[Federal Register: August 1, 2002 (Volume 67, Number 148)] [Rules and Regulations] [Page 49981-50030] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr01au02-13] To assist readers in referencing sections contained in this document, we are providing the following table of contents. Outline of Contents Summary I. Background A. Summary B. Major Contents of This Rule II. Changes to DRG Classifications and Relative Weights A. Background B. DRG Reclassification C. Recalibration of DRG Weights D. Add-On Payments for New Services and Technologies III. Changes to the Hospital Wage Index A. Background B. FY 2003 Wage Index Update C. FY 2003 Wage Index Proposal D. Verification of Wage Data From the Medicare Cost Report E. Computation of the FY 2003 Wage Index F. Revisions to the Wage Index Based on Hospital Redesignation G. Requests for Wage Data Corrections IV. Rebasing and Revision of the Hospital Market Baskets A. Operating Costs B. Capital Input Price Index V. Other Decisions and Changes to the Prospective Payment System for Inpatient Operating Costs and Graduate Medical Education Costs A. Transfer Payment Policy B. Sole Community Hospitals (SCHs) (Secs. 412.77 and 412.92) C. Outlier Payments: Technical Change (Sec. 412.80) D. Rural Referral Centers (Sec. 412.96) E. Indirect Medical Education (IME) Adjustment (Sec. 412.105) F. Medicare-Dependent, Small Rural Hospitals: Ongoing Review of Eligibility Criteria (Sec. 412.108(b)) G. Eligibility Criteria for Reasonable Cost Payments to Rural Hospitals for Nonphysician Anesthetists (Sec. 412.113(c)) H. Medicare Geographic Classification Review Board (MGCRB) Reclassification Process (Secs. 412.230, 412.232, and 412.273) I. Payment for Direct Costs of Graduate Medical Education (Sec. 413.86) J. Responsibilities of Medicare-Participating Hospitals in Emergency Cases (EMTALA) K. Provider-Based Entities L. CMS Authority Over Reopening of Intermediary Determinations and Intermediary Hearing Decisions on Provider Reimbursement VI. Changes to the Prospective Payment System for Capital-Related Costs A. Background B. New Hospitals C. Extraordinary Circumstances D. Restoration of the 2.1 Percent Reduction to the Standard Federal Capital Prospective Payment System Payment Rate E. Clarification of Special Exceptions Policy VII. Changes for Hospitals and Hospital Units Excluded From the Acute Care Hospital Inpatient Prospective Payment System A. Payments to Excluded Hospitals and Hospital Units (Secs. 413.40(c), (d), and (f)) B. Criteria for Exclusion of Satellite Facilities from the Hospital Inpatient Prospective Payment System C. Critical Access Hospitals (CAHs) VIII. MedPAC Recommendations IX. Other Required Information A. Requests for Data From the Public B. Information Collection Requirements X. Waiver of Proposed Rulemaking A. Technical Correction to Regulations Relating to DSH Adjustment Factor B. Technical Correction to Regulations Relating to TEFRA Target Amount for Long-Term Care Hospitals C. Technical Corrections Relating to Affiliated Groups Addendum--Schedule of Standardized Amounts Effective with Discharges Occurring On or After October 1, 2002 and Update Factors and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning On or After October 1, 2002 I. Summary and Background II. Changes to Prospective Payment Rates for Hospital Inpatient Operating Costs for FY 2003 III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2003 IV. Changes to Payment Rates for Excluded Hospitals and Hospital Units: Rate-of-Increase Percentages V. Tables This section contains the tables referred to throughout the preamble to this proposed rule and in this Addendum. Appendix A--Regulatory Impact Analysis I. Introduction II. Objectives III. Limitations of Our Analysis IV. Hospitals Included In and Excluded From the Acute Care Hospital Inpatient Prospective Payment System V. Impact on Excluded Hospitals and Hospital Units VI. Quantitative Impact Analysis of the Policy Changes Under the Hospital Inpatient Prospective Payment System for Operating Costs Table I.--Impact Analysis of Changes for FY 2003 Operating Prospective Payment System Table II.--Impact Analysis of Changes for FY 2003 Operating Prospective Payment System Table III.--Comparison of Total Payments per Case A. Basis and Methodology of Estimates B. Impact of the Changes to the DRG Reclassifications and Recalibration of Relative Weights (Column 2) C. Impact of Wage Index Changes (Columns 3, 4, and 5) D. Combined Impact of DRG and Wage Index Changes--Including Budget Neutrality Adjustment (Column 6) E. Impact of MGCRB Reclassifications (Column 7) F. All Changes (Column 8) VII. Impact of Specific Policy Changes A. Impact of Policy Changes Relating to Hospital Bed Counts B. Impact of Changes Relating to EMTALA Provisions C. Impact of Policy Changes Relating to Provider-Based Entity VIII. Impact of Policies Affecting Rural Hospitals A. Raising the Threshold To Qualify for the CRNA Pass-Through Payments B. Removal of Requirement for CAHs To Use State Resident Assessment Instrument IX. Impact of Changes in the Capital Prospective Payment System Appendix B--Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services [[Page 49981]] ----------------------------------------------------------------------- Part II Department of Health and Human Services ----------------------------------------------------------------------- Centers for Medicare and Medicaid Services ----------------------------------------------------------------------- 42 CFR Part 405, et al. Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2003 Rates; Final Rule [[Page 49982]] ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 405, 412, 413, and 485 [CMS-1203-F] RIN 0938-AL23 Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2003 Rates AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: We are revising the Medicare acute care hospital inpatient prospective payment systems for operating and capital costs to implement changes arising from our continuing experience with these systems. In addition, in the Addendum to this final rule, we describe the changes to the amounts and factors used to determine the rates for Medicare hospital inpatient services for operating costs and capital- related costs. These changes are applicable to discharges occurring on or after October 1, 2002. We also are setting forth rate-of-increase limits as well as policy changes for hospitals and hospital units excluded from the acute care hospital inpatient prospective payment systems. In addition, we are setting forth changes to other hospital payment policies, which include policies governing: Payments to hospitals for the direct and indirect costs of graduate medical education; pass- through payments for the services of nonphysician anesthetists in some rural hospitals; clinical requirements for swing-bed services in critical access hospitals (CAHs); and requirements and responsibilities related to provider-based entities. DATES: The provisions of this final rule are effective on October 1, 2002. 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, 2002. FOR FURTHER INFORMATION CONTACT: Stephen Phillips, (410) 786-4548, Operating Prospective Payments, Diagnosis-Related Groups (DRGs), Wage Index, New Medical Services and Technology, Hospital Geographic Reclassifications, and Postacute Transfer Issues. Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Graduate Medical Education, Provider-Based Entities, Critical Access Hospital (CAH). Stephen Heffler, (410) 786-1211, Hospital Market Basket Rebasing. Jeannie Miller, (410) 786-3164, Clinical Standards for CAHs. SUPPLEMENTARY INFORMATION: Availability of Copies and Electronic Access Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512- 2250. The cost for each copy is $9.00. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register. This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents home page address is http://www.access.gpo.gov/nara_docs/, by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required). I. Background A. Summary 1. Acute Care Hospital Inpatient Prospective Payment System 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). The base payment rate is comprised of an average standardized amount that is divided into a labor-related share and a nonlabor- related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located; and if the hospital is located in Alaska or Hawaii, the nonlabor share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight. If the hospital is recognized as serving a disproportionate share of low-income patients, it receives a percentage add-on payment for each case paid through the acute care hospital inpatient prospective payment system. This percentage varies, depending on several factors which include the percentage of low-income patients served. It is applied to the DRG-adjusted base payment rate, plus any outlier payments received. If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid through the acute care hospital inpatient prospective payment system. This percentage varies, depending on the ratio of residents to beds. Additional payments may be made for cases that involve new technologies that have been approved for special add-on payments. To qualify, the technologies must be shown to be a substantial clinical improvement over technologies otherwise available and that they would be inadequately paid otherwise (absent the add-on payments) under the regular DRG payment. The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any outlier payment due is added to the DRG-adjusted base payment rate. Although payments to most hospitals under the acute care hospital inpatient prospective payment system are made on the basis of the standardized amounts, some categories of hospitals are paid the higher of a hospital-specific rate based on their costs in a base year (the higher of Federal fiscal year (FY) 1982, FY 1987, or FY 1996) or the prospective payment system rate based on the standardized amount. For example, sole community hospitals (SCHs) are the sole source of care in their areas, and Medicare-dependent, small rural hospitals (MDHs) are a major [[Page 49983]] source of care for Medicare beneficiaries in their areas. Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries (although MDHs receive only 50 percent of the difference between the prospective payment system rate and their hospital-specific rates, if the hospital- specific rate is higher than the prospective payment system rate). The existing regulations governing payments to hospitals under the acute care hospital inpatient prospective payment system are located in 42 CFR Part 412, Subparts A through M. 2. Hospitals and Hospital Units Excluded from the Acute Care Hospital Inpatient Prospective Payment System Under section 1886(d)(1)(B) of the Act, as amended, certain specialty hospitals and hospital units are excluded from the acute care hospital inpatient prospective payment system. These hospitals and units are: psychiatric hospitals and units; rehabilitation hospitals and units; long-term care hospitals; children's hospitals; and cancer hospitals. Various sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106- 113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) provide for the implementation of prospective payment systems for rehabilitation hospitals and units, psychiatric hospitals and units, and long-term care hospitals, as discussed below. Children's hospitals and cancer hospitals will continue to be paid on a cost-based reimbursement basis. The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR Parts 412 and 413. Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units are being transitioned from a blend of reasonable cost-based reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and Federal prospective payments for cost reporting periods beginning January 1, 2002 through September 30, 2002, to payment on a fully Federal prospective rate effective for cost reporting periods beginning on or after October 1, 2002 (66 FR 41316, August 7, 2001). The statute also provides that, for cost reporting periods beginning in FY 2003, inpatient rehabilitation facilities that are subject to the blend methodology may elect to receive the full prospective payment instead of a blended payment. The existing regulations governing payment under the inpatient rehabilitation facility prospective payment system (for rehabilitation hospitals and units) are located in 42 CFR Part 412, Subpart P. Under the broad authority conferred to the Secretary by section 123 of Public Law 106-113 and section 307(b) of Public Law 106-554, we are proposing to transition long-term care hospitals from payments based on reasonable cost-based reimbursement under section 1886(b) of the Act to fully Federal prospective rates during a 5-year period. For cost reporting periods beginning on or after October 1, 2006, we are proposing to pay long-term care hospitals under the fully Federal prospective payment rate. (See the proposed rule issued in the Federal Register on March 22, 2002 (67 FR 13416).) Under the proposed rule, during the transition, long-term care hospitals subject to the blend methodology would also be permitted to elect to be paid based on full Federal prospective rates. The final regulations governing payments under the long-term care hospital prospective payment system are under development and will be located in 42 CFR Part 412, Subpart O. 