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August 11, 2004

Part II

Department of
Health and Human
Centers for Medicare & Medicaid Services

42 CFR Parts 403, 412, et al.

Medicare Program; Changes to the
Hospital Inpatient Prospective Payment
Systems and Fiscal Year 2005 Rates; Final

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48916 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

DEPARTMENT OF HEALTH AND conditions of participation for discharge asynchronous dial-in. Internet users can
HUMAN SERVICES planning and fire safety requirements access the database by using the World
for certain health care facilities. Wide Web; the Superintendent of
Centers for Medicare & Medicaid DATES: The provisions of this final rule Documents home page address is http:/
Services are effective on October 1, 2004. /, by
FOR FURTHER INFORMATION CONTACT: using local WAIS client software, or by
42 CFR Parts 403, 412, 413, 418, 460, Jim Hart, (410) 786–9520, Operating telnet to, then
480, 482, 483, 485, and 489 Prospective Payment, Diagnosis-Related login as guest (no password required).
[CMS–1428–F] Groups (DRGs), Wage Index, New Dial-in users should use
Medical Services and Technology, communications software and modem
RIN 0938–AM80 Standardized Amounts, Hospital to call (202) 512–1661; type swais, then
Geographic Reclassifications, Postacute login as guest (no password required).
Medicare Program; Changes to the
Hospital Inpatient Prospective Care Transfers, and Disproportionate Acronyms
Payment Systems and Fiscal Year 2005 Share Hospital Issuesp; Tzvi Hefter, ACGME—Accreditation Council on Graduate
Rates (410) 786–4487, Capital Prospective Medical Education
Payment, Excluded Hospitals, Graduate AHIMA—American Health Information
AGENCY: Centers for Medicare and Medical Education, Critical Access Management Association
Medicaid Services (CMS), HHS. Hospitals, and Long-Term Care (LTC)– AHA—American Hospital Association
DRGs Issues; AOA—American Osteopathic Association
ACTION: Final rule. ASC—Ambulatory Surgical Center
Mary Collins, (410) 786–3189, CAH
BBA—Balanced Budget Act of 1997, Pub. L.
SUMMARY: We are revising the Medicare Bed Limits and Distinct Part Unit Issues; 105–33
hospital inpatient prospective payment John Eppinger, (410) 786–4518, CAH BIPA—Medicare, Medicaid, and SCHIP [State
systems (IPPS) for operating and capital- Periodic Interim Payment Issues; Maria Children’s Health Insurance Program]
related costs to implement changes Hammel, (410) 786–1775, Quality Benefits Improvement and Protection Act
arising from our continuing experience Improvement Organization Issues; of 2000, Pub. L. 106–554
with these systems; and to implement a Siddhartha Mazumdar, (410) 786–6673, BLS—Bureau of Labor Statistics
number of changes made by the Rural Community Hospital CAH—Critical access hospital
CART CMS—Abstraction & Reporting Tool
Medicare Prescription Drug, Demonstration Project Issues; Jeannie CBSAs—Core-Based Statistical Areas
Improvement, and Modernization Act of Miller, (410) 786–3164, Bloodborne CC—Complication or comorbidity
2003 that was enacted on December 8, Pathogens Standards, Hospital CMS—Centers for Medicare & Medicaid
2003. In addition, in the Addendum to Conditions of Participation for Services
this final rule, we describe the changes Discharge Planning, and Fire Safety CMSA—Consolidated Metropolitan
to the amounts and factors used to Requirements Issues; Dr. Mark Krushat, Statistical Area
determine the rates for Medicare (410) 786–6809; and Dr. Anita Bhatia, COBRA—Consolidated Omnibus
Reconciliation Act of 1985, Pub. L. 99–272
hospital inpatient services for operating (410) 786–7236, Quality Data for Annual CoP—Condition of Participation
costs and capital-related costs. These Payment Update Issues. CPI—Consumer Price Index
changes are applicable to discharges SUPPLEMENTARY INFORMATION: CRNA—Certified registered nurse anesthetist
occurring on or after October 1, 2004. DRG—Diagnosis-related group
We also are setting forth rate-of-increase Availability of Copies and Electronic DSH—Disproportionate share hospital
limits as well as policy changes for Access ESRD—End-stage renal disease
hospitals and hospital units excluded Copies: To order copies of the Federal FDA—Food and Drug Administration
from the IPPS that are paid in full or in FQHC—Federally qualified health center
Register containing this document, send FSES—Fire Safety Evaluation System
part on a reasonable cost basis subject your request to: New Orders, FTE—Full-time equivalent
to these limits. Superintendent of Documents, P.O. Box FY—Federal fiscal year
Among the policy changes that we are 371954, Pittsburgh, PA 15250–7954. GME—Graduate medical education
making are: Changes to the classification Specify the date of the issue requested HCRIS—Hospital Cost Report Information
of cases to the diagnosis-related groups and enclose a check or money order System
(DRGs); changes to the long-term care payable to the Superintendent of HIPC—Health Information Policy Council
(LTC)–DRGs and relative weights; Documents, or enclose your Visa or HIPAA—Health Insurance Portability and
Accountability Act of 1996, Pub. L. 104–
changes in the wage data, labor-related Master Card number and expiration 191
share of the wage index, and the date. Credit card orders can also be HHA—Home health agency
geographic area designations used to placed by calling the order desk at (202) HPSA—Health Professions Shortage Area
compute the wage index; changes in the 512–1800 or by faxing to (202) 512– ICD–9–CM—International Classification of
qualifying threshold criteria for and the 2250. The cost for each copy is $10.00. Diseases, Ninth Revision, Clinical
approval of new technologies and As an alternative, you can view and Modification
medical services for add-on payments; photocopy the Federal Register ICD–10–PCS—International Classification of
Diseases, Tenth Edition, Procedure Coding
changes to the policies governing document at most libraries designated System
postacute care transfers; changes to as Federal Depository Libraries and at ICF/MRs—Intermediate care facilities for the
payments to hospitals for the direct and many other public and academic mentally retarded
indirect costs of graduate medical libraries throughout the country that IME—Indirect medical education
education; changes to the payment receive the Federal Register. IPPS—Acute care hospital inpatient
adjustment for disproportionate share This Federal Register document is prospective payment system
rural hospitals; changes in requirements also available from the Federal Register IPF—Inpatient psychiatric facility
and payments to critical access online database through GPO Access, a IRF—Inpatient rehabilitation facility
JCAHO—Joint Commission on the
hospitals (CAHs); changes to the service of the U.S. Government Printing Accreditation of Healthcare Organizations
disclosure of information requirements Office. Free public access is available on LAMA—Left Against Medical Advice
for Quality Improvement Organization a Wide Area Information Server (WAIS) LTC–DRG—Long-term care diagnosis-related
(QIOs); and changes in the hospital through the Internet and via group

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Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations 48917

LTCH—Long-term care hospital b. LTCH 12. Refinement of Complications and

LSC—Life Safety Code c. IPFs Comorbidities (CC) List
MCE—Medicare Code Editor 3. Critical Access Hospitals (CAHs) 13. Review of Procedure Codes in DRGs
MCO—Managed care organization 4. Payments for Graduate Medical 468, 476, and 477
MDC—Major diagnostic category Education (GME) a. Moving Procedure Codes from DRG 468
MDH—Medicare-dependent small rural B. Provisions of the Medicare Prescription or DRG 477 to MDCs
hospital Drug, Improvement, and Modernization b. Reassignment of Procedures among
MedPAC—Medicare Payment Advisory Act of 2003 DRGs 468, 476, and 477
Commission C. Summary of the Provisions of the May c. Adding Diagnosis or Procedure Codes to
MedPAR—Medicare Provider Analysis and 18, 2004 Proposed Rule MDCs
Review File 1. Changes to the DRG Reclassifications 14. Pancreatic Islet Cell Transplantation in
MEI—Medicare Economic Index and Recalibrations of Relative Weights Clinical Trials
MGCRB—Medicare Geographic Classification 2. Changes to the Hospital Wage Index 15. Changes to the ICD–9–CM Coding
Review Board 3. Other Decisions and Changes to the PPS System
MMA—Medicare Prescription Drug, for Inpatient Operating and GME Costs 16. Other Issues
Improvement, and Modernization Act of 4. Changes to the PPS for Capital-Related a. Craniotomy Procedures
2003, Pub. L. 108–173 Costs (1) Unruptured Cerebral Aneurysms
MPFS—Medicare Physician Fee Schedule 5. Changes for Hospitals and Hospital (2) GLIADEL Chemotherapy Wafers
MSA—Metropolitan Statistical Area Units Excluded from the IPPS (3) DRG 3 (Craniotomy Age 0–17)
NECMA—New England County Metropolitan 6. Changes to QIO Disclosure of b. Coronary Stent Procedures
Areas Information Requirements c. Severe Sepsis
NCHS—National Center for Health Statistics 7. Changes Relating to Medicare Provider d. Implantable Cardiac Defibrillators
NCVHS—National Committee on Vital and Agreements: Bloodborne Pathogens e. Intestinal Transplantation
Health Statistics Standards, Hospital Conditions of f. Cochlear Implants
NFPA—National Fire Protection Association Participation for Discharge Planning, and g. Artificial Hearts
NPR—Notice of Program Reimbursement Fire Safety Requirements for Certain h. Left Atrial Appendage Devices: DRG
NQF—National Quality Forum Health Care Facilities Assignment for New Code 37.90
NVHRI—National Voluntary Hospital 8. Determining Prospective Payment i. Carotid Artery Stents
Reporting Initiative Operating and Capital Rates and Rate-of- j. Acute Intermittent Porphyria
OES—Occupational Employment Statistics Increase Limits C. Recalibration of DRG Weights
OIG—Office of the Inspector General 9. Impact Analysis D. LTC–DRG Reclassifications and Relative
OMB—Executive Office of Management and 10. Recommendation of Update Factor for Weights for LTCHs for FY 2005
Budget Hospital Inpatient Operating Costs 1. Background
O.R.—Operating room 11. Discussion of Medicare Payment 2. Changes in the LTC–DRG Classifications
OSCAR—Online Survey Certification and Advisory Commission Recommendations a. Background
Reporting (System) D. Public Comments Received in response b. Patient Classifications into DRGs
OSHA—Occupational Safety and Health Act to the May 18, 2004 IPPS Proposed Rule 3. Development of the FY 2005 LTC–DRG
PACE—Programs of All-Inclusive Care for the II. Changes to DRG Classifications and Relative Weights
Elderly Relative Weights a. General Overview of Development of the
PIP—Periodic interim payment A. Background LTC–DRG Relative Weights
PMS—Performance Measurement System B. DRG Reclassifications b. Data
PMSAs—Primary Metropolitan Statistical 1. General c. Hospital-Specific Relative Value
Areas 2. MDC 1 (Diseases and Disorders of the Methodology
PPS—Prospective payment system Nervous System): Intracranial d. Low-Volume LTC–DRGs
PRA—Per resident amount Hemorrhage and Stroke With Infarction 4. Steps for Determining the FY 2005 LTC–
ProPAC—Prospective Payment Assessment 3. MDC 5 (Diseases and Disorders of the DRG Relative Weights
Commission Circulatory System) 5. Out of Space Comments Relating to the
PRRB—Provider Reimbursement Review a. Heart Assist System Implant LTCH PPS Payments Rates
Board b. Cardiac Resynchronization Therapy and E. Add-On Payments for New Services and
PS&R—Provider Statistical and Heart Failure Technologies
Reimbursement System c. Combination Cardiac Pacemaker Devices 1. Background
QIO—Utilization and Quality Control Quality and Lead Codes 2. Other Provisions of Section 503 of Pub.
Improvement Organization d. Treatment of Venous Bypass Graft L. 108–173
RHC—Rural health clinic [Conduit] with Pharmaceutical 3. FY 2005 Status of Technology Approved
RHQDAPU—Reporting Hospital Quality Data Substance for FY 2004 Add-On Payments
for Annual Payment Update 4. MDC 6 (Diseases and Disorders of the a. Drotrecogin Alfa (Activated)—Xigris
RRC—Rural referral center Digestive System): Artificial Anal b. InFUSETM (Bone Morphogenetic
SCH—Sole community hospital Sphincter Proteins (BMPs) for Spinal Fusions)
SNF—Skilled nursing facility 5. MDC 8 (Diseases and Disorders of the 4. Reevaluation of FY 2004 Applications
SOCs—Standard occupational classifications Musculoskeletal System and Connective That Were Not Approved
SOM—State Operations Manual Tissue) 5. FY 2005 Applicants for New Technology
SSA—Social Security Administration a. 360 Spinal Fusions Add-On Payments
SSI—Supplemental Security Income b. Multiple Level Spinal Fusion a. InFUSETM Bone Graft (Bone
TEFRA—Tax Equity and Fiscal c. Insertion of Spinal Disc Prostheses and Morphogenetic Proteins (BMPs) for Tibia
Responsibility Act of 1982, Pub. L. 97–248 Other Spiral Devices Fractures)
UHDDS—Uniform Hospital Discharge Data 6. MDC 15 (Newborns and Other Neonates b. Norian Skeletal Repair System (SRS)
Set with Conditions Originating in the Bone Void Filler
Perinatal Period) c. InSync Defibrillator System (Cardiac
Table of Contents 7. MDC 20 (Alcohol/Drug Use and Resynchronization Therapy with
I. Background Alcohol/Drug Induced Organic Mental Defibrillation (CRT–D))
A. Summary Disorders): Drug-Induced Dementia d. GliaSite Radiation Therapy System
1. Acute Care Hospital Inpatient 8. MDC 22 (Burns): Burn Patients on (RTS)
Prospective Payment System (IPPS) Mechanical Ventilation e. Natrecor—Human B–Type Natriuretic
2. Hospitals and Hospital Units Excluded 9. Pre-MDC: Tracheostomy Peptide (hBNP)
from the IPPS 10. Medicare Code Editor (MCE) Changes f. Kinetra Implantable Neurostimulator
a. IRFs 11. Surgical Hierarchies for Deep Brain Stimulation

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48918 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

g. Intramedullary Skeletal Kinetic 1. Background d. Exemption from FTE Resident Cap

Distractor (ISKD) 2. Requirements for Hospital Reporting of Reduction for Certain Rural Hospitals
h. ActiconTM Neosphincter Quality Data e. Determining the Estimated Number of
i. TandemHeartTM Percutaneous Left 3. Submission of Hospital Data for FYs FTE Resident Slots Available for
Ventricular Assist System 2006 and 2007 Redistribution
j. AquadexTM System 100 Fluid Removal 4. Regulation Change f. Determining the Possilbe Reduction to a
System (System 100) F. Revision of the Labor-Related Share of Hospital’s FTE Resident Cap
III. Changes to the Hospital Wage Index the Hospital Wage Index (1) Reference Resident Level—General
A. Background G. Wage Index Adjustment for Commuting (2) Expansion of an Existing Program
B. Revised OMB Definitions for Patterns of Hospital Employees (3) Audits of the Reference Cost Reporting
Geographical Statistical Areas H. Additional Payments for New Medical Periods
1. Current Labor Market Areas Based on Services and Technology: Policy (4) Expansions Under Newly Approved
MSAs Changes Programs
2. Core-Based Statistical Areas I. Rural Referral Centers (5) Affiliations
3. Revised Labor Market Areas 1. Case-Mix Index g. Criteria for Determining Hospitals That
a. New England MSAs 2. Discharges Will Receive Increases in Their FTE
b. Metropolitan Divisions J. Additional Payments to Hospitals with Resident Caps
c. Micropolitan Areas High Percentage of End-Stage Renal h. Application Process for the Increases in
d. Transition Period Disease (ESRD) Discharges Hospitals’ FTE Resident Caps
C. Occupational Mix Adjustment to FY K. Indirect Medical Education (IME) i. CMS Evaluation of Applications for
2005 Index Adjustment Increases in FTE Resident Caps
1. Development of Data for the 1. IME Adjustment Factor Formula j. IME Adjustment Formula Multiplier for
Occupational Mix Adjustment Multipliers Redistributed FTE Slots and the
2. Calculation of the Occupational Mix 2. IME Adjustment Formula Multiplier for Application of Locality-Adjusted
Adjustment Factor and the Occupational Redistributed FTE Resident Slots National Average Per Resident Amount
Mix Adjusted Wage Index 3. Counting Beds and Patient Days for (PRA)
D. Worksheet S–3 Wage Data for the FY Purposes of Calculating the IME k. Application of Section 422 to Hospitals
2005 Wage Index Update Adjustment and DSH Adjustment That Participate in Demonstration
E. Verification of Worksheet S–3 Wage 4. Technical Changes Projects or Voluntary Reduction
Data L. Payment to Disproportionate Share Programs
F. Computation of the Unadjusted Wage Hospitals (DSHs) l. Application of Section 422 to Hospitals
Index 1. Background
That File Low Utilization Medicare Cost
G. Computation of the FY 2005 Blended 2. Enhanced DSH Adjustment for Rural
Wage Index Hospitals and Urban Hospitals with
m. CMS Evaluation Form
H. Revisions to the Wage Index Based on Fewer Than 100 Beds
n. Application Process and CMS Central
Hospital Redesignation 3. Counting Beds and Patient Days for the
and Regional Office Mailing Addresses
1. General IME and DSH Adjustments
2. Effects of Reclassification a. Provisions of the FY 2004 Proposed for Receiving Increases in FTE Resident
3. FY 2005 Issues Rule, Responses to Public Comments, Caps
a. FY 2005 MGCRB Reclassifications and Provisions of the FY 2005 Final Rule 3. Direct GME Initial Residency Period
b. Implementation of New MSAs 1. Unoccupied Beds a. Background
c. Redesignations under Section 2. Observation Services and Swing-bed b. Direct GME Initial Residency Period
1886(d)(8)(B) of the Act Skilled Nursing Services Limitation: Simultaneous Match Issue
d. Reclassifications Under Section 508 of 3. Dual-Eligible Patient Days c. Exception to Initial Residency Period for
Public Law 108–173 4. Medicare+Choice (M+C) Days Geriatric Residency or Fellowship
e. Wage Index Adjustment Based on M. Payment Adjustments for Low-Volume Programs
Commuting Patterns of Hospital Hospitals 4. Per Resident Amount: Extension of
Employees N. Medicare Geographic Classification Update Limitation on High-Cost
(1) Data Review Board (MGCRB) Reclassifications Programs
(2) Qualifying Counties 1. Background 5. Residents Training in Nonhospital
(3) The Adjustment 2. Standardized Amount Reclassification Settings
(4) Automatic Adjustments Provisions a. Background
4. FY 2005 Reclassifications 3. Reclassification of Urban Rural Referral b. Moratorium on Disallowances of
I. Requests for Wage Index Data Corrections Centers Allopathic or Osteopathic Family
1. Worksheet S–3 Wage Data 4. Special Circumstances of Sole Practice Residents Training Time in
2. Occupational Mix Data Community Hospitals (SCHs) in Low Nonhospital Settings
3. All FY 2005 Wage Index Data Population Density States (1) Cost Reports That Are Settled Between
J. Revision of the Labor-Related Share of 5. Possible Reclassifications for Dominant January 1, 2004 and December 31, 2004
the Wage Index Hospitals and Hospitals in Single- (2) Family Practice Residents That Are
IV. Other Decisions and Changes to the IPPS Hospital MSAs Training in Nonhospital Settings
for Operating Costs and GME Costs 6. Special Circumstances of Hospitals in Between January 1, 2004 and December
A. Postacute Care Transfer Payment Policy All-Urban States 31, 2004
1. Background 7. Geographic Reclassifications for (SNFs) c. Requirements for Written Agreements for
2. Changes to DRGs Subject to the O. Payment for Direct Graduate Medical Residency Training in Nonhospital
Postacute Care Transfer Policy Education Settings
B. Payments for Inpatient Care in Providers 1. Background P. Rural Community Hospital
That Change Classification Status During 2. Reductions of and Increases in Demonstration Program
a Patient Stay Hospitals’ FTE Resident Caps for GME Q. Special Circumstances of Hospitals
C. Geographic Reclassifications— Payment Purposes under Section 422 of Facing High Malpractice Insurance Rate
Definitions of Urban and Rural Areas Pub. L. 108–173 Increases
1. Revised MSAs a. General Background on Methodology for V. Changes to the PPS for Capital-Related
2. Transition Period for DSH Payments to Determining the FTE Resident Count Costs
Redesignated Hospitals b. Reduction of Hospitals’ FTE Resident A. Background
D. Equalization of Urban and Rural Caps under the Provisions of Section 422 B. Payments to Hospitals Located in Puerto
Standardized Amounts of Pub. L. 108–173 Rico
E. Reporting of Hospital Quality Data for c. Hospitals Subject to the FTE Resident C. Exception Payment for Extraordinary
Annual Hospital Payment Update Cap Reduction Circumstances

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Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations 48919

D. Treatment of Hospitals Previously X. Other Required Information 5. Capital Standard Federal Rate for FY
Reclassified for the Operating IPPS A. Requests for Data from the Public 2005
Standardized Amounts B. Collection of Information Requirements 6. Special Capital Rate for Puerto Rico
E. Geographic Classification and Definition C. Waiver of Proposed Rulemaking for Hospitals
of Large Urban Area Technical Correction to LTCH B. Calculation of Inpatient Capital-Related
1. Core-based Statistical Areas Regulations Prospective Payments for FY 2005
2. Metropolitan Divisions C. Capital Input Price Index
VI. Changes for Hospitals and Hospital Units Regulation Text 1. Background
Excluded from the IPPS Addendum—Schedule of Standardized 2. Forecast of the CIPI for FY 2005
A. Payments to Excluded Hospitals and Amounts Effective with Discharges IV. Changes to Payment Rates for Excluded
Hospital Units Occurring On or After October 1, 2004 and Hospitals and Hospital Units: Rate-of-
1. Payments to Existing Excluded Hospitals Update Factors and Rate-of-Increase Increase Percentages
and Hospital Units Percentages Effective With Cost Reporting V. Payment for Blood Clotting Factor
2. Updated Caps for New Excluded Periods Beginning On or After October 1, Administered to Hemophilia Inpatients
Hospitals and Units 2004 Tables
3. Implementation of a PPS for IRFs
I. Summary and Background Table 1A—National Adjusted Operating
4. Implementation of a PPS for LTCHs
II. Changes to Prospective Payment Rates for Standardized Amounts, Labor/Nonlabor
5. Development of a PPS for IPFs
Hospital Inpatient Operating Costs for (71.1 Percent Labor Share/28.9 Percent
6. Technical Changes and Corrections
FY 2005 Nonlabor Share If Wage Index Is Greater
a. Change Related to Establishment of
A. Calculation of the Adjusted Than 1)
Payments for Excluded Hospitals
Standardized Amount Table 1B—National Adjusted Operating
b. Technical Correction Related to Long-
1. Standardization of Base-Year Costs or Standardized Amounts, Labor/Nonlabor
Term Care Hospitals
Target Amounts (62 Percent Labor Share/38 Percent
7. Report of Adjustment (Exceptions)
2. Computing the Average Standardized Nonlabor Share If Wage Index Is Less
Amount Than or Equal to 1)
B. Criteria for Classification of Hospitals-
3. Updating the Average Standardized Table 1C—Adjusted Operating
Amount Standardized Amounts for Puerto Rico,
C. Critical Access Hospitals (CAHs)
4. Other Adjustments to the Average Labor/Nonlabor
1. Background Standardized Amount Table 1D—Capital Standard Federal
2. Payment Amounts for CAH Services a. Recalibration of DRG Weights and Payment Rate
3. Condition for Application of Special Updated Wage Index—Budget Neutrality Table 2—Hospital Case-Mix Indexes for
Professional Service Payment Adjustment Discharges Occurring in Federal Fiscal
Adjustment b. Reclassified Hospitals—Budget Year 2003; Hospital Average Hourly
4. Coverage of Costs for Certain Emergency Neutrality Adjustment Wage for Federal Fiscal Years 2003 (1999
Room On-Call Providers c. Outliers Wage Data), 2004 (2000 Wage Data), and
5. Authorization of Periodic Interim d. Section 410A of Pub.L. 108–173 Rural 2005 (2001 Wage Data) Wage Indexes
Payments for CAHs Community Hospital Demonstration and 3-Year Average of Hospital Average
6. Revision of the Bed Limit for CAHs Program Adjustment Hourly Wages
7. Authority to Establish Psychiatric and 5. FY 2005 Standardized Amount Table 3A1—FY 2005 and 3-Year* Average
Rehabilitation Distinct Part Units of B. Adjustments for Area Wage Levels and Hourly Wage for Urban Areas by MSA
CAHs Cost-of-Living Table 3A2—FY 2005 3-Year* Average
8. Waiver Authority for Designation of a 1. Adjustment for Area Wage Levels Hourly Wage for Urban Areas by CBSA
CAH as a Necessary Provider 2. Adjustment for Cost-of-Living in Alaska Table 3B1—FY 2005 and 3-Year* Average
9. Payment for Clinical Diagnostic and Hawaii Hourly Wage for Rural Areas by MSA
Laboratory Tests C. DRG Relative Weights Table 3B2—FY 2005 and 3-Year* Average
10. Continued Participation by CAHs in D. Calculation of Prospective Payment Hourly Wage for Rural Areas by CBSA
Counties Reclassified as Urban Based on Rates for FY 2005 Table 4A1—Wage Index and Capital
the 2000 Census 1. Federal Rate Geographic Adjustment Factor (GAF) for
11. Technical Changes in Part 489 2. Hospital-Specific Rate (Applicable Only Urban Areas by MSA
VII. Changes to the Disclosure of Information to SCHs and MDHs) Table 4A2—Wage Index and Capital
Requirements for Quality Improvement a. Calculation of Hospital-Specific Rate Geographic Adjustment Factor (GAF) for
Organizations (QIOs) b. Updating the FY 1982, FY 1987, and FY Urban Areas by CBSA
A. Background 1996 Hospital-Specific Rates for FY 2005 Table 4B1—Wage Index and Capital
B. Provisions of the May 18, 2004 3. General Formula for Calculation of Geographic Adjustment Factor (GAF) for
Proposed. Regulations Prospective Payment Rates for Hospitals Rural Areas by MSA
C. Technical Changes Located in Puerto Rico Beginning On or Table 4B2—Wage Index and Capital
VIII. Policy Changes Relating to Medicare After October 1, 2004 and Before October Geographic Adjustment Factor (GAF) for
Provider Agreements for Compliance 1, 2005 Rural Areas by CBSA
with Bloodborne Pathogens Standards, a. Puerto Rico Rate Table 4C1—Wage Index and Capital
Hospital Conditions of Participation, and b. National Rate Geographic Adjustment Factor (GAF) for
Fire Safety Requirements for Certain III. Changes to Payment Rates for Acute Care Hospitals That Are Reclassified by MSA
Health Care Facilities Hospital Inpatient Capital-Related Costs Table 4C2—Wage Index and Capital
A. Conditions of Participation for for FY 2005 Geographic Adjustment Factor (GAF) for
Discharge Planning A. Determination of Federal Hospital Hospitals That Are Reclassified by CBSA
1. Background Inpatient Capital-Related Prospective Table 4F1—Puerto Rico Wage Index and
2. Implementation Payment Rate Update Capital Geographic Adjustment Factor
3. Provisions of the Proposed Regulations 1. Capital Standard Federal Rate Update (GAF) by MSA
B. Compliance with Bloodborne Pathogens a. Description of the Update Framework Table 4F2—Puerto Rico Wage Index and
Standards b. Comparison of CMS and MedPAC Capital Geographic Adjustment Factor
1. Background Update Recommendation (GAF) by CBSA
2. Provisions of the Proposed Regulations 2. Outlier Payment Adjustment Factor Table 4G—Pre-Reclassified Wage Index for
C. Fire Safety Requirements for Certain 3. Budget Neutrality Adjustment Factor for Urban Areas
Health Care Facilities Changes in DRG Classifications and Table 4H—Pre-Reclassified Wage Index for
1. Background Weights and the Geographic Adjustment Rural Areas
2. Proposed Changes to the Regulations Factor Table 4J—Wage Index Adjustment for
IX. MedPAC Recommendations 4. Exceptions Payment Adjustment Factor Commuting Hospital Employees (Out-

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48920 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

Migration) In Qualifying Counties—FY hospital discharge. Discharges are hospitals (SCHs) are the sole source of
2005 classified according to a list of care in their areas, and Medicare-
Table 5—List of Diagnosis-Related Groups diagnosis-related groups (DRGs). dependent, small rural hospitals
(DRGs), Relative Weighting Factors, and The base payment rate is comprised of (MDHs) are a major source of care for
Geometric and Arithmetic Mean Length
of Stay (LOS)
a standardized amount that is divided Medicare beneficiaries in their areas.
Table 6A—New Diagnosis Codes into a labor-related share and a Both of these categories of hospitals are
Table 6B—New Procedure Codes nonlabor-related share. The labor- afforded this special payment protection
Table 6C—Invalid Diagnosis Codes related share is adjusted by the wage in order to maintain access to services
Table 6D—Invalid Procedure Codes index applicable to the area where the for beneficiaries (although MDHs
Table 6E—Revised Diagnosis Code Titles hospital is located; and if the hospital is receive only 50 percent of the difference
Table 6F—Revised Procedure Code Titles located in Alaska or Hawaii, the between the IPPS rate and their
Table 6G—Additions to the CC Exclusions nonlabor-related share is adjusted by a hospital-specific rates if the hospital-
List cost-of-living adjustment factor. This
Table 6H—Deletions from the CC
specific rate is higher than the IPPS
Exclusions List base payment rate is multiplied by the rate).
Table 7A—Medicare Prospective Payment DRG relative weight. Section 1886(g) of the Act requires the
System Selected Percentile Lengths of If the hospital treats a high percentage Secretary to pay for the capital-related
Stay: FY 2003 MedPAR Update March of low-income patients, it receives a costs of inpatient hospital services ‘‘in
2004 GROUPER V21.0 percentage add-on payment applied to accordance with a prospective payment
Table 7B—Medicare Prospective Payment the DRG-adjusted base payment rate. system established by the Secretary.’’
System Selected Percentile Lengths of This add-on payment, known as the The basic methodology for determining
Stay: FY 2003 MedPAR Update March disproportionate share hospital (DSH) capital prospective payments is set forth
2004 GROUPER V22.0 adjustment, provides for a percentage in our regulations at 42 CFR 412.308
Table 8A—Statewide Average Operating
increase in Medicare payments to and 412.312. Under the capital PPS,
Cost-to-Charge Ratios-July 2004
Table 8B—Statewide Average Capital Cost- hospitals that qualify under either of payments are adjusted by the same DRG
to-Charge Ratios—July 2004 two statutory formulas designed to for the case as they are under the
Table 9A1—Hospital Reclassifications and identify hospitals that serve a operating IPPS. Similar adjustments are
Redesignations by IndividualHospital— disproportionate share of low-income also made for IME and DSH as under the
FY 2005 by MSA patients. For qualifying hospitals, the operating IPPS. In addition, hospitals
Table 9A2—Hospital Reclassifications and amount of this adjustment may vary may receive an outlier payment for
Redesignations by IndividualHospital— based on the outcome of the statutory those cases that have unusually high
FY 2005 by CBSA–FY 2005 calculations. costs.
Table 9B—Hospital Reclassifications and If the hospital is an approved teaching
Redesignation by Individual Hospital
The existing regulations governing
Under Section 508 of Public Law 108–
hospital, it receives a percentage add-on payments to hospitals under the IPPS
173—FY 2004 payment for each case paid under the are located in 42 CFR part 412, subparts
Table 10—Geometric Mean Plus the Lesser IPPS (known as the indirect medical A through M.
of .75 of the National Adjusted Operating education (IME) adjustment). This
Standardized Payment Amount percentage varies, depending on the 2. Hospitals and Hospital Units
(Increased to Reflect the Difference Excluded From the IPPS
ratio of residents to beds.
Between Costs and Charges) or .75 of Additional payments may be made for Under section 1886(d)(1)(B) of the
One Standard Deviation of Mean Charges cases that involve new technologies or Act, as amended, certain specialty
by Diagnosis-Related Groups (DRGs)— medical services that have been hospitals and hospital units are
July 2004 excluded from the IPPS. These hospitals
Table 11—FY 2005 LTC–DRGs, Relative
approved for special add-on payments.
Weights, Geometric Average Length of To qualify, a new technology or medical and units are: Psychiatric hospitals and
Stay, and 5⁄6ths of the Geometric Average service must demonstrate that it is a units; rehabilitation hospitals and units;
Length of Stay substantial clinical improvement over long-term care hospitals (LTCHs);
Appendix A—Regulatory Impact Analysis technologies or services otherwise children’s hospitals; and cancer
Appendix B—Recommendation of Update available, and that, absent an add-on hospitals. Various sections of the
Factors for Operating Cost Rates of Payment payment, it would be inadequately paid Balanced Budget Act of 1997 (Pub. L.
for Inpatient Hospital Services under the regular DRG payment. 105–33), the Medicare, Medicaid and
The costs incurred by the hospital for SCHIP (State Children’s Health
I. Background a case are evaluated to determine Insurance Program) Balanced Budget
A. Summary whether the hospital is eligible for an Refinement Act of 1999 (Pub. L. 106–
additional payment as an outlier case. 113), and the Medicare, Medicaid, and
1. Acute Care Hospital Inpatient This additional payment is designed to SCHIP Benefits Improvement and
Prospective Payment System (IPPS) protect the hospital from large financial Protection Act of 2000 (Pub. L. 106–554)
Section 1886(d) of the Social Security losses due to unusually expensive cases. provide for the implementation of PPSs
Act (the Act) sets forth a system of Any outlier payment due is added to the for rehabilitation hospitals and units
payment for the operating costs of acute DRG-adjusted base payment rate, plus (referred to as inpatient rehabilitation
care hospital inpatient stays under any DSH, IME, and new technology or facilities (IRFs)), psychiatric hospitals
Medicare Part A (Hospital Insurance) medical service add-on adjustments. and units (referred to as inpatient
based on prospectively set rates. Section Although payments to most hospitals psychiatric facilities (IPFs)), and LTCHs,
1886(g) of the Act requires the Secretary under the IPPS are made on the basis of as discussed below. Children’s hospitals
to pay for the capital-related costs of the standardized amounts, some and cancer hospitals continue to be paid
hospital inpatient stays under a categories of hospitals are paid the under reasonable cost-based
prospective payment system (PPS). higher of a hospital-specific rate based reimbursement.
Under these PPSs, Medicare payment on their costs in a base year (the higher The existing regulations governing
for hospital inpatient operating and of FY 1982, FY 1987, or FY 1996) or the payments to excluded hospitals and
capital-related costs is made at IPPS rate based on the standardized hospital units are located in 42 CFR
predetermined, specific rates for each amount. For example, sole community parts 412 and 413.

