovascular Procedures with Acute Myocardial                    X   ...............
     Infarction (AMI))........................................................
    DRG 517 (Percutaneous Cardiovascular Procedures without AMI, with Coronary               X   ...............
     Artery Stent Implant.....................................................
    DRG 518 (Percutaneous Cardiovascular Procedures without AMI, without                     X   ...............
     Coronary Artery Stent Implant............................................
MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective
 Tissue):
    DRG 519 (Cervical Spinal Fusion with CC)..................................               X   ...............
    DRG 520 (Cervical Spinal Fusion without CC)...............................               X   ...............
MDC 20 (Alcohol/Drug Use and Alcohol/Drug-Induced Organic Mental Disorders):
    DRG 434 (Alcohol/Drug Abuse or Dependency, Detoxification or Other          ...............               X
     Symptomatic Treatment with CC)...........................................
    DRG 435 (Alcohol/Drug Abuse or Dependency, Detoxification or Other          ...............               X
     Symptomatic Treatment without CC)........................................
    DRG 436 (Alcohol/Drug Dependence with Rehabilitation Therapy).............  ...............               X
    DRG 437 (Alcohol/Drug Dependence, Combined Rehabilitation and               ...............               X
     Detoxification Therapy)..................................................
    DRG 521 (Alcohol/Drug Abuse or Dependence with CC)........................               X   ...............

[[Page 39836]]

    DRG 522 (Alcohol/Drug Abuse or Dependence without CC, with Rehabilitation                X   ...............
     Therapy).................................................................
    DRG 523 (Alcohol/Drug Abuse or Dependence without CC, without                            X   ...............
     Rehabilitation Therapy)..................................................
----------------------------------------------------------------------------------------------------------------

     Chart 2.--Summary of Assignment or Reassignment of Diagnosis or
                    Procedure Codes in Existing DRGs
------------------------------------------------------------------------
   Diagnosis/procedure codes      Removed from DRG    Reassigned to DRG
------------------------------------------------------------------------
 MDC 5 (Diseases and Disorders
   of the CirculatorySystem)
------------------------------------------------------------------------
Principal Diagnosis Code:
    410.01  Acute myocardial     116..............  516.
     infarction of
     anterolateral wall,
     initial episode of care.
    410.11  Acute myocardial     116..............  516.
     infarction of other
     anterior wall, initial
     episode of care.
    410.21  Acute myocardial     116..............  516.
     infarction of
     inferolateral wall,
     initial episode of care.
    410.31  Acute myocardial     116..............  516.
     infarction of
     inferoposterior wall,
     initial episode of care.
    410.41  Acute myocardial     116..............  516.
     infarction of other
     inferior wall, initial
     episode of care.
    410.51  Acute myocardial     116..............  516.
     infarction of other
     lateral wall, initial
     episode of care.
    410.61  True posterior wall  116..............  516.
     infarction, initial
     episode of care.
    410.71  Subendocardial       116..............  516.
     infarction, initial
     episode of care.
    410.81  Acute myocardial     116..............  516.
     infarction of other
     specified sites, initial
     episode of care.
    410.91  Acute myocardial     116..............  516
     infarction of unspecified
     site, initial episode of
     care.
Procedure Codes:
    37.94  Implantation or       104, 105.........  514, 515.
     replacement of automatic
     cardioverter/
     defibrillation, total
     system (AICD).
    37.95  Implantation of       104, 105.........  514, 515.
     automatic cardioverter/
     defibrillator lead(s) only.
    37.96  Implantation of       104, 105.........  514, 515.
     automatic cardioverter/
     defibrillator pulse
     generator only.
    37.97  Raplacement of        104, 105.........  514, 515.
     automatic cardioverter/
     defibrilator lead(s) only;.
    37.98  Replacement of        104, 105.........  514, 515.
     automatic cardioverter/
     defibrillator pulse
     generator only.
Operating Room Procedures:
    35.96  Percutaneous          112, 116.........  516, 517, 518.
     valvuloplasty.
    36.01  Single vessel         112, 116.........  516, 517, 518.
     percutaneous transluminal
     coronary angioplasty
     (PTCA) or coronary
     atherectomy without
     mention of thrombolytic
     agent.
    36.02  Single vessel         112, 116.........  516, 517, 518.
     percutaneous transluminal
     coronary angioplasty
     (PTCA) or coronary
     atherectomy with mention
     of thrombolytic agent.
    36.05  Multiple vessel       112, 116.........  516, 517, 518.
     percutaneous transluminal
     coronary angioplasty
     (PTCA) or coronary
     atherectomy performed
     during the same operation,
     with or without mention of
     thrombolytic agent.
    36.09  Other removal of      112, 116.........  516, 517, 518.
     coronary artery
     obstruction.
    37.34  Catheter ablation of  112, 116.........  516, 517, 518.
     lesion or tissues of heart.
    92.27  Implantation or       non-OR in MDC-5..  517
     insertion of radioactive
     elements.
Nonoperating Room Procedures:
    36.06  Insertion of          116..............  517.
     coronary artery stent(s).
    37.26 Cardiac                112..............  514, 516, 517, 518.
     electrophysiologic
     stimulation and recording
     studies.
    37.27  Cardiac mapping.....  112..............  516, 517, 518.
------------------------------------------------------------------------
 MDC 8 (Diseases and Disorders
 of the Musculoskeletal System
     and Connective Tissue)
------------------------------------------------------------------------
Procedure Codes:
    81.02  Other cervical        497, 498.........  519, 520.
     fusion, anterior technique.
    81.03  Other cervical        497, 498.........  519, 520.
     fusion, posterior
     technique.
   MDC 15 (Newborns and Other
    Neonates with Conditions
  Originating in the Perinatal
            Period)
Diagnosis Codes:
    770.7  Chronic respiratory   387, 389.........  92, 93.
     disease arising in the
     perinatal period.
    773.0  Hemolytic disease     387, 389.........  390.
     due to RH isoimmunization.
    773.1  Hemolytic disease     387, 389.........  390.
     due to ABO isoimmunization.
Secondary Diagnosis Codes:
    478.1  Other diseases of     390..............  391.
     nasal cavity and sinuses.
    520.6  Disturbances in       390..............  391.
     tooth eruption.
    623.8  Other specified       390..............  391.
     noninflammatory disorders
     of vagina.
    709.00  Dyschromia,          390..............  391.
     unspecified.
    709.01  Vitiglio...........  390..............  391.
    709.09  Dyschromia, Other..  390..............  391.
    744.1  Accessory Auricle...  390..............  391.
    754.61  Congenital pes       390..............  391.
     planus.
    757.33  Congenital           390..............  391.
     pigmentary anomalies of
     skin.
    757.39  Other specified      390..............  391.
     anomaly of skin.
    764.08  ``Light for dates''  390..............  391.
     without mention of fetal
     malnutrition, 2,000-2,499
     grams.
    764.98  Fetal growth         390..............  391.
     retardation, unspecified,
     2,000-2,499 grams.
    772.6  Cutaneous hemorrhage  390..............  391.
    779.3  Feeding problems in   390..............  391
     newborns.
    794.15  Abnormal and         390..............  391.
     auditory function studies.