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 furnished by 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. 3. Critical Access Hospitals Under sections 1814, 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services 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 42 CFR Parts 413 and 415. 4. Payments for Graduate Medical Education Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act; the amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing GME payments are located in 42 CFR Part 413. B. Summary of the Provisions of the May 9, 2002 Proposed Rule On May 9, 2002, we published a proposed rule in the Federal Register (67 FR 31404) that set forth proposed changes to the Medicare hospital inpatient prospective payment systems for operating costs and for capital-related costs in FY 2003. We also set forth proposed changes relating to payments for GME costs; payments to excluded hospitals and units; policies implementing the Emergency Medical Treatment and Active Labor Act (EMTALA); clinical requirements for swing beds in CAHs; and other hospital payment policy changes. These proposed changes would be effective for discharges occurring on or after October 1, 2002. The following is a summary of the major changes that we proposed and the issues we addressed in the May 9, 2002 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 to make changes to the designation of diagnosis and procedure codes under other existing DRGs. Among the proposed changes discussed were:Revisions of DRG 1 (Craniotomy Age >17 Except for Trauma) and DRG 2 (Craniotomy for Trauma Age >17) to reflect the current assignment of cases involving head trauma patients with other significant injuries to major diagnostic category (MDC) 24. Reconfiguration and retitling of existing DRG 14 (Specific Cerebrovascular Disorders Except Transient Ischemic Attack) and DRG 15 [[Page 49984]] (Transient Ischemic Attack and Precerebral Occlusions) and creation of a new DRG 524 (Transient Ischemia). Creation of a new DRG 525 (Heart Assist System Implant) for heart assist devices. Reassignment of the diagnosis code for rheumatic heart failure with cardiac catheterization. Assignment of new, and reassignment of existing, cystic fibrosis principal diagnosis codes. Redesignation of a code for insertion of totally implantable vascular access device (VAD) as an operating room procedure. Changes in the DRG assignment for the bladder reconstruction procedure code. Changes in DRG and MDC assignments for numerous newborn and neonate diagnosis codes. (We note that, based on public comments received on the proposed rule, we are not making these changes in this final rule, as discussed in section II.B.6. of this preamble.) Changes in DRG assignment for cases of tracheostomy and continuous mechanical ventilation greater than 96 hours. We also discussed other DRG classification issues for which we did not propose changes. One of those was the new drug-eluting stent technology. We received many public comments suggesting higher payments would be needed in order to adequately compensate hospitals for the higher costs of this technology. Therefore, in this final rule, we are creating new DRG 525 (Percutaneous Cardiovascular Procedure with, Drug-Eluting Stent with AMI) and new DRG 527 (Percutaneous Cardioascular Procedure with Drug-Eluting Stent without AMI). We also presented our analysis of applicants for add-on payments for high-cost new medical technologies. We have approved one new technology, the drug drotrecogin alfa (activated), trade name XigrisTM, as a new technology eligible for add-on payments. XigrisTM is used to treat patients with severe sepsis. 2. Changes to the Hospital Wage Index We proposed revisions to the wage index and the annual update of the wage data. Specific issues addressed in this section included the following: The FY 2003 wage index update, using FY 1999 wage data. Exclusion from the wage index of Part A physician wage costs that are teaching-related, as well as resident and Part A certified registered nurse anesthetist (CRNA) costs. Collection of data for contracted administrative and general, housekeeping, and dietary services. Revisions to the wage index based on hospital redesignations and reclassifications by the Medicare Geographic Classification Review Board (MGCRB). Requests for wage data corrections, including clarification of our policies on mid-year corrections. 3. Revision and Rebasing of the Hospital Market Basket We proposed rebasing and revising the hospital market basket to be used in developing the FY 2003 update factor for the operating prospective payment rates and the excluded hospital rate-of-increase limits. We also set forth the data sources used to determine the revised market basket relative weights and choice of price proxies. In the proposed rule, we also reestimated the labor-related share of the average standardized amount that is adjusted by the wage index. In response to public comments received recommending further evaluation of the methodology used to estimate the labor-related share, we are not proceeding with that reestimation in this final rule. 4. 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 the following: Options for expanding the postacute care transfer policy. Based on public comments received, we are not expanding the policy at this time. Clarification of the application of the statutory provisions on the calculation of hospital-specific rates for SCHs. Exclusion of certain limited-service specialty hospitals from the like hospital definition for purposes of granting SCH status. We proposed to set the threshold for determining a specialty hospital is not a like hospital at 3 percent service overlap between the SCH and the specialty hospital. In this final rule, in response to public comments, we are establishing that threshold at 8 percent. Technical change regarding additional payments for outlier cases. Proposed case-mix index values for FY 2003 for rural referral centers. Changes relating to the IME adjustment, including resident-to-bed ratio caps and counting beds. (We note that because of the need for a future comprehensive analysis on bed and patient day counting policies, and our limited timeframe for preparing the FY 2003 final rule for the acute care hospital inpatient prospective payment systems for publication by the statutory deadline of August 1, 2002, we have decided to postpone finalizing the proposed changes and will address the comments in a separate document.) Clarification and codification of classification requirements for MDHs and intermediary evaluations of cost reports for these hospitals. Changes to policies on pass-through payments for the costs of nonphysician anesthetists in some rural hospitals. Clarification of policies relating to implementing 3-year reclassifications of hospitals and other policies related to hospital reclassification decisions made by the MGCRB. Changes relating to payment for the direct costs of GME. Changes relating to emergency medical conditions in hospital emergency departments under the EMTALA provisions. (We note that because of the number and nature of the public comments we received on these proposed changes and our limited timeframe for preparing the FY 2003 final rule for the acute care hospital inpatient prospective payment systems for publication by the statutory deadline of August 1, we have decided to postpone finalizing the proposed changes and will address the comments in a separate document.) Criteria for, and responsibilities related to, payments for provider-based entities. CMS-directed reopening of intermediary determinations and hearing decisions on provider reimbursements. We proposed to revise our methodology used to determine the fixed- loss cost threshold for outlier cases based on a 3-year average of the rates of change in hospitals' costs. We received many public comments opposing this change. In this proposed rule, we are using a 2-year average of the rate of change in charges to establish the threshold. 5. Prospective Payment System for Capital-Related Costs We proposed payment requirements for capital-related costs effective October 1, 2002, which included: Capital-related costs for new hospitals. Additional payments for extraordinary circumstances. Restoration of the 2.1 percent reduction to the standard Federal capital prospective payment system rate. [[Page 49985]] Clarification of the special exceptions payment policy. 6. 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: Payments for existing excluded hospitals and hospital units for FY 2003. Updated caps for new excluded hospitals and hospital units. Revision of criteria for exclusion of satellite facilities from the acute care hospital inpatient prospective payment system. The prospective payment systems for inpatient rehabilitation hospitals and units and long-term care hospitals. Changes in the advance notification period for CAHs electing the optional payment methodology. Removal of the requirement on CAHs to use a State resident assessment instrument (RAI) for patient assessments for swing-bed patients. 7. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits In the Addendum to the May 9, 2002 proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2003 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 2003 for hospitals and hospital units excluded from the acute care hospital inpatient prospective payment system. 8. Impact Analysis In Appendix A of the proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected entities. 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 B 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 2003 for payments to hospitals included in the acute care hospital inpatient prospective payment system, and hospitals excluded from this prospective payment system. 10. Recommendation of Update Factor for Hospital Inpatient Operating Costs In Appendix C of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we included our recommendation of the appropriate percentage change for FY 2003 for the following: Large urban area and other area average standardized amounts (and hospital-specific rates applicable to SCHs and MDHs) for hospital inpatient services paid 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 acute care hospital inpatient prospective payment system. 11. Discussion of Medicare Payment Advisory Commission Recommendations Under section 1805(b) of the Act, the Medicare Payment Advisory Commission (MedPAC) is required to submit a report to Congress, not later than March 1 of each year, that reviews and makes recommendations on Medicare payment policies. This annual report makes recommendations concerning hospital inpatient payment policies. In the proposed rule, we discussed the MedPAC recommendations concerning hospital inpatient payment policies and presented our response to those recommendations. 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 Web site at: www.medpac.gov. C. Public Comments Received in Response to the May 9, 2002 Proposed Rule We received approximately 1,196 timely items of correspondence containing multiple comments on the May 9, 2002 proposed rule. Summaries of the public comments and our responses to those comments are set forth below under the appropriate heading. II. Changes to DRG Classifications and Relative Weights A. Background Under the acute care hospital inpatient 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 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, 2002 are discussed below. B. DRG Reclassification 1. General Cases are classified into DRGs for payment under the acute care hospital inpatient 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). \ For FY 2003, cases are assigned to one of 510 DRGs 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 patients' principal diagnosis before assignment to a DRG. However, for FY 2003, there are eight DRGs to which cases are directly assigned on the basis of ICD-9-CM procedure codes. These are the DRGs for heart, liver, bone marrow, lung transplants, simultaneous pancreas/kidney, and pancreas transplants (DRGs 103, 480, 481, 495, 512, and 513, 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 [[Page 49986]] hierarchy that orders operating room (O.R.) procedures or groups of O.R. 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, nonsurgical procedures and minor surgical procedures not usually performed in an operating room are not treated as O.R. procedures. However, there are a few non-O.R. 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. Patients' diagnosis, procedure, discharge status, and demographic information is fed into the Medicare claims processing systems and subjected 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, for a limited number of DRGs, demographic information (that is, sex, age, and discharge status). The GROUPER is used both to classify current cases for purposes of determining payment and to classify past cases in order to measure relative hospital resource consumption to establish the DRG weights. 