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Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations 48921

a. IRFs psychiatric hospitals and units and the excluded hospitals and units, and
Under section 1886(j) of the Act, as public requested additional time to payments to CAHs. This final rule
amended, rehabilitation hospitals and comment. As a result, we extended the implements amendments made by the
units (IRFs) have been transitioned from comment period for the proposed rule. following sections of Pub. L. 108–173:
Thus, we are still in the process of • Section 401, which provides that,
payment based on a blend of reasonable
analyzing public comments and for discharges occurring in a fiscal year
cost reimbursement subject to a
developing a final rule for publication. beginning with FY 2004 under the IPPS,
hospital-specific annual limit under
Consequently, an April 1, 2004, Medicare will pay hospitals in rural and
section 1886(b) of the Act and small urban areas in the 50 States using
effective date for the IPF PPS is no
prospective payments for cost reporting the standardized amount (computed for
longer possible.
periods beginning January 1, 2002, the previous fiscal year) that would be
through September 30, 2002, to payment 3. Critical Access Hospitals (CAHs) used to pay hospitals in large urban
at 100 percent of the Federal rate Under sections 1814, 1820, and areas (or beginning with FY 2005, for all
effective for cost reporting periods 1834(g) of the Act, payments are made hospitals in the previous fiscal year),
beginning on or after October 1, 2002 to critical access hospitals (CAHs) (that increased by the appropriate market
(66 FR 41316, August 7, 2001; 67 FR is, rural hospitals or facilities that meet basket percentage increase. One
49982, August 1, 2002; and 68 FR certain statutory requirements) for standardized amount for hospitals in
45674, August 1, 2003). The existing inpatient and outpatient services on a Puerto Rico would be established that
regulations governing payments under reasonable cost basis. Reasonable cost is would equal the amount for hospitals in
the IRF PPS are located in 42 CFR part determined under the provisions of large urban areas in Puerto Rico.
412, subpart P. section 1861(v)(1)(A) of the Act and • Section 402, which provides that
b. LTCHs existing regulations under 42 CFR parts for discharges occurring on or after
413 and 415. April 1, 2004, the DSH payment
Under the authority of sections 123(a) adjustment for a hospital that is not a
and (c) of Public Law 106–113 and 4. Payments for Graduate Medical
large urban or large rural hospital will
section 307(b)(1) of Public Law 106– Education (GME) be calculated using the current DSH
554, LTCHs are being transitioned from Under section 1886(a)(4) of the Act, adjustment formula for large urban
being paid for inpatient hospital costs of approved educational activities hospitals, subject to a limit of 12 percent
services based on a blend of reasonable are excluded from the operating costs of for any of these hospitals that are not
cost-based reimbursement under section inpatient hospital services. Hospitals rural referral centers. (There is no limit
1886(b) of the Act to 100 percent of the with approved graduate medical on the DSH payment percentage for
Federal rate during a 5-year period, education (GME) programs are paid for rural referral centers.)
beginning with cost reporting periods the direct costs of GME in accordance • Section 403, which provides that,
that start on or after October 1, 2002. For with section 1886(h) of the Act; the for discharges occurring on or after
cost reporting periods beginning on or amount of payment for direct GME costs October 1, 2004, a hospital’s labor-
after October 1, 2006, LTCHs will be for a cost reporting period is based on related share to which the wage index
paid 100 percent of the Federal rate the hospital’s number of residents in is applied will be decreased to 62
(May 7, 2004 LTCH PPS final rule (69 that period and the hospital’s costs per percent of the standardized amount
FR 25674)). LTCHs may elect to be paid resident in a base year. The existing when such a change will result in
based on 100 percent of the Federal rate regulations governing payments to the higher total payments to the hospital.
instead of a blended payment in any various types of hospitals are located in This provision also applies to the labor-
year during the 5-year transition period. 42 CFR part 413. related share of the standardized
The existing regulations governing On August 1, 2003, we published a amount for hospitals in Puerto Rico.
payment under the LTCH PPS are final rule in the Federal Register (68 FR • Section 405(a), which provides that
located in 42 CFR part 412, subpart O. 45346) that implemented changes to the inpatient, outpatient, and covered SNF
c. IPFs Medicare hospital inpatient prospective services provided by a CAH will be
payment systems for both operating cost reimbursed at 101 percent of reasonable
Sections 124(a) and (c) of Public Law and capital-related costs, as well as costs for services furnished to Medicare
106–113 provide for the development of changes addressing payments for beneficiaries. This provision is
a per diem PPS for payment for excluded hospitals and payments for applicable to payments for services
inpatient hospital services furnished in GME costs. Generally these changes furnished during cost reporting periods
IPFs under the Medicare program, were effective for discharges occurring beginning on or after January 1, 2004.
effective for cost reporting periods on or after October 1, 2003. On October • Section 405(b), which expands
beginning on or after October 1, 2002. 6, 2003, we published a document in coverage of the costs associated with
This system must include an adequate the Federal Register (68 FR 57731) that covered Medicare services furnished by
patient classification system that reflects corrected technical errors made in the on-call emergency room providers in
the differences in patient resource use August 1, 2003, final rule. CAHs to include services furnished by
and costs among these hospitals and physician assistants, nurse practitioners,
maintains budget neutrality. We B. Provisions of the Medicare
and clinical nurse specialists, effective
published a proposed rule to implement Prescription Drug, Improvement, and
for costs incurred for services furnished
the PPS for IPFs on November 28, 2003 Modernization Act of 2003
on or after January 1, 2005.
(68 FR 66920). The November 28, 2003, On December 8, 2003, the Medicare • Section 405(c), which provides that
proposed rule proposed an April 1, Prescription Drug, Improvement, and eligible CAHs may receive payments for
2004, effective date for purposes of Modernization Act of 2003 (MMA), their inpatient services on a periodic
ratesetting and calculating impacts. Public Law 108–173, was enacted. interim payment (PIP) basis, effective
However, the proposed rule was Public Law 108–173 made a number of with payments made on or after July 1,
unusually complex because it proposed changes to the Act relating to 2004.
a completely new payment system for prospective payments to hospitals for • Section 405(d), which allows CAHs
inpatient hospital services furnished by inpatient services, payments to to elect to receive payments under the

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48922 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

optional payment method (a payment payment increase is not subject to reconsideration of applications received
encompassing both inpatient CAH administrative or judicial review. for FY 2004 that were denied; provides
services and physician and practitioner • Section 410A, which authorizes the for preference in the use of DRG
services to outpatients) even if some Secretary to establish a demonstration adjustments; and provides that new
practitioners do not reassign to the CAH program to test the feasibility and technology or medical service payments
their rights to bill for professional advisability of the establishment of rural shall not be budget neutral. This
services to CAH outpatients. This community hospitals to furnish covered provision is effective for fiscal years
provision applies to cost reporting inpatient hospital services to Medicare beginning in FY 2005.
periods occurring on or after July 1, beneficiaries. The Secretary must select • Section 504, which increases the
2004, except that in the case of a CAH no more than 15 rural community national portion of the operating PPS
that made an election of the optional hospitals to participate in the payment rate for hospitals in Puerto
payment method before November 1, demonstration. The Secretary must Rico from 50 percent of the Federal rate
2003, the provision applies to cost implement the demonstration program to 75 percent of the Federal rate and
reporting periods beginning on or after not later than January 1, 2005, but may decreases the Puerto Rico portion of the
July 1, 2001. not implement the program before operating PPS payment from 50 percent
• Section 405(e), which increases the October 1, 2004. to 25 percent, effective for discharges
limit on the number of beds that a CAH • Section 422(a), which provides that occurring on or after October 1, 2004.
may have for acute care from 15 to 25 a hospital’s GME FTE resident cap will For the period of April 1, 2004, through
beds. This provision applies to CAH be reduced, and the reduction will be September 30, 2004, payments for
designations made before, on, or after redistributed among other hospitals if hospitals in Puerto Rico will be based
January 1, 2004. Any election made in the hospital’s resident count is less than on 62.5 percent Federal rate and 37.5
accordance with the regulations its resident cap (rural hospitals with less percent of the Puerto Rico rate.
promulgated to implement this than 250 acute care inpatient beds will • Section 505, which provides for an
provision will only apply prospectively. be exempt) in a particular reference increase in a hospital’s wage index
• Section 405(g), which provides that period. This provision is effective for value to take into consideration a
a CAH may establish psychiatric and cost reporting periods beginning on or commuter wage adjustment for hospital
rehabilitation distinct part units and after July 1, 2005. employees who reside in a county and
limits the number of beds in each unit • Section 422(b), which specifies that work in a different area with a higher
to no more than 10. Services in these the formula multiplier for the IME wage index.
distinct part units will be paid under adjustment is 0.66 for FTE residents • Section 508, which provides for the
the respective payment methodology attributable to redistributed resident establishment of a one-time process for
applicable to these distinct-part units. positions, effective for discharges a hospital to appeal its geographic
This provision applies to cost reporting occurring on or after July 1, 2005. classification for wage index purposes.
periods beginning on or after October 1, • Section 501, which provides the By law, any reclassification resulting
2004. update factor for payments for hospital from this one-time appeal applies for a
• Section 405(h), which terminates a inpatient operating costs for FY 2005 3-year period to discharges occurring on
State’s authority to waive the location and subsequent fiscal years is the or after April 1, 2004.
requirement for a CAH by designating market basket percentage increase. For • Section 711, which freezes the
the CAH as the necessary provider, FYs 2005 through 2007, the update annual CPI–U updates to hospital-
effective January 1, 2006. A factor will be the market basket specific per resident amount (PRAs) for
grandfathering provision is included for percentage increase minus 0.4 GME payments for those PRAs that
CAHs that are certified as necessary percentage points for any ‘‘subsection exceed the ceiling, effective for cost
providers prior to January 1, 2006, (d) hospital’’ that does not submit reporting periods beginning FY 2004,
which allows any CAH that is hospital quality data on 10 measures as through FY 2013.
designated as a necessary provider in its specified by the Secretary. • Section 712, which provides for an
State’s rural health plan prior to January • Section 502, which modifies the exception to the initial residency period
1, 2006, to maintain its necessary IME formula multiplier to be used in the for purposes of direct GME payments for
provider designation. calculation of the IME adjustment for geriatric residency or fellowship
• Section 406, which provides for a midway through FY 2004 and provides programs that allows the 2 years spent
graduated adjustment to the inpatient a new schedule of formula multipliers in an approved geriatric program to be
prospective payment rates to account for for FYs 2005 and thereafter. counted as part of the resident’s initial
the higher costs associated with • Section 503(a), which includes a training period, but not to count against
hospitals described under section requirement for updating the ICD–9–CM any limitation on the initial residency
1886(d) of the Act that are located more diagnosis and procedure codes in April period. This provision is effective for
than 25 road miles from another 1 of each year, in addition to the current cost reporting periods beginning on or
subsection (d) hospital and that have process of annual updates on October 1 after October 1, 2003.
less than 800 discharges during a fiscal of each year. This change will not affect • Section 713, which, during a 1-year
year, effective for discharges occurring Medicare payments or DRG moratorium period of January 1, 2004
on or after October 1, 2004. The increase classifications until the fiscal year that through December 31, 2004, allows
in these payments must be based on the begins after that date. hospitals to count allopathic or
empirical relationship between the • Section 503(b), which provides for osteopathic family practice residents
standardized cost per case for such changes to the threshold amount for training in nonhospital settings for IME
hospitals and the total number of determining eligibility of new and direct GME purposes, without
discharges of these hospitals and the technologies or medical services for regard to the financial arrangement
amount of the additional incremental add-on payments; provides for public between the hospital and the teaching
costs (if any) associated with that input on applications for new physician practicing in the nonhospital
number of discharges, may not be technology or medical service add-on setting to which the resident is assigned.
greater than 25 percent, and the payments prior to the publication of a • Section 733, which provides for
determination of the percentage proposed rule; provides for Medicare payment of routine costs, as

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Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations 48923

well as costs relating to the Among the proposed changes 2005 applicants (including public input,
transplantation and appropriate related discussed were: as directed by Public Law 108–173,
items and services, for Medicare • Restructuring and retitling of obtained in a town hall meeting).
beneficiaries participating in a clinical several DRGs to reflect expanded We proposed the annual update of the
trial involving pancreatic islet cell coverage of heart assist systems such as long-term care diagnosis-related group
transplantation, beginning no earlier ventricular assist devices (VAD) or left (LTC–DRG) classifications and relative
than October 1, 2004. ventricular assist devices (LVAD) as weights for use under the LTCH PPS for
• Section 926, which requires the destination (or permanent) therapy for FY 2005.
Secretary to make information publicly end-stage heart failure patients who are
available that enables hospital discharge not candidates for heart transplantation: 2. Changes to the Hospital Wage Index
planners, Medicare beneficiaries, and DRG 103 (Heart Transplant or Implant We proposed revisions to the wage
the public to identify skilled nursing of Heart Assist System) (proposed title index and the annual update of the
facilities (SNFs) that are participating in change), DRG 104 (Cardiac Valve and wage data. Specific issues addressed
the Medicare program, and requires a Other Major Cardiothoracic Procedures included the following:
hospital, as part of its discharge with Cardiac Catheterization) and DRG • The FY 2005 wage index update,
planning, to evaluate a patient’s need 105 (Cardiac Valve and Other Major using wage data from cost reporting
for SNF care. Cardiothoracic Procedures Without periods that began during FY 2001.
• Section 947, which requires that, by Cardiac Catheterization), and DRG 525 • Revision of the labor market areas
July 1, 2004, hospitals not otherwise (Other Heart Assist System Implant) as a result of OMB revised definitions of
subject to the Occupational Safety and (proposed title change). geographical statistical areas.
Health Act (OSHA) (or a State • Addition of pacemaker device and • A discussion of the collection of
occupational safety and health plan that lead procedure code combinations that occupational mix data and the
is approved under section 18(b) of that could lead to the assignment of DRG 115 occupational mix adjustment to the
Act) must comply with the OSHA (Permanent Cardiac Pacemaker Implant wage index that we proposed to apply
bloodborne pathogens (BBP) standard as with Acute Myocardial Infarction, Heart beginning October 1, 2004.
part of their Medicare provider Failure, or Shock or ACID Lead or • Revisions to the wage index based
agreements. Generator Procedures) and DRG 116 on hospital redesignations and
(Other Permanent Cardiac Pacemaker reclassifications, including changes that
C. Summary of the Provisions of the Implant). reflect the new OMB standards for
May 18, 2004 Proposed Rule • Movement of the procedure code assignment of hospitals to geographic
On May 18, 2004, we published a for 360 spinal fusion from DRG 496 areas.
proposed rule in the Federal Register (Combined Anterior/Posterior Spinal • The adjustment to the wage index
(69 FR 28196) that set forth proposed Fusion) to DRG 497 (Spinal Fusion based on commuting patterns of
changes to the Medicare IPPS for Except Cervical With CC) and DRG 498 hospital employees who reside in a
operating costs and for capital-related (Spinal Fusion Except Cervical Without county and work in a different area with
costs in FY 2005 and to implement the CC). a higher wage index, to implement
provisions of Pub. L. 108–173 specified • Addition of combination codes, section 505 of Public Law 108–173.
in section I.B. of this preamble. We also which also include heart failure, to the • A discussion of eligible hospitals
set forth proposed changes relating to list of major problems under DRG 387 reclassified under the one-time appeals
payments for GME costs, payments to (Prematurity With Major Problems) and process under section 508 of Public Law
certain hospitals and units that continue DRG 389 (Full-Term Neonate With 108–173.
to be excluded from the IPPS and paid Major Problems). • Changes to the labor-related share
on a reasonable cost basis, payments for • Modification of DRGs 504 through to which the wage index is applied in
DSH, requirements and payments for 509 under MDC 22 (Burns) to recognize determining the PPS rate for hospitals
CAHs, conditions of participation for the impact of long-term mechanical located in specific geographic areas, to
hospitals relating to discharge planning ventilation on burn cases and renaming implement section 403 of Public Law
and fire safety requirements, DRG 504 as proposed title ‘‘Extensive 108–173.
requirements for Medicare provider Burns or Full Thickness Burns With • The revised timetable for reviewing
agreements relating to bloodborne Mechanical Ventilation 96+ Hours With and verifying the wage data that will be
pathogen standards, and QIO disclosure Skin Graft’’ and DRG 505 as proposed in effect for the FY 2005 wage index.
of information requirements. These title ‘‘Extensive Burns or Full Thickness
Burns With Mechanical Ventilation 96+ 3. Other Decisions and Changes to the
changes were proposed to be effective
Hours Without Skin Graft.’’ PPS for Inpatient Operating and GME
for discharges occurring on or after
• Deletion of DRG 483 (Tracheostomy Costs
October 1, 2004, unless otherwise noted.
The following is a summary of the for Face, Mouth, and Neck Diagnoses) In the proposed rule, we discussed a
major changes that we proposed to and splitting the assignment of cases to number of provisions of the regulations
make: two proposed new DRGs on the basis of in 42 CFR parts 412 and 413 and set
the performance of a major operating forth proposed changes concerning the
1. Changes to the DRG Reclassifications room procedure: proposed new DRGs following:
and Recalibrations of Relative Weights 541 and 542 (Tracheostomy With • Expansion of the current postacute
As required by section 1886(d)(4)(C) Mechanical Ventilation 96+ Hours or care transfer policy.
of the Act, we proposed annual Principal Diagnosis Except Face, Mouth, • Payments for inpatient care in
adjustments to the DRG classifications and Neck Diagnosis With and Without providers that change classification
and relative weights. Based on analyses Major Operating Room Procedure, status during a patient stay.
of Medicare claims data, we proposed to respectively). • Changes in the definitions of urban
establish a number of new DRGs and We also presented our reevaluation of and rural areas for geographic
make changes to the designation of FY 2004 applicants for add-on payments reclassification purposes.
diagnosis and procedure codes under for high-cost new medical services and • Equalization of the standardized
other existing DRGs. technologies, and our analysis of FY amount for urban and rural hospitals.

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48924 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

• The reporting of hospital quality on the proposed changes in geographic • Correct a technical error relating to
data as a condition for receiving the full classifications. the application of the 2000 edition of
annual payment update increase. the Life Safety Code as the fire safety
• Revision of the regulations to reflect 5. Changes for Hospitals and Hospital
requirements for certain health care
the revision of the labor share of the Units Excluded From the IPPS
facilities; and clarify the effective date
wage index. In the proposed rule, we discussed for the prohibition on the use of roller
• Revision of the regulations to reflect the following proposed revisions and latches in these facilities.
the wage index adjustment for clarifications concerning excluded
commuting patterns of hospital hospitals and hospital units and CAHs: 8. Determining Prospective Payment
employees who live in one county and • Changes in the payment rate for Operating and Capital Rates and Rate-of-
commute to work in other areas with new excluded hospitals. Increase Limits
higher level wages. • Changes to the criteria for In the Addendum to the May 18,
• Changes in the threshold amount determining payments to hospitals- 2004, proposed rule, we set forth
for eligibility for new medical services within-hospitals. proposed changes to the amounts and
and technology add-on payments. • Changes to the policies governing factors for determining the FY 2005
• Revision to our policy on additional payment to CAHs, including a change in prospective payment rates for operating
payments to hospitals with high the payment percentage for services costs and capital-related costs. We also
percentages of ESRD discharges. furnished by CAHs; changes in the rules established the proposed threshold
• Changes to the IME adjustment governing the election by a CAH of the amounts for outlier cases. In addition,
formula multipliers, and the formula optional method of payment; expansion we addressed update factors for
multiplier applicable to redistribution of of the payment to emergency room on- determining the rate-of-increase limits
unused numbers of FTE resident slots. call providers to include physician for cost reporting periods beginning in
• Changes in DSH adjustment assistants, nurse practitioners, and FY 2005 for hospitals and hospital units
payments to rural and small urban clinical nurse specialists; authorization excluded from the PPS.
hospitals. for the making of periodic interim
• Payment adjustments for low- payments (PIPs) for CAHs for inpatient 9. Impact Analysis
volume hospitals. services furnished; revision of the bed In Appendix A of the proposed rule,
• Changes in policy affecting count limit for CAHs from 15 to 25 we set forth an analysis of the impact
hospitals that apply as a group for acute care beds; proposed requirements that the proposed changes would have
reclassification and a discussion of for establishing psychiatric and on affected hospitals.
possible reclassifications for dominant rehabilitation distinct part units in
hospitals and hospitals in single- 10. Recommendation of Update Factor
CAHs; and termination of the location
hospital MSAs. for Hospital Inpatient Operating Costs
requirement for a CAH by designating
• Changes in policies governing the CAH as a necessary provider. In Appendix B of the proposed rule,
payments for direct GME, including the as required by sections 1886(e)(4) and
redistribution of unused FTE resident 6. Changes to QIO Disclosure of (e)(5) of the Act, we provided our
slots; changes in the GME initial Information Requirements recommendations of the appropriate
residency period; extension of the In the proposed rule, we discussed percentage changes for FY 2005 for the
update limitation on hospital-specific our proposed clarification of the following:
per resident amounts; and changes in requirements for disclosure by QIOs of • A single average standardized
the policies on residents training in information on institutions and amount for all areas for hospital
nonhospital settings, including written practitioners collected in the course of inpatient services paid under the IPPS
agreements for teaching physician the QIO’s quality improvement for operating costs (and hospital-specific
compensation. activities. rates applicable to SCHs and MDHs).
• An announcement of the rural • Target rate-of-increase limits to the
community hospital demonstration to 7. Changes Relating to Medicare allowable operating costs of hospital
be established under section 410A of Provider Agreements, Hospital inpatient services furnished by hospitals
Public Law 108–173 and the Conditions of Participation, and Fire and hospital units excluded from the
opportunity for eligible hospitals to Safety Requirements for Certain Health IPPS.
apply for participation in the Care Facilities
11. Discussion of Medicare Payment
demonstration program. We proposed to—
• Require hospitals, as part of the Advisory Commission
• A solicitation of public comments
discharge planning standard under the Recommendations
on the effect of increases in malpractice
insurance premiums on hospitals Medicare hospital conditions of Under section 1805(b) of the Act, the
participating in the Medicare program participation, to furnish a list of Medicare Payment Advisory
and beneficiary access of services. Medicare-participating home health Commission (MedPAC) is required to
agencies to patients who are expected to submit a report to Congress, no later
4. Changes to the PPS for Capital- receive home health services after than March 1 of each year, that reviews
Related Costs discharge and to provide information on and makes recommendations on
In the proposed rule, we discussed Medicare-certified SNFs to patients who Medicare payment policies. MedPAC’s
the payment requirements for capital- are likely to need posthospital extended March 2004 recommendation
related costs and proposed changes care services. concerning hospital inpatient payment
relating to capital payments to hospitals • Require that Medicare provider policies addressed only the update
located in Puerto Rico, changes in the agreements include provisions that factor for inpatient hospital operating
policies on exception payments for would ensure that all hospital costs and capital-related costs under the
extraordinary circumstances, treatment employees who may come into contact IPPS and for hospitals and distinct part
of hospitals previously reclassified for with human blood in the course of their hospital units excluded from the IPPS.
the operating standardized amounts, duties are provided proper protection This recommendation was addressed in
and capital payment adjustments based from bloodborne pathogens. Appendix B of the May 18, 2004,

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proposed rule. For further information at the beginning of the Federal fiscal in treatment patterns, technology, and
relating specifically to the MedPAC year, or by October 1, 2004. Our priority any other factors that may change the
March 1 report or to obtain a copy of the is to ensure that hospitals receive their relative use of hospital resources. The
report, contact MedPAC at (202) 220– final updated rates for the new fiscal changes to the DRG classification
3700 or visit MedPAC’s Web site at: year. system and the recalibration of the DRG weights for discharges occurring on or
II. Changes to DRG Classifications and
after October 1, 2004, are discussed
D. Public Comments Received in Relative Weights
Response to the May 18, 2004 Proposed below.
Rule A. Background
B. DRG Reclassifications
We received over 30,000 timely items Section 1886(d) of the Act specifies 1. General
of correspondence containing multiple that the Secretary shall establish a
comments on the May 18, 2004 classification system (referred to as Cases are classified into DRGs for
proposed rule. Summaries of the public DRGs) for inpatient discharges and payment under the IPPS based on the
comments and our responses to those adjust payments under the IPPS based principal diagnosis, up to eight
comments are set forth below under the on appropriate weighting factors additional diagnoses, and up to six
appropriate heading. assigned to each DRG. Therefore, under procedures performed during the stay.
Comment Period: One commenter the IPPS, we pay for inpatient hospital In a small number of DRGs,
indicated that, under the Administrative services on a rate per discharge basis classification is also based on the age,
Procedures Act (APA), 5 U.S.C. 553(b), that varies according to the DRG to sex, and discharge status of the patient.
the 60-day comment period should have which a beneficiary’s stay is assigned. The diagnosis and procedure
started from the date the proposed rule The formula used to calculate payment information is reported by the hospital
was published in the Federal Register, for a specific case multiplies an using codes from the International
not the date the rule was placed on the individual hospital’s payment rate per Classification of Diseases, Ninth
CMS Web site. case by the weight of the DRG to which Revision, Clinical Modification (ICD–9–
Response: We believe publication of the case is assigned. Each DRG weight CM).
the proposed rule is fully consistent represents the average resources For FY 2004, cases are assigned to one
with the law. The APA does not required to care for cases in that of 518 DRGs in 25 major diagnostic
prescribe any specific length for the particular DRG, relative to the average categories (MDCs). Most MDCs are
comment period. In addition, the resources used to treat cases in all based on a particular organ system of
proposed rule was placed on display at DRGs. the body. For example, MDC 6 is
the Office of the Federal Register and a Congress recognized that it would be Diseases and Disorders of the Digestive
copy of the rule also appeared on our necessary to recalculate the DRG System. This approach is used because
Web site. The substance of the rule was relative weights periodically to account clinical care is generally organized in
fully available on the Web site, as well for changes in resource consumption. accordance with the organ system
as on display at the Office of the Federal Accordingly, section 1886(d)(4)(C) of affected. However, some MDCs are not
Register. Finally, we note that, in the Act requires that the Secretary constructed on this basis because they
accordance with section 1886(d) of the adjust the DRG classifications and involve multiple organ systems (for
Act, the Secretary is required to ensure relative weights at least annually. These example, MDC 22 (Burns)). The table
that the updated IPPS rates are in place adjustments are made to reflect changes below lists the 25 MDCs.