[[Page 39837]]

    796.4  Other abnormal        390..............  391.
     clinical findings.
    V20.2  Routine infant or     390..............  391.
     child health check.
    V72.1  Examination of ears   390..............  391.
     and hearing.
------------------------------------------------------------------------

                                                           Chart 3.--Summary of Retitled DRGs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                  MDC                          DRG No.               Current name                                    New name
--------------------------------------------------------------------------------------------------------------------------------------------------------
MDC 5.................................  DRG 116               Other Permanent Cardiac    Other Cardiac Pacemaker Implantation.
                                                               Pacemaker Implantation,
                                                               or PTCA, with Coronary
                                                               Artery Stent Implant.
MDC 8.................................  DRG 497               Spinal Fusion with CC....  Spinal Fusion except Cervical with CC.
MDC 8.................................  DRG 498               Spinal Fusion without CC.  Spinal Fusion except Cervical with CC.
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Removal of Defibrillator Cases from DRGs 104 and 105
    DRGs 104 (Cardiac Valve & Other Major Cardiothoracic Procedures
with Cardiac Catheterization) and 105 (Cardiac Valve & Other Major
Cardiothoracic Procedures without Cardiac Catheterization) include the
replacement or open repair of one or more of the four heart valves.
These valves may be diseased or damaged, resulting in either leakage or
restriction of blood flow to the heart, compromising the ability of the
heart to pump blood. This procedure requires the use of a heart-lung
bypass machine, as the heart must be stilled and opened to repair or
replace the valve.
    Cardiac defibrillators are implanted to correct episodes of
fibrillation (very fast heart rate) caused by malfunction of the
conduction mechanism of the heart. Through implanted cardiac leads, the
defibrillator mechanism senses changes in heart rhythm. When very fast
heart rates occur, the defibrillator produces a burst of electric
current through the leads to restore the normal heart rate. An
implanted defibrillator constantly monitors heart rhythm. The
implantation of this device does not require the use of a heart-lung
bypass machine, and would be expected to be very different in terms of
resource usage, although both procedures currently group to DRGs 104
and 105.
    For the proposed rule, as part of our ongoing review of DRGs, we
examined Medicare claims data on DRG 104 and DRG 105. We reviewed 100
percent of the FY 2000 MedPAR file containing hospital bills received
through May 31, 2000, for discharges in FY 2000, and found that the
average charges across all cases in DRG 104 were $84,060, while the
average charges across all cases in DRG 105 were $66,348. Carving out
code 37.94 (Implantation or replacement of automatic cardioverter/
defibrillator, total system [AICD]) from DRGs 104 and 105 increased
those average charges to $91,366 for DRG 104 and $67,323 for DRG 105.
We identified 11,021 defibrillator cases in DRG 104 (out of 25,112
total cases), with average charges of $74,719, and 2,434 defibrillator
cases in DRG 105 (out of 20,094 total cases), with average charges of
$59,267.
    We performed additional review on cases containing code 37.95
(Implantation of automatic cardioverter/defibrillator lead(s) only)
with code 37.96 (Implantation of automatic cardioverter/defibrillator
pulse generator only) and on cases containing code 37.97 (Replacement
of automatic cardioverter/defibrillator lead(s) only) with code 37.98
(Replacement of automatic cardioverter/defibrillator pulse generator
only). This subgrouping contained only 56 patients. The average charges
for the 18 patients in DRG 104 were $58,847. The average charges for
the 38 patients in DRG 105 were $54,891.
    In the proposed rule, because we believed the defibrillator cases
are significantly different from other cases in DRGs 104 and 105, we
proposed two new DRGs: DRG 514 (Cardiac Defibrillator Implant with
Cardiac Catheterization) and DRG 515 (Cardiac Defibrillator Implant
without Cardiac Catheterization).
    We also proposed the removal of procedure codes 37.94, 37.95 and
37.96, and 37.97 and 37.98 from DRGs 104 and 105 to form the new DRGs
514 and 515.
    We received 58 comments on this proposal.
    Comment: Many commenters noted that implanted cardioverter
defibrillators (ICDs) or AICDs are lifesaving devices that demonstrate
state-of-the-art technology for the treatment of cardiac arrhythmias by
continuously monitoring, analyzing, and, if needed, restoring a
patient's normal heart rhythm.
    One commenter described the technology. Similar to the size of a
pacemaker, the ICD is placed under the skin of the upper chest. It has
the capacity to continuously monitor and analyze a patient's heart
rhythm. If the ICD detects an arrhythmia, it can terminate the abnormal
rhythm with either a pacemaker function or the delivery of a low-energy
electrical shock to restore normal heart rhythm.
    Response: We agree that ICDs and AICDs are an important addition to
the treatment of cardiac disease. The creation of DRGs 514 and 515 is
not meant to effect a judgement call about the efficacy or importance
of this treatment, but simply to attempt to improve the accuracy of
payments within MDC 5, based on the actual charge data associated with
these cases.
    Comment: A vast majority of the commenters expressed concern that
payments associated with defibrillators will decrease for FY 2002 as a
result of this change, with some commenters noting that an ICD or AICD
may cost the hospital between $22,000 and $25,000 per device. The
commenters stated that if this is the case, there is a limited amount
for the remainder of the hospital care (for example, operating room,
supplies, nursing staff salary, and typically a 7-day stay in an
intensive care unit). Most commenters called for