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. However, in the July 30, 1999 final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for the use of particular data to be feasible, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the data submitted. Generally, however, a significant sample of the data should be submitted by mid-October, so that we can test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete database should be submitted no later than December 1 for consideration in conjunction with next year's proposed rule. We proposed numerous changes to the DRG classification system for FY 2003. The proposed changes, the public comments we received concerning them, and the final DRG changes and the methodology used to recalibrate the DRG weights are set forth below. Unless otherwise noted, the changes we are implementing will be effective in the revised GROUPER software (Version 20.0) to be implemented for discharges on or after October 1, 2002. Also, unless otherwise noted, we are relying on the DRG data analysis in the proposed rule for the changes discussed below. 2. MDC 1 (Diseases and Disorders of the Nervous System) a. Revisions of DRGs 1 and 2 Currently, adult craniotomy patients are assigned to either DRG 1 (Craniotomy Age >17 Except for Trauma) or DRG 2 (Craniotomy for Trauma Age >17). The trauma distinction recognizes that head trauma patients requiring a craniotomy often have multiple injuries affecting other body parts. However, we note that the structure of these DRGs predates the creation in FY 1991 of MDC 24 (Multiple Significant Trauma). The creation of MDC 24 resulted in head trauma patients with other significant injuries being assigned to MDC 24 and removed from DRG 2. In FY 1990, there was a 16-percent difference in the DRG weights for DRG 1 and DRG 2. In FY 1992, after the creation of MDC 24, the percentage difference in the DRG weights for DRG 1 and DRG 2 had declined to 1.2 percent. The FY 2002 payment weight for DRG 1 is 3.2713 and for DRG 2 is 3.3874, a 3.5 percent difference. For FY 2003, we reevaluated the GROUPER logic for DRGs 1 and 2 by combining the patients assigned to these DRGs and examining the impact of other patient attributes on patient charges. The presence or absence of a CC was found to have a substantial impact on patient charges. ------------------------------------------------------------------------ Number of Average Cases in DRGs 1 and 2 patients charges ------------------------------------------------------------------------ With CC........................................... 19,012 $49,659 Without CC........................................ 9,618 26,824 ------------------------------------------------------------------------ Thus, there is an 85.1 percent difference in average charges for the groups with and without CC for the combined DRGs 1 and 2. On this basis, we proposed to redefine and retitle DRGs 1 and 2 as follows: DRG 1 (Craniotomy Age >17 with CC); and DRG 2 (Craniotomy Age >17 without CC). Comment: Nine commenters addressed this proposal. Three of the commenters supported the proposal. One commenter was concerned about the significant redefinition of DRGs to the extent that longitudinal DRG data analysis would be seriously comprised. This commenter recommended that we consider creating new DRGs when significant changes to the structure of existing DRGs are necessary in order to preserve the core definition of the existing DRGs for data analysis purposes. The commenter believed that this proposed revision would significantly alter the definition of these DRGs. Response: We appreciate the support of the commenters for our position on this issue. In response to the commenter's concern that this revision would significantly alter the definition of these DRGs, thus affecting longitudinal DRG data analysis, our practice in the past has been to alter current DRGs to account for better clinical coherence as well as similar patterns of resource intensity. For example, last year we removed defibrillator cases from DRGs 104 and 105 to make these DRGs and the new DRGs 514 and 515 that were created for defibrillators, more homogenous in terms of patient characteristics and resource consumption. Currently, the DRGs are generally ordered by MDC, which gives the DRGs a logical structure. Adding new DRGs sequentially at the end of the existing DRGs disturbs that order. However, because there is not a perfect solution to this problem, we will take the commenter's concerns into consideration as we proceed with future DRG revisions. Longitudinal data analysis can be performed by mapping prior year's data with the current Medicare GROUPER. A conversion table is available for this purpose through the National Center for Health Statistics' website: http://www.cdc.gov/nchs/icd9.htm or may be purchased from the American Hospital Association (1-800-261-6246). Comment: A commenter from a manufacturer of an implantable intracranial neurostimulator device used in the treatment of Parkinson's disease and essential tremor recommended that we revise the proposed revisions to DRGs 1 and 2 so that all deep brain stimulation procedures, such as intracranial neurostimulators for Parkinson's disease, are paid under proposed DRG 1. The commenter stated that, based on its review of FY 2000 MedPAR data, [[Page 49987]] approximately 75 percent of these cases would be assigned to proposed DRG 2 (and subject to an approximate 40-percent payment reduction under the proposed rule). Response: Our proposed modification was based on FY 2001 MedPAR data. DRGs 1 and 2 included many different procedures with a range of costs associated with these procedures. Our analysis indicated a substantial cost differential between patients with CCs and patients without CCs, and the current DRGs 1 and 2 do not reflect this difference. We believe that the revision we proposed will improve the payment accuracy for cases in these DRGs. The prospective payment system is an average-based payment methodology under which losses that may be incurred for specific procedures or classes of patients are offset by payment gains from other procedures or classes of patients. In our analysis, we found 847 cases in which an implantation of intracranial neurostimulator procedures was reported. The majority of these cases were being assigned to DRG 2 with average standardized charges of approximately $37,546. These charges are higher than the overall average standardized charges for all cases within DRG 2. However, this group of cases represents a small subset of all of the cases that are assigned to DRG 2. As noted above, we believe our proposed changes represent an overall improvement in payment accuracy for the over 40,000 cases assigned to these two DRGs. Comment: Three commenters expressed concern with the proposed restructuring of DRGs 1 and 2 as it pertains to the open or endovascular treatment of ruptured or nonruptured aneurysms and arteriovenous malformation. One commenter submitted data showing the average charges for ruptured aneurysm cases at $34,794 (and in some cases, $52,568), which are more than the average charges for DRG 1, and lengths of stay that are significantly higher than those for the proposed DRG 1. Another commenter assumed that treatment for ruptured aneurysms will remain in the revised DRG 1, and stated that our proposal to reduce the cost variance of these DRGs is a good beginning. However, according to the commenter, this proposed change does not go far enough because it will continue to underpay these extremely resource intensive cases. The commenter recommended that these cases be assigned to a different DRG (DRG 484 (Craniotomy for Multiple Significant Trauma) was suggested) or that a new DRG be created for these cases. With respect to the treatment of nonruptured aneurysms, the commenters noted that we did not specify whether these cases would be assigned to DRG 1 or 2 and urged that these cases be assigned to DRG 1. The commenter noted that nonruptured interventional aneurysm cases are complex, and patients spend an average of 4.2 days in intensive care. Response: In these cases, the patients' principal diagnosis would probably be the aneurysm. It is the secondary diagnosis or secondary condition that may be classified as a CC. Under the proposed changes, cases would be assigned to DRG 1 on the basis of a complication that occurred during the hospital stay or a comorbidity that existed at the time of admission or developed during the course of hospitalization. We found in our analysis that the majority of ruptured aneurysm cases and over half of craniotomy procedures in nonruptured aneurysm cases were being assigned to DRG 1, where charges for these cases were similar to the average for all cases in this DRG. The remaining nonruptured aneurysm cases were assigned to DRG 2 ($33,144 compared to $52,254). Our analysis did show the average standardized charges for the ruptured aneurysm to be $109,698, which is higher than the overall average charges of all cases within DRG 1. However, we point out, as noted by the commenter, these cases actually do receive higher payments under the changes we proposed. Currently, DRG 484 includes complex, multiple significant trauma cases; that is, patients with a principal diagnosis of trauma and at least two significant trauma diagnosis codes (either as principal or secondaries) from different body site categories. While the intensity of treatment for aneurysms and arteriovenous malformations is significant, we do not believe aneurysm and arteriovenous malformation cases are clinically similar to other cases currently assigned to DRG 484. Comment: One commenter stated that procedures involving implantation of a chemotherapeutic agent into the brain will be underpaid, causing hospitals to further limit use of this technology. The commenter provided data based on 24 patients being treated with this procedure and concluded that the hospital claims data did not reflect the true hospital cost for this product. The commenter stated that the average cost for this procedure is approximately $26,113. The commenter believed that these cases would be assigned to DRG 2 with an estimated payment of approximately $13,225. Response: Procedure code 00.10 (Implantation of a chemotherapeutic agent) will be effective October 1, 2002, that will enable specific identification of these procedures. At this point, there are limited data available to assess the payment implications of our proposed change on this procedure. As noted above, cases that remain in DRG 1 would receive higher payments as a result of this change. Further, we would expect hospitals to generally be able to offset payment losses associated with a procedure that is used only rarely with payment gains associated with the higher payments for higher volume cases in DRG 1. Also, a low markup associated with one device or procedure is often offset by relatively higher markups associated with another device or procedure, leading to higher relative weights, and thus higher payments, for the latter device or procedure. We believe that our proposal is appropriate according to currently available data. Therefore, we are adopting as final our proposal to redefine and retitle DRGs 1 and 2 as follows: DRG 1 (Craniotomy Age >17 with CC); and DRG 2 (Craniotomy Age >17 without CC). b. Revisions of DRGs 14 and 15 To assess the appropriate classification of patients with stroke symptoms, we evaluated the assignment of cases to DRG 14 (Specific Cerebrovascular Disorders Except Transient Ischemic Attack (TIA) and DRG 15 (Transient Ischemic Attack and Precerebral Occlusions). Our data review indicated that the cases in DRGs 14 and 15 fell into three discrete groups. The first group included cases in which the patients were very sick, with severe intracranial lesions or subarachnoid hemorrhage and severe consequences. The second group included cases in which patients had not suffered a debilitating stroke but instead may have experienced a transient ischemic attack. The patients in the second group had one half of the average length of stay in the hospital as the first group. The third group of cases included patients who appeared to suffer strokes with minor consequences, as well as those having occluded vessels without having a full-blown stroke. We found that patients who have intracranial hemorrhage and patients who have infarction are similar in severity. We proposed to continue to group patients with intracranial hemorrhage and infarction together. These types of cases are different from patients with, for example, an occlusive [[Page 49988]] carotid artery without infarction. In this latter group of cases, patients are not as severely ill because they typically have lesser degrees of functional status deficits. Our analysis indicates that we can improve the clinical and resource cohesiveness of DRGs 14 and 15 by reassigning several specific ICD-9-CM codes. For example, code 436 (Acute, but ill-defined, cerebrovascular disease) is a non-specific code and contains patients with a wide range of deficits and anatomic problems. Our data show that these cases consume fewer resources and have shorter lengths of stay than other cases in DRG 14. Therefore, we proposed to remove code 436 from DRG 14 and reassign it to DRG 15. We also proposed to create a third new DRG that would help further differentiate cases currently assigned to DRGs 14 and 15. The proposed revised and new DRG titles were as follows: DRG 14 (Intracranial Hemorrhage and Stroke with Infarction); DRG 15 (Nonspecific Cerebrovascular Accident and Precerebral Occlusion without Infarction) (a corrected title from the one in the proposed rule); and DRG 524 (Transient Ischemia). The following table represents a reconfiguration of DRGs 14 and 15 and the creation of a new DRG 524 reflecting these three categorizations (based on more recent data than that used in the proposed rule): ---------------------------------------------------------------------------------------------------------------- Average length DRG and Title Number of cases of stay (days) Average charge ---------------------------------------------------------------------------------------------------------------- Revised DRG 14 (Intracranial Hemorrhage and Stroke with 236,067 6.1 $15,643 Infarction).............................................. Revised DRG 15 (Nonspecific Cerebrovascular Accident and 101,726 4.9 11,595 Precerebral Occlusion without Infarction)................ New DRG 524 (Transient Ischemia).......................... 136,857 3.4 8,633 ---------------------------------------------------------------------------------------------------------------- The reconfiguration of DRGs 14 and 15 results in the following codes being designated as principal diagnosis codes in revised DRG 14: 430, Subarachnoid hemorrhage. 431, Intracerebral hemorrhage. 432.0, Nontraumatic extradural hemorrhage. 432.1, Subdural hemorrhage. 432.9, Unspecified intracranial hemorrhage. 433.01, Occlusion and stenosis of basilar artery, with cerebral infarction. 433.11, Occlusion and stenosis of carotid artery, with cerebral infarction. 433.21, Occlusion and stenosis of vertebral artery, with cerebral infarction. 433.31, Occlusion and stenosis of multiple and bilateral arteries, with cerebral infarction. 433.81, Occlusion and stenosis of other specified precerebral artery, with cerebral infarction. 433.91, Occlusion and stenosis of unspecified precerebral artery, with cerebral infarction. 434.01, Cerebral thrombosis with cerebral infarction. 434.11, Cerebral embolism with cerebral infarction. 434.91, Cerebral artery occlusion, unspecified, with cerebral infarction. We proposed that the following two codes be moved from DRG 14 to DRG 34 (Other Disorders of Nervous System with CC) and DRG 35 (Other Disorders of Nervous System without CC): Code 437.3 (Cerebral aneurysm, nonruptured) and Code 784.3 (Aphasia). These codes do not represent acute conditions. Aphasia, for example, could result from a cerebral infarction, but if it does, the infarction should be correctly coded as the principal diagnosis. We proposed redefining DRG 15 so that it contains the following principal diagnosis codes: 433.00, Occlusion and stenosis of basilar artery, without mention of cerebral infarction. 433.10, Occlusion and stenosis of carotid artery, without mention of cerebral infarction. 433.20, Occlusion and stenosis of vertebral artery, without mention of cerebral infarction. 433.30, Occlusion and stenosis of multiple and bilateral arteries, without mention of cerebral infarction. 433.80, Occlusion and stenosis of other specified precerebral artery, without mention of cerebral infarction. 433.90, Occlusion and stenosis of unspecified precerebral artery, without mention of cerebral infarction. 434.00, Cerebral thrombosis without mention of cerebral infarction. 434.10, Cerebral embolism without mention of cerebral infarction. 434.90, Cerebral artery occlusion, unspecified, without mention of cerebral infarction. 436, Acute, but ill-defined, cerebrovascular disease. We proposed to remove the following codes from the existing DRG 15 and place them in the proposed newly created DRG 524: 435.0, Basilar artery syndrome. 435.1, Vertebral artery syndrome. 435.2, Subclavian steal syndrome. 435.3, Vertebrobasilar artery syndrome. 435.8, Other specified transient cerebral ischemias. 435.9, Unspecified transient cerebral ischemia. We proposed to move code 437.1 (Other generalized ischemic cerebrovascular disease) from DRG 16 (Nonspecific Cerebrovascular Disorders with CC) and DRG 17 (Nonspecific Cerebrovascular Disorders without CC) and add it to the proposed new DRG 524. This proposed change represented a modification to improve clinical coherence and seems to be a logical change for the construction of the proposed new DRG 524. Comment: Several commenters opposed the movement of code 436 from DRG 14 into DRG 15. One commenter stated that the change is not supported in either the ICD-9-CM coding manual or the Coding Clinic for ICD-9-CM. The commenter noted that an inclusion note under code 436 identified this code as a diagnosis code for a stroke patient with cerebral infarctions. In addition, the commenter cited the Coding Clinic, Fourth Quarter, 1993 (pages 38 and 39), as including the term ``cerebral infarction'' following the term ``stroke'', which indicated to the commenter that these terms are synonymous. The commenter recommended that, prior to making any changes, CMS work with the ICD-9- CM Coordination and Maintenance Committee to revise the ICD-9-CM tabular section to correct this inconsistency. Response: We agree with the commenter that the ICD-9-CM code 436 does, in fact, describe a stroke. However, the code is nonspecific as to the nature of a stroke. In addition, data on cases containing code 436 that were reported in our MedPAR file indicated that these types of cases have a shorter length of stay and lower hospital charges associated with them. Our revised title of DRG 15 reflects our recognition of code 436 as describing a stroke; that is, we are changing the title of DRG 15 to ``Nonspecific Cerebrovascular Accident and Precerebral Occlusion without Infarction.'' With regard to the revision [[Page 49989]] of the ICD-9-CM diagnosis tabular section describing code 436, we understand that the National Center for Health Statistics (NCHS) plans to address this issue at the December 4th and 5th, 2003 meeting of the ICD-9-CM Coordination and Maintenance Committee. While we agree with NCHS' plan to examine this issue, we are not delaying these DRG changes while waiting for modifications to this section of the coding manual. Comment: Two commenters opposed any changes in DRGs 14 and 15 until better data become available. One of these commenters noted that moving approximately 80,000 cases from a higher paying DRG to a lower paying DRG will significantly impact many hospital's financial status. Both commenters opposed moving code 436 from DRG 14 into DRG 15, noting that code 436 is a common code for stroke or cerebrovascular accident when the physician does not specify whether the stroke is an intracranial hemorrhage or cerebral infarction. The commenters noted that performance of diagnostic imaging may add specificity to determine which artery was involved, thus allowing more specific coding to occur. However, it may not change the course of treatment for the stroke. In addition, the commenters stated that, in some cases, it is ill-advised to subject the patient to further testing to make this determination. Further, in some cases, the tests may be inconclusive but in most cases the course of treatment would not be changed. One commenter indicated that there is probably inconsistency among coders in the use of the more specific 5-digit codes for ``with cerebral infarction'' for categories 433 (Occlusion and stenosis of precerebral arteries) and 434 (Occlusion of cerebral arteries) due to variable interpretations of coding instructions. The commenter noted that there are currently efforts to provide clarification regarding the proper use of these 5-digit codes. Response: We recognize that some of the diagnostic codes in section 430 through 437 of ICD-9-CM may be more specific than the diagnostic documentation in the medical record, which may make it difficult to precisely code cerebrovascular disease. We also recognize that code 436 may be a catchall code when more specific information on the patient's condition is not available in the record. Further, it is possible that other less severe cases are being labeled ``stroke,'' absent more thorough testing or workup. However, our proposed changes to DRGs 14 and 15 were based on actual MedPAR data from FY 2001. As demonstrated above, there is a clear demarcation between average charges and lengths of stay across the two revised DRGs and one new DRG. Further, payment for many cases is higher after these changes than it was previously. For FY 2003, the DRG relative weights for DRGs 14 and 15 were 1.1655 and 0.7349, respectively. The proposed FY 2003 relative weights for DRGs 14, 15 and 524 were 1.2742, 0.9844, and 0.7236. Therefore, cases remaining in DRG 14 would receive higher payments as a result of moving less expensive cases into DRG 15 or 524. Similarly, cases remaining in DRG 15 would receive much higher payments than they had previously. We believe these changes improve the clinical and resource cohesiveness of the DRGs for these cases. We acknowledge the concerns expressed by the commenters that code 436 may frequently be used in lieu of more specific codes that require further tests even though the cases are as severely ill as those with more specific diagnosis indicated on the bill. However, this is not borne out by the data. To the prospect of more available data in the future, we note that changes to codes in the related section of the ICD-9-CM coding book have been in place since 1993. We believe that 9 years is sufficient time to clarify the coding issues and to adequately train both the coding and medical staffs regarding documentation of cerebrovascular disease. Comment: One commenter opposed the movement of code 437.1 to new DRG 524, noting that conditions classified to this code are generally chronic or long term in nature, not transient. Response: The titles of DRGs are not intended to uniquely identify each case within the DRG, but to logically group cases that globally have similar characteristics in terms of clinical requirements and resources utilized. We proposed the movement of code 437.1 from DRGs 16 and 17 in order to improve the clinical coherence of DRGs 16 and 17, and the new DRG 524; we believe this change accomplishes that. Therefore, we are adopting the proposed change as final. Comment: One commenter supported the movement of codes 437.3 and 784.3 from DRG 14 to DRGs 34 and 35. Response: We appreciate the commenter's support. Accordingly, we are adopting the proposed change to move codes 437.3 and 784.3 to DRGs 34 and 35, as final. We are adopting as final the proposed changes to DRGs 14 and 15 and the creation of new DRG 524 without modifications. We will continue to monitor these DRGs for shifts in resource consumption and validity of DRG assignment and will specifically monitor code 436 for appropriate placement in DRG 15. We support the concept of clarification of the coding guidelines in this section of ICD-9-CM and will also monitor these DRGs when the guidelines are updated. 3. MDC 5 (Diseases and Disorders of the Circulatory System) a. Heart Assist Systems Heart failure is typically caused by persistent high blood pressure (hypertension), heart attack, valve disease, other forms of heart disease, or birth defects. It is a chronic condition in which the lower chambers of the heart (ventricles) cannot pump sufficient amounts of blood to the body. This causes the organs of the body to progressively fail, resulting in numerous medical complications and frequently death. DRG 127 (Heart Failure and Shock), to which heart failure cases are assigned, is the single most common DRG in the Medicare population, and represents the medical, not surgical, treatment options for this group of patients. In many cases, heart transplantation would be the treatment of choice. However, the low number of donor hearts limits this treatment option. Circulatory support devices, also known as heart assist systems or left ventricular assist devices (LVADs), offer a surgical alternative for end-stage heart failure patients. This type of device is often implanted near a patient's native heart and assumes the pumping function of the weakened heart's left ventricle. Studies are currently underway to evaluate LVADs as permanent support for end-stage heart failure patients. We have reviewed the payment and DRG assignment of this type of device in the past. Originally, these cases were assigned to DRG 110 (Major Cardiovascular Procedures with CC) and DRG 111 (Major Cardiovascular Procedures without CC) in the September 1, 1994 final rule (59 FR 45345). A more specific procedure code, 37.66 (Implant of an implantable, pulsatile heart assist system) was made effective for use with hospital discharges occurring on or after October 1, 1995. In the August 29, 1997 final rule (62 FR 45973), we reassigned these cases to DRG 108 (Other Cardiothoracic Procedures), because it was the most clinically similar DRG with the best match in resource consumption according to our data. In the July 31, 1998 final rule (63 FR 40956), we again reviewed our data and discovered that [[Page 49990]] the charges for implantation of an LVAD were increasing at a greater rate than the average charges for DRG 108. The length of stay for cases with code 37.66 was approximately 32 days, or three times as long as all other DRG 108 cases. Therefore, we decided to move LVAD cases from DRG 108 to DRG 104 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization) and DRG 105 (Cardiac Valve and Other Major Cardiothoracic Procedures without Cardiac Catheterization). We continued to review our data and discuss this topic in the FY 1999 and FY 2000 annual final rules: July 30, 1999 (64 FR 41498) and August 1, 2000 (65 FR 47058). In the August 1, 2001 final rule (66 FR 39838), we remodeled MDC 5 to add five new DRGs. We also added procedure codes 