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In general, cases are assigned to an assigned on the basis of ICD–9–CM tracheostomies. Cases are assigned to
MDC based on the patient’s principal procedure codes. These DRGs are for these DRGs before they are classified to
diagnosis before assignment to a DRG. heart, liver, bone marrow, lung, an MDC. The table below lists the
However, for FY 2004, there are eight simultaneous pancreas/kidney, and current eight pre-MDCs.
DRGs to which cases are directly pancreas transplants and for


Within most MDCs, cases are then DRGs. Surgical DRGs are based on a (O.R.) procedures or groups of O.R.
divided into surgical DRGs and medical hierarchy that orders operating room procedures by resource intensity.

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Medical DRGs generally are data should be submitted by mid- we did not intend to imply that a
differentiated on the basis of diagnosis October for consideration in combination of conditions exists.
and age (less than or greater than 17 conjunction with the next year’s Therefore, we proposed to change the
years of age). Some surgical and medical proposed rule. This allows us time to title of DRG 14 to read ‘‘Intracranial
DRGs are further differentiated based on test the data and make a preliminary Hemorrhage or Cerebral Infarction’’.
the presence or absence of a assessment as to the feasibility of using We received one comment on this
complication or a comorbidity (CC). the data. Subsequently, a complete proposal in support of the DRG title
Generally, nonsurgical procedures database should be submitted by early change. Therefore, we are adopting as
and minor surgical procedures that are December for consideration in final the proposed change of the title of
not usually performed in an operating conjunction with the next year’s DRG 14 to ‘‘Intracranial Hemorrhage or
room are not treated as O.R. procedures. proposed rule. Cerebral Infarction’’.
However, there are a few non-O.R. Many of the changes to the DRG
procedures that do affect DRG classifications are the result of specific 3. MDC 5 (Diseases and Disorders of the
assignment for certain principal issues brought to our attention by Circulatory System)
diagnoses, for example, extracorporeal interested parties. We encourage a. Heart Assist System Implant
shock wave lithotripsy for patients with individuals with concerns about DRG
Circulatory support devices, also
a principal diagnosis of urinary stones. classifications to bring those concerns to
Patient’s diagnosis, procedure, known as heart assist systems,
our attention in a timely manner so they
discharge status, and demographic ventricular assist devices (VADs) or left
can be carefully considered for possible
information is fed into the Medicare ventricular assist devices (LVADs), offer
inclusion in the next proposed rule and
claims processing systems and subjected a surgical alternative for end-stage heart
so any proposed changes may be
to a series of automated screens called subjected to public review and failure patients. This type of device is
the Medicare Code Editor (MCE). The comment. Therefore, similar to the often implanted near a patient’s native
MCE screens are designed to identify timetable for interested parties to submit heart and assumes the pumping
cases that require further review before non-MedPAR data for consideration in function of the weakened heart’s left
classification into a DRG. the DRG recalibration process, concerns ventricle. In many cases, heart
After patient information is screened about DRG classification issues should transplantation would be the treatment
through the MCE and any further be brought to our attention no later than of choice for this type of patient.
development of the claim is conducted, early December in order to be However, the low number of donor
the cases are classified into the considered and possibly included in the hearts limits this treatment option.
appropriate DRG by the Medicare next annual proposed rule updating the We have reviewed the payment and
GROUPER software program. The IPPS. DRG assignment for this type of device
GROUPER program was developed as a In the May 18, 2004, proposed rule, many times in the past. The reader is
means of classifying each case into a we proposed numerous changes to the referred to the August 1, 2002 IPPS final
DRG on the basis of the diagnosis and DRG classification system for FY 2005. rule (67 FR 49989) for a complete listing
procedure codes and, for a limited The changes we proposed to the DRG of those discussions.
number of DRGs, demographic classification system for FY 2005, the In the August 1, 2002, final rule (67
information (that is, sex, age, and public comments we received FR 49990), we attempted to clinically
discharge status). concerning the proposed changes, the and financially align VAD procedures
After cases are screened through the final DRG changes, and the by creating new DRG 525 (Heart Assist
MCE and assigned to a DRG by the methodology used to recalibrate the System Implant). We also noted that
GROUPER, the PRICER software DRG weights are set forth below. The cases in which a heart transplant also
calculates a base DRG payment. The changes we are implementing in this occurred during the same
PRICER calculates the payments for final rule will be reflected in the revised hospitalization episode would continue
each case covered by the IPPS based on FY 2005 GROUPER version 22.0 and to be assigned to DRG 103 (Heart
the DRG relative weight and additional effective for discharges occurring on or Transplant). At that time, we announced
factors associated with each hospital, after October 1, 2003. Generally, our that DRG 525 would consist of any
such as IME and DSH adjustments. DRG analysis in the May 18, 2004, principal diagnosis in MDC 5, plus one
These additional factors increase the proposed rule was based on data from of the following surgical procedure
payment amount to hospitals above the the December 2003 update of the FY codes:
base DRG payment. 2003 MedPAR file. • 37.62, Insertion of nonimplantable
The records for all Medicare hospital Unless otherwise noted in this final heart assist system.
inpatient discharges are maintained in rule, our DRG analysis is based on data • 37.63, Repair of heart assist system.
the Medicare Provider Analysis and from the March 2004 update of the FY • 37.65, Implant of external heart
Review (MedPAR) file. The data in this 2003 MedPAR file, which contains assist system.
file are used to evaluate possible DRG hospital bills received through March • 37.66, Insertion of implantable
classification changes and to recalibrate 31, 2004, for discharges in FY 2003. heart assist system.
the DRG weights. However, in the July (To avoid confusion, we note that the
30, 1999, IPPS final rule (64 FR 41500), 2. MDC 1 (Diseases and Disorders of the titles of codes 37.62, 37.63, 37.65, and
we discussed a process for considering Nervous System): Intracranial 37.66 have been revised for FY 2005
non-MedPAR data in the recalibration Hemorrhage and Stroke With Infarction through the ICD–9–CM Coordination
process. In order for us to consider In the May 18, 2004, proposed rule, and Maintenance Committee process as
using particular non-MedPAR data, we we noted that it had come to our reflected in Table 6F, Revised Procedure
must have sufficient time to evaluate attention that the title of DRG 14 Code Titles in the Addendum to this
and test the data. The time necessary to (Intracranial Hemorrhage and Stroke final rule.)
do so depends upon the nature and With Infarction) may be misleading Commenters on the May 19, 2003,
quality of the non-MedPAR data because it implies that a combination of proposed rule that preceded the August
submitted. Generally, however, a conditions exists when the DRG is 1, 2003, IPPS (FY 2004) final rule
significant sample of the non-MedPAR assigned. When we developed this title, notified us that procedure code 37.66

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was neither a clinical nor a financial In addition, we have evaluated a used according to the FDA-approved
match to the rest of the procedure codes request for expanded coverage for VADs labeling instructions. VADs are covered
now assigned to DRG 525. We did not and LVADs as destination (or for patients who have chronic end-stage
modify DRG 525 for FY 2004. We agreed permanent) therapy for end-stage heart heart failure (New York Heart
that we would continue to evaluate failure patients who are not candidates Association Class IV end-stage left
whether to make further changes to DRG for heart transplantation. VADs and ventricular failure for at least 90 days
525. After publication of the August 1, LVADs had been approved for support with a life expectancy of less than 2
2003, final rule, we again reviewed the of blood circulation post-cardiotomy years). Implanting facilities as well as
MedPAR data concerning DRG 525, and (effective for services performed on or patients must also meet all of the
came to the conclusion that procedure after October 18, 1993) and as a bridge
additional conditions that are listed in
code 37.62 is different in terms of to heart transplant (effective for services
the national coverage determination for
clinical procedures and resource performed on or after January 22, 1996)
utilization from the other procedure to assist a damaged or weakened heart artificial hearts and related devices,
codes assigned to DRG 525. Therefore, in pumping blood. The criteria that which is posted on the above CMS
in a correction to the August 1, 2003, must be fulfilled in order for Medicare website.
IPPS (FY 2004) final rule, published on coverage to be provided for these In the May 18, 2004, proposed rule,
October 6, 2003 (68 FR 57733), we purposes have been previously we again reviewed the FY 2003
revised the composition of DRG 525 by discussed in the August 1, 2000, final MedPAR data for all cases in which a
correcting the assignment of procedures rule (65 FR 47058), and can also be VAD had been implanted, using the
to DRG 525 in light of the lower charges accessed online at: criterion of any case containing a
associated with procedure code 37.62. manuals/pm_trans/r2ncd1.pdf. procedure code of 37.66. We found a
We moved code 37.62 into DRG 104 As a result of that review, effective for total of 65 cases in 3 DRGs: DRG 103
(Cardiac Valve and Other Major services performed on or after October (Heart Transplant); DRG 483
Cardiothoracic Procedures With Cardiac 1, 2003, VADs have been approved as (Tracheostomy With Mechanical
Catheterization) and DRG 105 (Cardiac destination therapy for patients Ventilation 96+ Hours or Principal
Valve and Other Major Cardiothoracic requiring permanent mechanical cardiac
Diagnosis Except Face, Mouth, and
Procedures Without Cardiac support. Briefly, VADs used for
Neck Diagnoses); and DRG 525 (Heart
Catheterization), and left procedure destination therapy are covered only if
codes 37.63, 37.65, and 37.66 into DRG they have received approval from the Assist System Implant). The following
525. FDA for that purpose, and the device is table displays our findings:

The remaining 354 cases in DRG 103 become destination therapy, and as this that the weight is accurate. Some of
that did not report code 37.66 had new indication is more clinically these commenters noted that the weight
average charges of $282,578. The aligned with DRG 103, in the May 18, might need to be increased in either the
remaining 171 cases in DRG 525 that 2004 proposed rule, we proposed to short term or next year. One commenter
did not contain code 37.66 had an remove procedure code 37.66 from DRG who, we believe, did not have access to
average length of stay of 12.39 days and 525 and assign it to DRG 103. We also the proposed rule, suggested the same
average charges of $168,388. The 45 proposed to change the title of DRG 103 proposed changes that were included in
cases in DRG 525 with code 37.66 to ‘‘Heart Transplant or Implant of Heart the proposed rule.
accounted for 26 percent of the cases. Assist System’’. The proposed
Response: We will continue to
However, the average charges for these restructured DRG 103 included any
cases are approximately $140,340 higher principal diagnosis in MDC 5, plus one evaluate the assignment of these codes
than the average charges for cases in of the following surgical procedure annually for clinical and resource
DRG 525 that did not report code 37.66. codes: coherence. We point out that the
• 33.6, Combined heart-lung relative weights are determined based
Commenters on the FY 2004 final rule on a formula and the formula is based
suggested adding code 37.66 to DRG transplantation.
• 37.51, Heart transplantation. on historic hospital charges. To increase
103. We were concerned with the timing
• 37.66, Insertion of implantable one weight in a manner not consistent
of that comment, as it was received after
heart assist system. with the formula would skew other
publication of the proposed rule. We
noted that the commenters’ suggestions In addition to the proposed changes to weights, in addition to distorting our
on the structure of the DRGs involved DRG 103, we proposed to change the mandated budget neutrality provision.
were significant, and that change of that title of DRG 525 to ‘‘Other Heart Assist Comment: Two commenters requested
magnitude should be subject to public System Implant.’’ clarification concerning patients who
review and comment. We also noted Comment: A number of commenters receive the implantable heart assist
that we would evaluate the suggestion recommended that we continue to system as a bridge to transplant and are
further (68 FR 45370). However, as one examine the MedPAR data for code discharged and subsequently return for

of the indications for this device has 37.66 and heart transplants to confirm a heart transplant. The commenters

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wanted to know if DRG 103 would be at the two previous ICD–9–CM to provide mechanical circulatory
assigned in both cases. Coordination and Maintenance support therapies, as clinically
Response: DRG 103 would be Committee meetings (December 2003 indicated, and in a cost-efficient
assigned to the case when a VAD is and April 2004). At those meetings, we manner. The commenter further
implanted. It would also be assigned asked for comments about the code believed that payment for implantable
when the patient returns to the hospital titles, and in response to public VADs (code 37.66) at a higher level than
for a heart transplant. However, we take comment, we removed the term external VADs (code 37.65) would
this opportunity to clarify that only one ‘‘Implant’’ and substituted ‘‘Insertion’’ create financial incentives unrelated to,
DRG 103 payment will be made per in the title. As noted elsewhere in this and potentially at odds with, clinical
admission. If a patient has both the VAD preamble, the codes in Table 6 of the considerations, which would skew
and a heart transplant during the same Addendum are not subject to comment. device choice and increase Medicare
hospital admission, DRG 103 would be The codes themselves are final at the program costs. The commenter stated
paid only once. Depending on the time the proposed rule is published, that the initial use of the least expensive
circumstances, the case may qualify for which gives our industry partners the device that can provide the necessary
cost outlier status, which is designed to opportunity to put them into their therapeutic benefit leads to the best
defray some of the additional expenses printed and electronic programs without clinical outcomes and the lowest total
of the case. the concern that they may be changed system costs. The commenter
Comment: One commenter suggested later in the rulemaking process. encouraged CMS to adopt a prudent
that the term ‘‘Insertion’’ in the code Comment: One commenter urged payment policy and an adequate test of
title for 37.66 be changed to ‘‘Implant’’ CMS to retain a common DRG whether a patient’s heart will recover
to more accurately reflect the resource assignment for procedure codes 37.65 before an implantable VAD procedure is
intense nature of the VAD implant. and 37.66. The commenter believed that undertaken.
Response: We regret that we cannot assigning these two procedure codes to Response: We reviewed data on DRG
accommodate this request. The cardiac different DRGs would not ensure that 525 in the FY 2003 MedPAR file and are
device code titles have been discussed payment is adequate to allow hospitals summarizing the findings below:

We believe that the data on the length Comment: One commenter stated that practice. As a result, the data for these
of stay and average charges demonstrate the MedPAR data on charges for FY patients would be skewed to higher
considerable differences in the two VAD 2003 VAD cases used to develop and average charges and longer lengths of
devices. The implantable VAD (code defend the proposal to assign procedure stay.
37.66) had a length of stay more than codes 37.65 and 37.66 to different DRGs Response: The data associated with
three times longer than that of the are an inadequate basis for the proposal.
code 37.66 reflect the insertion of an
external VAD (code 37.65), and charges The commenter stated that the FY 2003
implantable VAD. We do not have a
that average over $100,000 per case data on code 37.66 used in support of
method of capturing the intent of the
greater than those of the external VAD. the proposal (to move these cases to
physician upon insertion of this device.
To comply with this commenter’s DRG 103) must be comprised primarily
When the chest is opened and the
suggestion and leave both codes in the of bridge-to-transplant cases, as the use
device is inserted, we have no way of
same DRG would result in overpayment of VADs for destination therapy was
of external VAD procedures and only recently approved. Therefore, the determining if this patient requires the
underpayment of the implantable VADs. commenter believes, any destination device as a bridge-to-transplant as the
We do not find either alternative therapy patients in the data must have patient awaits a donor organ, or if this
acceptable. been clinical trial patients. The VAD is to be considered destination
We will continue to closely monitor commenter asserted that these clinical therapy. Code 37.66 captures only the
DRGs 103 and 525 on an annual basis, trial patients were a sicker group of procedure performed and the device
and will review our data using the patients than would normally be found, inserted.
specific procedure codes that comprise and that they received more ancillary The following table represents FY
these two DRGs. services during the course of the trial 2002 data in DRG 525.
than would be likely in normal clinical

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When we compare the above table centers. The commenter also noted that We indicated that the proposed new
containing FY 2002 data to the previous VAD implants assigned to DRG 103 are DRG 525 would consist of any principal
table containing FY 2003 data, we find limited to those [hospitals] using diagnosis in MDC 5, plus the following
similar results in length of stay and devices that are approved by the FDA surgical procedure codes:
average charges for codes 37.63, 37.65, for use outside the inpatient hospital • 37.52, Implantation of total
and 37.66. The FY 2003 data show only setting. replacement heart system*
one case with code 37.62: it is difficult Response: Section 60—Durable • 37.53, Replacement or repair of
to draw any meaningful conclusions Medical Equipment in the Medicare thoracic unit of total replacement heart
based on one case. These data represent Coverage Manual sets forth our system*
cases before bridge-to-transplant was a requirements concerning the use of • 37.54, Replacement or repair of
covered indication for VAD. As the data VADs. The manual states: other implantable component of total
in the 2 years are so similar, we believe • The VAD must be used in replacement heart system*
that we have correctly reassigned code accordance with the FDA approved • 37.62, Insertion of nonimplantable
37.66 to DRG 103. heart assist system
labeling instructions;
• 37.63, Repair of heart assist system
Comment: One commenter stated that • The patient is approved and listed • 37.65, Implant of external heart
DRG 525, as amended on October 1, as a candidate for heart transplantation assist system
2003, to include every type of by a Medicare-approved heart transplant We received one comment in support
mechanical circulatory support device center; and of this portion of our proposal. Based on
requiring a sternotomy and multiple-day • The implanting site, if different the rationale described above, we are
support, constituted a clinically than the Medicare-approved transplant adopting the proposed changes to DRGs
coherent group of surgeries center, must receive the Medicare- 103, 104, and 105 as final without
encompassing a range of device types approved heart transplant center under modification.
and costs. The commenter stated that, as which the patient is listed prior to
the device types in that DRG grouping implantation of the VAD. b. Cardiac Resynchronization Therapy
are available in the same hospital In conjunction with the data review of and Heart Failure
mechanical circulatory support DRGs 103 and 525, we also evaluated In the May 18, 2004 proposed rule, we
programs, blended reimbursement did DRGs 104 and 105. DRGs 104 and 105 addressed a request we had received
not constitute a financial impediment to were restructured in FY 2003 by moving from a manufacturer of a Cardiac
proper clinical choice. The commenter code 37.62 into them. We examined the Resynchronization Therapy Defibrillator
stated that the FY 2003 iteration of DRG MedPAR data and found that the (CRT–D) device for a modification to
525 should be preserved, which would average charges for DRGs 104 and 105 DRG 535 (Cardiac Defibrillator Implant
allow the dynamics of the clinical were $113,667 and $82,899, With Cardiac Catheterization With
setting and the market to determine the respectively, for cases not reporting Acute Myocardial Infarction/Heart
choice among available VADs. code 37.62, while cases containing code Failure/Shock) and DRG 536 (Cardiac
Response: We are aware that 37.62 had average charges of $124,559 Defibrillator Implant With Cardiac
reimbursement dynamics may have an and $166,129, respectively. Catheterization Without Acute
influence on the practice of medicine. The removal of code 37.66 from DRG Myocardial Infarction/Heart Failure/
However, we are also aware that the 525 would have the effect of clinically Shock). The commenter pointed out that
placement of cases reporting code 37.66 realigning that DRG to be more defibrillator device implantations,
in DRG 525 may cause a financial coherent. As a result of the proposal to including the CRT–D type of
hardship for hospitals. The movement remove code 37.66 from DRG 525 and defibrillator, are assigned to DRG 535
of code 37.66 to DRG 103 is appropriate assign it to DRG 103, we also proposed when the patient also has a cardiac
from the perspective of resource to remove code 37.62 from DRGs 104 catheterization and has either an acute
utilization, and will also alleviate some and 105 and assign it back into DRG myocardial infarction, heart failure, or
of the disincentive to offer this 525. The average charges for code 37.62 shock as a principal diagnosis. If the
procedure to patients who meet the in DRGs 104 and 105 ($124,559 and
medical criteria for implantation. $166,129) more closely matched the * These codes represent noncovered services for
Medicare beneficiaries. However, it is our
Comment: One commenter noted that average charges reported for the 171 longstanding practice to assign every code in the
coverage of VAD procedures should be cases in DRG 525, absent code 37.66 ICD–9–CM classification to a DRG. Therefore, they

limited to Medicare-certified transplant ($168,388). have been assigned to DRG 525.

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patient receiving the defibrillator The commenter described a scenario was used as a principal or secondary
implant and cardiac catheterization where a patient was admitted with heart diagnosis.
does not have a principal diagnosis of failure for an evaluation of the need for A cardiac catheterization is a
acute myocardial infarction, heart a CRT–D implant. The hospitalization diagnostic procedure generally
failure, or shock, the cases are assigned studies indicated that the patient had a performed to establish the nature of the
to DRG 536. ventricular tachycardia. The commenter patient’s cardiac problem and determine
The commenter requested that cases indicated that coders would be confused if implantation of a cardiac defibrillator
be assigned to DRG 535 when the as to which code should be listed as the is appropriate. Generally, the cardiac
patient has heart failure as either a principal diagnosis. catheterization can be done on an
principal diagnosis or a secondary CMS’ determination based on review outpatient basis. Patients who are
diagnosis. The commenter stated that of this scenario as described was that admitted with acute myocardial
patients receive a CRT–D (as opposed to the heart failure led to the admission infarction, heart failure, or shock and
other types of defibrillators) when they and would be the principal diagnosis. have a cardiac catheterization are
have both heart failure and arrhythmia. This case would properly be assigned to generally acute patients who require
The commenter was concerned that DRG 535. Furthermore, when two emergency implantation of the
some coders may sequence the heart conditions are considered to be equally defibrillator. Thus, there are very high
failure as a secondary diagnosis, which responsible for the admission, either costs associated with these patients.
would result in the patient being one of the two conditions may be For the analysis in the proposed rule,
assigned to DRG 536. selected as the principal diagnosis. we examined the MedPAR file for all
As stated earlier, DRGs 535 and 536 The commenter also stated that its cases in DRGs 535 and 536 and only
are split based on the principal own study shows CRT–D patients have cases in DRG 536 in which acute
diagnosis of acute myocardial significantly higher charges than do myocardial infarction or heart failure
infarction, heart failure, or shock. Cases other patients in DRGs 535 and 536 who was listed as a secondary diagnosis. The
are not assigned to DRG 535 when heart receive an implantable defibrillator. following chart illustrates the results of
failure is a secondary diagnosis. This was the case whether heart failure our findings:

The data show that cases with a the current DRG structure of DRG 535 addition, we learned that physicians are
secondary diagnosis of acute myocardial and DRG 536 for CRT–D devices. Our not clearly and consistently
infarction or heart failure have average proposal was in response to a documenting the types of devices being
charges ($94,832.14) closer to the manufacturer that had requested that implanted. This is leading to a number
overall average charges for DRG 536 CRT–D cases be assigned to DRG 535 of questions from hospitals on how to
($89,493.85) where they are currently when the patient has heart failure as assign the correct codes for an
assigned. Overall charges for DRG 535 either a principal diagnosis or a implantable cardiac defibrillator (ICD)
were $110,663.57. We do not believe secondary diagnosis. versus the newer CRT–D. As a result of
these data support modifying DRG 535 Response: After publication of the these further discussions, the Editorial
and DRG 536 as requested. Many of the May 18, 2004 proposed rule, we Advisory Board for Coding Clinical for
CRT–D patients who are admitted for discussed the issue of coding cases ICD–9–CM is developing a series of
heart failure would be assigned into implanted with a CRT–D at the June questions and answers to clearly
DRG 535. Furthermore, modifying the 2004 meeting of the American Hospital illustrate to hospitals how the various
DRG logic for one specific type of Association’s Editorial Advisory Board devices, leads, and generators are to be
defibrillator (CRT–D) is not consistent for Coding Clinical for ICD–9–CM. correctly coded.
with our overall policy of grouping Discussions between coding We appreciate the support of the
similar types of patients together in the representatives from the American commenters for maintaining the current
same DRG. In addition, to modify the Hospital Association, the American DRG structure for DRGs 535 and 536
DRG logic for the small percentage of Health Information Management and not modifying them in this final
cases where there might be confusion Association, the National Centers for rule for one specific type of defibrillator.
concerning the selection of the principal Health Statistics, and CMS did not Comment: One commenter, a national
diagnosis does not seem prudent. identify diagnosis sequencing problems hospital organization, opposed our
Therefore, we did not propose a for patients receiving a CRT–D, as was recommendation not to alter the logic of
modification to DRG 535 or 536 for suggested by the manufacturer. A DRG 535. The commenter believed that
CRT–Ds. number of problems in coding the resynchronization is not performed
Comment: Several commenters implantation of these devices using the during an acute exacerbation of
supported our proposal not to change procedure codes were discussed. In congestive heart failure. Rather, the

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commenter indicated, the patient input regarding the typical principal replacement of pulse generator, and
returns at a later date once the diagnosis for patients being admitted to revision or relocation of pockets within
congestive heart failure becomes more evaluate the need for a CRT–D device. one code makes the DRG refinements
stabilized. The commenter added that, The commenters added that further difficult. We will discuss this topic at
at that time, the patient often manifests revisions to these DRGs may be the October 7–8, 2004 meeting of the
associated arrhythmias that require the warranted in the future. ICD–9–CM Coordination and
resynchronization. The commenter Response: We agree with the Maintenance Committee. We will give
believed that, as a result, under the commenters that coders should follow consideration to creating one or more
current proposal, this case would the ICD–9-CM Official Guidelines for new codes to more clearly identify these
possibly not group to DRG 535 if the Coding and Reporting. We also agree procedures. With these more precise
congestive heart failure were not that although we are currently codes, we should be able to modify the
sequenced as the principal diagnosis. maintaining the structure of DRGs 535 DRG logic to resolve this issue.
Response: The commenter stated that and 536, we will continue to examine Comment: Several commenters
the hospital might not list congestive data for these procedures in future years requested that we restructure DRG 515
heart failure as the principal diagnosis to ensure that assignment of cases to (Cardiac Defibrillator Implant without
in the case described. However, if this these DRGs remains appropriate. Cardiac Catheterization) by splitting it
were a planned second admission for Comment. One commenter indicated into two DRGs based on the presence of
the implantation of a CRT–D for that its hospital was assigning the acute myocardial infarction (AMI), heart
congestive heart failure, the hospital following codes for heart failure cases failure, or shock. One commenter
would assign congestive heart failure as where the existing automatic pointed out that we previously split
the principal diagnosis. The associated cardioverter/defibrillator pulse DRG 514 (Cardiac Defibrillator with
arrhythmias would be listed as a generator is replaced and the pocket in Cardiac Catheterization) into two DRGs
secondary diagnosis. This case would be which the device is implanted is based on these conditions. In FY 2004,
assigned to DRG 535. If the admission revised: we created DRGs 535 and 536 (Cardiac
were equally due to both the congestive • 37.98 Replacement of automatic Defibrillator Implant with Cardiac
heart failure and the arrhythmias, the cardioverter/defibrillator pulse Catheterization With and Without AMI/
hospital could choose either one as the generator only. Heart Failure/Shock, respectively). The
principal diagnosis. Once again, the • 37.99 Other operations of heart and commenter commended us for splitting
hospital could select congestive heart pericardium. DRG 514 into these two new DRGs and
failure as the principal diagnosis and The commenter stated that when the asked that we now split DRG 515 in a
DRG 535 would be assigned. It would hospital submits a claim with the code similar manner.
not be appropriate to change the DRG for the replacement of the generator The commenter stated that there was
logic for DRG 535 to capture congestive (code 37.98), the case is assigned to DRG significant difference in hospital charges
heart failure as either the principal 115 (Permanent Cardiac Pacemaker associated with cases in DRG 515 with
diagnosis or secondary diagnosis for Implant With Acute Myocardial and without these principal diagnoses.
CRT–D patients when appropriate Infarction, Heart Failure, or Shock or The commenter stated that it was
coding would lead to the correct DRG ACID Lead or Generator Procedures). important to ensure more appropriate
assignment. Therefore, it would not be When the hospital submits a claim with payment for all defibrillator cases and
appropriate to modify the logic for DRGs codes for both the generator better align the DRG payment logic
535 and 536 for congestive heart failure replacement (code 37.98) and the pocket across all pacemaker and defibrillator
at this time. revision (code 37.99), the case is cases based on important differences in
Comment: Commenters who assigned to DRG 111 (Major hospital resource requirements.
supported our proposal of maintaining Cardiovascular Procedures Without CC). The commenter pointed out that, in
the current DRG structure for DRGs 535 The commenter was concerned because the FY 2004 IPPS rule, we indicated that
and 536 suggested that coders should DRG 111 has a lower relative weight we did not believe the number of cases
follow the ICD–9–CM Official than DRG 115. The commenter believed within DRG 515, or the differences in
guidelines for Coding and Reporting that DRG 111 does not adequately charges for cases with and without a
(available on the following Web site: reimburse the hospital for the principal diagnosis of acute myocardial replacement of the pulse generator infarction, heart failure, or shock, were
when sequencing the principal device. sufficient to merit the creation of two
diagnosis for admissions involving The commenter requested that we separate DRGs. The commenter stated
cardiac resynchronization. The consider modifying the DRG logic when there was an increase in defibrillator
commenters indicated that, if the reason both codes are submitted, modify the implants assigned to DRG 515 in FY
for the admission is heart failure, that surgical hierarchy, or develop separate 2003 based on changes in medical
condition would be sequenced as the codes for revisions and relocations of science and practice patterns, and
principal diagnosis. The commenter defibrillator generators. speculated that a large number of cases
added that when two conditions are Response: We are addressing the issue now assigned to DRG 515 are for
equally responsible for the admission, of the surgical hierarchy surfaced by the patients with a principal diagnosis of
the ICD–9–CM Official Guidelines for commenter in section II.B.11. of this acute myocardial infarction, heart
Coding and Reporting allow either final rule. We have carefully evaluated failure, or shock. The commenter
condition to be sequenced as the the other issues raised by the believed that these patients will have
principal diagnosis. The commenters commenter, and we concur that significant differences in hospital
further stated that, in that case, the assigning procedures such as the charges and lengths of stay as compared
condition resulting in the higher- revision or relocation of defibrillator to those cases in DRG 515 without these
weighted DRG adjustment would likely pockets to a vague code such as code principal diagnoses. In addition, the
be sequenced as the principal diagnosis. 37.99 does not allow these procedures commenter mentioned that other DRGs
The commenter recommended that CMS to be clearly identified. We believe that within MDC 5 are split based on the
continue to analyze the data in DRGS grouping disparate procedures such as principal diagnosis or the presence of
535 and 536 and seek additional clinical repositioning of leads, removal without complications or comorbidities. In