[[Page 39838]]

additional analysis prior to implementation of DRGs 514 and 515.
    Response: As we described in the proposed rule and above, DRGs 104
and 105 currently include many different procedures, with a range of
costs associated with these different procedures. We proposed to change
the assignment of cardiac defibrillators to new DRGs 514 and 515 to
more accurately pay for the more expensive procedures remaining in DRGs
104 and 105, as well as to improve the payment accuracy for cardiac
defibrillators. In fact, the relative weight of DRG 104 increases from
FY 2001 to FY 2002 by 9.1 percent.
    Comment: Many commenters argued that using hospital charges to
determine DRG relative weights can give a distorted picture of the
costs of a procedure. The commenters referred to an unspecified
national database indicating that the average mark-up of charges over
cost for ICDs is lower than the mark-up applied to other components of
care. Other commenters referred to the March 2001 Report to Congress by
the MedPAC, which, in the context of evaluating available data for
setting accurate relative values, stated that hospitals' billed charges
``give a distorted picture of relative costliness across DRGs because
they reflect systematic differences among hospitals in the average
mark-up of charges over costs'' (page 11).
    Several commenters stated that about 66 percent of hospitals are
losing $5,000 or more per case for these procedures. These commenters
did not understand why payment would be reduced even further in light
of those losses.
    Response: Hospital charges have been the basis for recalibrating
the DRG relative weights since FY 1986 (see 50 FR 24372 and 50 FR
35652). To the extent that the mark-up of charges over costs varies
from one particular device or procedure to another, the relative
weights will be impacted. However, due to the relativity of the DRG
weights, a low mark-up associated with one device or procedure will be
offset by relatively higher mark-ups associated with another device or
procedure, leading to higher relative weights, and thus higher
payments, for the latter device or procedure. The prospective payment
system is an average-based payment methodology, where hospitals are
expected to offset any losses they may incur from any individual or
group of cases with payment gains incurred from other cases.
    Furthermore, hospital charges are determined by each hospital on an
item-by-item basis. It is not possible to account for these individual
management decisions in the process of developing a national payment
system based on prospectively determined average payment rates.
    As demonstrated in the impact analysis in Appendix A to this final
rule, hospital payments would rise (prior to the budget neutrality
adjustment) by 0.3 percent as a result of all of the DRG changes we are
implementing in this final rule, including this change. In addition, we
note that the latest analysis by MedPAC indicates the average hospital
Medicare inpatient operating margin during FY 1999 (the latest year
available) was 12.0 percent (Report to the Congress: Medicare Payment
Policy, page 64). Therefore, we believe that hospitals will be able to
adequately adjust to these payment changes in both the short and the
long term.
    Comment: One commenter noted that the adjustment to DRGs 104 and
105 as reflected in Table 5, ``List of Diagnosis Related Groups (DRGs),
Relative Weighting Factors, Geometric and Arithmetic Mean Length of
Stay,'' in the Addendum of the proposed rule, does not reflect the
resource consumption as discussed above. The commenter recommended that
we increase the relative weights to reflect the resource consumption of
DRGs 104 and 105.
    Response: In this final rule, the relative weight for DRG 104 is
7.8411 for FY 2002, an increase of 9.1 percent from FY 2001. The
relative weight for DRG 105 in this final rule is 5.6796 for FY 2002, a
0.4 percent increase from FY 2001. These percentage changes are very
similar to the percent change in average charges in DRGs 104 and 105
after removing ICD and AICD charges, as described above. We note that
the final relative weight values are based on 100 percent of FY 2000
discharges in the MedPAR database as of March 2001. The analysis using
average charges described above was based on an earlier sample of
cases; therefore, the percentage changes do not match exactly.
    Comment: Other commenters noted that this change, and the resulting
increase in payments for procedures remaining in DRGs 104 and 105, is a
positive step to improving the payment for heart assist devices.
However, the commenters were disappointed that we did not take the
opportunity to make a similar revision for cases involving mechanical
heart assist devices.
    Response: As described above, removing the ICDs/AICDs from DRGs 104
and 105 will have the net effect of increasing the relative weights for
both DRGs, so payment for the remaining cases will increase. We will
continue to evaluate our options for improving the accuracy of our
payments for heart assist technologies.
    After carefully reviewing all of the comments submitted, we have
decided to proceed with the creation of two new DRGs to capture cases
involving the implantation of cardiac defibrillators. The new DRGs 514
and 515 include principal diagnosis codes and procedure codes as
reflected in Chart 4 below:

                             Chart 4.--Composition of New DRGs 514 and 515 in MDC 5
----------------------------------------------------------------------------------------------------------------
                                                                                Included in DRG  Included in DRG
                         Diagnosis and procedure codes                                514              515
----------------------------------------------------------------------------------------------------------------
Principal Diagnosis Codes:
    All of the principal diagnosis codes assigned to MDC-5....................               X                X
Principal or Secondary Procedure Code:
    37.94  Implantation or replacement of automatic cardioverter/                            X                X
     defibrillator, total system (AICD).......................................
Combination Operating Procedure Codes:
    37.95  Implantation of automatic cardioverter/defibrillator lead(s) only;
        Plus
    37.96  Implantation of automatic cardioverter/defibrillator pulse                        X                X
     generator only;..........................................................
        Or
    37.97  Replacement of automatic cardioverter/defibrillator lead(s) only;
        Plus
    37.98  Replacement of automatic cardioverter/defibrillator pulse generator               X                X
     only.....................................................................
Plus: One of the Following Nonoperating Room ProcedureCodes:
    37.21  Right heart cardiac catheterization................................               X
    37.22  Left heart cardiac catheterization.................................               X

[[Page 39839]]