37.62 (Implant of other heart assist system), 37.63 (Replacement and repair of heart assist system), and 37.65 (Implant of an external, pulsatile heart assist system) to DRGs 104 and 105. We removed defibrillator cases from DRGs 104 and 105 and assigned them to DRG 514 (Cardiac Defibrillator Implant with Cardiac Catheterization) and DRG 515 (Cardiac Defibrillator Implant without Cardiac Catheterization) to make these DRGs more clinically coherent. This also increased the relative weights for DRGs 104 and 105, as the defibrillator cases had lower average charges than other cases in those two DRGs. In the FY 2001 MedPAR data file, we found 185 LVAD cases in DRG 104 and 90 cases in DRG 105, for a total of 275 cases. These cases represent 1.3 percent of the total cases in DRG 104, and approximately 0.5 percent of the total cases in DRG 105. However, the average charges for these cases are approximately $36,000 and $85,000 higher than the average charges for cases in DRGs 104 and 105, respectively. This situation presents a dilemma, in that the technology has been available since 1995 and is gradually increasing in utilization, while LVAD cases remain a small part of the total cases in these two DRGs. In fact, removing LVAD cases from the calculation of the average charge changes the average by only -0.4 percent and -0.5 percent for DRGs 104 and 105, respectively. Therefore, despite the dramatically higher average charges for LVADs compared to the DRG averages, the relative volume is insufficient to affect the DRG average charges to any great degree. Therefore, we proposed to create a new DRG 525 (Heart Assist System Implant), which would contain these cases. The FY 2003 relative weight for the new DRG 525 is 11.6479. As discussed below, the comments we received supported this change. Therefore, we are creating new DRG 525, which consists of any principal diagnosis in MDC 5, plus one of the following surgical procedures: 37.62, Implant of other heart assist system 37.63, Replacement and repair of heart assist system 37.65, Implant of an external, pulsatile heart assist system 37.66, Implant of an implantable, pulsatile heart assist system Cases in which a subsequent heart transplant occurs during the hospitalization episode will continue to be assigned to DRG 103 (Heart Transplant) because cases involving procedure codes 336 (Combined heart/lung transplant) and 375 (Heart transplant) are assigned to DRG 103, regardless of other codes included on the bill. We reiterate a discussion we included in the August 1, 2000 final rule (65 FR 47058) regarding placement of code 37.66 in the MCE screening software as a noncovered procedure. The default designation for that code will continue to be ``noncovered'' because of the stringent conditions that must be met by hospitals in order to receive payment for implantation of the device. Section 65-15 of the Medicare Coverage Issues Manual (Artificial Hearts and Relative Devices) provides the national coverage determination regarding Medicare coverage of these devices. This section may be accessed online at www.hcfa.gov/pubforms/06_cim/ ci00.htm. Comment: Several commenters supported the proposed creation of a new DRG 525 for patients receiving implanted heart assist systems. One commenter stated that the creation of a new DRG 525 would be more sensitive to the patient population, more accurate in statistical analysis and data reports, and more responsive to changes in LVAD charges and utilization patterns. Other commenters suggested that the payment amount still understates the reasonable cost of LVAD implantation. One commenter provided analysis that purported to show that the net payment effect of this change is insignificant due to the increase in the outlier threshold as discussed in the proposed rule (and in the Addendum to this final rule). Another commenter stated that this new DRG results in payment that does not even compensate for the costs to the hospital of the device itself. The commenter noted that current payment levels for LVADs do not take into account the equipment required for discharge, that is, both disposable and durable medical equipment. Some of the commenters recommended that we consider allowing LVADs to qualify for a new technology add-on payment in addition to establishing a new DRG specific to this technology. Response: Regarding the commenter's analysis of the net payment effect of the proposed new DRG 525, the increase in the outlier threshold is not related to the creation of the new DRG 525. As discussed in detail in the Addendum, the FY 2002 outlier threshold was set at a point that resulted in excessive outlier payments. The commenter's analysis compared payments if these cases remained in DRGs 104 and 105 and received outlier payments in accordance with the lower FY 2002 outlier threshold to payments under the new DRG 525 using the proposed outlier threshold. Therefore, the commenter's analysis does not accurately represent payments under the DRGs. The correct analysis is to compare payments under DRGs 104 and 105 with payments under the new DRG 525, absent outlier payments, which results in an increase in payments of over 40 percent per case. Since cases qualify for outlier payments on the basis of a constant fixed-dollar loss threshold and receive payments equal to 80 percent of costs above the threshold, the 40-percent differential in payments is not affected by outlier payments. With regard to the commenters' indication that the payment under the new DRG 525 is insufficient, we note that the DRG relative weights are based on charge data for actual LVAD cases in the Medicare discharge database, using the most recent information available (the FY 2001 MedPAR file). (Section II.C. of this final rule contains a complete discussion of this methodology.) With regard to the commenter's suggestion that LVADs be eligible for add-on payments for new technology, we point out that our criteria require that the mean charges of the cases involving a new technology exceed a threshold of one standard deviation beyond the mean charge for all cases in the DRG. Since DRG 525 is specific to heart assist systems, the mean charge of the cases involving the new technology is the same as the mean charge for all cases in the DRG. Also, this technology does not meet our criteria to be considered new (see discussion at section II.D. below). Finally, with regard to the concept that the DRG payment for LVAD should take into account disposable and [[Page 49991]] durable medical equipment after discharge, we point out that the Medicare Part A inpatient hospital payment is distinct from the Medicare Part B outpatient payments. Comment: One commenter stated if LVAD implantation is approved for patients who are not heart transplant patients, the payment is likely to still be too low, as it is anticipated that these patients comprise a generally sicker population. The commenter suggested that we direct hospitals to bill uniformly for LVAD devices via the designated ICD-9- CM procedure codes that will classify into DRG 525. Response: As we noted in the proposed rule, we understand that studies are currently underway to evaluate LVADs as permanent support for end-stage heart failure patients. However, at this time, these applications are only on a trial basis. Further, in the absence of specific data demonstrating additional costs associated with expanded uses of LVADs beyond bridge-to-transplant patients, we do not take anticipated higher costs into account in the DRG relative weight calculation. However, we will continue to monitor new DRG 525 as new developments occur in the approved uses of LVAD technology to ensure appropriate classification and payment of these cases. With respect to the comment that we should provide further guidance on the correct ICD-9-CM coding procedures for LVADs, as explained above and in the proposed rule, cases with any principal diagnosis in MDC 5 reporting code 37.62, 37.63, 37.65, or 37.66 will be assigned to DRG 525 (in the absence of a transplant). Further information regarding the use of these codes may be obtained by referring to a relevant article from the Coding Clinic, Fourth Quarter, 1995 (pages 68 and 69). Comment: One commenter, while approving the movement of codes 37.63, 37.65, and 37.66 to DRG 525, did not believe that cases with code 37.62 belong in this DRG. The commenter stated that code 37.62 includes centrifugal pumps, heart assist systems that are not specified as pulsatile, and the insertion of not otherwise specified heart assist systems, and urged CMS to reconsider inclusion of this code in the new DRG. The commenter stated that centrifugal pumps are more similar to cardiac bypass procedures than to ventricular assist systems, and inclusion of this code would likely reduce the relative weight of DRG 525 due to the lower cost of this type of technology. The commenter recommended that code 37.62 remain in DRG 104 and 105. The commenter was also concerned that the change would create a potential incentive for these technologies to be used for purposes not yet approved by the FDA. Response: Our analysis indicates that these four codes represent the most expensive cases in MDC 5, aside from heart transplantation in DRG 103, which is the reason we moved them out of DRGs 104 and 105. However, we will continue to evaluate the appropriate assignment of cases into this new DRG, particularly if new uses for heart assist systems are approved by the FDA, and will take the commenter's recommendation into account when we conduct our annual MedPAR review next year. Comment: One commenter suggested that we develop a new heart transplant DRG entitled ``Heart Transplant with LVAD,'' because the costs of the LVADs have not been incorporated into the heart transplant DRG. The commenter stated that, since a great number of LVAD cases remain inpatients until heart transplant occurs, there is a disparity in costs between heart transplant patients who receive LVADs during the stay, and those who do not remain inpatients. Response: As we pointed out above, cases in which a subsequent heart transplant occurs during the hospitalization episodes are currently assigned to DRG 103 (Heart Transplant) because cases involving procedure codes 33.6 (Combined heart/lung transplant) and 37.5 (Heart transplant) are assigned to DRG 103, regardless of other codes included on the bill. We believe these cases are appropriately compensated in these DRGs, but we will continue to monitor this issue in the future. Comment: One commenter requested that we review our data to determine if there is an incorrect mix of devices being included in the calculation of the DRG weight. The commenter suggested that perhaps that there is some inappropriate mixing of data, and that there are temporary assist devices used in the intensive care unit (ICU) that are quite distinct from those used for longer term bridge-to-transplant. This commenter noted that these ICU devices are much less expensive. Response: As noted in the proposed rule, average length of stay and charge data were calculated for all cases including codes 37.62, 37.63, 37.65, and 37.66. These codes describe the implantation of heart assist systems, which is the construct of the new DRG 525. Therefore, we believe we have appropriately accounted for these cases in our analysis. Comment: One commenter expressed concern that we did not separate payment for LVADs used in the acute care setting from LVADs used as chronic care devices, and pointed out that the short-term indication uses only a fraction of the resources required for a chronic or long- term LVAD. The commenter asked us to consider two DRGs, one for acute care devices and one for long-term care devices, that better reflect the resource consumption of each indication. Response: The LVAD is currently being studied as a device that would support end-stage heart failure patients in the absence of a heart transplant. This use is not out of the clinical trial phase and, more importantly, has not been recognized as a Medicare covered service. It would be premature to establish a DRG based on the possibility that the LVAD may some day be approved for this indication is premature. b. Moving Diagnosis Code 398.91 (Rheumatic Heart Failure) From DRG 125 to DRG 124 DRG 124 (Circulatory Disorders Except Acute Myocardial Infarction (AMI), with Cardiac Catheterization and Complex Diagnosis) and DRG 125 (Circulatory Disorders Except Acute Myocardial Infarction (AMI) with Cardiac Catheterization without Complex Diagnosis) have a somewhat complex DRG logic. In order to be assigned to DRG 124 or 125, the patient must first have a circulatory disorder, which would be one of the diagnoses included in MDC 5. However, these DRGs exclude acute myocardial infarctions. Therefore, these DRGs are comprised of cases with a diagnosis from MDC 5, excluding acute myocardial infarction, but also with a cardiac catheterization during the stay. DRGs 124 and 125 are then further defined by whether or not the patient had a complex diagnosis. If the patient has a complex diagnosis, the case is assigned to DRG 124. If the patient does not have a complex diagnosis, the case is assigned to DRG 125. A list of diagnoses that comprise complex diagnoses is identified within DRG 124. These diagnoses can be listed as either a principal or secondary diagnosis. We have received correspondence regarding the current assignment of diagnosis code 398.91 (Rheumatic