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summation, the commenter requested that would be assigned to a new DRG for • 37.76, Replacement of transvenous
that we split DRG 515 into two separate Cardiac Defibrillator Implant without atrial and/or ventricular lead(s)
new DRGs based on the principal Cardiac Catheterization with a principal [electrode]
diagnoses of acute myocardial diagnosis of acute myocardial We consulted our medical advisors
infarction, heart failure, or shock. The infarction, heart failure, or shock. Given and they agreed that these
commenter believed the split is justified the limited number of cases in DRG 515 recommended procedure code
based on the large number of cases in and the relatively small differences combinations also describe pacemaker
DRG 515, the large percentage of cases between average charges and length of device and lead implantations and
that include a principal diagnosis of stay for the two DRGs suggested by the should be included under DRGs 115 and
acute myocardial infarction, heart commenter, we have decided that a 116. Therefore, we proposed to add the
failure, or shock, and the significantly modification of DRG 515 is not recommended procedure code
higher charges and length of patient warranted at this time. However, we combinations to the list of procedure
stays associated with these cases. will examine the data in the future to code combinations under DRGs 115 and
Another commenter made a similar determine if changes are warranted. 116.
request to split DRG 515 into two In summary, we are not making Comment: Several commenters,
separate new DRGs based on the changes to DRG 535 or DRG 536 for including those from organizations
principal diagnosis of acute myocardial CRT-D cases at this time. In addition, representing hospitals and coders,
infarction, heart failure, or shock. The DRG 515 will remain unchanged for FY supported our proposal to add the
commenter stated that we had split DRG 2005. However, we will continue to pacemaker device and lead procedure
514 into two DRGs (DRGs 535 and 536), study data on these DRGs to consider code combinations to DRGs 115 and 116
and this split has worked well in the whether future DRG refinements are as specified above. The commenters
facility environment to accurately warranted. agreed that these combinations indicate
capture charges and assign appropriate that a complete pacemaker unit,
DRGs to cases. c. Combination Cardiac Pacemaker including a pacemaker unit and leads, is
Response: We have performed Devices and Lead Codes implanted.
additional analysis of our FY 2003 In the May 18, 2004, proposed rule, Response: We appreciate the
MedPAR claims data for DRG 515 using we discussed a comment we had commenters’ support for our proposal.
the March 2004 update of the files. We received that recommended that we In summary, we are adopting, as final
found that 32 percent (4,191) of cases include additional combination without modification, our proposal to
reported for DRG 515 contained a procedure codes representing cardiac add the procedure code combinations of
principal diagnosis of acute myocardial pacemaker device and lead codes under pacemaker devices and lead procedure
infarction, heart failure, or shock. These DRG 115 (Permanent Cardiac Pacemaker codes included above and specified in
cases had average charges of $84,688, as Implant With Acute Myocardial the proposed rule to the list of
compared to average charges of $77,554 Infarction, Heart Failure, or Shock or procedure code combinations under
for all cases in DRG 515. Therefore, DRG ACID Lead or Generator Procedures) DRGs 115 and 116.
515 cases with a principal diagnosis of and DRG 116 (Other Permanent Cardiac d. Treatment of Venous Bypass Graft
acute myocardial infarction, heart Pacemaker Implant). DRGs 115 and 116 [Conduit] with Pharmaceutical
failure, or shock had average charges are assigned when a complete
that were $7,134 (9 percent) higher than Substance
pacemaker unit with leads is implanted.
those for all cases in DRG 515. The data Combinations of pacemaker devices and In the May 18, 2004, proposed rule,
also show that patients with a principal lead codes that would lead to the DRG we included in Table 6B of the
diagnosis of acute myocardial assignment are listed under DRGs 115 Addendum a new ICD–9–CM procedure
infarction, heart failure, or shock have and 116. The commenter recommended code 00.16 (Pressurized treatment of
average lengths of stay of 6.056 days that the following pacemaker device and venous bypass graft [conduit] with
compared to 4.73 days for all cases in lead procedure code combinations be pharmaceutical substance) that was
DRG 515. Therefore, cases in DRG 515 added to these two DRGs: approved, effective on October 1, 2004.
with a principal diagnosis of acute • 00.53 & 37.70 We received a number of comments on
myocardial infarction, heart failure, or • 00.53 & 37.71 this new code.
shock have an average length of stay • 00.53 & 37.72 Comment: A number of comments
that is only 1.326 days longer than that • 00.53 & 37.73 from physicians applauded our decision
for all cases in DRG 515. • 00.53 & 37.74 to create new procedure code 00.16. The
The data that we included in the May • 00.53 & 37.76 commenters stated that, upon approval
18, 2004, proposed rule (69 FR 28208) These codes are defined as follows: by the Food and Drug Administration
showed significantly larger differences • 00.53, Implantation or replacement (FDA) of this procedure, the code will
between DRGs 535 and 536 in average of cardiac resynchronization pacemaker, be used to recognize the E2F Decoy
lengths of stay and charges. DRG 535 pulse generator only [CRT–P] (edifoligide) procedure. This procedure
had an average length of stay of 9.5 days • 37.70, Initial insertion of pacemaker will be performed on patients
and average charges of $110,663.57. lead [electrode], not otherwise specified undergoing bypass vein graft procedures
DRG 536 had an average length of stay • 37.71, Initial insertion of if the FDA finds the procedure to be safe
of 5.47 days and average charges of transvenous lead [electrode] into and effective. The commenters stated
$89,493.85. The difference in average ventricle that they are currently performing this
charges was $21,169.72. • 37.72, Initial insertion of procedure on a number of their patients,
As a result of this analysis, we find transvenous lead [electrode] into atrium and asked that Medicare payments that
that the requested split of DRG 515 and ventricle are in addition to that for the cardiac
would not result in cases with as • 37.73, Initial insertion of bypass procedure be made to offset
significantly different lengths of stay or transvenous lead [electrode] into atrium resource utilization and costs incurred
charges as compared to the difference • 37.74, Initial insertion or by hospitals.
between DRGs 535 and 536. In addition, replacement of epicardial lead Response: We appreciate the
our current data show only 4,191 cases [electrode] into epicadium commenters’ support for the creation of

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this procedure code. We proposed to 49.75 and 49.76. We then arrayed the Specifically, these procedures were
classify this procedure as a non-O.R. results by DRG, count, average length of assigned to DRGs 157 and 158 and will
procedure in Table 6B of the Addendum stay, charges, and the presence or be reassigned to DRGs 146 and 147. The
to the proposed rule. The ‘‘N’’ under the absence of a secondary diagnosis that commenter took issue with this limited
O.R. column in Table 6B means that the could be classified as a CC. We found correction and urged CMS to create a
code will not be considered an O.R. that there were a total of 13 cases in 5 new DRG for ‘‘Complex Anal/Rectal
procedure and therefore, will not affect total DRGs with CCs, and 9 cases in 4 Procedure with Implant’’.
the DRG assignment. While the total DRGs without CCs, for a total of 22 Response: As noted above, codes
commenters suggested that extra cases that reported these procedure 49.75 and 49.76 are arrayed in four
payment be made for this procedure in codes. We had anticipated that the MDCs and six DRGs within those MDCs.
addition to that for the cardiac bypass majority of cases would have been To clarify the proposed rule, we
procedure, they did not suggest a means found in DRGs 157 (Anal and Stomal proposed to move these codes within
to do so. Furthermore, because Procedures With CC) and 158 (Anal and MDC 6, but we did not propose to
procedure code 00.16 will not begin to Stomal Procedures Without CC), but change any other DRG assignment. With
be used until October 1, 2004, we have found only 2 cases grouped to DRG 157 an appropriate principal diagnosis, and
no data for this new procedure. and 4 cases grouped to DRG 158. Our absent any other surgical procedure that
Accordingly, in this final rule, we are data showed average charges of $22,374 would reconfigure the case, these codes
retaining as final the proposed for the cases with CC, and average will continue to be assigned to the other
classification of procedure code 00.16 as charges of $20,831 for the cases without four DRGs in the other three MDCs.
a non-O.R., ICD–9-CM procedure code. CC. Average charges for DRG 157 were We point out that this reassignment of
Code 00.16 will not affect the DRG $18,196, while average charges for DRG cases in MDC 6 will double the payment
assignment. 158 were $9,348. for cases now classified to DRG 146, and
Our medical advisors also reviewed will more than double the payment for
4. MDC 6 (Diseases and Disorders of the the contents of DRGs 157 and 158. The
Digestive System): Artificial Anal cases now classified to DRG 147 based
consensus was that codes 49.75 and on the increases in the relative weights.
Sphincter 49.76 are not a clinical match to the With regard to the suggestion to create
In the FY 2003 IPPS final rule (67 FR other procedure codes found in these a specific DRG for this procedure, we
50242), we created two new codes for two DRGs. The other procedure codes in remind the commenter that the DRG
procedures involving an artificial anal DRGs 157 and 158 are for simpler and structure is a system of averages, and is
sphincter, effective for discharges less invasive procedures. In some based on groups of patients with similar
occurring on or after October 1, 2002: circumstances, these procedures could characteristics. It has not been our past
code 49.75 (Implantation or revision of potentially be performed in an practice to create a DRG based on one
artificial anal sphincter) that is used to outpatient setting or in a physician’s device from one manufacturer. We will
identify cases involving implantation or office. Our medical advisors determined continue to monitor these two
revision of an artificial anal sphincter that clinical coherence was not procedure codes and the DRGs to which
and code 49.76 (Removal of artificial demonstrated and recommended that they are assigned for the annual IPPS
anal sphincter) that is used to identify we move these codes to DRGs 146 updates. However, for FY 2005, we are
cases involving the removal of the (Rectal Resection With CC) and 147 adopting the proposal to reassign cases
device. In Table 6B of that final rule, we (Rectal Resection Without CC), as these reporting codes 49.75 and 49.76 in MDC
assigned both codes to one of four anal sphincter procedures more closely 6 to DRGs 146 and 147 as final, without
MDCs, based on principal diagnosis, resemble the procedures in these DRGs. further modification.
and one of six DRGs within those MDCs. In addition, the average charges for
In the August 1, 2003, IPPS final rule paired DRG 146 ($33,853) and DRG 147 5. MDC 8 (Diseases and Disorders of the
(68 FR 45372), we discussed the ($21,747) more closely resemble the Musculoskeletal System and Connective
assignment of these codes in response to actual average charges found in the Tissue)
a request we had received to consider MedPAR data for these cases. a. 360 Degree Spinal Fusions
reassignment of these two codes to Even though there were few reports of
different MDCs and DRGs. The requester codes 49.75 and 49.76 in the MedPAR In the May 18, 2004 proposed rule, we
believed that the average charges data and we did not anticipate a discussed a comment we had received
($44,000) for these codes warranted significant increase in utilization of that suggested procedure code 81.61
reassignment. In the August 1, 2003, these procedures, we proposed that (360 Spinal fusion) should not be
IPPS final rule, we stated that we did these two codes would only be removed included in DRG 496 (Combined
not have sufficient MedPAR data from paired DRGs 157 and 158 and Anterior/Posterior Spinal Fusion). The
available on the reporting of codes 49.75 reassigned to paired DRGs 146 and 147 commenter stated that code 81.61 does
and 49.76 to make a determination on under MDC 6 (Diseases and Disorders of not represent the same types of cases as
DRG reassignment of these codes. We the Digestive System). We also proposed other codes included in DRG 496. The
agreed that, if warranted, we would give that all other MDC and DRG commenter indicated that cases reported
further consideration to the DRG assignments for codes 49.75 and 49.76 with code 81.61 involve making only
assignments of these codes because it is would remain the same. one incision, and then fusing both the
our customary practice to review DRG Comment: Two commenters agreed anterior and posterior portion of the
assignment(s) for newly created codes to with our proposal and suggested that spine. All other cases in DRG 496
determine clinical coherence and the recommendation be adopted as a involve two separate surgical
similar resource consumption after we final change. One commenter approaches used to reach the site of the
have had the opportunity to collect recommended that CMS continue to spinal fusion. For these other patients,
MedPAR data on utilization, average monitor the cost of these cases for future an incision is made into the patient, and
length of stay charges, and distribution consideration of the creation of a new a fusion is made in part of the spine.
throughout the system. DRG. This commenter stated that CMS The patient is then turned over and a
Therefore, we reviewed the FY 2003 has limited reassignment of codes 49.75 separate incision is made so that a
MedPAR data for the presence of codes and 49.76 to only one pair of DRGs. fusion can be made in another part of

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the spine. The commenter added that commenter also stated that patients We examined data in the MedPAR file
these two separate incisions and fusions receiving the two surgical approaches for cases assigned to DRG 496 and found
are more time consuming than the have a longer recovery period and use the following:
single incision used for code 81.61. The more hospital resources.

We also examined cases in related Except Cervical Without CC) in which of our examination are summarized in
DRG 497 (Spinal Fusion Except Cervical code 81.61 was not reported. The results the following table.
With CC) and DRG 498 (Spinal Fusion

These data clearly showed that cases representing a national organization of incisions, a 360-degree (anterior and
with code 81.61 have significantly lower health information managers also posterior) fusion is clinically
average charges than other cases in DRG supported our proposal to remove code comparable to all other anterior and
496 that have two surgical approaches. 81.61 from DRG 496 and reassign it to posterior fusions because of the patient
Cases with code 81.61 are more closely DRGs 497 and 498. The commenter and the surgical characteristics.
aligned with cases in DRG 497 and DRG stated that MedPAR data indicate that Second, the commenters expressed
498. Furthermore, including code 81.61 this procedure is less expensive than concerns that a significant number of
will have the effect of lowering the other procedures classified to DRG 496. 360-degree single-incision spinal fusion
relative weights for DRG 496 in future Response: We agree with the cases were inaccurately coded. The
years. Therefore, we proposed to remove commenters that code 81.61 should be commenters pointed out that the data
code 81.61 from DRG 496 and reassign removed from DRG 496 and reassigned we used to examine the reporting of
it to DRGs 497 and 498. to DRGs 497 and 498. We also agree that code 81.61 (which was created on
Comment: Several commenters the data for code 81.61 should be October 1, 2002) represented only the
supported our proposal to remove code reviewed in the future to determine if first year of the use of the code. The
81.61 from DRG 496 and reassign it to additional DRG revisions are warranted. commenters suggested that a significant
DRGs 497 and 498. One commenter Comment: Several commenters number of 360-degree single-incision
representing a major hospital opposed our proposal to remove spinal fusion cases were incorrectly
organization stated that patients procedure code 81.61 from DRG 496 and coded as involving a two-incision
receiving two surgical approaches have to reassign it to DRGs 497 and 498. The approach. Thus, these cases should have
a longer recovery period and use more commenters believed that CMS’ been correctly assigned to DRG 496, but
hospital resources. The commenter reasoning was flawed in three areas: were mislabeled as involving a two-
believed that there is confusion clinical coherence, accurate coding, and incision approach. One commenter
regarding the use of code 81.61 that the incentive for more efficient care. stated that, as a manufacturer, it
stems from physicians who do not use First, the commenters believed that provides a coding hotline for hospitals
the term ‘‘360 degree spinal fusion’’ in CMS did not fully address the clinical with questions related to spinal cases.
the medical record, and hospital coders coherence of the cases, electing instead For the period January 2003 through
who need to review the operative report to make its proposal largely on the basis April 2004, 20 percent (113 out of 563)
to determine which surgeries, in fact, of charge coherence, alone. The of the total calls related to accurate
qualify for code 81.61. The commenter commenters further believed that the coding of this procedure.
agreed that code 81.61 should be moved combination of anterior and posterior One commenter stated that a high rate

from DRG 496 to DRGs 497 and 498. fusions in a single surgery is the most of coding errors is not surprising in the
However, the commenter recommended appropriate for defining clinical first year of use, given that code 81.61
that data for code 81.61 be reviewed in characteristic of all cases currently just became effective for FY 2003, that
the future once coding practices have included in DRG 496. The commenters 360-degree spinal fusion is a complex
improved. Another commenter stated that except for the number of topic, and that misinformation may

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have been given. The commenter develop additional educational material two incision approaches to spinal fusion
recommended that consideration of a to include in future issues of Coding does not vary significantly.
reclassification be held for at least Clinic for ICD–9–CM. Response: While the commenter’s
another year or two to ensure that a However, as we discussed in the hospital may have similar length of
sufficient volume of more accurate data proposed rule, cases reported with code stays for patients who have single
can be collected and analyzed. 81.61 had average charges that are versus two incision approaches to
Third, with regard to the issue of significantly lower than spinal fusions spinal fusion, our national data show a
DRGs serving as an incentive for more using two approaches. Approximately significant difference. As stated earlier,
efficient care, the commenters believed 30 percent (829) of the 2,706 DRG 496 the average length of stay for DRG 496
that CMS proposed the reassignment of cases reported code 81.61. The 360- was 8.0 days, while that for cases with
code 81.61 to avoid lowering the degree spinal fusion cases had average code 81.61 was 4.7 days. We believe the
relative weight for DRG 496 in the charges that were only 68 percent of data support this DRG change.
future. They stated that, by contrast, those for all cases in DRG 496. The Therefore, we are adopting as final
CMS has often maintained in the past average charge for all cases in DRG 496 our proposal to remove code 81.61 from
that the DRG weighting process allows was $74,967.33, while the average DRG 496 and reassign it to DRGs 497
changes in the resource intensity of charge for DRG 496 cases with code and 498. We will examine data for cases
specific types of cases (whether upward 81.61 was only $50,659.69. There were reporting 81.61 in future years to
or downward) to be reflected over time, also significant differences in the length determine if additional DRG
as technology evolves. The commenters of stay. The average length of stay for all modifications are needed.
indicated that the single-incision cases in DRG 496 was 8.0 days, while
b. Multiple Level Spinal Fusion
method may be less time-consuming, it was only 4.7 days for cases with code
use fewer hospital resources, and allow 81.61. On October 1, 2003 (68 FR 45596), the
patients to enjoy a shorter recovery While there may be some confusion in following new ICD–9–CM procedure
period. The commenters stated that the correct coding of 360 degree spinal codes were created to identify the
collection and analysis of additional fusions with a single incision, there are number of levels of vertebra fused
and more accurate data may well show significant differences in the charges of during a spinal fusion procedure:
this. However, the commenters those reported cases with 360 degree • 81.62, Fusion or refusion of 2–3
recommended that we leave code 81.61 spinal fusion, single incision approach. vertebrae.
in DRG 496 as a financial incentive for If we were to keep code 81.61 in DRG • 81.63, Fusion or refusion of 4–8
providers to perform the lower-resource 496, the result would be a lowering of vertebrae.
procedure. The commenters believed the weight for DRG 496 in future years. • 81.64, Fusion or refusion of 9 or
this would lead to the reduction of the We discussed this issue with our more vertebrae.
relative weight for DRG 496 as more medical advisors who agreed that the Prior to the creation of these new
providers performed the less expensive data and clinical similarities support codes, we received a comment
procedure (single-incision anterior/ our proposal to remove code 81.61 from recommending the establishment of new
posterior fusion). The commenters DRG 496 and reassign it to DRGs 497 DRGs that would differentiate between
stated that the weighting process in DRG and 498. The nature of the surgery and the number of levels of vertebrae
496 is ideally designed to accomplish the charges are similar to other cases in involved in a spinal fusion procedure.
the goal of having hospitals perform a DRGs 497 and 498. In the August 1, 2003, final rule, we
procedure that requires less resources. We believe that the commenters’ discussed the creation of these new
Response: We do not agree with the argument that leaving code 81.61 in codes and the lack of sufficient MedPAR
commenters’ suggestions that our DRG 496 would subsequently lead to a data with the new multiple level spinal
analysis did not fully address the lowering of the relative weight for DRG fusion codes (68 FR 45369). The
clinical coherence of the cases or that 496 because it would increasingly commenter had conducted an analysis
our analysis was based largely on charge consist of cases involving a single and submitted data to support
coherence alone. As we stated in the incision approach that would have redefining the spinal fusion DRGs. The
proposed rule, anterior and posterior lower charges seems to confirm CMS’ analysis found that increasing the levels
fusions of the spine using one incision suggestion that the single incision- fused from 1 to 2 levels to 3 levels or
are quite different from those fusions approaches are significantly less more levels increased the mean
involving two incisions of the spine. resource intensive as well as less standardized charges by 38 percent for
The patient endures a more extensive surgically invasive than the two- lumbar/thoracic fusions, and by 47
surgery when incisions to the spine are incision approaches. Therefore, we do percent for cervical fusions.
made using approaches from both the not believe these cases belong in DRG The following current spinal fusion
front and back of the patient. The 496 along with the more extensive DRGs separate cases based on whether
surgery and recovery time are longer surgeries. or not a CC is present: DRG 497 (Spinal
when two incisions are made into the Comment: One commenter opposed Fusion Except Cervical With CC) and
patient. While we agree that the charge moving code 81.61 from DRG 496 and DRG 498 (Spinal Fusion Except Cervical
data support our proposal, we disagree into DRGs 497 and 498. The commenter Without CC); DRG 519 (Cervical Spinal
that we ignored clinical differences in stated that the amount of time it takes Fusion With CC) and DRG 520 (Cervical
these two approaches. to perform a single incision 360-degree Spinal Fusion Without CC). However,
We acknowledge that there have been spinal fusion is similar to that of the difference in charges associated with
a number of questions concerning the performing an anterior and posterior the current CC split was only slightly
use of code 81.61. This code has been spinal fusion with two approaches. The greater than the difference attributable
discussed at the Editorial Advisory commenter stated that any extra time in to the number of levels fused as found
Board on Coding Clinic for ICD–9-CM. completing the surgery involves turning by the commenter’s analysis. In
Based on some of the records sent to the the patient over so that the separate addition, adopting the commenter’s
Board, it would appear that some approach (incision) can be made. The recommendation would have
hospitals are incorrectly applying this commenter stated that, in his hospital, necessitated adjusting the DRG relative
code. The Board is attempting to the length of stay for one incision versus weights using non-MedPAR data

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because Medicare claims data with the spinal fusion codes to propose any new future revisions to the spinal fusion
new ICD–9–CM codes would not have DRG revisions for using these codes. DRGs.
been available until the FY 2003 Response: We agree with the
commenters that it would be premature c. Insertion of Spinal Disc Prostheses
MedPAR file. Therefore, at that time, we
to propose DRG revisions to the spinal and Other Spinal Devices
did not redefine the spinal fusion DRGs
to differentiate on the basis of the fusion DRGs based on the new multiple In the May 18, 2004, proposed rule,
number of levels of vertebrae involved level spinal fusion codes. Furthermore, we included in Table 6B of the
in a spinal fusion procedure. as stated in the proposed rule, no other Addendum new codes that were created
We did not yet have any reported surgical DRG is split based on the to capture the insertion of spinal disc
cases utilizing the new multilevel spinal number of procedures performed. To so prostheses and other spinal devices
fusion codes in our data. We stated that do would have the potential of (codes 84.59 through 84.69). We
we would wait until sufficient data with dramatically increasing the number of proposed to assign these new codes to
the new multilevel spinal fusion codes DRGs. Therefore, it would be prudent to DRGs 499 and 500 (Back and Neck
were available before making a final wait for claims data prior to considering Procedures Except Spinal Fusion with
determination on whether multilevel such a departure from the current DRG and without CC, respectively) within
spinal fusions should be incorporated structure. MDC 8. Shortly after publication of the
into the spinal fusion DRG structure. Comment: One commenter who proposed rule, we discovered errors of
The codes went into effect on October supported our recommendation omission in the assignment of these
1, 2003, and we have not received any expressed concern that our decision was codes within the MDCs in Table 6B.
data using these codes. Spinal surgery is grounded in part on the expectation that These codes should have also included
an area of rapid changes. In addition, we a ‘‘more conservative’’ surgical DRG assignments within MDC 1, MDC
have created a series of new procedure approach for back pain (that is spinal 21, and MDC 24, in addition to the
codes that describe a new type of spinal disc replacement) will be available specified assignment to MCD 8. We
surgery, spinal disc replacement. (See soon. (In the proposed rule, we noted corrected these errors of omission in a
codes 84.60 through 84.69 in Table 6B that new codes for spinal disc prosthesis correction notice published on June 25,
in the Addendum to this final rule that procedures, codes 84.60 through 84.69, 2004 (69 FR 35716). The correction
will go into effect on October 1, 2004.) will go into effect on October 1, 2004). notice showed the following additional
Our medical advisors describe this new The commenter stated that FDA has not DRG assignments for these codes:
surgical procedure as a more approved some of the spinal disc MDC 1, DRGs 531 and 532 (Spinal
conservative approach for back pain prostheses. The commenter believed Procedures With and Without CC,
than the spinal fusion surgical that this new technology may not respectively).
procedure. With only limited data become a medically accepted procedure MDC 21, DRGs 442 and 443 (Other
concerning multiple level spinal fusion in the clinical community. The Procedure for Injuries With and Without
and the rapid changes in spinal surgery, commenter believed that we were CC, respectively).
we believed it was more prudent not to implying that we would defer a decision MDC 24, DRG 486 (Other Procedures
propose the establishment of new DRGs on modification of the spinal fusion for Multiple Significant Trauma).
based on the number of levels of DRGs until such time as the FDA The official ICD–9–CM code
vertebrae involved in a spinal fusion formally approves spinal disc prosthesis conversion table showed code 80.51
procedure in the May 18, 2004, procedures. The commenter (Excision of intervertebral disc) as the
proposed rule. recommended that the spinal fusion predecessor code for codes 84.60
In addition, no other surgical DRG is DRGs should not be modified at this through 84.69. There was no
split based on the number of procedures point; that CMS should wait for data predecessor code listed for code 84.59.
performed. For instance, the same DRG using the multiple level spinal fusion Code 80.51 was assigned to DRGs 499
is assigned whether one or more codes prior to proposing modifications and 500 in MDC 8. It was also assigned
angioplasties are performed on a of the spinal fusion DRGs; and that CMS to DRGs 531 and 532 in MDC 1, DRGs
patient’s arteries. The insertion of not wait to make any modifications to 442 and 443 in MDC 21, and DRG 486
multiple stents within an artery does these DRGs based upon FDA approval of in MDC 24.
not result in a different DRG spinal disc prostheses. By correcting the proposed DRG
assignment. Similarly, the excision of Response: We agree with the assignment information for codes 84.59
neoplasms from multiple sites does not commenter that we should wait to and 84.60 through 84.69, we clearly
lead to a different DRG assignment. To evaluate claims data with the new indicated our proposal of assigning
begin splitting DRGs based on the multilevel spinal fusion codes before these codes 84.59 and 84.60 through
number of procedures performed or using these codes to revise the DRG 84.69 to DRGs 531 and 532 in MDC 1;
devices inserted could set a new and structure. While we mentioned that new DRGs 499 and 500 in MDC 8; DRGs 442
significant precedent for DRG policy. codes were created for FY 2005 for other and 443 within MDC 21; and DRG 486
Therefore, in the May 18, 2004, types of spinal procedures, such as in MDC 24.
proposed rule, we indicated that while spinal disc prostheses, we did not mean Comment: Several commenters that
we would continue to study this area, to imply that we would defer analysis are developing spinal disc prosthesis
we did not propose to redefine the on multilevel spinal fusion until such devices described these spinal disc
spinal fusion DRGs based on the time as the FDA reviews and approves prostheses devices as minimally
number of levels of vertebrae fused. other specific types of procedures and invasive alternatives to spinal fusion.
Comment: Several commenters devices. We acknowledge that different The commenters indicated that there is
supported our proposal not to modify types of procedures should be controversy among spine surgeons as to
the spinal fusion DRGs to differentiate considered independently. the cause, or causes, of back pain.
between the number of levels of In this final rule, we are maintaining However, they stated that many
vertebrae involved in a spinal fusion the current DRG structure for the spinal surgeons believe degeneration of the
procedure. The commenters agreed that fusion DRGs. We will wait for claims nucleus and annular destruction is a
we should wait until we received data on the new codes to become major source of pain. The commenters
sufficient data with the new multilevel available before we consider proposing stated that if patients fail conservative