    37.23  Combined right and left heart cardiac catheterization..............               X
    37.26  Cardiac electrophysiologic stimulation and recording studies.......               X
    88.52  Angiocardiography of right heart structures........................               X
    88.53  Angiocardiography of left heart structures.........................               X
    88.54  Combined right and left heart angiocardiography....................               X
    88.55  Coronary arteriography using a single catheter.....................               X
    88.56  Coronary arteriography using two catheters.........................               X
    88.57  Other and unspecified coronary arteriography.......................               X
    88.58  Negative-contrast cardiac roentgenography..........................               X
----------------------------------------------------------------------------------------------------------------

b. Percutaneous Cardiovascular Procedures
    In the May 4 proposed rule, we indicated that we had reviewed other
DRGs within MDC 5 in order to determine if there were also logic
changes that could be made to these DRGs. The data were arrayed in a
variety of ways displaying myriad permutations, resulting in the
following proposed changes.
    A percutaneous transluminal coronary angioplasty (PTCA) is an acute
intervention intended to minimize cardiac damage by restarting
circulation to the heart. Some patients with an acute myocardial
infarction (AMI) are now treated by performing a PTCA during the
hospitalization for the AMI. Currently, PTCAs with a coronary stent
implant are assigned to DRG 116 (Other Permanent Cardiac Pacemaker
Implantation, or PTCA with Coronary Artery Stent Implant), along with
pacemaker implants. The remaining percutaneous cardiovascular
procedures are assigned to DRG 112 (Percutaneous Cardiovascular
Procedures).
    The volume of percutaneous cardiovascular procedures has grown
dramatically, with 186,669 cases identified in the FY 2000 MedPAR file
containing hospital bills submitted through May 31, 2000. Because of
the high volume, we decided to review the DRG for percutaneous
cardiovascular procedures. As a first step in the evaluation, we
combined the percutaneous cardiovascular procedures from DRGs 112 and
116. We then subdivided the combined percutaneous cardiovascular
procedure group into two groups based on the principal diagnosis (Pdx)
of AMI.

------------------------------------------------------------------------
                                                                Average
                       Group                          Count      charge
------------------------------------------------------------------------
With Pdx of AMI...................................     50,442    $31,722
Without Pdx of AMI................................    136,227     23,989
------------------------------------------------------------------------

    Each of these groups was further evaluated by subdividing them
based on whether a coronary stent was implanted. The vast majority of
patients with an AMI had a coronary stent implanted. Patients without
an AMI were subdivided into two groups based on whether a coronary
stent was implemented.

------------------------------------------------------------------------
                                                                Average
                       Group                          Count      charge
------------------------------------------------------------------------
Without Pdx of AMI with stent.....................    111,441    $24,745
Without Pdx of AMI without stent..................     24,786     20,589
------------------------------------------------------------------------

    In the proposed rule, based on this analysis, we proposed the
removal of PTCAs with coronary artery stent from DRG 116, thus limiting
DRG 116 to permanent cardiac pacemaker implantation. This removal would
leave approximately 68,000 non-PTCA cases in DRG 116.
    In conjunction with this evaluation, we considered a new
technology, intravascular brachytherapy, that is being used to treat
coronary in-stent stenosis. A gamma-radiation-impregnated tape is
threaded through the affected vessel for a specified amount of dwell
time, and then the tape is removed. Intravascular brachytherapy was
approved by the Food and Drug Administration in November 2000.
    Intravascular brachytherapy is assigned to procedure code 92.27
(Implantation or insert of radioactive elements). With the use of
angioplasty, these cases are currently assigned to DRG 112
(Percutaneous Cardiovascular Procedures). Therefore, cases involving
this new technology will be implicated by these changes.
    Also in the proposed rule, we proposed to retitle DRG 116 ``Other
Cardiac Pacemaker Implantation,'' remove DRG 112, and create three new
DRGs: DRG 516 (Percutaneous Cardiovascular Procedures with Acute
Myocardial Infarction (AMI)); DRG 517 (Percutaneous Cardiovascular
Procedures without AMI, with Coronary Artery Stent Implant); and DRG
518 (Percutaneous Cardiovascular Procedures without AMI, without
Coronary Artery Stent Implant). In order to be assigned to new DRG 516,
cases must contain one of the principal diagnoses plus the operating
room procedures listed in Chart 5. Because DRG 516 contains acute
myocardial infarction, which is hierarchically ordered before DRGs 517
and 518, any AMI cases also containing codes 92.27 or 36.06 (Insertion
of coronary artery stents(s)) would automatically be assigned to DRG
516. We also proposed the assignment of patients with a percutaneous
cardiovascular procedure and intravascular radiation treatment to new
DRG 517. As more data become available, we will reassess the assignment
of intravascular radiation treatment to DRG 517. New DRG 518 would
contain the same operating room and nonoperating room procedures as new
DRG 517, with the exception of codes 92.27 and 36.06. We received 10
comments on this proposal.
    Comment: Several commenters supported the reclassification of
percutaneous vascular procedures to DRGs within this MDC. Other
commenters, however, stated the proposed changes would be inappropriate
because they would reduce payment overall for percutaneous
cardiovascular procedures. These commenters noted that new technologies
associated with these procedures are, in fact, more costly rather than
less costly. In addition, commenters expressed concern that payment for
pacemakers under DRG 116 would be reduced from FY 2001 levels.
    Response: Based on 100 percent of FY 2000 discharges on file
through March 2001, we estimate the case-weighted average relative
weight for DRGs 116, 516, 517 and 518 to be 2.2236, a 4.5 percent
decline from the case-weighted average relative weight for DRGs 112 and
116 for FY 2001 (2.3280). As discussed above in relation to the new
DRGs 514 and 515, the calculation of

[[Page 39840]]