heart failure). The correspondent pointed out that, while other forms of heart failure are listed as complex diagnoses under DRG 124, rheumatic heart failure is not included as a complex diagnosis within that DRG. Currently, if a patient with rheumatic heart failure receives a [[Page 49992]] cardiac catheterization, the case is assigned to DRG 125. The correspondent had conducted a study and found that patients with rheumatic heart failure who receive a cardiac catheterization have lengths of stay that are significantly longer than patients with other forms of heart failure who receive a cardiac catheterization and who are assigned to DRG 125. The correspondent found that these patients have lengths of stay more similar to those cases assigned to DRG 124 (which have other forms of heart failure), and recommended that diagnosis code 398.91 be added to the list of complex diagnoses within DRG 124. Within our claims data, we found 439 cases of patients in DRG 125 with rheumatic heart failure that received a cardiac catheterization. The average charges for these rheumatic heart failure cases were almost twice as much as for other cardiac patients in DRG 125 who received a cardiac catheterization and who did not have a diagnosis of rheumatic heart failure. We also conferred with our medical consultants and they agree that rheumatic heart failure with cardiac catheterization is a complex diagnosis and should be assigned to DRG 124 along with the other complex forms of heart failure cases involving cardiac catheterization. We proposed to add code 398.91 to DRG 124 as a complex diagnosis. As a result, catheterization cases with rheumatic heart disease would no longer be assigned to DRG 125. Several commenters representing hospitals and medical coders supported our proposal to classify code 398.91 as a complex diagnosis within DRG 124, which moves these cases from DRG 125. Accordingly, we are adopting as final the proposed change. c. Radioactive Element Implant In the August 1, 2001 final rule, we created DRG 517 (Percutaneous Cardiovascular Procedure without Acute Myocardial Infarction (AMI) with Coronary Artery Stent Implant) as a result of the overall DRG splits based on the presence of AMI (66 FR 39839). We assigned code 92.27 (Implantation or insertion of radioactive elements) to DRG 517 because we believed that code 92.27 would always accompany cases involving a percutaneous cardiovascular procedure and intravascular radiation treatment. We have since determined that code 92.27 can also be present as a stand-alone code in other types of cases. When cases with an MDC principal diagnosis and code 92.27 do not meet the criteria for assignment to DRG 517 because there is no indication of a percutaneous cardiovascular procedure, they are currently assigned to DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis). Because DRG 468 is reserved for cases in which the O.R. procedure is unrelated to the principal diagnosis, we proposed to assign cases with code 92.27 that do not meet the criteria for assignment to DRG 517, but that would otherwise be assigned to MDC 5, to DRG 120 (Other Circulatory System O.R. Procedures). Comment: One commenter supported the proposal. Another commenter was unclear why code 92.27 is designated as an operating room procedure and would be assigned to DRG 120 (Other Circulatory System O.R. Procedures) if reported as a stand-alone procedure. This commenter stated that it is not aware of instances when it is appropriate to report this code without a concomitant cardiovascular procedure, and believed that another procedure, such as angioplasty, is needed in order to insert the radioactive implants. The commenter believed that cases in which code 92.27 was reported by itself for treatment of a cardiovascular disorder may represent incorrect coding. Response: We proposed this modification to MDC 5 (Diseases and Disorders of the Circulatory System), concerning the assignment of code 92.27 (when reported as the only procedure) to DRG 120 in part, as a result of a telephone call from a member of the general public. The inquirer questioned the assignment of code 92.27 without angioplasty and with a principal diagnosis in MDC 5 to DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis). When we created DRG 517 in the FY 2002 final rule, we also did not consider that a radioactive implant would be inserted without angioplasty as a delivery technique. We were advised by our medical advisors that it could occur, but it was unlikely. Code 92.27 has not yet been reported in our MedPAR data in MDC 5 as a stand-alone procedure. However, to address the possibility that it might be reported alone, we are taking this opportunity to assign code 92.27 to DRG 120 in MDC 5, consistent with the principal diagnosis, instead of a (higher-weighted) DRG in which the principal diagnosis and the procedure do not match (DRG 468). With regard to the commenter's question about the designation of code 92.27 as an operating room procedure, we note that code 92.27 has always been considered by the Medicare GROUPER to be a procedure code affecting DRG assignment. It can be found in 12 MDCs and 20 DRGs in GROUPER version 19.0. Comment: One commenter commended us for responding to its previously submitted comments concerning inadequate DRG payment for GP IIb-IIIa platelet inhibitors, but noted that its request from last year was not mentioned in our proposed rule in our review of several cardiovascular DRGs for both interventional and medical cases that receive GP IIb-IIIa inhibitors. The commenter stated that without a review of the presence of code 99.20 (Injection or infusion of platelet inhibitor) in DRGs 124 (Circulatory Disorders Except AMI, with Cardiac Catheterization and Complex Diagnosis) and 140 (Angina Pectoris), CMS cannot be certain that a significant number of cases are not significantly underpaid. Response: We regret this omission in the proposed rule. We did, in fact review both DRGs 124 and 140 for the presence of code 99.20. In DRG 124, there were a total of 95,452 cases without code 99.20. These cases had an average length of stay of 4.4 days and average charges of $17,594. There were 1,120 cases in DRG 124 with code 99.20. These cases had an average length of stay of 3.5 days, and average charges of $17,256. In DRG 140, there were a total of 45,886 cases without code 99.20, with an average length of stay of 2.5 days and average charges of $6,204. There were 126 cases in DRG 140 with code 99.20, with an average length of stay of 2.3 days, and average charges of $8,675. The data do not demonstrate a level of disparity in days and charges that would warrant an adjustment to these DRGs based on the presence of code 99.20. Therefore, we are not making any changes concerning the status of code 99.20 in these DRGs for FY 2003. 4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders) Currently, when ICD-9-CM code 277.00 (Cystic Fibrosis without mention of meconium ileus) is reported as the principal diagnosis, it is assigned to the following DRG series in MDC 10: DRG 296 (Nutritional and Metabolic Disease, Age >17 with CC); DRG 297 (Nutritional and Metabolic Disease, Age >17 without CC); and DRG 298 (Nutritional and Metabolic Disease, Age 0-17). As part of our annual review of DRG assignments and based on correspondence that we have received, we examined cases involving code 277.00 as a principal diagnosis in DRGs 296, 297, and 298. Our analysis of the average charges for these cases indicates that resource utilization for these cases is quite different from resource utilization for other cases in these three DRGs. We believe that this difference in resource utilization is due to the fact it [[Page 49993]] is not uncommon for cystic fibrosis patients to be admitted with pulmonary complications. Our findings on the number of cases and the average charges in the three DRGs when code 277.00 is assigned as the principal diagnosis, and our findings for all cases in the three DRGs, are indicated in the charts below. Cases in DRG, 296, 297, and 298 With Code 277.00 as the Principal Diagnosis ------------------------------------------------------------------------ Number of Average DRG and description cases charges ------------------------------------------------------------------------ DRG 296 (Nutritional & Metabolic Disease Age >17 271 $34,111 with CC)......................................... DRG 297 (Nutritional & Metabolic Disease Age >17 133 21,998 without CC)...................................... DRG 298 (Nutritional & Metabolic Disease Age 0-17) 0 ......... ------------------------------------------------------------------------ All Cases in DRG 296, 297, 298 ------------------------------------------------------------------------ Number of Average DRG 298 description cases charges ------------------------------------------------------------------------ DRG 296 (Nutritional & Metabolic Disease Age >17 169,768 $10,480 with CC)......................................... DRG 297 (Nutritional & Metabolic Disease Age >17 31,560 6,190 without CC)...................................... DRG 298 (Nutritional & Metabolic Disease Age 0- 17 8,603 ;17)............................................. ------------------------------------------------------------------------ Based on the results of our analysis, we proposed that three new cystic fibrosis principal diagnosis codes be assigned to specific DRGs and MDCs, and that other changes be made to DRG and MDC assignments of existing cystic fibrosis codes, as discussed below. We proposed to use the following three new principal diagnosis codes to further inform DRG assignment of these patients: 277.02 (Cystic fibrosis with pulmonary manifestations) 277.03 (Cystic fibrosis with gastrointestinal manifestations) 277.09 (Cystic fibrosis with other manifestations) We proposed that existing code 277.01 (Cystic fibrosis with mention of meconium ileus) would continue to be assigned to DRG 387 (Prematurity with Major Problems) and DRG 389 (Full Term Neonate with Major Problems) in MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period), since it is a newborn diagnosis code. Because the new code 277.02 would identify those patients with cystic fibrosis who have pulmonary manifestations, we proposed to assign cases in which this is the principal diagnosis to DRG 79 (Respiratory Infection and Inflammations Age >17 with CC), DRG 80 (Respiratory Infections and Inflammations Age >17 without CC), or DRG 81 (Respiratory Infections and Inflammations Age 0-17) in MDC 4 (Diseases and Disorders of the Respiratory System). We proposed that the new code 277.03 would be assigned to DRG 188 (Other Digestive System Diagnoses Age >17 with CC), DRG 189 (Other Digestive System Diagnoses Age >17 without CC), and DRG 190 (Other Digestive System Diagnoses Age 0-17) in MDC 6 (Diseases and Disorders of the Digestive System), because of its specific relationship to the digestive system. Since the new code 277.09 could involve a number of manifestations (excluding pulmonary and gastrointestinal), we proposed to assign this new code to DRGs 296, 297, and 298 in MDC 10, where we are retaining the current assignment of existing code 277.00. The following chart summarizes our proposed DRG and MDC assignments for new and existing cystic fibrosis principal diagnosis codes: ------------------------------------------------------------------------ MDC DRG Principal diagnosis code and description assignment assignments ------------------------------------------------------------------------ Existing 277.00 (Cystic fibrosis without 10 296, 297, mention of meconium ileus)................... 298 Existing 277.01 (Cystic fibrosis with mention 15 387, 389 of meconium ileus)........................... New 277.02 (Cystic fibrosis with pulmonary 4 79, 80, 81 manifestations).............................. New 277.03 (Cystic fibrosis with 6 188, 189, gastrointestinal manifestations)............. 190 New 277.09 (Cystic fibrosis with other 10 296, 297, manifestations).............................. 298 ------------------------------------------------------------------------ Several commenters representing hospitals, medical coders, and specialty groups supported the proposed DRG assignments relating to cystic fibrosis discussed above. Therefore, we are adopting the proposed DRG assignments as final, effective for discharges occurring on or after October 1, 2002. 5. MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract) a. Insertion of Totally Implantable Vascular Access Device (VAD) In the August 1, 2001 final rule (66 FR 39844), we discussed our review of the DRG assignment of code 86.07 (Insertion of totally implantable vascular access device (VAD)). Code 86.07 is considered a nonoperative procedure when it occurs in MDC 11. In other words, the Medicare GROUPER software program does not recognize code 86.07 as a procedure code when reported with any principal diagnosis in this MDC. Therefore, patients in renal (kidney) failure requiring implantation of this device for dialysis are grouped to medical DRG 316 (Renal Failure). We examined whether implantation of this device should be removed from DRG 316 and placed into surgical DRG 315 (Other Kidney and Urinary Tract O.R. Procedures). Implantation of a VAD into the chest wall and blood vessels of a patient's upper body allows access to a patient's vessels via an implanted valve and cannula. Two devices are implanted during one operative session. One system is implanted arterially (the ``draw''), while the other is implanted venous (the ``return''). Typically, the VAD allows access to the patient's blood for hemodialysis purposes when other sites in the body have been exhausted. The device is usually inserted in the outpatient setting. Operative time is approximately 1 to 1.5 hours. In the FY 2002 final rule (66 FR 39844-39845), we pointed out that cases where the VAD was inserted as an inpatient procedure often involved complications, leading to higher average charges and longer lengths of stay for those cases. Therefore, we indicated that we would not assign code 86.07 to DRG 315 at that time, but we would consider other alternative adjustments to DRGs 315 and 316. For FY 2003, we explored whether DRG 315 should be divided based on the presence or absence of CCs. However, during our consideration of this alternative, we discovered that DRG 315 does not lend itself to a CC split due to the high occurrence of cases in this DRG that already have complications identified on the CC list. Therefore, we [[Page 49994]] reexamined cases in DRGs 315 and 316 in the FY 2001 MedPAR file. The results are reflected in the chart below: ------------------------------------------------------------------------ Without code With code 86.07 86.07 ------------------------------------------------------------------------ DRG 315 (Surgical): Number of Cases.................. 354.............. 21,089 Average Length of Stay........... 12.6 days........ 6.7 days Average Charges.................. $47,251.......... $25,622 DRG 316 (Medical): Number of Cases.................. 887.............. 76,676 Average Length of Stay........... 10.3............. 6.6 days Average Charges.................. $31,904.......... $16,934 ------------------------------------------------------------------------ These results are similar to the findings included in the FY 2002 final rule that were based on data from the FY 2000 MedPAR file (66 FR 39845). We found that the average length of stay in DRG 315 for patients not receiving the VAD is 6.7 days, while those patients who received the VAD had an average length of stay of 12.6 days. We found the average charges in DRG 315 for patients not receiving the VAD were approximately $25,622, while the average charges for those patients who received the VAD were $47,251. We found that the cases receiving the VAD as an inpatient procedure are significantly more costly than other cases in DRG 316. Therefore, we proposed to designate code 86.07 as an O.R. procedure under MDC 11. Specifically, code 86.07 will be recognized as an O.R. procedure code in MDC 11 and assigned to DRG 315 when combined with the following principal diagnosis codes from DRG 316: 403.01, Malignant hypertensive renal disease with renal failure 403.11, Benign hypertensive renal disease with renal failure 403.91, Unspecified hypertensive renal disease with renal failure 404.02, Malignant hypertensive heart and renal disease with renal failure 404.12, Malignant hypertensive heart and renal disease with renal failure 404.92, Unspecified hypertensive heart and renal disease with renal failure 584.5, Acute renal failure with lesion of tubular necrosis 584.6, Acute renal failure with lesion of renal cortical necrosis 584.7, Acute renal failure with lesion of renal medullary (papillary) necrosis 584.8, Acute renal failure with other specified pathological lesion in kidney 584.9, Acute renal failure, unspecified 585, Chronic renal failure 586, Renal failure, unspecified 788.5, Oliguria and anuria 958.5, Traumatic anuria We received two comments in support of this proposal. Therefore, we are adopting as final the proposed redesignation of code 87.06 as an O.R. procedure under MDC 11 and its assignment to DRG 315 when combined with the principal diagnosis codes from DRG 316 listed above. b. Bladder Reconstruction We received correspondence regarding the current classification of procedure code 57.87 (Reconstruction of urinary bladder) as a minor bladder procedure and the assignment of the code under DRG 308 (Minor Bladder Procedures with CC) and DRG 309 (Minor Bladder Procedures without CC). The correspondent believed that bladder reconstruction is not a minor procedure, submitted individual hospital charges to support this contention, and recommended that the code be classified as a major procedure and assigned to a higher weighted DRG. Our clinical advisors indicated that reconstruction of the bladder is a more extensive procedure than the other minor bladder procedures in DRGs 308 and 309. They agree that the bladder reconstruction procedure is as complex as the procedures under code 57.79 (Total cystectomy) and the other major bladder procedures in DRGs 303 through 305. As indicated in the chart below, we found that the average charges for bladder reconstruction are significantly higher than the average charges for other minor procedures within DRGs 308 and 309: ------------------------------------------------------------------------ Without With code code 57.87 57.87 ------------------------------------------------------------------------ DRG 308 (Minor Bladder Procedure with CC): Number of Cases................................. 64 5,066 Average Charges................................. $36,560 $19,923 DRG 309 (Minor Bladder Procedures without CC): Number of Cases................................. 25 3,021 Average Charges................................. $23,390 $11,200 ------------------------------------------------------------------------ We found that procedure code 57.87 may be more appropriately placed in DRG 303 (Kidney, Ureter and Major Bladder Procedures for Neoplasm), 304 (Kidney, Ureter and Major Bladder Procedures for Nonneoplasm with CC), and DRG 305 (Kidney, Ureter and Major Bladder Procedures for Nonneoplasm without CC), based on average charges for procedures in these three DRGS as indicated in the following chart: ------------------------------------------------------------------------ Number of Average DRG cases charges ------------------------------------------------------------------------ 303 (Kidney, Ureter and Major Bladder Procedures 14,116 $30,691 for Neoplasm).................................... 304 (Kidney, Ureter and Major Bladder Procedures 8,060 30,577 for Nonneoplasm with CC)......................... 305 (Kidney, Ureter and Major Bladder Procedures 2,029 15,492 for Nonneoplasm without CC)...................... ------------------------------------------------------------------------ Based on the results of our analysis and the advice of our medical consultants discussed above, we proposed to classify code 57.87 as a major bladder procedure and to assign it to DRGs 303, 304, and 305. We received several comments from associations representing hospitals and medical coders in support of the proposed reclassification of bladder reconstruction surgery from a minor bladder to a major bladder procedure. Accordingly, we are adopting as final the proposed reclassification, effective for discharges occurring on or after October 1, 2002. 6. MDC 15 (Newborns and Other Neonates With Conditions Originating in the Perinatal Period) The primary focus of updates to the Medicare DRG classification system is for changes relating to the Medicare patient population, not the pediatric or neonatal patient populations. However, the Medicare DRGs are sometimes used to classify other patient populations. Over the years, we have received comments about aspects of the Medicare newborn DRGs that appear problematic, and we have responded to these on an individual basis. Some correspondents have requested that we take a closer overall look at the DRGs within MDC 15. Because of our limited data and experience with newborn cases under Medicare, we contacted the National Association of Children's Hospitals and Related Institutions (NACHRI), along with our own medical advisors, to obtain proposals for possible revisions of the existing DRG categories in MDC 15. The focus of the requested proposals was to refine category definitions within the framework of the existing seven broadly defined neonatal DRGs. The proposals also were to take advantage of the new, more specific neonatal [[Page 49995]] diagnosis codes to be adopted, effective October 1, 2002, to assist with refinements to the existing DRG category definitions. In the May 9, 2002 proposed rule, we proposed to make extensive changes to multiple DRG categories in MDC 15. A complete description of these proposed changes appears in the May 9, 2002 Federal Register at 67 FR 31412 through 31414. In summary, the proposed changes involved removing a number of congenital anomalies from MDC 15 and assigning them to other MDCs. NACHRI advised us that these congenital anomalies would be better classified in the MDC for the body system affected. We also proposed revising DRG 386 (Extreme Immaturity or Respiratory Distress Syndrome, Neonate), to refine the assignment of newborn cases diagnosed with extreme immaturity. We proposed major revisions for DRG 387 (Prematurity With Major Problems) to redefine the codes for prematurity and the codes that define a ``major problem''. We proposed modifications of DRG 388 (Prematurity Without Problems), which involved changes in the classification of prematurity for newborns. We proposed revising the definition of a ``major problem'' for DRG 389 (Full Term Neonate With Major Problem) as well. By changing the definition of ``major problem'' in the other DRGs, our proposal would have increased the number of cases being assigned to DRG 390. Finally, we proposed to expand the number of minor problem newborn diagnoses included in DRG 391 (Normal Newborn). All of these extensive changes would have greatly shifted the DRG assignments for newborns, involving hundreds of ICD-9- CM codes. Comment: One commenter, a national hospital association, opposed at this time the reassignment of a large number of diagnosis codes from the ``major problems'' list in DRGs 387 and 389 to DRG 391. The commenter agreed that refinements to MDC 15 would be beneficial to allow more accurate grouping of neonatal admissions but recommended that, prior to making extensive changes, CMS work with NACHRI, the commenter, and other interested parties to develop a separate DRG that would group neonates with minor problems that are not otherwise recognized currently or under the proposed changes. Other commenters, representing hospitals, medical groups, and medical coders, offered a similar comment. One commenter stated that since NACHRI represents specialty hospitals, NACHRI's data may not fully represent the entire newborn population. Other commenters recommended that the proposed revisions to DRGs 387 through 391 not be implemented until input is obtained from representatives of general community hospitals that treat newborns. The commenters stated that newborn DRG data from general community hospitals may vary significantly from NACHRI's data and should be taken into consideration prior to implementing the proposed revisions to DRGs 387 through 391. One commenter also stated that, while it supported the proposed removal of the listed codes for congenital anomalies, periventricular leukomalacia, and nonspecific abnormal findings on chromosomal analysis from MDC 15, the commenter was confused as to the rationale for the proposed DRG assignments for the codes for congenital anomalies. (We proposed that code 759.4, Conjoined twins, be classified to DRGs 188, 189, and 190.) In addition, several commenters stated that these DRGs are for digestive system diagnoses and conjoined twins may or may not have medical conditions involving the digestive system. The commenters stated that the rationale for the selection of these DRGs was not described in the proposed rule. One commenter stated that additional study of newborn DRG classifications was needed. This commenter recommended that when cardiac surgery procedures are performed on neonates born in the hospital, the case be assigned to the applicable cardiac surgery DRG instead of one of the neonatal DRGs. The commenter pointed out that when a baby is born in a hospital and surgery is performed on a congenital heart condition during the same stay, the newborn is assigned to DRG 389 where the relative weight is approximately one-half the weight of the applicable cardiac surgery DRG. When the newborn is delivered at another facility and then transferred for surgery, the newborn is assigned to the appropriate cardiac surgery DRG. The commenter recommended that this issue be considered when MDC 15 is revised. Response: The commenters raised a number of important issues. We solicited the assistance of NACHRI to develop refinements to MDC 15 because, while MDC 15 is part of the Medicare DRG system, the types of patients in classified to DRGs in MDC 15 are not a significant part of the Medicare program. It was our goal to develop refinements that could be useful for non-Medicare purposes. Given the extensive nature of the proposed revisions, we concur that additional study is necessary. Therefore, we are not implementing as final any of the proposed revisions to MDC 15. We are maintaining the existing structure of DRGs 385 through 390 within MDC 15 (Version 19.0) for FY 2003. Nonetheless we believe that changes in this area may be worthwhile, and we would be interested in considering a set of appropriate changes that might be broadly acceptable to the affected community. If we receive such suggested changes by December 1, 2002, we would consider it as part of our annual review and updates to the DRG system for FY 2004. Any proposals could be included in the notice of proposed rulemaking for FY 2004, which is scheduled to be published in early Spring 2003. In the meantime, as stated earlier, we are not making any of the proposed changes to MDC 15 for FY 2003. Comment: One commenter supported the creation of the new ICD-9-CM codes that differentiate between extreme immaturity or gestational age, or both. Response: As explained in the proposed rule, we are adding the new ICD-9-CM codes for newborns that were approved in 2002 for use by acute care hospitals in FY 2003. These codes are listed in Table 6A of this final rule. The codes are assigned to the existing DRGs as indicated in Table 6A under the column ``DRG'' (codes 747.83 through 779.89). Tables 6A through 6F in this final rule also reflect the assignment of these new codes. Comment: One commenter pointed out several typographical errors and omissions in the proposed changes for MDC 15 in the proposed rule. Response: The commenter is correct that there were typographical errors in the proposed rule. However, since we are not finalizing the proposed changes, we are not addressing the errors specifically in this final rule. We will provide clarifications of these errors to those interested parties who participating in future efforts to refine MDC 15. 