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treatment, spinal fusion is currently the and total spinal disc prosthesis procedure codes for kyphoplasty and
primary treatment option. The procedures are clinically similar to vertebroplasty. However, some of the
commenters further stated that fusing patients assigned to the spinal fusion commenters opposed the assignment of
one or more levels in the spine results DRGs. To mix these two distinctly code 81.66 to DRGs 233 and 234 in MDC
in increased stress and strain and the different approaches to the treatment of 8. The commenters stated that
potential breakdown at adjacent disc back pain would violate the principal of kyphoplasty is a significantly more
levels. In addition, the commenters clinical cohesiveness of DRGs. DRGs resource intensive procedure than
stated that partial and total spinal disc 497, 498, 519, and 520 include only vertebroplasty and requires special
replacement prosthesis devices were procedures that involve fusion of the inflatable bone tamps and bone cement.
designed to replace the degenerated spine. DRGs 499 and 500 include a The commenters further stated that
nucleus or disc and restore the normal number of other procedures performed while kyphoplasty involves internal
disc function and anatomy. They on the spine and explicitly exclude fixation of the spinal fracture and
believed these devices have the spinal fusion procedures. Currently, restoration of vertebral height,
potential of decreasing stress, which is spinal disc prosthesis procedures are vertebroplasty involves only fixation.
redistributed to adjacent levels of the assigned to code 80.51 (Excision of The commenters indicated that
spine when spinal fusions are intervertebral disc). The new, more kyphoplasty procedures are more akin
performed. The commenters indicated specific codes (84.60 through 84.69) will to spinal fusion and should be assigned
that fusion surgery patients have poor go into effect on October 1, 2004. As to DRGs 497 and 498 (Spinal Fusion
return to work results, that recovery stated earlier, code 80.51 is assigned to Except Cervical With and without CC,
periods are extended, and that the DRGs 499 and 500 within MDC 8. Our respectively) in MDC 8. The
spinal disc prosthesis devices reduce proposal of assigning the new spinal commenters did not object to the DRG
this recovery period. disc prosthesis codes to DRGs 499 and assignments for MDC 21 or MDC 24 for
The commenters objected to the 500 would maintain current practice kyphoplasty, or to the proposed DRG
proposed assignment of the new spinal based on the assignment of the assignments for 81.65.
disc prosthesis codes (84.60 through predecessor code 80.51. Our medical Response: Commenters supported the
84.69) to DRGs 499 and 500 in MDC 8. advisors also stated that it would be creation of the new procedure codes for
The commenters stated that since total inappropriate to move the partial and kyphoplasty and vertebroplasty. The
and partial spinal disc prostheses will total spinal disc procedures to the commenters indicated that kyphoplasty
be used for patients who would very spinal fusion DRGs because the is more resource intensive than
likely be candidates for spinal fusion, implantation of these disc devices do vertebroplasty and is more similar to
the procedures should be assigned to not involve fusion of the spine. We do resources used in a spinal fusion.
DRGs 497 and 498 for those in the not yet have any charge data on these However, we do not have data to
lumbar spine and to DRGs 519 and 520 new types of spinal procedures because support this claim because the new
for those implanted in the cervical the codes are being implemented on codes will not be implemented until
spine. One commenter compared the October 1, 2004. Thus, it would also be October 1, 2004. We believe that it
implantation of a total spinal disc premature to assign these new would be premature to consider DRG
prosthesis device in the lumbar spine to procedures to the fusion DRGs. refinements using these new ICD–9–CM
that of fusion of the lumbar spine with In this final rule, we are assigning the procedure codes at this time.
the use of a BAK cage. The commenter total and partial spinal disc procedures Therefore, we are adopting, as final,
stated that both use an anterior and other spinal devices (codes 84.59 our proposed assignment of new codes
approach to the surgery, and both and codes 84.60 through 84.69) to DRGs 81.65 and 81.66 to DRGs 223 and 234
involve implanting devices in the 499 and 500 within MDC 8 as proposed. in MDC 8, DRGs 442 and 443 in MDC
anterior part of the spine. One We will continue to monitor data on 21, and DRG 486 in MDC 24, as
procedure involves implanting the these procedures as their use increases indicated in Table 6B of the Addendum
spinal disc prosthesis; the other to determine if future DRG to this final rule. We will take the
involves implanting a BAK cage while modifications are needed. commenters’ recommendation into
fusing the spine. consideration when we conduct our
The commenters stated that the costs d. Kyphoplasty annual reviews of MedPAR data.
of treating these types of patients with In the May 18, 2004, proposed rule, in
spinal disc prosthesis devices are also Table 6B of the Addendum, we 6. MDC 15 (Newborns and Other
similar to the costs for those patients in included new ICD–9–CM codes that go Neonates With Conditions Originating
the spinal fusion DRGs. One commenter into effect October 1, 2004. Among these in the Perinatal Period)
stated that the operating room time new codes are codes 81.65 In the May 18, 2004, proposed rule,
would be similar, with the total lumbar (Vertebroplasty) and 81.66 we indicated that we continue to receive
disc prosthesis devices taking about 111 (Kyphoplasty). We added these new comments that MDC 15 (Newborn and
minutes and the lumbar fusion with a codes to better differentiate between the Other Neonates With Conditions
BAK cage taking 114 minutes. The surgical procedures of vertebroplasty Originating in the Perinatal Period) does
commenter presented information to and kyphoplasty. Both procedures are not adequately capture care provided for
show a patient stay of 3.7 days for the currently assigned to code 78.49 (Other newborns and neonates by hospitals.
total lumbar disc prosthesis procedures repair or plastic operation on bone) and The commenters pointed out that we
versus 4.3 days for the lumbar fusion are assigned to the DRGs 223 and 234 have not updated the DRGs within MDC
with BAK cages. One commenter stated in MDC 8, DRGs 442 and 443 in MDC 15 as we have for other parts of the DRG
that the cost of the total disc prosthesis 21, and DRG 486 in MDC 24. system.
is approximately $10,585, compared to In the May 18, 2004, proposed rule, Our primary focus of updates to the
$4,800 for a BAK cage used in a lumbar we proposed to assign both new codes Medicare DRG classification system is
fusion. 81.65 and 81.66 to the same DRGs to on changes relating to the Medicare
Response: Based on advice from our which code 78.49 is assigned. patient population, not the pediatric or
medical advisors, we disagree with the Comment: Several commenters neonatal patient populations. However,
suggestion that patients having partial supported the creation of the new we acknowledge the Medicare DRGs are

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Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations 48939

sometimes used to classify other patient of CMS assuming a larger role in this also be added to DRGs 387 and 389 as
populations. Over the years, we have area, given the difference between the major problems. Therefore, in the May
received comments about aspects of the Medicare population and that of 18, 2004, proposed rule, we proposed to
Medicare newborn DRGs that appear newborns and children. The commenter add the heart failure codes listed above
problematic, and we have responded to stated that there are evolving alternative to DRGs 387 and 389 as major problems.
these on an individual basis. In the May DRG classification systems for children. Comment: Several commenters
9, 2002, IPPS proposed rule (67 FR The commenter agreed that a broad- supported the addition of the
31413), we proposed extensive changes based fundamental restructuring of the combination codes, including heart
to multiple DRGs within MDC 15. neonatal DRGs would be a huge and failure, to the list of major problems
Because of our limited data and complex undertaking and indicated that under DRGs 387 and 389 because there
experience with newborn cases under there are other DRG classification are a number of other heart failure codes
Medicare, we contacted the National systems that are attempting at varying already listed as major problems under
Association of Children’s Hospitals and levels of sophistication to do this DRGs 387 and 389.
Related Institutions (NACHRI) to obtain restructuring for the neonatal and Response: We appreciate the support
proposals for possible revisions of the pediatric patient populations. The of the commenters for our proposal.
DRG categories within MDC 15. We commenter supported our approach of In this final rule, we are adopting, as
received extensive comments opposing responding to specific requests for final without modification, the
these revisions. Therefore, we did not updating MDC 15 on a case-by-case proposed revisions to add the specified
implement the proposals. basis. combination codes to the list of major
We advise those non-Medicare Response: We appreciate the problems under DRGs 387 and 389.
systems that need a more up-to-date commenters’ support for our decision to
system to choose from other systems 7. MDC 20 (Alcohol/Drug Use and
perform only limited updates to MDC 15 Alcohol/Drug Induced Organic Mental
that are currently in use in this country, based on specific requests for
or to develop their own modifications. Disorders): Drug-Induced Dementia
modification. We will continue to
As previously stated, we do not have the address specific requests for In the May 18, 2004, proposed rule,
data or the expertise to develop more modification of the newborn DRGs on we discussed a request that we had
extensive newborn and pediatric DRGs. an individual basis. received from a commenter that we
Our mission in maintaining the In the IPPS final rule for FY 2004 (68 remove the principal diagnosis code
Medicare DRGs is to serve the Medicare FR 45360), we added heart failure 292.82 (Drug-induced dementia) from
population. Therefore, we will make diagnosis codes 428.20 through 428.43 MDC 20 (Alcohol/Drug Use and
only minor corrections of obvious errors to the list of secondary diagnosis of Alcohol/Drug Induced Organic Mental
to the DRGs within MDC 15. In the May major problem under DRG 387 Disorders) and the following DRGs
18, 2004, IPPS proposed rule, we (Prematurity With Major Problems) and under MDC 20:
indicated that we did not plan to DRG 389 (Full-Term Neonate With • DRG 521 (Alcohol/Drug Abuse or
conduct a more extensive analysis Major Problems). We received a Dependence With CC).
involving major revisions to these DRGs. comment after the August 1, 2003 final • DRG 522 (Alcohol/Drug Abuse or
Comment: Commenters, including rule stating that we should add the Dependence With Rehabilitation
several national hospital associations, following list of combination codes, Therapy Without CC).
supported our proposal not to undertake • DRG 523 (Alcohol/Drug Abuse or
which also include heart failure, to the
a major revision to MDC 15 at this time, Dependence Without Rehabilitation
list of major problems under DRGs 387
but instead to address specific errors Therapy Without CC).
and 389:
brought to our attention by providers The commenter indicated that a
• 398.91, Rheumatic heart failure
and other commenters. One commenter, patient who has a drug-induced
a national organization representing • 402.01, Malignant hypertensive dementia should not be classified to an
health information managers and heart disease, with heart failure. alcohol/drug DRG. However, the
coders, agreed with our approach to • 402.11, Benign hypertensive heart commenter did not propose a new DRG
updating MDC 15 without undertaking disease, with heart failure. assignment for code 292.82.
a major revision. The commenter stated • 402.91, Unspecified hypertensive Our medical advisors evaluated the
it believed a comprehensive revision of heart disease, with heart failure. request and determined that the most
MDC 15 should not be undertaken • 404.01, Malignant hypertensive appropriate DRG classification for a
without broad input from all types of heart and renal disease, with heart patient with drug-induced dementia
hospitals that provide care for neonates failure. would be within MDC 20. The medical
to ensure the appropriateness of these • 404.03, Malignant hypertensive advisors indicated that because this
DRG revisions across all institutions heart and renal disease, with heart mental condition is drug induced, it is
treating newborns. The commenter failure and renal failure. appropriately classified to DRGs 521
indicated that, given CMS’ limited data • 404.11, Benign hypertensive heart through 523 in MDC 20. Therefore, we
and experience with newborn cases, it and renal disease, with heart failure. did not propose a new DRG
supported CMS’ decision not to conduct • 404.13, Benign hypertensive heart classification for the principal diagnosis
a major overhaul of the newborn DRGs. and renal disease, with heart failure and code 292.82.
However, the commenter agreed that renal failure. Comment: Several commenters
CMS should address specific, individual • 404.91, Unspecified hypertensive supported our proposal not to modify
requests for modifications to the heart and renal disease, with heart DRGs 521 through 523 by removing
newborn DRGs on a case-by-case basis. failure. code 292.82. One commenter
One commenter who supported our • 404.93, Unspecified hypertensive representing hospital coders disagreed
proposal indicated that there are heart and renal disease, with heart with our proposal to retain code 292.82
challenges to developing DRG failure and renal failure. in DRGs 521 through 523. The
classifications systems and applications • 428.9, Heart failure, unspecified. commenter stated that DRGs 521
appropriate to children. The commenter We agree that the codes listed above through 523 are described as alcohol/
acknowledged the practical difficulties also include heart failure and should drug abuse and dependence DRGs. The

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commenter further indicated that drug- DRG structures suggested by the to FY 2003. The modification was the
induced dementia could be caused by commenters, if warranted. We will also first attempt to refine DRGs 482 and 483
an adverse effect of a prescribed further examine the use of secondary so that patients who receive long-term
medication or a poisoning. The diagnoses as a means of better mechanical ventilation for more than 96
commenter did not believe that classifying patients with drug-induced hours are differentiated from those who
assignment of drug-induced dementia to dementia and consider alternative DRG receive mechanical ventilation for less
DRGs 521 through 523 was appropriate assignments such as those mentioned by than 96 hours. The modification was
if the drug-induced dementia is related the commenters. We also encourage intended to ensure that patients who
to an adverse effect or poisoning due to hospitals to examine the coding for have a tracheostomy and continuous
a prescribed drug. The commenter these types of cases to determine if there mechanical ventilation greater than 96
recommended that admissions for drug- are any coding or sequencing errors. hours (code 96.72) would be assigned to
induced dementia be classified to DRGs We are adopting as final our proposal DRG 483. By making the GROUPER
521 through 523 only if there is a to maintain the current structure of recognize long-term mechanical
secondary diagnosis indicating alcohol/ DRGs 521 through 523. However, we ventilation and assigning those patients
drug abuse or dependence. will continue to examine the issue to to the higher weighted DRG 483, we
The commenter further recommended determine whether any changes to the encouraged hospitals to be more aware
that drug-induced dementia that is due structure of these DRGs are warranted. of the importance of reporting code
to the adverse effect of drugs be 96.72 and to increase reporting of code
8. MDC 22 (Burns): Burn Patients on
classified to the same DRGs as other 96.72 when, in fact, patients had been
Mechanical Ventilation
types of dementia, such as DRG 429 on the mechanical ventilator for greater
(Organic Disturbances and Mental In the May 18, 2004, proposed rule than 96 hours. We stated in the August
Retardation). The commenter stated that (69 FR 28211), we discussed concerns 1, 2002 final rule that, once we received
when drug-induced dementia is caused that had been raised by hospitals more accurate data, we would give
by a poisoning, either accidental or treating burn patients that the current consideration to further modifying
intentional, the appropriate poisoning DRG payment for burn patients on DRGs 482 and 483 based on the
code would be sequenced as the mechanical ventilation is not adequate. presence of code 96.72.
principal diagnosis and, therefore, these The DRG assignment for these cases
As we indicated in the May 18, 2004,
cases would likely already be assigned depends on whether the hospital
proposed rule, to assess the DRG
to DRGs 449 and 450 (Poisoning and performed the tracheostomy or the
payments for burn patients on
Toxic Effects of Drugs, Age Greater Than tracheostomy was performed prior to
mechanical ventilation, we analyzed FY
17, With and Without CC, respectively) transfer to the hospital. If the hospital
2003 MedPAR data for burn cases in the
and DRG 451 (Poisoning and Toxic does not actually perform the
following DRGs to determine the
Effects of Drugs, Age 0–17). The tracheostomy, the case is assigned to
frequency for which these burn cases
commenter suggested that these DRG one of the burn DRGs in MDC 22
were treated with continuous
assignments would be the appropriate (Burns). If the hospital performs a
mechanical ventilation for 96 or more
DRG assignments for drug-induced tracheostomy, the case is assigned to
consecutive hours (code 96.72):
dementia due to a poisoning. Pre-MDC DRG 482 (Tracheostomy for
Response: We have considered the Face, Mouth, and Neck Diagnoses) or • DRG 483 (Tracheostomy With
issues raised by the commenters relating DRG 483 (Tracheostomy With Mechanical Ventilation 96+ Hours or
to the DRG assignment for code 292.82 Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth,
and the suggested alternatives for DRG Principal Diagnosis Except Face, Mouth and Neck Diagnoses).
assignment based on sequencing of the and Neck Diagnoses). • DRG 504 (Extensive 3rd Degree
principal diagnosis and reporting of In the August 1, 2002, final rule, we Burns With Skin Graft).
additional secondary diagnoses. We modified DRGs 482 and 483 to • DRG 505 (Extensive 3rd Degree
acknowledge that patients do develop recognize code 96.72 (Continuous Burns Without Skin Graft).
drug-induced dementia from drugs that mechanical ventilation for 96+ hours) • DRG 506 (Full Thickness Burn With
are prescribed as well as from drugs that for the first time in the DRG assignment Skin Graft or Inhalation Injury With CC
are not prescribed. However, we still (67 FR 49996). The modification was or Significant Trauma)
believe that dementia developed as a partially in response to concerns that • DRG 507 (Full Thickness Burn With
result of use of a drug is appropriately hospitals could omit diagnosis codes Skin Graft or Inhalation Injury Without
assigned to DRGs 521 through 523, as indicating face, mouth, or neck CC or Significant Trauma)
mentioned by the commenters who diagnoses in order to have cases • DRG 508 (Full Thickness Burn
supported the current assignment. We assigned to DRG 483 rather than the Without Skin Graft or Inhalation Injury
also agree that if the drug-induced much lower paying DRG 482 (the With CC or Significant Trauma)
dementia is caused by a poisoning, payment for DRG 483 is more than four
• DRG 509 (Full Thickness Burn
either accidental or intentional, the times greater than the DRG 482 payment
Without Skin Graft or Inhalation Injury
appropriate poisoning code should be weight). In addition, we noted that
Without CC or Significant Trauma)
sequenced as the principal diagnosis. As many patients assigned to DRG 483 did
the commenter stated, these cases not have code 96.72 recorded. We • DRG 510 (Nonextensive Burns With
would be assigned to DRGs 449 through believed this was due, in part, to the CC or Significant Trauma)
451. limited number of procedure codes (six) • DRG 511 (Nonextensive Burns
We will continue to evaluate the DRG that can be submitted on the current Without CC or Significant Trauma)
assignment for this code during the next billing form and the fact that code 96.72 The following chart summarizes those
year and further consider the alternative did not affect the DRG assignment prior findings:

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We found 120 cases that reported information. It would appear that The impact of long-term mechanical
code 96.72 within the 3,394 burn DRG hospitals did not always correctly select ventilation is quite clear on burn cases
cases (DRGs 504 through 511). Cases the principal diagnosis (the reason after as was shown by the data above.
reporting code 96.72 have significantly study that led to the hospital Therefore, in the May 18, 2004,
longer average lengths of stay and admission). For instance, one admission proposed rule, we proposed to modify
average charges. The majority (54) of was for a second-degree burn of the ear. the burn DRGs 504 through 509 under
these cases that reported code 96.72 This patient was on a ventilator for over MDC 22 to recognize this impact. We
were in DRG 506. The cases with code 96 hours. It would appear that the also proposed to modify DRG 504 and
96.72 reported had average charges reason for the admission was a DRG 505 so that code 96.72 will be
approximately 1.5 times higher than diagnosis other than the burn of the ear. assigned to these DRGs when there is a
other cases in DRG 506 without code Other cases where the patient received principal or secondary diagnosis of
96.72. long-term mechanical ventilation extensive third degree burns or full
We noted that there were 21 cases that included those with a principal thickness burns (those cases currently
reported code 96.72 within DRG 510. diagnosis of first degree burn of the face, assigned to DRGs 504 through 509). In
Since the 21 patients were on second degree burn of the nose, second other words, when cases currently in
continuous mechanical ventilation for degree burn of the lip, and an DRGs 506 through 509 also have code
96 consecutive hours or more, it seems unspecified burn of the foot. These four 96.72 reported, they would now be
surprising that the principal diagnosis cases reported average charges ranging assigned to DRGs 504 or 505. We also
was listed as one of the nonextensive from $48,551 to $186,824 and had proposed to modify the titles of DRGs
burn codes included in DRG 510. A lengths of stay ranging from 8 to 36 504 and 505 to reflect the proposed
closer review of these cases shows some days. changes in reporting code 96.72 as
questionable coding and reporting of follows:

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• Proposed DRG 504, (Extensive Burns extensive third degree burns with an errors. The commenter recommended
or Full Thickness Burns With inhalation injury and 96+ hours of that hospitals identify cases in which
Mechanical Ventilation 96+ Hours With mechanical ventilation or perhaps poor medical record documentation
Skin Graft) creating a new DRG specifically for resulted in miscoding of the reason for
• Proposed DRG 505, (Extensive Burns these patients. the inpatient admission or mechanical
or Full Thickness Burns With Response: We appreciate the ventilation for burn patients. The
Mechanical Ventilation 96+ Hours commenters’ support of our proposal. commenter further recommended that
Without Skin Graft) As we indicated in the May 18, 2004, hospitals use these cases as the basis for
Cases currently assigned to DRGs 504 proposed rule and in our discussion of physician education to improve
and 505 that do not entail 96+ hours of the reporting of code 96.72 in the documentation practices.
mechanical ventilation will continue to August 1, 2002, IPPS final rule (67 FR Response: We appreciate the
be assigned to DRGs 504 and 505 49996), we did not have data on cases commenter’s support of the proposed
because they would have extensive of reported burns among patients who DRG changes for burn patients on
burns, as required by the DRG logic. receive mechanical ventilation until the mechanical ventilation. As we indicated
We did not propose to include DRG FY 2003 MedPAR data became in the proposed rule, we agree with the
510 and DRG 511 within this revised available. In the FY 2003 IPPS final rule, commenters’ suggestion that hospitals
DRG logic. Cases currently assigned to we had asked hospitals to examine their should review their medical records for
DRG 510 or DRG 511 that also report coding and reporting practices and to cases assigned to DRG 510 or 511 that
code 96.72 would not be reassigned to begin reporting code 96.72 when burn had a code for mechanical ventilation to
DRGs 504 and 505. We recommended patients were on long-term mechanical determine if there are coding errors. We
that hospitals examine cases that are ventilation. Hospitals have now agree that it is important for hospitals to
assigned to DRG 510 or DRG 511 and increased their reporting of code 96.72 have good medical record
that have code 96.72 to determine if among burn cases when patients were documentation in order to code
there are possible coding problems or on long-term mechanical ventilation. accurately.
other issues. As stated earlier, in With these improved data, in the After analysis of the public comments
examining reported cases within DRG proposed rule, we were able to identify received, we are adopting, as final, our
510, we noted several cases with code the impact that mechanical ventilation proposed changes to the burn DRGs. In
96.72 that appear to have an incorrect had on the treatment of burn patients. summary, we are modifying DRGs 504
principal diagnosis. It would appear In the proposed rule, we discussed and 505 so that cases in which there is
that the principal diagnosis may more our concern that hospitals may have a a principal diagnosis of extensive third
appropriately be related to an inhalation sequencing problem for some reported degree burns or full thickness burns
injury, if the injury was present at the cases of minor burns in which the with code 96.72 reported are assigned to
time of admission. patient was on long-term mechanical these two DRGs, rather than to DRGs
We solicited comments on our ventilation. We suggested that some of 506 through 509. We are also changing
proposal to move cases reporting code these patients may have been admitted the title of DRG 504 to ‘‘Extensive Burns
96.72 from DRGs 506 through 509 and to the hospital for an inhalation injury or Full Thickness Burns With
assign them to DRGs 504 and 505. We as opposed to a minor burn. The Mechanical Ventilation 96+ Hours With
also solicited comments on our proposal American Hospital Association (AHA) Skin Graft’’ and the title of DRG 505 to
not to include DRGs 510 and 511 in this has reviewed our data and shares our ‘‘Extensive Burns or Full Thickness
proposed revision. concern. The AHA has informed us that Burns With Mechanical Ventilation 96+
Comment: Several commenters it is drafting instructional material that Hours Without Skin Graft’’. We will
supported our recommended changes will appear in Coding Clinic for ICD–9– continue to follow these DRGs to
for the burn DRGs 504 through 509 CM to assist hospitals in sequencing the determine if additional changes are
under MDC 22. The commenters agreed principal diagnosis for burn cases in needed.
that utilizing long-term mechanical which the patients have an inhalation
ventilation of 96 or more hours (code 9. Pre-MDC: Tracheostomy
injury and a minor skin burn.
96.72) would assist in identifying the We will continue to analyze cases In the August 1, 2002, IPPS final rule
more expensive burn patients. One assigned to the burn DRGs to determine (67 FR 49996), for FY 2003, we modified
commenter stated that the proposed if additional DRG refinements, such as DRG 482 (Tracheostomy for Face,
DRG changes would be greatly the alternative suggestions mentioned Mouth, and Neck Diagnoses) and DRG
beneficial to burn center hospitals and by the commenters, are necessary. 483 (Tracheostomy With Mechanical
to patients who have suffered burn Comment: Another commenter Ventilation 96+ Hours or Principal
injuries. The commenters supported the representing hospital coders expressed Diagnosis Except Face, Mouth, and
proposal to move cases reporting code its support of the proposed restructuring Neck Diagnoses) to recognize procedure
96.72 that are currently assigned to of the burn DRGs to account for the use code 96.72 (Continuous mechanical
DRGs 506 through 509 into DRGs 504 of mechanical ventilation. The ventilation 96+ hours) in the DRG 483
and 505. The commenter also agreed commenter shared our concern about assignment. As discussed above and in
with our proposal that cases assigned to possible errors in the sequencing of the proposed rule, we were concerned
DRGs 510 and 511 that also report code diagnoses on claims resulting in a about an underreporting of code 96.72
96.72 should not be reassigned to DRGs nonextensive burn being reported as the and wanted to encourage increased
504 and 505, because the data cited principal diagnosis instead of the more reporting of this code.
appeared to indicate incorrect principal serious inhalation or respiratory In the May 18, 2004, proposed rule,
diagnoses were reported in these cases. condition that was the actual reason for we indicated that we had examined
The commenters also recommended that the inpatient admission. The commenter cases in the MedPAR file in which code
consideration be given to further asked that we encourage hospitals to 96.72 was reported within DRGs 482
refinements of DRGs 504 and 505. The review admissions assigned to DRG 510 and 483. The following chart illustrates
commenters recommended that in the or 511 that have a code for mechanical the average charges and lengths of stays
future CMS consider further DRG splits ventilation (codes 96.70 through 96.72) for cases within DRGs 482 and 483 with
for cases in DRGs 504 and 505 that have assigned in order to identify any coding and without code 96.72 reported:

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Of the 3,557 cases reported in DRG We did not receive any comments on number of procedure codes that can be
482, only 22 cases reported code 96.72. our proposal not to modify DRG 482 reported to six codes. We then looked at
These 22 cases did not have a and, therefore, are not making any whether or not another major O.R.
tracheostomy performed. All 22 cases changes to the DRG in this final rule. procedure was performed in addition to
reported code 30.4 (Laryngectomy), In the proposed rule we stated that in a tracheostomy. The DRG 483 logic
which also leads to an assignment of DRG 483, 19,669 cases were reported requires that all patients assigned to
DRG 482. It would appear that the long- with code 96.72. However, we noted DRG 483 have a tracheostomy. We
term mechanical ventilation was that the data were counter-intuitive. examined cases in DRG 483 in the
performed through an endotracheal tube While one would expect to find higher MedPAR file and discovered that those
instead of through a tracheostomy. average charges for cases reported with patients in DRG 483 who had a major
While the average charges for DRG 482 code 96.72, the opposite is the case. procedure performed in addition to the
cases with code 96.72 reported were Cases in DRG 483 reported with code tracheostomy had higher charges. A
significantly higher than the average 96.72 had average charges that were major procedure is a procedure whose
charges for other cases in the DRG, we $40,623 lower than those not reported code is included on the list that would
did not believe that the very limited with code 96.72. Clearly, the presence be assigned to DRG 468 (Extensive O.R.
number of cases (22) warranted a or absence of code 96.72 does not Procedure Unrelated to Principal
proposed DRG modification. Therefore, explain differences in charges for Diagnosis), except for tracheostomy
we did not propose any modification for patients within DRG 483. codes 31.21 and 31.29. Currently, this
DRG 482. In the May 18, 2004, IPPS As stated earlier, we are concerned additional O.R. procedure does not
proposed rule, we indicated that we will that hospitals may not always report affect the DRG assignment for cases
continue to monitor cases assigned to code 96.72 because of space limitations. assigned to DRG 483. The following
this DRG. The electronic billing system limits the chart reflects our findings.

We found that cases of patients addition to the tracheostomy). We basis of the performance of a major O.R.
assigned to DRG 483 who had a major proposed to delete DRG 483 and create procedure (in addition to the
procedure (in addition to the required two new DRGs as follows: tracheostomy).
tracheostomy) had average charges that • Proposed new DRG 541 Comment: Some commenters
were $87,023 higher than the average (Tracheostomy With Mechanical supported our proposed changes to DRG
charges for cases without a major O.R. Ventilation 96+ Hours or Principal 483. One commenter stated that, based
procedure and had an average length of Diagnosis Except Face, Mouth, and on the data presented by CMS, the
stay of 5 days more than those without Neck Diagnoses With Major O.R. proposal appears to be a reasonable
a major O.R. procedure. We found that Procedure) approach to distinguish the more
the performance of an additional major • Proposed new DRG 542 expensive cases in DRG 483. The
O.R. procedure helps to identify the (Tracheostomy With Mechanical commenter also stated that hospitals are
more expensive patients within DRG Ventilation 96+ Hours or Principal not always reporting code 96.72 due to
483. Diagnosis Except Face, Mouth and Neck space limitations (that is, the electronic
Therefore, as a result of our findings, Diagnoses Without Major O.R. billing system limits the number of

in the May 18, 2004, proposed rule, we Procedure) procedures that can be reported to six
proposed to modify DRG 483 by We solicited comments on our procedure codes). The commenter stated
dividing these cases into two new DRGs proposal to delete DRG 483 and replace that patients in this patient population
depending on whether or not there is a it with two proposed new DRGs by (undergoing procedures with procedure
major O.R. procedure reported (in splitting the assignment of cases on the code 96.72) may have several significant

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48944 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

O.R. procedures that may be sequenced commenter stated that the proposed that DRGs have remained a clinical
before code 96.72, resulting in code DRG revisions will better reflect the description of why the patient required
96.72 not appearing on the claim. costs of furnishing care to these two hospitalization.’’ Thus, the central
Response: We appreciate the categories of patients. classification criteria for DRG
commenters’ support of our proposed Response: We agree with the assignment has been the reason the
DRG revision as a reasonable approach commenters that subdividing the cases patient was admitted (that is, the
to distinguish the more expensive cases assigned to DRG 483 based on the principal diagnosis for medical patients
from the less expensive cases in DRG presence of an additional major O.R. and the procedures performed for
483. We continue to encourage hospitals procedure helps to identify the more surgical patients). For a medical patient
to report code 96.72 for patients on expensive patients. We also agree that admitted for respiratory disease, the use
mechanical ventilation for 96+ hours. the proposed new DRGs should lead to of mechanical ventilation was used as a
Comment: Some commenters opposed more equitable payment for the more classification criteria because the
our DRG change because of issues expensive tracheostomy cases. mechanical ventilation was directly
surrounding our proposed inclusion of Therefore, we are proceeding with associated with the reason for hospital
DRG 483 as a DRG that would qualify finalizing our proposal of deleting DRG admission. The one exception to this
for payment as a post-acute care transfer 483 and replacing it with DRGs 541 and rule is for patients who received a
case. 542. tracheostomy for long-term mechanical
Response: We are responding to the Comment: One commenter expressed ventilation. These are catastrophic
specific comments received regarding concern regarding the proposed creation patients who, in general, have serious
the proposed inclusion of DRG 483 of a new DRG for mechanical ventilation disease in multiple organ systems.
under the postacute care transfer as a pre-MDC for all patients undergoing Tracheostomies are performed on
discussion in section IV.A. of the more than 96 hours of mechanical patients when it is anticipated that the
preamble of this final rule. The ventilation. The commenter suggested patients will remain on mechanical
commenters did not provide other that we delete DRG 475 (Respiratory ventilation for an extended period. The
specific objections to the proposed System Diagnoses with Ventilator tracheostomy patients with long-term
deletion of DRG 483 and the proposed Support) from MDC 4 and move all of mechanical ventilation were all
creation of new DRGs 541 and 542. these cases reporting code 96.72 to a assigned to the same DRG regardless of
Comment: Several commenters new DRG for mechanical ventilation in their reason for admission. As we
requested clarification of what the pre-MDC section. discussed previously, we are
procedures would be classified as major Response: Patients undergoing more subdividing the patients assigned to
O.R. procedures in relationship to our than 96 hours of mechanical ventilation DRG 483 into two new DRG 541 and 542
proposed changes to DRG 483. are captured through code 96.72. based on the presence of an additional
Response: As we stated in the May 18, Currently, patients with a respiratory major O.R. procedure.
2004 proposed rule, a major O.R. system diagnosis listed in MDC 4 who We believe it would not be
procedure is a procedure whose code is receive mechanical ventilation are appropriate to classify mechanical
included on the list that would be assigned to DRG 475. Cases are assigned ventilation patients who do not receive
assigned to DRG 468, except for to DRG 475 if one of the following a tracheostomy in the same manner as
tracheostomy codes 31.21 and 31.29. procedure codes is reported: long-term mechanical ventilation
These are the procedure codes listed as • 96.70, Continuous mechanical patients who receive a tracheostomy.
O.R. procedures in Appendix E of the ventilation of unspecified duration. The patients who do not receive a
Diagnosis Related Groups Definitions • 96.71, Continuous mechanical tracheostomy tend to require
Manual. The reporting of a major ventilation for less than 96 consecutive mechanical ventilation for shorter
procedure with a procedure code from hours. periods and do not use the level of
Appendix E, along with an unrelated • 96.72, Continuous mechanical resources required by tracheostomy
principal diagnosis, results in a case ventilation for 96 consecutive hours or patients.
being assigned to DRG 468. Major O.R. more. The reason for admission for patients
procedures do not include prostatic or In the August 1, 2002, final rule (67 with short-term mechanical ventilation
nonextensive procedures, or both, FR 49996), we discussed the reporting can vary greatly and include
which are assigned to DRGs 476 and of code 96.72. We pointed out the degenerative nervous system diseases,
477. importance of hospitals accurately short-term acute disease, trauma, and
Currently, the reporting of an reporting the use of long-term terminal care. Further, the resource
additional major O.R. procedure code mechanical ventilation (code 96.72). We requirements for patients on short-term
does not affect the DRG assignment for stated in the August 1, 2002, final rule mechanical ventilation vary greatly,
cases assigned to DRG 483. In the that, once we received more accurate depending on the patient’s reason for
proposed rule, we proposed to modify data, we would give consideration to admission. We believe it is more
this logic by deleting DRG 483 and further modifying DRGs 482 and 483 appropriate to classify patients with
creating two new DRGs 541 and 452 that based on the presence of code 96.72. As short-term mechanical ventilation based
are split on the basis of the performance discussed previously, in this final rule, on their reason for admission and to
of a major O.R. procedure (in addition we are modifying DRG 483 to provide additional payments for
to tracheostomy codes 31.21 and 31.29). differentiate between patients with and patients with extreme resource use
Comment: Several commenters agreed without other major O.R. procedures (in through outlier payments. Therefore, we
that the CMS data support the addition to the tracheostomy). We are are not accepting the commenter’s
subdivision of DRG 483 based on the also modifying the burn DRGs to better request that we delete DRG 475 and
presence of an additional major O.R. classify those patients on long-term create a new DRG in the Pre-MDC
procedure. They agreed that this mechanical ventilation. section for mechanical ventilation. We
approach helps to identify the more As stated in the May 4, 2001, will maintain DRG 475 as it is currently
expensive patients within DRG 483. One proposed rule (66 FR 22646): ‘‘Central to configured.
commenter stated that the proposed the success of the Medicare inpatient In summary, in this final rule, we are
modifications were valuable. Another hospital prospective payment system is deleting DRG 483 and establishing the