the relative weights reflects the charges submitted by hospitals for
these cases.
    Comment: Five commenters addressed only the inclusion of code 92.27
(Implantation or insertion of radioactive elements, also known as
brachytherapy) in new DRG 517 in cases without presence of AMI (these
cases would go to DRG 516 if AMI were present). Four of the five
expressed appreciation for this change, citing its clinical
appropriateness and increased payment, which is close to the additional
facility costs for performing the procedure.
    One commenter, while commending the decision to assign these cases
to DRG 517, requested clarification about our decisionmaking process in
assigning this technology to the same DRG as coronary stents. The
commenter requested that we outline the specific criteria we applied or
the process we followed to evaluate the adequacy of the external data
submitted.
    Response: Although we received external data from a manufacturer of
this technology, they were not the basis for our decision, as we were
unable to verify the data because the data were submitted too late in
the process of preparing the FY 2002 proposed rule. When we proposed to
restructure DRGs 112 and 116, our decision was based on the clinical
coherence of the DRGs. Intravascular radiation treatment is an invasive
procedure that requires an additional 35 to 45 minutes, and requires
the services of both a radiation (nuclear) physicist and a radiation
safety officer in the operating room, as well as specifically trained
operating room personnel, such as an ultrasound specialist.
    Comment: One commenter wrote that these changes fail to account for
the use of GP IIB-IIIA inhibitors for cases with acute coronary
syndromes. The commenter was concerned whether the DRG assignment for
these cases under the proposed DRGs would be appropriate.
    Response: The administration of GP IIB-IIIA inhibitors is through
intravenous infusion, and is assigned to code 99.20 (Injection or
infusion of platelet inhibitor). The GROUPER does not recognize code
99.20 as a procedure and, therefore, its presence does not affect DRG
assignment. As described above, the DRG assignment for these cases
under the newly configured DRGs 116, 516, 517, and 518 would be
determined by the presence of AMI and the presence of other procedures
that would cause the case to group to one of the other DRGs besides
518. Our analysis of FY 2000 MedPAR data indicates that, among cases
with code 99.20 currently assigned to either DRGs 112 or 116 for FY
2000, the majority of these cases are currently assigned to DRG 116
(317,108 discharges compared to 52,945). Therefore, the majority of
these cases involve procedures that do affect DRG assignment. We will
continue to evaluate these cases, however, to determine whether further
revisions would be appropriate.
    Comment: One commenter indicated that codes 37.27 (Cardiac mapping)
and 37.34 (Catheter ablation of lesion or tissues of heart) would now
be grouped to new DRGs 516, 517, and 518. Because these procedures are
not usually used on patients with AMI or patients who receive a stent,
the commenter indicated the cases would most likely be grouped to DRG
518. The commenter believed that we were unaware that certain
procedures, such as the two previously mentioned, have greater resource
utilization than other percutaneous cardiovascular procedures that do
not involve AMI or stents. The commenter asserted that this is an
inadvertently inappropriate classification. The commenter recommended
that CMS either create a separate DRG for cardiac mapping and ablation
procedures, or else assign codes 37.27 and 37.34 to DRG 516 after
retitling the DRG appropriately.
    Response: These cases previously were assigned to either DRG 112 or
116, depending upon whether they involved the insertion of a stent or
the implantation of a pacemaker. This GROUPER assignment logic did not
change, although the presence or absence of AMI is now a factor as
well. We believe this is an appropriate clinical categorization.
However, we will consider this issue as we continue to evaluate these
DRGs.
    The principal diagnosis codes and operating room and nonoperating
room procedure codes that are included in the new DRGs 516, 517, and
518 are reflected in Chart 5.

                          Chart 5.--Composition of New DRGs 516, 517, and 518 in MDC 5
----------------------------------------------------------------------------------------------------------------
                                                                 Included in      Included in      Included in
                Diagnosis and procedure codes                      DRG 516          DRG 517          DRG 518
----------------------------------------------------------------------------------------------------------------
Principal Diagnosis Codes:
    410.01  Acute myocardial infarction of anterolateral                    X   ...............  ...............
     wall, initial episode of care...........................
    410.11  Acute myocardial infarction of other anterior                   X   ...............  ...............
     wall, initial episode of care...........................
    410.21  Acute myocardial infarction of inferolateral                    X   ...............  ...............
     wall, initial episode of care...........................
    410.31  Acute myocardial infarction of inferoposterior                  X   ...............  ...............
     wall, initial episode of care...........................
    410.41  Acute myocardial infarction of other inferior                   X   ...............  ...............
     wall, initial episode of care...........................
    410.51  Acute myocardial infarction of other lateral                    X   ...............  ...............
     wall, initial episode of care...........................
    410.61  True posterior wall infarction, initial episode                 X   ...............  ...............
     of care.................................................
    410.71  Subendocardial infarction, initial episode of                   X   ...............  ...............
     care....................................................
    410.81  Acute myocardial infarction of other specified                  X   ...............  ...............
     sites, initial episode of care..........................
    410.91  Acute myocardial infarction of unspecified site,                X   ...............  ...............
     initial episode of care.................................
Plus:
Operating Room Procedures:
     35.96  Percutaneous valvuloplasty.......................               X                X                X
        And
     36.01  Single vessel percutaneous transluminal coronary                X                X                X
     angioplasty (PTCA) or coronary atherectomy without
     mention of thrombolytic agent...........................
        Or
     36.02  Single vessel percutaneous transluminal coronary                X                X                X
     angioplasty (PTCA) or coronary atherectomy with mention
     of thrombolytic agent...................................
        Or
     36.05  Multiple vessel percutaneous transluminal                       X                X                X
     coronary angioplasty (PTCA) or coronary atherectomy
     performed during the same operation, with or without
     mention of thrombolytic agent...........................

[[Page 39841]]

        And
     36.09  Other removal of coronary artery obstruction.....               X                X                X
        And
     37.34  Catheter ablation of lesion or tissues of heart..               X                X                X
     92.27  Implantation or insertion of radioactive elements  ...............               X   ...............
Or:
Nonoperating Room Procedures:
     36.06  Insertion of coronary artery stent(s)............  ...............               X   ...............
     37.26  Cardiac electrophysiologic stimulation and                      X                X                X
     recording studies.......................................
     37.27  Cardiac mapping..................................               X                X                X
----------------------------------------------------------------------------------------------------------------