7. MDC 23 (Factors Influencing Health Status and Other Contacts With Health Services) In the August 1, 2001 final rule, we included in Table 6A-New Diagnosis Codes (66 FR 40064) code V10.53 (History of malignancy, renal pelvis), which was approved by the ICD-9-CM Coordination and Maintenance Committee as a new code effective October 1, 2001. We assigned the code to DRG 411 (History of Malignancy without Endoscopy) and DRG 412 (History of Malignancy with Endoscopy). We received correspondence that suggested that we should have also [[Page 49996]] assigned code V10.53 to DRG 465 (Aftercare with History of Malignancy as Secondary Diagnosis). The correspondent pointed out that all other codes for a history of malignancy are included in DRG 465. We agree that code V10.53 should be included in the list of the history of malignancy codes within DRG 465. We received several comments in support of this change. Accordingly, in this final rule we are adding code V10.53 to the list of secondary diagnosis in DRG 465, effective for discharges occurring on or after October 1, 2002. 8. Pre-MDC: Tracheostomy DRG 483 (Tracheostomy Except for Face, Mouth and Neck Diagnoses) is used to classify patients who require long-term mechanical ventilation. Mechanical ventilation can be administered through an endotracheal tube for a limited period of time. When an endotracheal tube is used for an extended period of time (beyond 7 to 10 days), the patient runs a high risk of permanent damage to the trachea. In order to maintain a patient on mechanical ventilation for a longer period of time, the endotracheal tube is removed and a tracheostomy is performed. The mechanical ventilation is then administered through the tracheostomy. A tracheostomy also may be performed on patients for therapeutic purposes unrelated to the administration of mechanical ventilation. Patients with certain face, mouth, and neck disease may have a tracheostomy performed as part of the treatment for the face, mouth, or neck disease. These patients are assigned to DRG 482 (Tracheostomy for Face, Mouth and Neck Diagnoses). Therefore, patients assigned to DRGs 482 and 483 are differentiated based on the principal diagnosis of the patient. At certain times, selecting the appropriate principal diagnosis for the patients receiving tracheostomies for assignment to a DRG can be difficult. The overall number of tracheostomy patients increased by 13 percent between 1994 and 1999. During the same period, the percent of tracheostomy patients in DRG 483 (patients without certain face, mouth, or neck diseases) versus DRG 482 increased from 83.6 percent to 87.6 percent. The payment weight for DRG 483 is more than four times greater than the DRG 482 payment weight, and this has led to concerns about coding compliance. Specifically, the fact that cases are assigned to DRG 483 based on the absence of a code indicating face, mouth, or neck diagnosis creates an incentive to omit codes indicating these diagnoses. To address issues of possible coding noncompliance, we proposed to modify DRGs 482 and 483 to differentiate the assignment to either DRG based on the presence or absence of continuous mechanical ventilation that lasts more than 96 hours (code 96.72). This modification would ensure that the patients assigned to DRG 483 are patients who had the tracheostomy for long-term mechanical ventilation. Based on an examination of claims data from the FY 2001 MedPAR file, we found that many patients assigned to DRG 483 do not have the code 96.72 for continuous mechanical ventilation for 96 consecutive hours or more recorded. In part, this is the result of the limited number of procedure codes (six) that can be submitted on the current uniform hospital claim form, and the fact that code 96.72 does not currently affect the DRG assignment. We proposed to change the definition of DRG 483 so that patients who have a tracheostomy and continuous mechanical ventilation greater than 96 hours (code 96.72) would be assigned to DRG 483. We would continue to assign to DRG 483 those patients who have a principal diagnosis unrelated to disease of the face, mouth, or neck and a tracheostomy. We proposed to retitle DRG 483 ``Tracheostomy/Mechanical Ventilation 96+ Hours Except Face, Mouth, and Neck Diagnosis.'' In the proposed rule, we indicated that we would give future consideration to modifying DRGs 482 and DRG 483 based on the presence of code 96.72, and specifically invited comments on this area. Comment: Several commenters representing hospital associations and medical groups supported the proposed modification to DRG 483. Some commenters strongly supported using code 96.72 as a determining factor for assigning ventilator patients to DRG 483. Another commenter indicated that the proposal was a more accurate means of identifying high-cost ventilator patients. One commenter representing medical coders opposed the proposed modification. The commenter expressed concern that there were no supporting data to justify the revision. The commenter pointed out that it was not clear to which DRG tracheostomy patients with mechanical ventilation of less than 96 hours and with out a face, neck, or mouth diagnosis would be classified, since no modification to DRG 482 was proposed. The commenter did note that CMS was encouraging the reporting of code 96.72, but believed that this might be a problem when a number of other significant operative procedures are performed, given the limited spaces available on the claim form to report ICD-9-CM procedure codes. Response: The proposed change was a first attempt to refine DRGs 482 and 483 so that those patients who receive long-term (> 96 hours) mechanical ventilation are separated from those patients who receive mechanical ventilation of less than 96 hours. The proposed change to DRG 483 was partially in response to concern that hospitals could omit diagnosis codes indicating face, mouth, or neck diagnosis in order to have cases assigned to DRG 483 rather than the much lower paying DRG 482. It also was an attempt to improve the classification of patients on mechanical ventilation by identifying those who receive long-term use of a ventilator. By making the GROUPER recognize long-term mechanical ventilation and assigning those patients to the higher weighted DRG 483, we hoped that hospitals would be more aware of the importance of reporting code 96.72 when, in fact, patients had been on the ventilator for greater than 96 hours. Therefore, hospitals would appropriately increase the reporting of this code. This reporting would allow us to continue to refine DRGs 482 and 483 to better reflect the resource utilization of these cases. We agree with the commenter that hospitals frequently are faced with cases where more than six procedures are performed during the inpatient stay and that there are limited spaces available on the claims form for reporting procedure codes. The proposed change encourages hospitals to begin to report code 96.72, since it will effect DRG assignment. The commenter was correct; we were not completely clear in the proposed rule about the effect that the addition of code 96.72 would have on DRG 482. The change will have an impact on DRG 482. All cases involving a tracheostomy and a diagnosis of face, mouth, and neck diagnosis that also have been on continuous mechanical ventilation for greater than 96 hours (code 96.72) will be moved out of DRG 482 and into DRG 483. The effect is that the expensive, long-term mechanical ventilation cases will be moved out of DRG 482 and into the higher- weighted DRG 483. As mentioned earlier, we did not propose any DRG modification involving patients who receive a tracheostomy, have mechanical ventilation of less than 96 hours, and do not have a face, neck, or mouth diagnosis. These cases will continue to be assigned to DRG 483. [[Page 49997]] Should future data indicate a need for further refinement of DRGs 482 and 483, we would propose these changes at that time. The public would be given an opportunity to comment on these proposals through the normal notice-and-comment rulemaking process. In this final rule, we are adopting as final the proposed change in the definition of DRG 483 and the proposed change to add code 96.72 to DRG 483. To further clarify this change, we are changing the title of DRG 483 to ``Tracheostomy with Mechanical Ventilation 96 + Hours or Principal Diagnosis Except Face, Mouth, and Neck.'' 9. Medicare Code Editor (MCE) Change As explained under section II.B.1. of this preamble, the MCE is a software program that detects and reports errors in the coding of Medicare claims data. The MCE includes an edit for ``nonspecific principal diagnosis'' that identifies a group of codes that are valid according to the ICD-9- CM coding scheme, but are not as specific as the coding scheme permits. The fiscal intermediaries use cases identified in this edit for educational purposes for hospitals only. That is, when a hospital reaches a specific threshold of cases (usually 25) in this edit, the fiscal intermediary will contact the hospital and educate it on how to code diagnoses using more specific codes in the ICD-9-CM coding scheme. Code 436 (Acute, but ill-defined, cerebrovascular disease) is one of the codes included in the groups of codes identified in the nonspecific principal diagnosis edit, and is widely used in smaller hospitals where testing mechanisms are not available or have not been utilized to more specifically identify the location and condition of cerebral and precerebral vessels. Because of the frequent use of code 436 among smaller hospitals, we proposed to remove the code from the nonspecific principal diagnosis edit in the MCE. We address the use of code 436 in section II.B.3. of this final rule under the discussion of MDC 5 changes with regard to the remodeling of DRGs 14 and 15. We received two comments in support of this proposal. However, one of the commenters noted that code 436 is not just limited to use in smaller hospitals, as we stated in the proposed rule. We acknowledge the commenters remarks that code 436 is widely used in hospitals of all sizes and is not exclusively used in smaller hospitals. However, our rationale for removing code 436 from the MCE because it is frequently used, still holds. Accordingly, we are adopting as final the proposed removal of code 436 from the MCE ``nonspecific principal diagnisis'' edit, effective with discharges occurring on or after October 1, 2002. 10. Surgical Hierarchies Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which these cases are assigned to a single DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource-intensive, performs that function. Its application ensures that cases involving multiple surgical procedures are assigned to the DRG associated with the most resource-intensive surgical class. Because the relative resource intensity of surgical classes can shift as a function of DRG reclassification and recalibrations, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications and recalibrations, to determine if the ordering of classes coincides with the intensity of resource utilization. A surgical class can be composed of one or more DRGs. For example, in MDC 11, the surgical class ``kidney transplant'' consists of a single DRG (DRG 302) and the class ``kidney, ureter and major bladder procedures'' consists of three DRGs (DRGs 303, 304, and 305). Consequently, in many cases, the surgical hierarchy has an impact on more than one DRG. The methodology for determining the most resource- intensive surgical class involves weighting the average resources for each DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes DRGs 1 and 2 and surgical class B includes DRGs 3, 4, and 5. Assume also that the average charge of DRG 1 is higher than that of DRG 3, but the average charges of DRGs 4 and 5 are higher than the average charge of DRG 2. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weight the average charge of e