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following new DRGs 541 and 542 as they are not appropriate for inclusion in Procedure List
replacements: the edit for noncovered procedures. • 41.01, Autologous bone marrow
• DRG 541 (Tracheostomy With In the proposed rule, we indicated transplant without purging
Mechanical Ventilation 96+ Hours or that we agreed that we need to make • 41.04, Autologous hematopoietic
Principal Diagnosis Except Face, Mouth, conforming changes relating to stem cell stem cell transplant without purging
and Neck Diagnoses With Major O.R. transplants. Therefore, we proposed the • 41.07, Autologous hematopoietic
Procedure) following restructure of Edit 11: stem cell transplant with purging
• DRG 542 (Tracheostomy With This list contains ICD–9–CM • 41.09, Autologous bone marrow
Mechanical Ventilation 96+ Hours or procedure codes identified as transplant with purging
Principal Diagnosis Except Face, Mouth, ‘‘Noncovered Procedures’’ that are
always considered noncovered Principal or Secondary Diagnosis List
and Neck Diagnoses Without Major O.R.
Procedure) procedures: • 204.00, Acute lymphoid leukemia,
• 11.71, Keratomileusis without mention of remission
10. Medicare Code Editor (MCE) • 11.72, Keratophakia • 205.00, Acute myeloid leukemia,
Changes • 11.75, Radial keratotomy without mention of remission
As explained under section II.B.1. of • 11.76, Epikeratophakia • 206.00, Acute monocytic leukemia,
this preamble, the Medicare Code Editor • 36.32, Other transmyocardial without mention of remission
(MCE) is a software program that detects revascularization • 207.00, Acute erythremia and
and reports errors in the coding of • 37.35, Partial ventriculectomy erythroleukemia, without mention of
Medicare claims data. In the May 18, • 37.52, Implantation of total remission
• 208.00, Acute leukemia of
2004, IPPS proposed rule (69 FR 28213), replacement heart system
unspecified cell type, without mention
we proposed to make changes to three • 37.53, Replacement or repair of
of remission
of the edits in the MCE. thoracic unit of total replacement heart • 205.10, Acute myeloid leukemia, in
a. Edit 11 (Noncovered Procedures) in system remission
the MCE contains codes that describe • 37.54, Replacement or repair of • 205.11, Chronic myeloid leukemia,
procedures for which Medicare does not other implantable component of total in remission
provide reimbursement. In the proposed replacement heart system The following list contains ICD–9–CM
rule, we stated that we had received a • 39.28, Extracranial-intracranial procedure codes identified as
request to remove procedure codes (EC–IC) vascular bypass ‘‘Noncovered Procedures’’ only when
relating to stem cell transplants from • 44.93, Insertion of gastric bubble any of the following diagnoses are
Edit 11 to conform the MCE edit to our (balloon) present as either a principal or
published coverage decisions in the • 50.51, Auxiliary liver transplant secondary diagnosis.
Medicare Coverage Issues Manual. • 52.83, Heterotransplant of pancreas
Chapter 13.5 of the Program Integrity • 57.96, Implantation of electronic Procedure List
Manual (PIM) states that contractor bladder stimulator • 41.02, Allogeneic bone marrow
discretion exists to cover diagnoses for • 57.97, Replacement of electronic transplant with purging
which coverage is not explicitly bladder stimulator • 41.03, Allogeneic bone marrow
precluded by a national coverage • 63.70, Male sterilization procedure, transplant without purging
decision. Specifically this section states: not otherwise specified • 41.05, Allogeneic hematopoietic
that ‘‘a local medical review policy • 63.71, Ligation of vas deferens stem cell transplant without purging
(LMRP)’’ must be clear, concise, • 63.72, Ligation of spermatic cord • 41.08, Allogeneic hematopoietic
properly formatted and not restrict or • 63.73, Vasectomy stem cell transplant with purging
conflict with NCDs or coverage • 64.5, Operations for sex Principal or Secondary Diagnosis List
provisions in interpretive manuals. If an transformation, not elsewhere classified
• 203.00, Multiple myeloma, without
NCD or coverage provision in an • 66.21, Bilateral endoscopic ligation
interpretive manual states that a given mention of remission
and crushing of fallopian tubes
• 203.01, Multiple myeloma, in
item is ‘covered for diagnoses/ • 66.22, Bilateral endoscopic ligation
remissionThe following list contains
conditions A, B, and C,’ contractors may and division of fallopian tubes
ICD–9–CM procedure codes identified
not use that as a basis to develop LMRP • 66.29, Other bilateral endoscopic
as ‘‘Non-Covered Procedures’’ except
to cover only ‘‘diagnosis/conditions A, destruction or occlusion of fallopian
when there is at least one principal or
B, C’’. When an NCD or coverage tubes
secondary diagnosis code present from
provision in an interpretive manual • 66.31, Other bilateral ligation and
both list 1 and list 2.
does not exclude coverage for other crushing of fallopian tubes
diagnoses/conditions, contractors must • 66.32, Other bilateral ligation and Procedure List
allow for individual consideration division of fallopian tubes • 52.80, Pancreatic transplant, not
unless the LMRP supports automatic • 66.39, Other bilateral destruction or otherwise specified
denial for some or all of those other occlusion of fallopian tubes • 52.82, Homotransplant of pancreas
diagnoses/conditions.’’ • 98.52, Extracorporeal shockwave
The national coverage decision on lithotripsy [ESWL] of the gallbladder Diagnosis List 1:
stem cell transplantation provides for and/or bile duct • 250.00, Diabetes mellitus without
coverage of certain diagnoses and • 98.59, Extracorporeal shockwave mention of complication, type II [non-
excludes coverage for other diagnoses. lithotripsy of other sites insulin dependent type] [NIDDM type]
However, the vast majority of diagnoses The following list contains ICD–9–CM [adult-onset type] or unspecified type,
are not mentioned as either covered or procedure codes identified as not stated as uncontrolled
noncovered. In accordance with the ‘‘Noncovered Procedures’’ only when • 250.01, Diabetes mellitus without
above-cited provision of the PIM, any of the following diagnoses are mention of complication, type I [insulin
contractors must allow for individual present as either a principal or dependent type] [IDDM] [juvenile type],
consideration of these diagnoses. Thus, secondary diagnosis. not stated as uncontrolled

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• 250.02, Diabetes mellitus without type] [IDDM] [juvenile type], not stated [adult-onset type] or unspecified type,
mention of complication, type II [non- as uncontrolled not stated as uncontrolled
insulin dependent type] [NIDDM type] • 250.42, Diabetes with renal • 250.81, Diabetes with other
[adult-onset type] or unspecified type, manifestation, type II [non-insulin specified manifestations, type I [insulin
uncontrolled dependent type] [NIDDM type] [adult- dependent type] [IDDM] [juvenile type],
• 250.03, Diabetes mellitus without onset type] or unspecified type, not stated as uncontrolled
mention of complication, type I [insulin uncontrolled • 250.82, Diabetes with other
dependent type] [IDDM type] [juvenile • 250.43, Diabetes with renal specified manifestations, type II [non-
type], uncontrolled manifestation, type I [insulin dependent insulin dependent type] [NIDDM type]
• 250.10, Diabetes with ketoacidosis, type] [IDDM type] [juvenile type], [adult-onset type] or unspecified type,
type II [non-insulin dependent type] uncontrolled uncontrolled
[NIDDM type] [adult-onset type] or • 250.50, Diabetes with ophthalmic • 250.83, Diabetes with other
unspecified type, not stated as manifestations, type II [non-insulin specified manifestations, type I [insulin
uncontrolled dependent type] [NIDDM type] [adult- dependent type] [IDDM] [juvenile type],
• 250.11, Diabetes with ketoacidosis, onset type] or unspecified type, not uncontrolled
type I [insulin dependent type] [IDDM] stated as uncontrolled • 250.90, Diabetes with unspecified
[juvenile type], not stated as • 250.51, Diabetes with ophthalmic complication, type II [non-insulin
uncontrolled manifestations, type I [insulin dependent type] [NIDDM type] [adult-
• 250.12, Diabetes with ketoacidosis, dependent type] [IDDM] [juvenile type], onset type] or unspecified type, not
type II [non-insulin dependent type] not stated as uncontrolled stated as uncontrolled
[NIDDM type] [adult-onset type] or • 250.52, Diabetes with ophthalmic • 250.91, Diabetes with unspecified
unspecified type, uncontrolled manifestations, type II [non-insulin complication, type I [insulin dependent
• 250.13, Diabetes with ketoacidosis, dependent type] [NIDDM type] [adult- type] [IDDM] [juvenile type], not stated
type I [insulin dependent type] [IDDM onset type] or unspecified type, as uncontrolled
type] [juvenile type], uncontrolled uncontrolled • 250.92, Diabetes with unspecified
• 250.20, Diabetes with • 250.53, Diabetes with ophthalmic complication, type II [non-insulin
hyperosmolarity, type II [non-insulin manifestations, type I [insulin dependent type] [NIDDM type] [adult-
dependent type] [NIDDM type] [adult- dependent type] [IDDM type] [juvenile onset type] or unspecified type,
onset type] or unspecified type, not type], uncontrolled uncontrolled
stated as uncontrolled • 250.60, Diabetes with neurological • 250.93, Diabetes with unspecified
• 250.21, Diabetes with manifestations, type II [non-insulin complication, type I [insulin dependent
hyperosmolarity, type I [insulin dependent type] [NIDDM type] [adult- type] [IDDM] [juvenile type],
dependent type] [IDDM] [juvenile type], onset type] or unspecified type, not uncontrolled
not stated as uncontrolled stated as uncontrolled Note: The proposed rule contained
• 250.22, Diabetes with • 250.61, Diabetes with neurological inadvertent typographical errors in the above
hyperosmolarity, type II [non-insulin manifestations, type I [insulin list on four diabetes codes at 250.50 through
dependent type] [NIDDM type] [adult- dependent type] [IDDM] [juvenile type], 250.53. These errors have been corrected in
onset type] or unspecified type, not stated as uncontrolled this list in the final rule.
uncontrolled • 250.62, Diabetes with neurological
• 250.23, Diabetes with manifestations, type II [non-insulin Diagnosis List 2
hyperosmolarity, type I [insulin dependent type] [NIDDM type] [adult- • 403.01, Malignant hypertensive
dependent type] [IDDM] [juvenile type], onset type] or unspecified type, renal disease, with renal failure
uncontrolled uncontrolled • 403.11, Benign hypertensive renal
• 250.30, Diabetes with other coma, • 250.63, Diabetes with neurological disease, with renal failure
type II [non-insulin dependent type] manifestations, type I [insulin • 403.91, Unspecified hypertensive
[NIDDM type] [adult-onset type] or dependent type] [IDDM type] [juvenile renal disease, with renal failure
unspecified type, not stated as type], uncontrolled • 404.02, Malignant hypertensive
uncontrolled • 250.70, Diabetes with peripheral heart and renal disease, with renal
• 250.31, Diabetes with other coma, circulatory disorders, type II [non- failure
type I [insulin dependent type] [IDDM] insulin dependent type] [NIDDM type] • 404.03, Malignant hypertensive
[juvenile type], not stated as [adult-onset type] or unspecified type, heart and renal disease, with heart
uncontrolled not stated as uncontrolled failure and renal failure
• 250.32, Diabetes with other coma, • 250.71, Diabetes with peripheral • 404.12, Benign hypertensive heart
type II [non-insulin dependent type] circulatory disorders type I [insulin and renal disease, with renal failure
[NIDDM type] [adult-onset type] or dependent type] [IDDM] [juvenile type], • 404.13, Benign hypertensive heart
unspecified type, uncontrolled not stated as uncontrolled and renal disease, with heart failure and
• 250.33, Diabetes with other coma, • 250.72, Diabetes with peripheral renal failure
type I [insulin dependent type] [IDDM] circulatory disorders, type II [non- • 404.92, Unspecified hypertensive
[juvenile type], uncontrolled, type I insulin dependent type] [NIDDM type] heart and renal disease, with renal
[insulin dependent type] [IDDM type] [adult-onset type] or unspecified type, failure
[juvenile type], uncontrolled uncontrolled • 404.93, Unspecified hypertensive
• 250.40, Diabetes with renal • 250.73, Diabetes with peripheral heart and renal disease, with heart
manifestation, type II [non-insulin circulatory disorders, type I [insulin failure and renal failure
dependent type] [NIDDM type] [adult- dependent type] [IDDM type] [juvenile • 585, Chronic renal failure
onset type] or unspecified type, not type], uncontrolled • V42.0, Organ or tissue replaced by
stated as uncontrolled • 250.80, Diabetes with other transplant, kidney
• 250.41, Diabetes with renal specified manifestations, type II [non- • V43.89, Organ or tissue replaced by
manifestation, type I [insulin dependent insulin dependent type] [NIDDM type] other means, other

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We received one comment in support diagnosis codes to Edit 6 of the MCE. recalibrations, to determine if the
of our proposal to restructure Edit 11 in However, both commenters pointed out ordering of classes coincides with the
the MCE. Therefore, we are adopting the a typographical error in one of the intensity of resource utilization.
proposal as final. citations of the diagnosis codes. Code A surgical class can be composed of
In addition, it has come to our 571.3 should have read 517.3. one or more DRGs. For example, in
attention that two of the new codes We are adopting, as final, our MDC 11, the surgical class ‘‘kidney
created for use for discharges effective proposed additions of the diagnosis transplant’’ consists of a single DRG
October 1, 2004, should also be codes to Edit 6, with the correction of (DRG 302) and the class ‘‘kidney, ureter
included on Edit 11 in order to conform the one code number cited. and major bladder procedures’’ consists
to current coverage policy. These c. Edit 9 (Unacceptable Principal of three DRGs (DRGs 303, 304, and 305).
changes were not included in the Diagnoses) contains codes ‘‘that Consequently, in many cases, the
proposed rule. However, the addition of describe a circumstance which surgical hierarchy has an impact on
these codes is not a change in CMS influences an individual’s health status more than one DRG. The methodology
policy. Rather, it is simply a procedural but is not a current illness of injury; for determining the most resource-
change that is necessary to effectuate therefore, these codes are considered intensive surgical class involves
CMS’ existing coverage policy and to unacceptable as a principal diagnosis.’’ weighting the average resources for each
facilitate the appropriate payment (or (This definition can be found on page DRG by frequency to determine the
non-payment) of claims reporting these 1094 of the DRG Definitions Manual, weighted average resources for each
codes. Therefore, we are making the Version 21.0). Last year, we became surgical class. For example, assume
following additional changes to the aware that two codes should be surgical class A includes DRGs 1 and 2
MCE: removed from this list, as they can be and surgical class B includes DRGs 3, 4,
• In the ‘‘Non-Covered Procedures’’ legitimate causes for inpatient and 5. Assume also that the average
section of Edit 11, we are adding code admission. However, we were made charge of DRG 1 is higher than that of
00.62 (Percutaneous angioplasty or aware of this too late in the process to DRG 3, but the average charges of DRGs
atherectomy of intracranial vessel(s)) to make a change to this edit prior to FY 4 and 5 are higher than the average
the list of procedure codes that are 2004. In the May 18, 2004, IPPS charge of DRG 2. To determine whether
always considered noncovered proposed rule (69 FR 28197), we surgical class A should be higher or
procedures. indicated that we will now be able to lower than surgical class B in the
• ICD–9–CM O.R. procedure code make the necessary system changes surgical hierarchy, we would weight the
00.61 (Percutaneous angioplasty or before the start of FY 2005. Therefore, average charge of each DRG in the class
atherectomy of precerebral (extracranial we proposed to remove the following by frequency (that is, by the number of
vessel(s)) is identified as a ‘‘Non- codes from Edit 9: cases in the DRG) to determine average
Covered Procedure’’ except when the • V53.01, Adjustment of cerebral resource consumption for the surgical
following non-O.R. procedure and ventricular (communicating) shunt class. The surgical classes would then
secondary diagnosis are also present: • V53.02, Adjustment of be ordered from the class with the
Non-O.R. Procedure: 00.63 neuropacemaker (brain) (peripheral highest average resource utilization to
(Percutaneous insertion of carotid artery nerve) (spinal cord) that with the lowest, with the exception
stent(s); and We received one comment in support of ‘‘other O.R. procedures’’ as discussed
Secondary Diagnosis: V70.7 of our proposed removal of codes below.
(Examination of participant in clinical V53.01 and V53.02 from Edit 9 in the This methodology may occasionally
trial). MCE. Therefore, we are adopting, as result in assignment of a case involving
We are making these changes in final, our proposed removal of the two multiple procedures to the lower-
Version 22.0 of the MCE software codes from Edit 9. weighted DRG (in the highest, most
program. resource-intensive surgical class) of the
11. Surgical Hierarchies
b. Edit 6 (Manifestations Not Allowed available alternatives. However, given
As Principal Diagnosis) in the MCE Some inpatient stays entail multiple that the logic underlying the surgical
contains codes that describe the surgical procedures, each one of which, hierarchy provides that the GROUPER
manifestation of an underlying disease, occurring by itself, could result in search for the procedure in the most
not the disease itself, and therefore, assignment of the case to a different resource-intensive surgical class, this
should not be used as a principal DRG within the MDC to which the result is unavoidable.
diagnosis. The following codes describe principal diagnosis is assigned. We note that, notwithstanding the
manifestations of an underlying disease; Therefore, it is necessary to have a foregoing discussion, there are a few
they should not be used as a principal decision rule within the GROUPER by instances when a surgical class with a
diagnosis according to ICD–9–CM which these cases are assigned to a lower average charge is ordered above a
coding convention. Therefore, in the single DRG. The surgical hierarchy, an surgical class with a higher average
May 18, 2004, proposed rule, we ordering of surgical classes from most charge. For example, the ‘‘other O.R.
proposed to add the following diagnosis resource-intensive to least resource- procedures’’ surgical class is uniformly
codes to Edit 6: intensive, performs that function. ordered last in the surgical hierarchy of
• 289.52, Splenic sequestration Application of this hierarchy ensures each MDC in which it occurs, regardless
• 517.3, Acute chest syndrome that cases involving multiple surgical of the fact that the average charge for the
(inadvertently erroneously cited as procedures are assigned to the DRG DRG or DRGs in that surgical class may
571.3 in the May 18, 2004 proposed associated with the most resource- be higher than that for other surgical
rule) intensive surgical class. classes in the MDC. The ‘‘other O.R.
• 785.52, Septic shock Because the relative resource intensity procedures’’ class is a group of
Coding conventions in the ICD–9–CM of surgical classes can shift as a function procedures that are only infrequently
Diagnostic Tabular List specify that of DRG reclassification and related to the diagnoses in the MDC, but
etiologic conditions be coded first. recalibrations, we reviewed the surgical are still occasionally performed on
We received two comments in hierarchy of each MDC, as we have for patients in the MDC with these
support of our proposal to add three previous reclassifications and diagnoses. Therefore, assignment to

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48948 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

these surgical classes should only occur Foot, and Femor Age> 17 Without CC), higher DRG weight than DRG 110 or
if no other surgical class more closely and DRG 220 (Lower Extremity and DRG 111.
related to the diagnoses in the MDC is Humerus Procedures Except Hip, Foot, Response: The surgical hierarchy
appropriate. and Femur Age 0–17). places a patient with multiple
A second example occurs when the In the proposed rule, we were unable procedures in the most resource
difference between the average charges to test the effects of the proposed intensive class of DRGs, but not
for two surgical classes is very small. revisions to the surgical hierarchy and necessarily in the most resource
We have found that small differences to reflect these changes in the proposed intensive DRG. In the scenario described
generally do not warrant reordering of relative weights because the revised by the commenter, there are two
the hierarchy because, as a result of GROUPER software was unavailable at surgical classes, one including DRGs
reassigning cases on the basis of the the time the proposed rule was 110 and 111 and the other including
hierarchy change, the average charges completed. Rather, we simulated most DRG 115 and DRG 116 (Other
are likely to shift such that the higher- major classification changes to Permanent Cardiac Pacemaker Implant).
ordered surgical class has a lower approximate the placement of cases The average charges for the class
average charge than the class ordered under the proposed reclassification, and containing DRGs 110 and 111 are
below it. then determined the average charge for approximately $16,604 more than for
Based on the preliminary each DRG. These average charges served the class containing DRGs 115 and 116.
recalibration of the DRGs, in the May as our best estimate of relative resource As a result, the class containing DRGs
18, 2004 proposed rule, we proposed used for each surgical class. We have 110 and 111 is ordered higher in the
modifications of the surgical hierarchy now tested the proposed surgical surgical group than the class containing
as set forth below. hierarchy changes after the revised DRGs 115 and 116. As a result, the case
We proposed to revise the surgical GROUPER was received and are is assigned to either DRG 110 or DRG
hierarchy for the pre-MDC DRGs and reflecting the final changes in the DRG 111.
MDC 8 (Diseases and Disorders of the relative weights in this final rule.
Musculoskeletal System and Connective Further, as discussed in section II.C. of 12. Refinement of Complications and
Tissue). this preamble, the final recalibrated Comorbidities (CC) List
In the pre-MDC DRGs, we proposed to weights are somewhat different from the In the September 1, 1987 final notice
reorder DRG 541 (Tracheostomy With proposed weights because they are (52 FR 33143) concerning changes to the
Mechanical Ventilation 96 + Hours or based on more complete data. DRG classification system, we modified
Principal Diagnosis Except Face, Mouth, We have tested the proposed revisions
the GROUPER logic so that certain
and Neck Diagnoses With Major O.R. using the March 2004 update of the FY
diagnoses included on the standard list
Procedure) and DRG 542 (Tracheostomy 2003 MedPAR file and the revised
GROUPER software and have found that of CCs would not be considered valid
With Mechanical Ventilation 96+ Hours
the revisions are supported by the data, CCs in combination with a particular
or Principal Diagnosis Except Face,
and no additional changes are indicated principal diagnosis. We created the CC
Mouth, and Neck Diagnoses Without
except those discussed below pertaining Exclusions List for the following
Major O.R. Procedure) above DRG 480
to the implementation of new DRG 543 reasons: (1) To preclude coding of CCs
(Liver Transplant).
In MDC 8, we proposed to— (Craniotomy with Implantation of for closely related conditions; (2) to
• Reorder DRG 496 (Combined Chemotherapeutic Agent or Acute preclude duplicative or inconsistent
Anterior/Posterior Spinal Fusion), DRG Complex Central Nervous System coding from being treated as CCs; and
497 (Spinal Fusion Except Cervical Principal Diagnosis). (For a complete (3) to ensure that cases are appropriately
With CC), and DRG 498 (Spinal Fusion description of this change see the classified between the complicated and
Except Cervical Without CC) above DRG discussion under ‘‘Other Issues’’ in uncomplicated DRGs in a pair. We
471 (Bilateral or Multiple Major Joint section II.B.16 of this preamble.) Due to developed this list of diagnoses, using
Procedures of the Lower Extremity). the implementation of DRG 543, we also physician panels, to include those
• Reorder DRG 519 (Cervical Spinal are reordering the following DRGs in diagnoses that, when present as a
Fusion With CC) and DRG 520 (Cervical MDC 1 (Disease and Disorders of the secondary condition, would be
Spinal Fusion Without CC) above DRG Nervous System): DRG 543 above DRGs considered a substantial complication or
216 (Biopsies of the Musculoskeletal 1 (Craniotomy Age > 17 With CC) and comorbidity. In previous years, we have
System and Connective Tissue). 2 (Craniotomy Age> 17 Without CC). made changes to the list of CCs, either
• Reorder DRG 213 (Amputation for Therefore, we are adopting these by adding new CCs or deleting CCs
the Musculoskeletal System and changes as final. already on the list. In the May 18, 2004,
Connective Tissue Disorders) above Comment: One commenter requested proposed rule, we did not propose to
DRG 210 (Hip and Femur Procedures a change in the surgical hierarchy for a delete any of the diagnosis codes on the
Except Major Joint Age> 17 With CC), case where procedure code 37.99 (Other CC list.
DRG 211 (Hip and Femur Procedures operations on heart and pericardium) Comment: One commenter requested
Except Major Joint Age> 17 Without and code 37.98 (Replacement of an that ICD–9–CM codes 996.64 (Infection
CC), and DRG 212 (Hip and Femur automatic cardioverter/defibrillator due to indwelling urinary catheter) and
Procedures Except Major Joint Age 0– pulse generator only) is reported during 599.0 (Urinary tract infection) be
17). the same admission. This case is removed from the CC List so that
• Reorder DRG 499 (Back and Neck assigned to either DRG 110 (Major hospitals are not rewarded with higher
Procedures Except Spinal Fusion With Cardiovascular Procedures With CC) or payment when they allow patients to
CC) and DRG 500 (Back and Neck DRG 111 (Major Cardiovascular develop urinary tract infections. The
Procedures Except Spinal Fusion Procedures Without CC). The commenter pointed out that these
Without CC) above DRG 218 (Lower commenter requested that this case be conditions are often avoidable
Extremity and Humerus Procedures reassigned to DRG 115 (Permanent complications of hospitalization, and
Except Hip, Foot, and Femur Age> 17 Cardiac Pacemaker Implant with AMI, that hospitals allow these infections to
With CC), DRG 219 (Lower Extremity Heart Failure, or Shock or AICD Lead or occur in order to receive higher
and Humerus Procedures Except Hip, Generator Procedure) because it has a payments from Medicare.