    DRG 121 (Circulatory Disorders with AMI and Major Complication,
Discharged Alive), DRG 122 (Circulatory Disorders with AMI without
Major Complication, Discharged Alive), and DRG 123 (Circulatory
Disorders with AMI, Expired) are not affected by these changes.
c. Removal of Heart Assist Systems
    The ICD-9-CM Coordination and Maintenance Committee considered the
nonoperative removal of heart assist systems at its November 17, 2000
meeting. A device called the intra-aortic balloon pump (IABP) is one of
the most common types of ventricular assist systems. A balloon catheter
is placed into the patient's descending thoracic aorta, and inflates
and deflates with each heartbeat. This device is timed with the
patient's own heart rhythm, and inflates and circulates blood to the
heart and other organs. This allows the heart to rest and recover. The
IABP may be used preoperatively, intraoperatively, or postoperatively.
It supports the patient from a few hours to several days.
    Code 37.64 (Removal of heart assist system) already exists, and it
is considered by the GROUPER to be an operative procedure. However, the
nonoperative removal of a heart assist system can be done at the
patient's bedside, is noninvasive, and requires no anesthesia.
Therefore, the Committee created code 97.44 (Nonoperative removal of
heart assist system) for use with discharges beginning on or after
October 1, 2001.
    In the past, we have assigned new ICD-9-CM codes to the same DRG to
which the predecessor code was assigned. In the proposed rule, we
explained that if this practice were to be followed, we would have
proposed that code 97.44 be assigned to MDC 5, DRGs 478 (Other Vascular
Procedures with CC) and 479 (Other Vascular Procedures without CC).
After hospital charge data became available, we would have considered
moving it to other DRGs. However, in accordance with section 533(a) of
Public Law 106-554, which requires a more expeditious technique of
recognizing new medical services or technology for the hospital
inpatient prospective payment system, we will reconsider this
longstanding practice when possible. Therefore, as code 97.44 was
designed to capture heart assist system removal that is clearly
nonoperative, we did not propose to designate 97.44 as a code which the
GROUPER recognizes as a procedure. The GROUPER will assign these cases
to a medical DRG based on the principal diagnosis, or to a surgical DRG
if a surgical procedure recognized by the GROUPER is performed. This
assignment can be found in Table 6B, New Procedure Codes, in the
Addendum to this rule.
    We received no comments on this proposal. However, we did receive
comments on another issue in MDC 5, relating to DRGs 110 and 111 (Major
Cardiovascular Procedures with and without CC).
    Comment: One commenter submitted a case study on stent technology,
noting that Medicare payments in their facility were 31.4 percent lower
than total costs. This commenter made no recommendations, but stated
that often surgeons must use additional stent segments to repair
aneurysms, increasing total costs by thousands of dollars.
    Response: We do not have a clear understanding of the commenter's
statement that often surgeons must use additional stent segments to
repair aneurysms, thereby increasing total costs. We are unclear
because the device presented to us for new ICD-9-CM code consideration
was proposed as a single device, custom-fitted to the patient's needs.
We will continue to monitor this technology and the new code (used for
discharges on or after October 1, 2001).
    Comment: One commenter noted that aortic endografts are assigned to
DRGs 110 and 111, and the cost of the device alone is greater than the
entire payment for DRG 111. The commenter noted that this is a
straightforward issue, and recommended that these cases be assigned
specifically to DRG 110.
    Response: DRGs 110 and 111 are what we refer to as paired DRGs.
Paired DRGs are exactly the same as each other with regard to the
principal diagnosis and procedure codes in most cases. However, other
aspects of the patient's case have a bearing on DRG assignment, such as
the patient's age or the secondary diagnoses (which determine
comorbidities or complications in appropriate DRGs). In this case, DRGs
110 and 111 are divided based on the presence or absence of secondary
diagnosis codes. If there are no secondary diagnosis codes present, the
case will be assigned to DRG 111. It has been our experience that
patients not having secondary diagnoses are less expensive for the
hospital to treat, thereby resulting in a lower weighted DRG
assignment.
    Hospitals should code their records completely, recording and
submitting all relevant diagnosis and procedure codes having a bearing
on the current admission. As noted previously, payment for each DRG is
based on the average charges for cases assigned to that DRG as
submitted to us by hospitals.
3. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue)
a. Refusions
    We have received questions from correspondents regarding the
appropriateness of the spinal fusion DRGs: DRG 496 (Combined Anterior/
Posterior Spinal Fusion); DRG 497 (Spinal Fusion with CC); and DRG 498
(Spinal Fusion without CC). Several correspondents expressed concern
about the inclusion of all refusions of the spine into one procedure
code, 81.09 (Refusion of spine, any level or technique). The
correspondents pointed out that because all refusions using any
technique or level are in this one code,

[[Page 39842]]

all of these cases are assigned to DRG 497 and DRG 498. They also
pointed out that fusion cases involving both an anterior and posterior
technique are assigned to DRG 496. Although cases with the refusion
code that involve anterior and posterior techniques would appear to be
more appropriately assigned to DRG 496, this is not the case.
    We recognized this limitation in the refusion codes and further
acknowledged that this limitation in the ICD-9-CM coding system creates
DRG problems by preventing the assignment to DRG 496 even when both
anterior and posterior techniques are used for refusion cases.
Therefore, we referred the issue to the ICD-9-CM Coordination and
Maintenance Committee and requested the Committee to consider code
revisions for the refusions of the spine during its year 2000 public
meetings.
    After its deliberations, the Committee approved a series of new
procedure codes for refusion of the spine that could lead to
improvements within DRGs 497 and 498. These new codes, listed below, go
into effect on October 1, 2001.

81.30  Refusion of spine, not otherwise specified
81.31  Refusion of atlas-axis spine
81.32  Refusion of other cervical spine, anterior technique
81.33  Refusion of other cervical spine, posterior technique
81.34  Refusion of dorsal and dorsolumbar spine, anterior technique
81.35  Refusion of dorsal and dorsolumbar spine, posterior technique
81.36  Refusion of lumbar and lumbosacral spine, anterior technique
81.37  Refusion of lumbar and lumbosacral spine, lateral transverse
process technique
81.38  Refusion of lumbar and lumbosacral spine, posterior technique
81.39  Refusion of spine, not elsewhere classified