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Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations 48949

Response: We do not agree with the In the May 18, 2004, proposed rule, Department of Commerce. It is available
assertion that hospitals allow urinary we proposed a limited revision of the in hard copy for $152.50 plus shipping
tract infections to occur in Medicare CC Exclusions List to take into account and handling. A request for the FY 1988
patients in order to receive higher the proposed changes that will be made CC Exclusions List (which should
payment rates. While it is true that some in the ICD–9–CM diagnosis coding include the identification accession
urinary tract infections are preventable system effective October 1, 2004. (See number (PB) 88–133970) should be
through the use of improved sterile section II.B.15. of this preamble for a made to the following address: National
technique, reduced indwelling catheter discussion of ICD–9–CM changes.) We Technical Information Service, United
duration, more appropriate use of broad proposed these changes in accordance States Department of Commerce, 5285
spectrum antibiotics and improved with the principles established when we Port Royal Road, Springfield, VA 22161;
patient mobilization, among others, we created the CC Exclusions List in 1987. or by calling (800) 553–6847.
do not believe there is a direct causal We received no comments on the Users should be aware of the fact that
link between substandard hospital care proposed changes. Therefore, we will all revisions to the CC Exclusions List
and the presence of urinary tract adopt the CC Exclusions List as (FYs 1989, 1990, 1991, 1992, 1993,
infection in general. proposed. 1994, 1995, 1996, 1997, 1998, 1999,
Particularly in the elderly Medicare Tables 6G and 6H in the Addendum 2001, 2002, 2003, and 2004) and those
population, urinary tract infections to this final rule contain the revisions to in Tables 6G and 6H of this final rule
occur in diverse clinical scenarios that the CC Exclusions List that will be for FY 2005 must be incorporated into
lead to colonization and ultimately effective for discharges occurring on or the list purchased from NTIS in order to
overt clinical infection within the after October 1, 2004. Each table shows obtain the CC Exclusions List applicable
urinary tract. General debilitation, the principal diagnoses with changes to for discharges occurring on or after
various acute illnesses, immobility, the excluded CCs. Each of these October 1, 2004. (Note: There was no CC
impaired host defense mechanisms, principal diagnoses is shown with an Exclusions List in FY 2000 because we
dehydration and the post-surgical state asterisk, and the additions or deletions did not make changes to the ICD–9–CM
are but a few of the situations in which to the CC Exclusions List are provided
codes for FY 2000.)
urinary tract infections may occur, and in an indented column immediately
following the affected principal Alternatively, the complete
which do in fact require higher resource documentation of the GROUPER logic,
utilization when they occur. Therefore, diagnosis.
CCs that are added to the list are in including the current CC Exclusions
we are not removing codes 996.64 and List, is available from 3M/Health
599.0 from the CC List. Table 6G—Additions to the CC
Exclusions List. Beginning with Information Systems (HIS), which,
In this final rule, as we proposed, we under contract with CMS, is responsible
are not deleting any of the diagnosis discharges on or after October 1, 2004,
the indented diagnoses will not be for updating and maintaining the
codes on the CC list for FY 2005. GROUPER program. The current DRG
In the May 19, 1987, proposed notice recognized by the GROUPER as valid
CCs for the asterisked principal Definitions Manual, Version 21.0, is
(52 FR 18877) and the September 1, available for $225.00, which includes
1987, final notice (52 FR 33154), we diagnosis.
CCs that are deleted from the list are $15.00 for shipping and handling.
explained that the excluded secondary Version 22.0 of this manual, which
in Table 6H—Deletions from the CC
diagnoses were established using the includes the final FY 2005 DRG
Exclusions List. Beginning with
following five principles: changes, is available for $225.00. These
• Chronic and acute manifestations of discharges on or after October 1, 2004,
the indented diagnoses will be manuals may be obtained by writing
the same condition should not be 3M/HIS at the following address: 100
considered CCs for one another. recognized by the GROUPER as valid
CCs for the asterisked principal Barnes Road, Wallingford, CT 06492; or
• Specific and nonspecific (that is,
diagnosis. by calling (203) 949–0303. Please
not otherwise specified (NOS))
Copies of the original CC Exclusions specify the revision or revisions
diagnosis codes for the same condition
List applicable to FY 1988 can be requested.
should not be considered CCs for one
obtained from the National Technical
another. 13. Review of Procedure Codes in DRGs
Information Service (NTIS) of the
• Codes for the same condition that 468, 476, and 477
cannot coexist, such as partial/total,
occurring in FY 1989; the September 1, 1989 final Each year, we review cases assigned
unilateral/bilateral, obstructed/ rule (54 FR 36552) for the FY 1990 revision; the to DRG 468 (Extensive O.R. Procedure
unobstructed, and benign/malignant, September 4, 1990 final rule (55 FR 36126) for the
FY 1991 revision; the August 30, 1991 final rule (56
Unrelated to Principal Diagnosis), DRG
should not be considered CCs for one
FR 43209) for the FY 1992 revision; the September 476 (Prostatic O.R. Procedure Unrelated
another. 1, 1992 final rule (57 FR 39753) for the FY 1993 to Principal Diagnosis), and DRG 477
• Codes for the same condition in revision; the September 1, 1993 final rule (58 FR (Nonextensive O.R. Procedure Unrelated
anatomically proximal sites should not 46278) for the FY 1994 revisions; the September 1,
1994 final rule (59 FR 45334) for the FY 1995 to Principal Diagnosis) to determine
be considered CCs for one another.
• Closely related conditions should revisions; the September 1, 1995 final rule (60 FR whether it would be appropriate to
not be considered CCs for one another.
45782) for the FY 1996 revisions; the August 30, change the procedures assigned among
1996 final rule (61 FR 46171) for the FY 1997 these DRGs.
The creation of the CC Exclusions List revisions; the August 29, 1997 final rule (62 FR
was a major project involving hundreds 45966) for the FY 1998 revisions; the July 31, 1998 DRGs 468, 476, and 477 are reserved
of codes. We have continued to review final rule (63 FR 40954) for the FY 1999 revisions, for those cases in which none of the
the August 1, 2000 final rule (65 FR 47064) for the O.R. procedures performed are related
the remaining CCs to identify additional FY 2001 revisions; the August 1, 2001 final rule (66
exclusions and to remove diagnoses FR 39851) for the FY 2002 revisions; the August 1,
to the principal diagnosis. These DRGs
from the master list that have been 2002 final rule (67 FR 49998) for the FY 2003 are intended to capture atypical cases,
shown not to meet the definition of a revisions; and the August 1, 2003 final rule (68 FR that is, those cases not occurring with
45364) for the FY 2004 revisions.) In the July 30, sufficient frequency to represent a
CC.1 1999 final rule (64 FR 41490), we did not modify
the CC Exclusions List for FY 2000 because we did
distinct, recognizable clinical group.
1 See the September 30, 1988 final rule (53 FR not make any changes to the ICD–9–CM codes for DRG 476 is assigned to those discharges
38485) for the revision made for the discharges FY 2000. in which one or more of the following

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48950 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

prostatic procedures are performed and surgical DRGs for the MDC into which DRGs 476 and 477 are not limited to one
are unrelated to the principal diagnosis: the principal diagnosis falls. The data MDC, so the new codes are also
• 60.0, Incision of prostate are arrayed two ways for comparison included here for nonextensive cases in
• 60.12, Open biopsy of prostate purposes. We look at a frequency count which the procedures are unrelated to
• 60.15, Biopsy of periprostatic tissue of each major operative procedure code. the principal diagnosis:
• 60.18, Other diagnostic procedures We also compare procedures across • 44.67, Laparoscopic procedures for
on prostate and periprostatic tissue MDCs by volume of procedure codes creation of esophagogastric sphincteric
• 60.21, Transurethral prostatectomy within each MDC. competence
• 60.29, Other transurethral We identify those procedures • 44.68, Laparoscopic gastroplasty
prostatectomy occurring in conjunction with certain • 44.95, Laparoscopic gastric
• 60.61, Local excision of lesion of principal diagnoses with sufficient restrictive procedure
prostate frequency to justify adding them to one • 44.96, Laparoscopic revision of
• 60.69, Prostatectomy, not elsewhere of the surgical DRGs for the MDC in gastric restrictive procedure
classified which the diagnosis falls. Based on this • 44.97, Laparoscopic removal of
• 60.81, Incision of periprostatic year’s review, we did not identify any gastric restrictive device(s)
tissue procedures in DRG 477 that should be • 44.98, Laparoscopic adjustment of
• 60.82, Excision of periprostatic removed. Therefore, in the May 18, 2004 size of adjustable gastric restrictive
tissue proposed rule, we did not propose to device
• 60.93, Repair of prostate move any procedures from DRG 477 to In DRG 476, the above codes are to be
• 60.94, Control of (postoperative) one of the surgical DRGs in this final added to the section ‘‘With or Without
hemorrhage of prostate rule. Operating Room Procedures’’ in the
• 60.95, Transurethral balloon We did not receive any comments on GROUPER logic.
dilation of the prostatic urethra our proposal not to move any We did not propose to move any
• 60.96, Transurethral destruction of procedures from DRG 477 to one of the procedure codes from DRG 476 to DRGs
prostate tissue by microwave surgical DRGs and, therefore, are 468 or 477, or from DRG 477 to DRGs
thermotherapy adopting our proposal as final. 468 or 476.
• 60.97, Other transurethral We did not receive any comments on
b. Reassignment of Procedures among this proposal and, therefore, are
destruction of prostate tissue by other
DRGs 468, 476, and 477 adopting it as final.
• 60.99, Other operations on prostate We also annually review the list of
ICD–9–CM procedures that, when in c. Adding Diagnosis or Procedure Codes
All remaining O.R. procedures are to MDCs
assigned to DRGs 468 and 477, with combination with their principal
DRG 477 assigned to those discharges in diagnosis code, result in assignment to Based on our review this year, we did
which the only procedures performed DRGs 468, 476, and 477, to ascertain if not propose to add any diagnosis codes
are nonextensive procedures that are any of those procedures should be to MDCs. We did not receive any
unrelated to the principal diagnosis.2 reassigned from one of these three DRGs comments on this proposal. Therefore,
to another of the three DRGs based on we are adopting our proposal as final
a. Moving Procedure Codes from DRG average charges and the length of stay. and are making no changes to MDCs
468 or DRG 477 to MDCs We look at the data for trends such as other than those specified in other
We annually conduct a review of shifts in treatment practice or reporting portions of this section II. of the
procedures producing assignment to practice that would make the resulting preamble of this final rule.
DRG 468 or DRG 477 on the basis of DRG assignment illogical. If we find
these shifts, we would propose to move 14. Pancreatic Islet Cell Transplantation
volume, by procedure, to see if it would in Clinical Trials
be appropriate to move procedure codes cases to keep the DRGs clinically similar
or to provide payment for the cases in Section 733(a) of Public Law 108–173
out of these DRGs into one of the
a similar manner. Generally, we move directs the Secretary, acting through the
2 In the August 1, 2003 final rule (68 FR 45365) only those procedures for which we National Institute of Diabetes and
we moved several procedures from DRG 468 to have an adequate number of discharges Digestive and Kidney Disorders
DRGs 476 and 477 because the procedures are to analyze the data. Based on a comment (NIDDKD) to conduct a clinical
nonextensive. The original list of the ICD–9–CM we received in response to last year’s investigation of pancreatic islet cell
procedure codes for the procedures we consider
nonextensive procedures, if performed with an proposed rule (68 FR 45366), in the May transplantation that includes Medicare
unrelated principal diagnosis, was published in 18, 2004 proposed rule, we proposed to beneficiaries. Section 733(b) of Public
Table 6C in section IV. of the Addendum to the move procedure code 51.23 Law 108–173 provides for Medicare
September 30, 1988 final rule (53 FR 38591). As (Laparoscopic cholecystectomy) from payments, beginning no earlier than
part of the final rules published on September 4,
1990 (55 FR 36135), August 30, 1991 (56 FR 43212), DRG 468 (Extensive O.R. Procedure October 1, 2004, for the routine costs as
September 1, 1992 (57 FR 23625), September 1, Unrelated to Principal Diagnosis) into well as the costs of the transplantation
1993 (58 FR 46279), September 1, 1994 (59 FR DRG 477 (Nonextensive O.R. Procedure and appropriate related items and
45336), September 1, 1995 (60 FR 45783), August Unrelated to Principal Diagnosis). services for Medicare beneficiaries who
30, 1996 (61 FR 46173), and August 29, 1997 (62
FR 45981), we moved several other procedures from
The commenter suggested that a are participating in a clinical trial as if
DRG 468 to DRG 477, and some procedures from laparoscopic procedure was probably such transplantation were covered
DRG 477 to DRG 468. No procedures were moved not an extensive O.R. procedure; it was under Medicare Part A or Part B.
in FY 1999, as noted in the July 31, 1998 final rule more likely a nonextensive O.R. Routine costs are defined as reasonable
(63 FR 40962); in FY 2000, as noted in the July 30,
1999 final rule (64 FR 41496); in FY 2001, as noted
procedure. We indicated that we agreed and necessary routine patient care costs
in the August 1, 2000 final rule (65 FR 47064); or and, therefore, proposed this change. In (as defined in the CMS Coverage Issues
in FY 2002, as noted in the August 1, 2001 final addition, we proposed to add several Manual, Section 30–1) including
rule (66 FR 39852). In the August 1, 2002 final rule new procedure codes to DRGs 476 and immunosuppressive drugs and other
(67 FR 49999), we did not move any procedures
from DRG 477. However, we did move procedures
477. These procedures are also listed on followup care. Section 733(c)(2) of
codes from DRG 468 and placed them in more Table 6B—New Procedure Codes in the Public Law 108–173 defines
clinically coherent DRGs. Addendum to this final rule. However, transplantation and appropriate related

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items and services as items and services In addition, while we had some data islet cells without any other surgical
related to the acquisition and delivery of available regarding the cost of pancreas intervention will be appropriately
the pancreatic islet cell transplantation, procurement, in the proposed rule we assigned to this DRG.
notwithstanding any national specifically asked for any other data that As each case is assigned to a DRG
noncoverage determination contained in supported the costs of acquisition and based on all of the ICD–9–CM codes
the CMS Coverage Issues Manual. the costs of isolation cell resource reported, cases could also be assigned to
As we indicated in the May 18, 2004, centers. We stated that, because of DRGs other than those mentioned
proposed rule, while the DRG payment insufficient data, we were unable to above. In fact, as indicated in the
will cover the transplant injection and publish a proposed acquisition amount proposed rule, our review of FY 2003
the subsequent hospital stay, we in the FY 2005 proposed rule. However, MedPAR data revealed that codes 52.84
considered establishing an add-on we indicated that, after analyzing data and 52.85 were present in only four
payment to the DRG payment amount to submitted during the comment period, cases, and that each case was assigned
reimburse the acquisition costs other data acquired by CMS, and any to a different DRG. We found one case
associated with islet cell procurement suggested changes from the each in DRG 18 (Cranial and Peripheral
(69 FR 28218). Historically, organ methodology proposed, the final organ Nerve Disorders With CC), DRG 192
acquisition costs have been reimbursed acquisition payment amount would be (Pancreas, Liver, and Shunt Procedures
as a cost pass-through. However, islet announced in the FY 2005 IPPS final Without CC), DRG 207 (Disorders of the
cell transplants are not exactly the same rule. Biliary Tract With CC), and DRG 302
as solid organ transplants. While solid Pancreatic islet cell transplantation (Kidney Transplant). As the GROUPER
pancreata are procured, islet cells are during the clinical trial will be software program does not recognize
not transplanted in the solid organ state performed to decrease or eliminate the codes for islet cell transplantation as
as are other types of organs. Rather, the need for insulin in patients with Type O.R. procedure codes, the presence of
pancreata are procured by an organ I diabetes. Patients with Type II islet these codes did not modify the DRG
procurement organization (OPO) and are diabetes are not included in this trial. assignment in these four cases.
Islet cells are acquired from a cadaveric We were reluctant to propose
then sent to an islet cell resource center
pancreas donor (islet assigning the islet cell codes to one
that extracts the islet cells from the
allotransplantation). specific DRG, as the islet cell infusion
pancreata and sends the cells on to the
As described in II.B.1. of this will have different indications
transplant center. Because the
preamble, ICD–9–CM diagnosis and depending on the merits of each case, as
procurement and processing system for
procedure codes are used to determine is shown from the MedPAR data
islet cell transplants is not the same as
DRG assignments. In 1996, CMS (then mentioned above. In addition, we do not
for solid organ transplants, we proposed HCFA) created codes for islet cell currently have accurate cost data or
not paying for these costs as a pass- transplantation: charges for patients in this type of
through. With the anticipated small • 52.84, Autotransplantation of cells clinical trial, which makes it difficult to
number of beneficiaries in the clinical of islets of Langerhans. determine an appropriate DRG weight.
trial and the Medicare program’s • 52.85, Allotransplantation of cells As a result, assignment of cases to a
unfamiliarity with the isolation process, of islets of Langerhans. specific DRG might have the
we believed it would be most The Medicare GROUPER does not consequence of either overpaying or
appropriate at this time to have a set consider codes 52.84 and 52.85 as O.R. underpaying the cases. We believe that
payment rate for acquisition costs, procedures and, therefore, these codes both of these consequences are
rather than attempting a case-by-case do not move the case from a medical unacceptable. Therefore, we did not
determination of the reasonableness of DRG into a surgical DRG unless another propose that cases involved in the
these costs in each institution. We note procedure is performed. Based on the clinical trial be assigned to one specific
there is precedent to exclude acquisition circumstances noted above under which DRG for payment purposes. As we
costs from the pass-through payment pancreatic islet cell transplantation believe that these cases will have been
process. For example, stem cell would be performed, we identified the assigned to DRGs 302, 315, and 468, we
transplants and corneal transplants do three most logical DRGs to which we proposed to establish an add-on
not have acquisition costs reimbursed as believe cases should be assigned. If a payment for cases in these three DRGs
a cost pass-through payment. patient has Type I diabetes mellitus containing procedure codes 52.84 or
We proposed that the add-on payment with ESRD and a pancreatectomy is 52.85. As stated earlier, we were not
would be a single amount that includes performed, the case would group to able to establish the amount of this add-
pre-transplant tests and services, DRG 468 (Extensive O.R. Procedure on until we had determined
pancreas procurement, and islet Unrelated to Principal Diagnosis). If a procurement costs for the islet cells. We
isolation services. In addition, we patient has Type I diabetes mellitus solicited information from transplant
proposed to use an add-on as opposed with ESRD and is also receiving a centers and organ procurement
to increasing the DRG amount because kidney transplant (simultaneous kidney organizations on costs for these types of
the DRGs at issue are also applied in and islet transplantation), the case transplantations.
cases involving a variety of other would group to DRG 302 (Kidney Comment: Several commenters noted
procedures that do not include the Transplant). If a patient has Type I that the assignment of DRG 315, as
costly islet cell acquisition required for diabetes mellitus with ESRD and a currently constructed, to patients
this procedure. Thus, including these history of a kidney transplant and then participating in the clinical trial does
costs in the DRGs would have the has the islet cells inserted via an open not reflect appropriate coding practice,
potential of skewing the weights for all approach, the case would group to DRG as a laparotomy code for hepatic vessel
other DRGs. We solicited comments on 315 (Other Kidney and Urinary Tract catheterization should not be recorded.
whether an add-on payment amount is O.R. Procedures). We note that this third Response: The commenters are correct
the appropriate way to reimburse islet scenario reflects incorrect coding in their assessment. Therefore, we are
cell acquisition costs, or whether practice. However, in this final rule we modifying the structure of DRG 315 so
another methodology may be more are modifying the structure of DRG 315 that patients receiving infusions of islet
appropriate. so that patients receiving infusions of cells without any other surgical

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intervention will appropriately be have no substantial data upon which to payment for the infusion of the islet
assigned to DRG 315. We are aware that determine an appropriate relative cells.
patients will often require more than weight for the resources that will be Comment: Some commenters believed
one admission for islet cell utilized in all islet cell transplant cases. CMS should pay for islet acquisition
transplantation. We are making this In addition, there may be different services as a cost pass-through. Several
modification in order to recognize the scenarios in which patients are of these commenters stated that they
surgical aspects of islet cell transfused with islet cells. These cases found insufficient justification to pay
transplantation in the absence of any could include patients receiving a for islet cell transplants through an add-
other surgical procedure. kidney transplant during the same on when pancreata used for solid organ
The logic for DRG 315 is modified as admission, or cases in which the islet transplantation are paid as a cost pass-
follows: cells comprise the only procedure through. These commenters stated that
during the admission. As cases will be the costs of procuring a pancreas used
O.R. Procedures for solid organ transplantation are the
varied in this clinical trial, we prefer to
This list remains the same as V21.0 of have MedPAR data and case histories same as procuring a pancreas for islet
the GROUPER. prior to creating specific new DRGs for cell transplantation. One commenter
or these cases. agreed that payment through an add-on
Comment: Some commenters believed is the best approach.
Non-O.R. Procedures Response: We continue to believe that
that the most closely related DRG from
52.84, Autotransplantation of cells of a clinical as well as resource perspective reimbursing acquisition costs as an add-
islets of Langerhans is DRG 513 (Pancreas Transplant). The on to the DRG is an appropriate
52.85, Allotransplantation of cells of commenters noted that the diagnoses reimbursement mechanism. However,
islets of Langerhans are the same for islet and pancreas we have decided that reimbursing
or transplants, and that the patient pancreata procured for islet cells as an
populations involved in these two add-on while the acquisition of all other
Principal Diagnosis
procedures are virtually identical in organs are reimbursed as a cost pass-
This list remains the same as V21.0 of through may be premature at this time.
GROUPER. terms of comorbidities and the nature of
Accordingly, we will pay for organ
and their primary disease. In addition, the
acquisition costs as a cost pass-through.
technical aspects of islet transplants are
Non-O.R. Procedure Costs associated with the procurement
of a surgical nature, whether performed
of the pancreata will be included in the
This list remains the same as V21.0 of in an operating room or in the
islet acquisition costs center of the
GROUPER. interventional radiology suite. One
transplant center cost report. We will
Comment: One commenter stated that commenter noted that pancreas
continue to study the appropriateness of
it was not clinically appropriate to transplants are in reality just another
paying for pancreata used for islets as an
categorize islet cell transplants into DRG method of transplanting the insulin
add-on in the future. Islet isolation will
315, as these transplants do not involve producing islet cells since the other
be paid as an add-on as proposed. We
either the kidney or the urinary tract functions of the pancreas are discuss this add-on below.
directly. Rather, the islet cells are superfluous. Comment: Some commenters were
transplanted into the patient’s liver. The Response: While the patient concerned that pre-transplant costs
commenter indicated that islet populations requiring intervention are would not be appropriately reflected in
transplants have no relevance to the similar, we do not believe that one can the proposed add-on methodology.
genito-urinary system, but rather to the equate an operation of the magnitude of These commenters recommended that
hepatopancreaticobiliary system. a pancreas transplant with a less the pre-transplant costs be paid as a
Therefore, the commenter believed that intensive islet cell transplantation in cost-pass through.
the proposed classification to DRG 315 which the portal vein is accessed and Response: After additional analysis,
is clinically inappropriate. islet cells infused through a catheter. It we agree that it may be difficult to
Response: DRGs are diagnosis related is only because the technical aspects of ensure an appropriate payment amount
groups. Each surgical DRG is comprised islet transplants are of a surgical nature for pre-transplant costs in an add-on
of procedure codes in combination with that we have modified surgical DRG 315 methodology. Therefore, pre-transplant
a principal diagnosis that causes the to reflect the transfusion of islet cells. costs will be handled in the same
case to be assigned to a particular major Comment: One commenter suggested manner as they are for all other solid
diagnostic category (MDC). Because that the most appropriate DRG for organ transplantation and will be
there are so many procedures in most simultaneous kidney and islet cell included in the islet acquisition cost
DRGs, it is impossible to capture the transplantation would be DRG 512 center of the cost report. Pre-transplant
purpose of all procedures in the title. (Simultaneous Pancreas/Kidney costs will not be included as an add-on
Comment: Some commenters Transplant), as the resource allocation to the DRG payment.
suggested that the most appropriate and patient population involved in both Comment: Some commenters believed
resolution is to create a new DRG for types of admissions are comparable. The that islet isolation services should be
islet transplants performed alone. The commenter noted that so few of these paid on a cost pass-through rather than
commenters mentioned that solid organ combination procedures have been as an add-on. One commenter
transplants are classified into their own performed that no assumption can be mentioned that islet centers have
DRGs, and that this precedent should be projected based on the experience to differing arrangements with transplant
continued. date. centers on how the isolation is
Response: DRGs are created based on Response: We do not agree that an performed. The commenters added that
the need of the program to identify islet cell transplantation is the these same centers have differing
clinical coherence and resource equivalent of a pancreas transplantation. processes in isolating the islet cells.
consumption. Ideally, both components Cases involving simultaneous kidney Some commenters also indicated that
will be part of the decision making and islet cell transplantation will group there are inconsistencies in the isolation
process in DRG creation. In this case, we to DRG 302, and will receive an add-on center data provided to CMS for use in

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developing the add-on payment and our payment mechanism to pay one isolation portion of the add-on amount
expressed concerns about the validity of DRG for the infusion and one islet should be between $30,000 and $40,000.
these data. isolation add-on amount per discharge This commenter further explained that
Response: We continue to believe that under most circumstances for allograft isolation centers incur cost and time to
paying for islet isolation services as an islet cell transplants. However, in those develop improvements to the islet
add-on amount to the DRG is rare instances in which two infusions isolation technology and pointed out the
appropriate in the context of this occur during the same hospital stay, two startup costs associated with an FDA
clinical trial. We derived the isolation add-on payments for isolation of the approved isolation center.
add-on amount through analysis of islet cells can be made along with the Response: As noted earlier, we have
direct costs data submitted by 10 of the single DRG payment. The cost calculated the islet isolation portion of
prominent isolation centers in the associated with the procurement of two the add-on amount as $18,848. We
country. These centers may well have pancreata will be paid as an acquisition suspect that the $30,000 to $40,000
differing arrangements and differing cost on a reasonable cost basis. We will estimate referenced by the commenter
processes, but despite these differences, issue billing instructions on this issue included costs attributable to research
the costs and components of costs Comment: Some commenters asked and other services, which are not
showed reasonable similarities. The for guidance on the appropriate considered to be routine and reasonably
differences were also notable, but we methodology for OPOs to use in necessary for patient care.
were able to adjust for these differences. identifying costs incurred in procuring Comment: One commenter suggested
In addition to including direct costs, we pancreata for islet cell transplantation. two levels of add-on payments to
added actuarially-derived overhead Some OPOs have indicated that they account for the difference in expenses
amounts that are used in the hospital currently are providing pancreata for for autograft versus allograft islet cells
payment methodology and provided a islet cell transplantation but do not transplants. While the proposed add-on
20-percent capital adjustment for receive their full standard acquisition methodology included the cost of pre-
building and equipment and a market charge (SAC) for the organ. transplant tests and services, organ
basket adjustment to take the payment Response: In some cases, OPOs have procurement and islet isolation services,
amount to a FY 2005 funding level. been billing pancreata for islet cell autograft transplants have no associated
Historically, capital costs are transplant at a lower tissue rate. This is organ procurement costs, as the islet
approximately 10 percent of the total an improper billing method. The quality cells are taken from the patient’s own
hospital costs. However, we recognize and resources required to procure the pancreas. Autograft transplants still
that the isolation centers are equipment organ are identical, and a full charge require pre-transplant services and the
intensive, and to account for that should be made. Organs that are actual islet isolation procedure itself.
equipment, we are doubling that rate so determined to be nonviable can be Response: Our original understanding
that capital costs are 20 percent of the billed at a lesser research rate . was that autograft transplants would not
total isolation payment. We believe that Comment: One commenter indicated be included in the NIH study. After
20 percent is sufficient to account for that the costs included in pancreas review of the legislation and
capital at the isolation centers. In future acquisition at OPOs vary, making an accompanying Conference Report and
years, we would like to obtain capital add-on payment impractical. consultation with NIH, we believe that
costs amortized on a per isolation basis. Response: As mentioned above, we an autograft should not occur in this
The varying processes and arrangements will continue paying acquisition costs trial. However, in the unlikely event
are all included in our computation, and as a cost pass-through. However, all that an autograft islet cell transplant is
$18,848 will be paid as the islet OPOs should have included in their performed as part of the study on a
isolation add-on to the DRG payment. costs direct donor hospital charges, Medicare beneficiary, we will provide
Comment: One commenter wanted to surgeon retrieval fee, registry fees, donor an autograft add-on amount that
be sure that costs of transporting islet testing, and transportation. These costs includes payment for isolation but not
cells to and from the islet isolation should not be shifted to another for organ procurement. No acquisition
center are included in the add-on organization. cost of the pancreas will be provided
payment. Comment: One commenter noted that because the cost of removal of the organ
Response: Shipping costs from the it was unclear how physicians’ services is included in the DRG payment for the
OPO to the islet isolation center are involved in the oversight of the isolation native pancreatectomy procedure itself.
included in procurement costs. The islet process would to be paid since it does The isolation add-on amount will be
isolation centers did not provide data on not appear that there is an existing CPT $18,848 for an autograft islet cell
shipping to the transplant centers; code for these services. transplant.
however, we have included an Response: The commenter is correct In this rule we are finalizing our
actuarially based overhead amount that that there is no CPT code for the proposed payment methodology for
we believe is sufficient to cover these physician’s oversight services at the acquisition costs associated with
costs. isolation center. CPT codes are for direct procuring pancreata for islet cells with
Comment: Some commenters noted patient care services; the services at the modification. We will pay for the organ
that more than one infusion of islet cells isolation center do not meet that level acquisition costs as a cost pass-through
is typically required to establish insulin of patient participation. In a similar rather than as an add-on payment to the
independence and believed that this vein, the medical directors at OPOs do DRG as proposed. In addition, we are
argued in favor of payment on a cost not bill for their services using a CPT finalizing our proposal to pay for islet
pass-through basis rather than as an code. Rather, they are paid by the OPO isolation services as an add-on.
add-on amount. both for organ retrieval and medical
Response: We recognize that normally director services. We have included 15. Changes to the ICD–9–CM Coding
two or more infusions are required for physician costs in the salary portion of System
islet transplants. We also understand the isolation portion of the add-on As described in section II.B.1. of this
that it is extremely rare for two amount. preamble, the ICD–9–CM is a coding
infusions to be performed at the same Comment: One commenter believed system used for the reporting of
time. Accordingly, we have constructed that the costs associated with the diagnoses and procedures performed on