    As previously stated, all refusions of the spine and corrections of
the pseudarthrosis of the spine are assigned to code 81.09. Code 81.09,
which is always assigned to DRG 497 or DRG 498, includes refusions at
any level of the spine using any technique. With the creation of the
new procedure codes listed above, it will be possible to determine the
level of the spine at which the refusion is performed, as well as the
technique used, and assign the case to a more appropriate DRG.
    These new procedure codes should greatly improve our ability to
determine the level and technique used in the refusion.
    In the past, we have assigned new ICD-9-CM codes to the same DRG to
which the predecessor code was assigned. In the proposed rule, we
explained that if this practice were followed, these new codes would
have been assigned to DRG 497 and 498 as they are currently. After data
became available, we would have considered moving them to other DRGs.
However, in accordance with section 533(a) of Public Law 106-554, which
requires more expeditious methods of recognizing new medical services
or technology under the inpatient hospital prospective payment system,
we will reconsider this longstanding practice when possible. Since the
new codes clearly allow us to identify cases where the technique was
either anterior or posterior and these cases are clinically similar
and, therefore, should be handled in the same fashion, we proposed to
immediately assign these cases on the same basis as the fusion codes
(81.00 through 81.09). We would not wait for actual claims data before
making this change. These assignments are reflected in Chart 6 and also
can be found in Table 6B, in section V. of the Addendum to this final
rule.
    Comment: One commenter supported the creation of the ICD-9-CM codes
for refusions as well as their proposed DRG assignments.
    Response: We appreciate the support of the commenter and are
adopting the proposed DRG assignments for refusions of spine as final.
b. Fusion of Cervical Spine
    In the proposed rule we discussed an inquiry concerning the spinal
DRGs that focused on fusions of the cervical spine. The inquirer stated
that there was a significant difference between inpatients who undergo
anterior cervical spinal fusion and other types of spinal fusion in
regard to treatment, recovery time, costs, and risk of complications.
Anterior cervical spinal fusions are assigned to procedure code 81.02
(Other cervical fusion, anterior technique). The inquirer pointed out
that anterior cervical fusions differ significantly from anterior
techniques at other levels since the anatomic approach is far less
invasive. Thoracic anterior techniques require working around the
cardiac and respiratory systems in the chest cavity, while lumbar
anterior techniques require working around bowel and digestive system
and the abdominal muscles. The inquirer recommended that code 81.02 be
removed from DRGs 497 and 498 and grouped separately.
    We analyzed claims data from the FY 2000 MedPAR file containing
hospital bills received through May 31, 2000, and confirmed that
charges are lower for fusions of the cervical spine than fusions of the
thoracic and lumbar spine. This was true for both anterior and
posterior cervical fusions of the spine. Our medical consultants agree
that the data and their clinical analysis support the creation of new
DRGs for cervical fusions of the spine. We proposed to remove procedure
codes 81.02 and 81.03 from the spinal fusion DRGs (currently, DRGs 497
and 498) and assign them to new DRGs for cervical spinal fusion with
and without CC. We also proposed four groupings for fusion DRGs. The
net effect of this change is an increase in the weights for DRGs 497
and 498, since the lower charges for the cervical fusions would be
removed. The average standardized charge for all spinal fusions with
CCs was $26,957. For all spinal fusions without CCs, the average charge
was $16,492. The table below also shows average standardized charges
for these types of cases before and after the revisions.

------------------------------------------------------------------------
                                              Average     Average charge
       Revised spinal fusion DRGs          charge before       after
                                             revisions       revisions
------------------------------------------------------------------------
DRG 497 Spinal Fusion Except Cervical            $26,957         $36,821
 with CC................................
DRG 498 Spinal Fusion Except Cervical             17,492          26,297
 without CC.............................
DRG 519 Cervical Spinal Fusion with CC..  ..............          26,957
DRG 520 Cervical Spinal Fusion without    ..............          16,492
 CC.....................................
------------------------------------------------------------------------

[[Page 39843]]

    Based on the groupings, we proposed the creation of two new DRGs:
DRG 519 (Cervical Spinal Fusion with CC); and DRG 520 (Cervical Spinal
Fusion without CC). The procedure codes that would be included in the
DRGs 519 and 520 are reflected in Chart 6 below.
    We also proposed to add the new ICD-9-CM procedure codes for
refusion of the cervical spine (81.32 and 81.33) to the new cervical
spine fusion DRGs because they are clinically similar.
    In addition, we proposed to retitle DRG 497 ``Spinal Fusion Except
Cervical with CC'' and DRG 498 ``Spinal Fusion Except Cervical without
CC.'' The retitled DRGs 497 and 498 would retain fusion codes 81.00,
81.01, and 81.04 through 81.08 and include the new refusion codes
81.30, 81.31, and 81.34 through 81.39, as reflected in Chart 6 below.
    Comment: One commenter commended the creation of the new ICD-9-CM
codes for spinal refusions and the development of the new DRGs for
cervical fusions. This commenter, a manufacturer of devices used for
spinal fusions, agreed that cervical fusions on average cost less than
lumbar and thoracic fusions. Another commenter who supported the
creation of the new DRGs mentioned that this classification would more
appropriately reflect the resources used in the varying cases.
    Two commenters asserted that DRGs 497 and 498 fail to take into
account the cost variations when multi-level spinal fusions are
performed. The commenters stated that the cost and complexity of a
discharge varies substantially depending on the number of levels
performed as part of a fusion procedure. Commenters recommended that
new ICD-9-CM procedure codes be created for multi-level spine
procedures to track and measure costs. The current ICD-9-CM codes do
not differentiate between the number of levels that are fused. The
commenter defined multi-level as three or more vertebral segments,
either anterior or posterior, or both. In addition, the commenter
recommended that these new multi-level fusion codes be assigned to the
higher weighted DRG 496. The commenter recommended that DRG 496 be
renamed ``Multi-Level Spine Procedure Anterior and/or Posterior for
Stabilization and/or Correction and/or Refusion.''
    Response: We agree that the current ICD-9-CM procedure codes do not
differentiate between the number of levels fused. This proposal will be
addressed by the ICD-9-CM Coordination and Maintenance Committee at its
November 1, 2001 meeting. A potential problem with this recommendation
will be the need to avoid overlapping codes. The current fusion codes
are based on an axis of the level of the fusion (cervical or lumbar)
and an additional axis of the approach (anterior, posterior, or lateral
transverse). Devising a modified or additional scheme that utilizes an
additional axis of the number of disks fused may be quite challenging.
If this scheme requires the use of a set of codes from the new Chapter
17, we could quickly use up these currently empty codes. As far as the
recommendation to include these new multi-level fusion codes in DRG
496, this issue will be deferred until after the coding issue is
addressed. If new codes are created, they will be included in an
upcoming proposed rule along with their proposed DRG assignment.
    Since there was support for the proposed changes to the spinal
DRGs, these will be implemented as final changes effective October 1,
2001.
c. Posterior Spinal Fusion
    We received other correspondence regarding the current DRG
assignment for code 81.07, Lumbar and lumbosacral fusion, lateral
transverse process technique. The correspondent stated that physicians
consider code 81.07 to be a posterior procedure. The patient is placed
prone on the operating table and the spine is exposed through a
vertical midline incision. The correspondent pointed out that code
81.07 is not classified as a posterior procedure within DRG 496
(Combined Anterior/Posterior Spinal Fusion). Therefore, when 81.07 is
reported with one of the anterior techniques fusion codes, it is not
assigned to DRG 496. The correspondent recommended that code 81.07 be
added to the list of posterior spinal fusion codes for use in
determining assignment to DRG 496.
    In the proposed rule, we indicated that we consulted with our
clinical advisors and they agreed that this addition should be made.
Since we proposed to handle the new refusion codes in the same manner
as the fusion codes, we also proposed to assign DRG 496 when 81.37 is
used with one of the anterior technique fusion or refusion codes. This
would be similar to the manner in which code 81.07 is classified. For
assignment to DRG 496, we would consider codes 81.02, 81.04, 81.06,
81.32, 81.34, and 81.36 to be anterior techniques and codes 81.03,
81.05, 81.07, 81.08, 81.33, 81.35, and 81.38 to be posterior
techniques.

                           Chart 6.--Revised Composition of DRGS 496, 497, and 498 and Composition of DRG 519 and 520 in MDC 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Existing DRG 496
                                                         --------------------------------   Retained in     Retained in     Included in
              Diagnosis and procedure codes                 Assigned as     Assigned as     or Added to     or Added to       DRG 519
                                                             anterior        posterior     existing  DRG   existing  DRG    included in
                                                            techniques      techniques          497             498           DRG 520
-----------------------------------------------------------------------------------------------------------------------------------------
Principal or Secondary Procedure Codes:
    81.00  Spinal fusion, not otherwise specified.......  ..............  ..............              X               X   ..............  ..............
    81.01  Atlas-axis fusion............................  ..............  ..............              X               X   ..............  ..............
    81.02  Other cervical fusion, anterior technique....              X   ..............  ..............  ..............              X               X
    81.03  Other cervical fusion, posterior technique...  ..............              X   ..............  ..............              X               X
    81.04  Lumbar and lumbosacral fusion, anterior                    X   ..............              X               X   ..............  ..............
     technique..........................................
    81.05  Lumbar and lumbosacral fusion, posterior       ..............              X               X               X   ..............  ..............
     technique..........................................
    81.06  Lumbar and lumbosacral fusion, anterior                    X   ..............              X               X   ..............  ..............
     technique..........................................

    81.07  Lumbar and lumbosacral fusion, lateral         ..............              X               X               X   ..............  ..............
     transverse process technique.......................
    81.08  Lumbar and lumbosacral fusion, posterior       ..............              X               X               X   ..............  ..............
     technique..........................................

[[Page 39844]]

    81.30  Refusion of spine, not otherwise specified...  ..............  ..............              X               X   ..............  ..............
    81.31  Refusion of atlas-axis spine.................  ..............  ..............              X               X   ..............  ..............
    81.32  Refusion of other cervical spine, anterior                 X   ..............  ..............  ..............              X               X
     technique..........................................
    81.33  Refusion of other cervical spine, posterior    ..............              X   ..............  ..............              X               X
     technique..........................................
    81.34  Refusion of dorsal and dorsolumbar spine,                  X   ..............              X               X   ..............  ..............
     anterior technique.................................
    81.35  Refusion of dorsal and dorsolumbar spine,      ..............              X               X               X   ..............  ..............
     posterior technique................................
    81.36  Refusion of lumbar and lumbosacral spine,                  X   ..............              X               X   ..............  ..............
     anterior technique.................................
    81.37  Refusion of lumbar and lumbosacral spine,      ..............              X               X               X   ..............  ..............
     posterior technique................................
    81.38  Refusion of lumbar and lumbosacral spine,      ..............              X               X               X   ..............  ..............
     posterior technique................................
    81.39  Refusion of spine, not elsewhere classified..  ..............  ..............              X               X   ..............  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------

    There was no opposition expressed to the changes proposed for
posterior spinal fusions; therefore, we are adopting the proposed
changes as final.
d. Spinal Surgery
    The California Division of Workers' Compensation notified us of a
possible problem with the following spinal DRGs:

DRG 496 (Combined Anterior/Posterior Spinal Fusion)
DRG 497 (Spinal Fusion with CC)
DRG 498 (Spinal Fusion without CC)
DRG 499 (Back & Neck Procedures except Spinal Fusion with CC)
DRG 500 (Back & Neck Procedures except Spinal Fusion without CC)

    The Division of Workers' Compensation uses the DRG categories
developed by CMS to classify types of hospital care. However, instead
of using CMS' weights for determining reimbursement for inpatient
services, the Division sets a global fee for all inpatient medical
services not otherwise exempted. This fee is established by multiplying
the product of the DRG weight (or revised DRG weight for a small number
of categories) and the health facility's composite factor by 1.20 to
get the maximum amount for worker compensation admissions.
    The Division of Workers' Compensation has received reports that the
formula it uses for reimbursing cases may be providing inadequate
reimbursement. California hospitals and orthopedists have reported that
certain spinal surgery DRGs (DRGs 496 through 500) may involve
different types of care and/or technologies than those in use at the
time these groups were formulated. Health care providers in California
report ``recent increased use of the new implantation devices,
hardware, and instrumentation, coupled with requirements for intensive
hospital services accompanying use of new procedures, has led to
inadequate reimbursement in these DRGs.'' As a short-term response to
these concerns, the California Division of Workers' Compensation is
exempting the costs of hardware and instrumentation from the global fee
of the fee schedule for DRGs 496 through 500. The Division also
requested that CMS examine these DRGs for any potential problem under
the Medicare reimbursement system.
    The ICD-9-CM coding system does not capture specific types of
implantation devices, hardware, and instrumentation. Therefore, we were
not able to verify the claim that these new devices have led to
increased costs in specific cases. We believe that the adoption of a
more detailed coding system, such as ICD-10-PCS, would supply greater
amounts of detail on these items. However, in the short term, it is not
possible to identify a specific problem that involves implantation
devices, hardware, and instrumentation.
    Comment: As previously stated, we received support for the proposed
changes to the spinal fusion DRGs. As was also stated, one commenter
pointed out that the current ICD-9-CM codes do not specify the number
of levels fused, nor do they specify the types of devices used.
    One commenter, who manufactures spinal fusion devices, commended
the new ICD-9-CM codes for refusions and the new DRGs for cervical
fusions. This commen