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48954 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

a patient. In September 1985, the ICD– April 1–2, 2004, and finalized the Table 6B. Diagnosis codes that have
9–CM Coordination and Maintenance coding changes after consideration of been replaced by expanded codes or
Committee was formed. This is a comments received at the meetings and other codes or have been deleted are in
Federal interdepartmental committee, in writing by January 12, 2004. Those Table 6C (Invalid Diagnosis Codes).
co-chaired by the National Center for coding changes are announced in Tables These invalid diagnosis codes will not
Health Statistics (NCHS) and CMS, 6A through 6F of the Addendum to this be recognized by the GROUPER
charged with maintaining and updating rule. Copies of the minutes of the beginning with discharges occurring on
the ICD–9–CM system. The Committee procedure codes discussions at the or after October 1, 2004. Table 6D
is jointly responsible for approving Committee’s 2003 meetings can be usually contains invalid procedure
coding changes, and developing errata, obtained from the CMS Web site: codes, however, for FY 2005, there are
addenda, and other modifications to the no invalid procedure codes. Revisions
ICD–9–CM to reflect newly developed icd9/. The minutes of the diagnoses to diagnosis code titles are in Table 6E
procedures and technologies and newly codes discussions at the 2003 meetings (Revised Diagnosis Code Titles), which
identified diseases. The Committee is are found at: also includes the DRG assignments for
also responsible for promoting the use icd9.htm. Paper copies of these minutes these revised codes. Table 6F includes
of Federal and non-Federal educational are no longer available and the mailing revised procedure code titles for FY
programs and other communication list has been discontinued. 2005.
techniques with a view toward For a report of procedure topics The first of the 2004 public meetings
standardizing coding applications and discussed at the April 1–2, 2004, was held on April 1–2, 2004. In the
upgrading the quality of the meeting, see the Summary Report at: September 7, 2001, final rule
classification system. implementing the IPPS new technology
The Official Version of the ICD–9–CM paymentsystems/icd9/. For a report of add-on payments (66 FR 46906), we
contains the list of valid diagnosis and the diagnosis topics discussed at the indicated we would attempt to include
procedure codes. (The Official Version April 1–2, 2004 meeting, see the proposals for procedure codes that
of the ICD–9–CM is available from the Summary Report at: http:// would describe new technology
Government Printing Office on CD– discussed and approved at the April
ROM for $25.00 by calling (202) 512– We encourage commenters to address meeting as part of the code revisions
1800.) The Official Version of the ICD– suggestions on coding issues involving effective the following October.
9–CM is no longer available in printed diagnosis codes to: Donna Pickett, Co- Section 503(a) of Public Law 108–173
manual form from the Federal Chairperson, ICD–9–CM Coordination includes a requirement for updating
Government; it is only available on CD– and Maintenance Committee, NCHS, ICD–9–CM codes twice a year instead of
ROM. Users who need a paper version Room 2404, 3311 Toledo Road, the current process of annual updates
are referred to one of the many products Hyattsville, MD 20782. Comments may on October 1 of each year. This
available from publishing houses. be sent by e-mail to: requirement is included as part of the
The NCHS has lead responsibility for Questions and comments concerning amendments to the Act relating to
the ICD–9–CM diagnosis codes included the procedure codes should be recognition of new technology under the
in the Tabular List and Alphabetic addressed to: Patricia E. Brooks, Co- IPPS. Section 503(a) amended section
Index for Diseases, while CMS has lead Chairperson, ICD–9–CM Coordination 1886(d)(5)(K) of the Act by adding a
responsibility for the ICD–9–CM and Maintenance Committee, CMS, new clause (vii) which states that the
procedure codes included in the Center for Medicare Management, ‘‘Secretary shall provide for the addition
Tabular List and Alphabetic Index for Hospital and Ambulatory Policy Group, of new diagnosis and procedure codes
Procedures. Division of Acute Care, C4–08–06, 7500 in April 1 of each year, but the addition
The Committee encourages Security Boulevard, Baltimore, MD of such codes shall not require the
participation in the above process by 21244–1850. Comments may be sent by Secretary to adjust the payment (or
health-related organizations. In this e-mail to: diagnosis-related group classification)
regard, the Committee holds public * * * until the fiscal year that begins
meetings for discussion of educational The ICD–9–CM code changes that after such date.’’ Because this new
issues and proposed coding changes. have been approved will become statutory requirement will have a
These meetings provide an opportunity effective October 1, 2004. The new ICD– significant impact on health care
for representatives of recognized 9–CM codes are listed, along with their providers, coding staff, publishers,
organizations in the coding field, such DRG classifications, in Tables 6A and system maintainers, software systems,
as the American Health Information 6B (New Diagnosis Codes and New among others, in the May 18, 2004,
Management Association (AHIMA), the Procedure Codes, respectively) in the proposed rule, we solicited comments
American Hospital Association (AHA), Addendum to this final rule. As we on our proposals described below to
and various physician specialty groups, stated above, the code numbers and implement this requirement. This new
as well as individual physicians, their titles were presented for public requirement will improve the
medical record administrators, health comment at the ICD–9–CM recognition of new technologies under
information management professionals, Coordination and Maintenance the IPPS system by providing
and other members of the public, to Committee meetings. Both oral and information on these new technologies
contribute ideas on coding matters. written comments were considered at an earlier date. Under the proposal,
After considering the opinions before the codes were approved. In the data would be available 6 months earlier
expressed at the public meetings and in May 18, 2004, proposed rule, we only than would be possible with updates
writing, the Committee formulates solicited comments on the proposed occurring only once a year on October
recommendations, which then must be classification of these new codes. 1. Many coding changes apply to
approved by the agencies. For codes that have been replaced by longstanding medical issues.
The Committee presented proposals new or expanded codes, the While the new requirement states that
for coding changes for implementation corresponding new or expanded the Secretary shall not adjust the
in FY 2005 at public meetings held on diagnosis codes are included in Table payment of the DRG classification for
April 3, 2003, December 4–5, 2003, and 6A. New procedure codes are shown in the April 1 new codes, the Department

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will have to update its DRG software continue this process to accommodate large hospital organization
and other systems in order to recognize all requesters who submit appropriate recommended that codes being
and accept the new codes. We will also requests in a timely manner. considered for the April 1 update be
have to publicize the code changes and In the May 18, 2004 proposed rule, we limited only to new technologies that
the need for a mid-year systems update proposed to implement section 503(a) present a strong and convincing case for
by providers to capture the new codes. by developing a mechanism for new technology add-on payment. The
Hospitals will have to obtain the new approving, in time for the April update, commenter recommended that the
code books and encoder updates, and diagnoses and procedure code revisions annual April 1 update be limited to as
make other system changes in order to needed to describe new technologies few codes as possible for the following
capture and report the new codes. We and medical services for purposes of the reasons:
indicated that we are aware of the new technology add-on payment • The addition of a significant
additional burden this will have on process. We also proposed the following number of new codes outside the
health care providers. process for making these traditional October 1 implementation
The ICD–9–CM Coordination and determinations. Topics considered will result in doubling the costs
Maintenance Committee has held its during the October ICD–9–CM associated with the purchase of new
meetings in April and December of each Coordination and Maintenance code books and updating encoder
year in order to update the codes and Committee meeting would be software programs, requiring hospitals
the applicable payment and reporting considered for an April 1 update if a to purchase new code books twice a
systems by October 1 of each year. Items strong and convincing case is made by year. The commenter stated that at least
are placed on the agenda for the ICD– the requester at the Committee’s public one publisher has already announced
9–CM Coordination and Maintenance meeting. The request must identify the that two editions of the code books will
Committee meeting if the request is reason why a new code is needed in be published every year.
received at least 2 months prior to the April for purposes of the new • Many health plans, including
meeting. This requirement allows time technology process. The participants at Medicare, require a significant lead-time
for staff to review and research the the meeting and those reviewing the to incorporate new codes into their
coding issues and prepare material for Committee meeting summary report systems. The commenter expressed
discussion at the meeting. It also allows would be provided the opportunity to concern that some payers will not be
time for the topic to be publicized in comment on this expedited request. All able to support a large number of codes
meeting announcements in the Federal other topics would be considered for the being implemented outside the
Register as well as on the CMS website. October 1 update. Participants at the traditional October 1 update.
The public decides whether or not to Committee meeting would be • A considerable amount of education
attend the meeting based on the topics encouraged to comment on all such and coder training takes place every
listed on the agenda. In order to provide requests. year with the introduction of new and
an update on April 1, it became clear We stated that we believe that this updated codes. Introducing a large
that a December Committee meeting proposal captures the intent of section number of new codes on a twice-yearly
would not provide time to finalize and 503(a). This requirement was included basis, rather than annually, will increase
publicize these code revisions. Final in the provision revising the standards this burden.
decisions on code title revisions are and process for recognizing new The commenter urged that the new
currently made by March 1 so that these technology under the IPPS. In addition, codes be released with a 5-month lead-
titles can be included in the IPPS the need for approval of new codes time as is the case now for ICD–9–CM
proposed rule. A complete addendum outside the existing cycle (October 1) updates. Currently the public is notified
describing details of all changes to ICD– arises most frequently and most acutely in May of the same year for ICD–9–CM
9–CM, both tabular and index, are where the new codes will capture new codes being implemented on October 1.
publicized on CMS and NCHS web technologies that are (or will be) under The commenter requested that the
pages in May of each year. Publishers of consideration for new technology add- public be notified by November of codes
coding books and software use this on payments. Thus, we believe this that will be implemented on April 1.
information to modify their products provision was intended to expedite data The commenter pointed out that, by
that are used by health care providers. collection through the assignment of tradition, new ICD–9–CM codes have
This 5-month time period has proved to new ICD–9–CM codes for new been published in the Federal Register,
be necessary for hospitals and other technologies seeking higher payments. as part of the annual IPPS proposed
providers to update their systems. We indicated that our proposal was rule. The commenter urged CMS to
A discussion of this timeline and the designed to carry out that intention, develop a process for the wide
need for changes are included in the while minimizing the additional dissemination of new and modified
December 4–5, 2003 ICD–9–CM administrative costs associated with ICD–9–CM codes for April 1
Coordination and Maintenance mid-year changes to the ICD–9–CM implementation. The commenter
Committee minutes. The public codes. requested that this process be published
provided comment that additional time Comment: Several comments in the IPPS final rule to inform users of
would be needed to update hospital expressed concerns about the impact the the process.
systems and obtain new code books and April 1 ICD–9–CM coding update will These comments were supported by
coding software. There was considerable have on providers. While the organizations representing State
concern expressed about the impact this commenters acknowledged the hospitals and coding specialists. The
new update would have on providers. requirement was mandated by section commenters agreed with CMS’ proposal
Therefore, we have rescheduled the 503(a) of Public Law 108–173, the to use the public meetings of the ICD–
second Committee meeting for 2004 for commenters urged CMS to carefully 9–CM Coordination and Maintenance
October 7–8, 2004. Those who wish to consider the number of these mid-year Committee to consider requests for an
have a coding issue discussed at the coding updates. The commenters stated April 1 implementation date for a new
October Committee meeting will be that these changes will have a ICD–9–CM code. The commenters
required to submit their request by significant impact on providers’ agreed that these updates should
August 7, 2004. The Department will systems. One commenter representing a primarily focus on new technology

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issues. When an individual or representing a national organization of months prior to implementation (that is,
organization requests implementation of codes and health information managers early November of the previous year), as
an ICD–9–CM code on April 1, the urged CMS to provide information on is the case for the October 1 updates.
commenters agreed that the requestor April 1 code updates at least 4 months Code book publishers are evaluating
should make a strong and convincing prior to implementation. Other how they will provide any code updates
case as to why a new code is needed in commenters representing hospital to their subscribers. Some publishers
April for purposes of the new organizations urged CMS to provide may decide to publish mid-year book
technology process. updates 5 months ahead of updates. Others may decide to sell an
Response: We agree that section implementation, or by November of the addendum that lists the changes to the
503(a) of Public Law 108–173 requires prior year. October 1 code book. Coding personnel
that ICD–9–CM codes needed to capture Response: Current addendum and should contact publishers to determine
new technology must be implemented code title information is published on how they will update their books. CMS
on April 1 and October 1 of each year. the CMS Web page at: http:// and its contractors will also consider
We also agree that the April updates developing provider education articles
will be disruptive to current provider icd9. Summary tables showing new, concerning this change to the effective
systems. Any April updates must be revised, and deleted code titles are also date of certain ICD–9–CM codes.
carefully considered and evaluated in posted on the following CMS Web page: Comment: Commenters requested
order to capture new technology in an clarification as to whether the April 1
expedited manner. Those commenters icd9code.asp. Information on ICD–9– updates would be limited to procedure
who request an April implementation of CM diagnosis codes can be found at: codes. The commenters supported our
a new ICD–9–CM code must make a proposed approach for implementing
strong and convincing case at the ICD– Information on new, revised, and the new legislative requirement to
9–CM Coordination and Maintenance deleted ICD–9–CM codes is also update ICD–9–CM codes twice a year.
Committee as to why a new code is provided to the AHA for publication in Specifically, they agreed that limiting
needed in April for purposes of the new the Coding Clinic for ICD–9–CM. AHA the implementation of new codes on
technology process. The public will be also distributes information to April 1 to those for which a strong and
provided an opportunity to discuss this publishers and software vendors. convincing case is made for an
request. Comments regarding the CMS also sends copies of all ICD–9– expedited implementation is the best
publication and dissemination of codes CM coding changes to its contractors for approach and will reduce the additional
to be implemented on April 1 are use in updating their systems and administrative costs associated with
discussed below. providing education to providers. twice-yearly updates to the coding
Comment: One commenter called the We agree that these same means of system. The commenters acknowledged
twice a year updates of ICD–9–CM an disseminating information on new, that the section of 503(a) of Public Law
important step forward in allowing new revised, and deleted ICD–9–CM codes 108–173 that includes the requirement
products to enter the market more should be used to notify providers, for updating ICD–9–CM codes twice a
quickly and receive adequate payment publishers, software vendors, year is primarily related to the
sooner. The commenter expressed some contractors, and others of changes to the recognition of new technology under the
concerns about CMS’ proposed ICD–9–CM codes that will be IPPS, but the language in the legislation
approach to these updates. The implemented in April. We will continue does not limit the requirement to
commenter stated that, by using the to provide the information in this procedure codes. The commenters
April updates for new technology, we manner. stated that CMS’ proposed approach
would not have a true twice yearly Currently, code titles are also requires the requestor of a code proposal
coding update, but rather an published in the IPPS proposed and to identify the reason why a new code
opportunity for only a small group of final rules. The code titles are adopted is needed on April 1 for purposes of the
services or technologies to receive more as part of the ICD–9–CM Coordination new technology process. One
prompt coding updates. The commenter and Maintenance Committee process. commenter stated that this requirement
stated that the April update should be The code titles are not subject to seems to preclude diagnosis code
an open opportunity for any coding comment in the proposed or final rules. updates. Another commenter requested
updates to be considered. We will continue to publish the October clarification in the final rule as to
Response: We agree with the code updates in this manner within the whether new diagnosis codes are
commenter that the process for IPPS proposed and final rules. However, intended to be included in the April 1
discussing updates to ICD–9–CM should we do not publish a mid-year IPPS rule, update.
be an open process. This has been the so the April 1 code updates will not be Response: We agree that section
practice of the ICD–9–CM Coordination published in a mid-year IPPS rule. We 503(a) of Pub. L. 108–173 did not limit
and Maintenance Committee since it will assign the new procedure code to ICD–9–CM code updates to procedure
was established in 1985. As previously the same DRG in which its predecessor codes. The legislation covered all of
stated, we will provide the opportunity code was assigned so there will be no ICD–9–CM, which includes both
for a requestor to make a clear and DRG impact as far as DRG assignment. diagnoses and procedures codes.
convincing case for the need to update This mapping was specified by Public Therefore, consideration will be given to
specific ICD–9–CM codes in April. The Law 108–173. Any proposed coding updates to both the diagnosis and
public will be provided an opportunity updates will be available through the procedure parts of ICD–9–CM on April
to discuss the merits of any codes under websites indicated above and through 1 if a strong and convincing case can be
consideration for the April updates. the Coding Clinic for ICD–9–CM. made that either a diagnosis or
Comment: Several commenters Publishers and software vendors procedure code is necessary to capture
requested details on how the public will currently obtain code changes through a new technology. We acknowledge that
be notified of the April ICD–9–CM code these sources in order to update their it may be necessary to recognize a new
updates. They requested clarification as code books and software systems. We disease, such as SARS, on April 1 so
to whether the current publication will strive to have the April 1 updates that a new technology directed toward
processes will be used. One commenter available through these websites 5 the disease can be more easily

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identified. We anticipate that most, if important because of the growing assigned to DRG 2. The average charges
not all, requests for April 1 ICD–9–CM number of problems with the ICD–9– for these unruptured cerebral aneurysm
code updates will apply to procedure CM, which was implemented 25 years cases in DRG 1 ($50,879) are slightly
codes, as the commenters have stated. ago. lower than the overall charges for all
While it is unlikely that there will be cases in that DRG ($51,300). For
16. Other Issues
many such disease code requests for an unruptured cerebral aneurysm cases
April 1 update, we will not restrict any a. Craniotomy Procedures assigned to DRG 2, we found the average
such requests for consideration. As discussed in the August 1, 2003, charges of approximately $29,524 are
Comment: Commenters representing IPPS final rule (68 FR 45353), for FY consistent with the overall average
national and state hospital associations charges of that DRG of approximately
2004 we conducted an analysis of the
as well as other organizations suggested $28,416.
charges for various procedures and
that providing twice-yearly updates to Based on the results of our analysis,
diagnoses within DRG 1 (Craniotomy
the ICD–9–CM is only a temporary we indicated that we still do not believe
Age > 17 With CC) and DRG 2
solution to meeting the coding needs of a proposal to modify the DRG
(Craniotomy Age > 17 Without CC) to
providers who may need to report new assignment of unruptured cerebral
determine whether further changes to
technology. The organizations stated aneurysm cases is warranted.
these DRGs were warranted. Based on We received one comment on this
that a more permanent and long-term-
our analysis and consideration of public issue from an organization representing
solution would be the implementation
comments received on our May 19, hospitals. The commenter agreed that
of ICD–10–CM and ICD–10–PCS as
quickly as possible. Several other 2003, IPPS proposed rule (68 FR 27161), no change is warranted for the DRG
commenters recommended moving in the August 1, 2003, IPPS final rule, assignment of unruptured aneurysm
forward with the implementation of we created three new DRGs: DRG 528 cases at this time.
ICD–10 as quickly as possible. One (Intracranial Vascular Procedures With a
Principal Diagnosis of Hemorrhage) for (2) GLIADEL Chemotherapy Wafers
commenter urged DHHS to adopt and
implement ICD–10–CM and ICD–10– patients with an intracranial vascular In the August 1, 2003 final rule (68 FR
PCS as quickly as possible in the United procedure and an intracranial 45354), we stated that we had received
States. The commenter further stated hemorrhage; and DRGs 529 (Ventricular comments requesting a change to the
that the sooner the health care industry Shunt Procedures With CC) and 530 DRG assignment of cases involving
and CMS begin to use and collect data (Ventricular Shunt Procedures Without implantation of GLIADEL
more closely representing actual CC) for patients with only a vascular chemotherapy wafers to treat brain
diagnosis and procedures, the better the shunt procedure. tumors. One of the commenters had
picture of our health services and In the May 18, 2004, proposed rule, offered two options: (1) create a new
healthcare services will be; we indicated that we had received DRG for cases involving implantation of
reimbursement will be more accurate; further comments (discussed below) GLIADEL chemotherapy wafers; and
and there will be less administrative regarding the composition of DRGs 1 (2) reassign these cases to DRG 484
burden on health care providers and on and 2 that relate to the appropriate DRG (Craniotomy for Multiple Significant
CMS. One commenter asked that the assignment of unruptured cerebral Trauma).
regulatory process for implementing aneurysm cases and cases involving At that time, we had analyzed data in
ICD–10 be started by the end of 2004. implantation of GLIADEL the March 2003 update of the FY 2003
Another commenter stated that ICD–9– chemotherapy wafers. We had also MedPAR file and found a total of 61
CM is becoming increasingly difficult to received comments on possible cases in which procedure code 00.10
update and progress should be made on revisions to DRG 3 (Craniotomy Age 0– (Implantation of a chemotherapy agent)
implementing ICD–10. 17). was reported for cases assigned to DRGs
Response: We acknowledge that there 1 and 2. There were 38 cases assigned
(1) Unruptured Cerebral Aneurysms
are some concerns with the ICD–9–CM to DRG 1 and 23 cases assigned to DRG
code set. The National Committee on In the August 1, 2003, final rule (68 2. The GROUPER logic for these DRGs
Vital and Health Statistics (NCVHS) has FR 45354), in response to a comment assigns cases with CCs to DRG 1 and
recommended that DHHS, under its that suggested we create a companion those without CCs to DRG 2. Consistent
HIPAA responsibilities, prepare a notice DRG to DRG 528 for intracranial with the GROUPER logic for these
of proposed rulemaking regarding the vascular procedures for unruptured DRGs, we had found that the average
proposed adoption of ICD–10 as a cerebral aneurysms, we evaluated cases standardized charges in DRGs 1 and 2
HIPAA standard to replace ICD–9–CM. in the MedPAR file involving were approximately $64,864 and
We are assessing the NCVHS unruptured cerebral aneurysm and $42,624, respectively. However, while
recommendations. determined that the average charges for the estimated average charges for
DHHS has been actively working on unruptured cerebral aneurysm cases GLIADEL wafer cases of $50,394 may
the development of new coding systems were consistent with the variation of have been higher than the average
to replace the ICD–9–CM. In December charges found in DRGs 1 and 2. standardized charges for DRG 2, they
1990, the NCVHS issued a report noting Therefore, we did not propose a change were within the normal variation of
that, while the ICD–9–CM classification in the DRG classification. We indicated overall charges within each DRG. In
system had been responsive to changing that we would continue to monitor addition, the volume of cases in these
technologies and identifying new cases involving unruptured cerebral two DRGs was too small to warrant the
diseases, there was concern that the ICD aneurysms. establishment of a separate new DRG for
classification might be stressed to a In the May 18, 2004, proposed rule, this technology. Therefore, we stated
point where the quality of the system we discussed our examination of cases that we wanted to review a full year of
would soon be compromised. The ICD– in the FY 2003 MedPAR file that data and take the time to consider
10–CM (for diagnoses) and the ICD–10– reported unruptured cerebral alternative options that might appear
PCS (for procedures) were developed in aneurysms. We found 657 unruptured warranted before proposing a change.
response to these concerns. These aneurysm cases assigned to DRG 1 and In the May 18, 2004, proposed rule,
efforts have become increasingly 481 unruptured cerebral aneurysm cases we discussed our examination of more

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complete MedPAR data (December 2003 (Chemotherapy With Acute Leukemia as technology that currently offers clinical
update for FY 2003) on cases reporting a Secondary Diagnosis or With Use of a benefits to patients and holds out the
GLIADEL chemotherapy wafers. We High Dose Chemotherapeutic Agent), or promise of future innovation in the
found a total of 127 cases in which DRG 481 (Bone Marrow Transplant). In treatment of these brain tumors.
procedure code 00.10 was reported for the proposed rule, we stated that we had In our proposed rule (69 FR 28221),
cases assigned to DRGs 1 and 2. There examined these alternatives, and had we invited comments and suggestions
were 80 cases assigned to DRG 1 and 47 come to the conclusion that none of regarding the appropriate DRG
cases assigned to DRG 2. The average these alternatives meets the standard of assignment for this technology.
charges for these cases in DRGs 1 and clinical coherence under the DRG Comment: One comment agreed with
2 were approximately $61,866 and system. For example, reconfiguring DRG the current DRG assignment of DRG 1 or
$47,189, respectively. The average 484 to include GLIADEL wafer cases 2 for GLIADEL cases.
charges for these cases were higher than would not produce a clinically coherent Response: We appreciate the
the overall charges of DRGs 1 and 2 of DRG because DRG 484 contains cases commenter’s support for the current
approximately $51,300 and $28,416, where craniotomy is performed in the DRG assignment for these cases.
respectively. Although the average setting of multiple significant trauma. Comment: Four commenters
charges for the GLIADEL wafer cases Similarly, assigning GLIADEL wafer supported the reassignment of Gliadel
within these DRGs are higher than the cases to DRG 528 would not produce a cases to DRG 528 (Intracranial Vascular
average charges of all cases in these clinically coherent DRG because DRG Procedure With a Principal Diagnosis of
DRGs, they remain within the range of 528 contains cases where craniotomy is Hemorrhage). The commenters stated
average charges for other procedures performed as part of a vascular that the average cost of a patient
included in these DRGs. The majority of procedure with a primary diagnosis of receiving Gliadel chemotherapy wafer
the GLIADEL wafer cases are assigned hemorrhage, as in the case of a ruptured treatment is consistent with the average
to the second highest weighted DRG in aneurysm. DRG 492 is clinically DRG 528 payments to providers. The
MDC 1 behind DRG 528 (Intracranial inappropriate because it contains cases commenters also believed that treatment
Vascular Procedure With a Principal of acute leukemia treated with using the Gliadel wafer is clinically
Diagnosis of Hemorrhage) in which the chemotherapy, and DRG 481 is consistent with the treatment under
weights were derived from average clinically inappropriate because it procedures currently assigned to DRG
charges of approximately $113,884. In contains cases involving bone marrow 528.
DRG 1, there are 10 procedures that transplant. None of these DRGs contains Response: As we stated in the May 18,
have higher average charges than the cases of glioblastoma multiforme or 2004 proposed rule (69 FR 28222), we
GLIADEL wafer cases. However, in other primary brain tumors. Therefore, do not believe that the GLIADEL cases
DRG 2, the charges associated with in the May 18, 2004 proposed rule, we meet the clinical coherence criteria for
GLIADEL wafer cases are the highest did not propose to adopt any of these inclusion in DRG 528. DRG 528
of the procedures included within the changes. includes hemorrhage or ruptured
DRG. As discussed in the May 18, 2004 cerebral aneursym cases. While the
DRGs are based on the principal proposed rule, we also considered surgical approach may be similar to
diagnosis, secondary diagnosis, and several other approaches to reassigning GLIADEL, cases assigned to DRG 528
procedures performed on the patient. GLIADEL wafer cases in a manner that involve patients who have an acute
DRGs are not generally created to is appropriate both in terms of clinical condition with a high severity of illness
recognize the presence or absence of coherence and resource use. For and a significantly higher rate of
specific technologies for each patient. In example, we considered the creation of mortality during surgery than
the past, we have made one exception a new DRG that includes GLIADEL GLIADEL cases (20.6 percent for DRG
to this rule. The exception was the wafer cases along with other types of 528 cases compared to 3.15 for
creation of two new DRGs for drug- local therapy for intracerebral malignant GLIADEL cases). In addition, the
eluting stents: DRG 526 (Percutaneous disease. Specifically, we considered the average charges for cases in DRG 528,
Cardiovascular Procedure With Drug- creation of a new DRG that includes approximately $97,540, are significantly
Eluting Stent With Acute Myocardial GLIADEL wafers and a Gliasite higher than the average charges for
Infarction) and DRG 527 (Percutaneous Radiation Therapy System, a relatively GLIADEL cases in DRG 1,
Cardiovascular Procedure With Drug- new form of intracavitary approximately $61,866. Thus, we do not
Eluting Stent Without Acute Myocardial brachytherapy. Such a DRG would be believe that GLIADEL cases and those
Infarction) (67 FR 50003). We took this clinically coherent because it would assigned to DRG 528 are clinically
unprecedented approach in response to contain cases of malignant brain tumors coherent and similar in resource use.
the unique circumstances surrounding treated with local therapy. However, our We continue to believe that reassigning
the potential breakthrough nature of this analysis of existing FY 2003 MedPAR GLIADEL cases to DRG 528 is
technology. We currently have 59,613 data suggested that such a DRG would inappropriate and would result in
drug-eluting stent cases annually, far probably not provide enhanced overpayment for GLIADEL cases.
more cases than the volume for reimbursement for the GLIADEL wafer Comment: One commenter suggested
GLIADEL wafers. We believe that the cases, and that, in fact, decreased that we reassign GLIADEL cases to
volume of GLIADEL wafer cases reimbursement for GLIADEL wafer DRG 528 for FY 2005 and eventually
remains too small to warrant the taking cases is a more likely result. Therefore, create a DRG for intracerebral therapies.
of the exceptional step of establishing a we did not propose a specific change. The commenter proposed a new DRG
separate new DRG for this technology. However, we stated that we would that would include implantation of a
Commenters also have proposed the continue to monitor our data to chemotherapeutic agent and seven new
reassignment of GLIADEL wafer cases determine whether a change is drugs that are currently in FDA Phase II
to other existing DRGs, such as DRG 484 warranted in the future. and III clinical trials and are expected
(Craniotomy for Multiple Significant We recognize that the implantation of to receive FDA approval in 2 to 5 years.
Trauma), DRG 528 (Intracranial chemotherapeutically active wafers for According to the commenter, the new
Vascular Procedures With Principal local therapy of malignant brain tumors drugs are also indicated for glioblastoma
Diagnosis of Hemorrhage), DRG 492 represents a significant medical multiforme and the mode of therapy is

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chemotherapy, radiotherapy, or chemotherapeutic agent or cases with an implanted in the brain, such as
brachytherapy. acute complex central nervous system implantable chemotherapeutic wafers.
Response: As we discussed above, we diagnosis as the principal diagnosis The cases remaining in DRGs 1 and 2
do not believe assignment to DRG 528 ensures that GLIADEL cases are will be the following types of patients:
is appropriate. We review DRG assigned to a DRG that is clinically 1. Patients with chronic central
assignments every year and will coherent and reflects the resources used nervous system conditions such as
determine the appropriate assignment of to treat these cases and appropriately malignancies, degenerative conditions,
the new technologies when it is addresses the concerns of those and cerebrovascular disease without
appropriate to do so. commenters who raised questions acute infarct.
Comment: Many commenters regarding the DRG assignment for these 2. Patients with subdural hematoma
encouraged CMS to reassign Gliadel cases. not associated with an open head
chemotherapy wafer treatment to a new The new DRG 543 (Craniotomy with wound.
or higher paying DRG. The commenters Implantation of Chemotherapeutic 3. Patients with lesser degrees of
believed that higher payment would Agent or Acute Complex Central central nervous system trauma, such as
ensure access to life-extending Nervous System Principal Diagnosis) is skull fracture or other injury but
treatment for patients suffering from being placed in MDC 1. It was created without brain laceration.
malignant brain tumors. These from existing DRGs 1 and 2 (Craniotomy
commenters offered no specific Patients in new DRG 543 would, on
Age >17 With and Without CC, average, consume more resources
recommendations on reassignment of respectively) by removing three types of
these cases to other DRGs. because they require greater pre-
patients based on their principal operative and post-operative care, and
Response: In this final rule, we are diagnosis. Therefore, new DRG 543 will
creating a new DRG that would include in many cases require more complicated
contain patients who undergo a operative procedures. The FY 2003
implantation of chemotherapeutic agent craniotomy procedure with a principal
(procedure code 00.10) cases or cases in MedPAR data for the new DRG includes
diagnosis belonging to one of the 5,413 cases with overall average charges
which an acute complex central nervous following three categories:
system diagnosis was reported as the of approximately $63,409. These
principal diagnosis. An example of an 1. Patients with a major central charges are similar to the current
acute complex diagnosis is an nervous system infection, such as average charges for Gliadel cases in
intracranial abscess. GLIADEL bacterial meningitis, encephalitis, or an DRG 1 of approximately $61,866.
chemotherapy wafer cases would be intracranial abscess. For FY 2005, we will be
reassigned to this new DRG. 2. Patients with a subarachnoid implementing new DRG 543 with the
Although we did not propose this hemorrhage, intracranial hemorrhage, or following logic:
specific solution to the issue of payment an acute stroke. • Craniotomy procedure from DRGs 1
for GLIADEL in the proposed rule, we 3. Patients with central nervous and 2 and procedure code 00.10,
indicated that we would continue to system trauma resulting in brain Implantation of chemotherapeutic agent;
consider appropriate changes to the laceration or brain injury associated or
DRG assignment of cases involving with an open head wound. • Craniotomy procedure from DRGs 1
GLIADEL. Furthermore, we believe In addition, new DRG 543 will and 2 and principal diagnosis of acute
that the creation of a new DRG for cases include cases involving treatment using complex central nervous system listed
involving implantation of a chemotherapeutic agents and devices below.

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BILLING CODE 4121–01–C Comment: One commenter agreed that • DRG 516 (Percutaneous
(3) DRG 3 (Craniotomy Age 0–17) there does not appear to be a need to Cardiovascular Procedures With AMI)
address DRG 3 at this time. However, • DRG 517 (Percutaneous
In the May 18, 2004, proposed rule, the commenter noted that other payers, Cardiovascular Procedures With
we addressed a comment we had such as many Medicaid payers, Nondrug-Eluting Stent Without AMI)
received stating concern that DRG 3 has reimburse based on DRG groupings and • DRG 526 (Percutaneous
not been reviewed, while DRGs 1 and 2 requested that we consider those payers Cardiovascular Procedures With Drug-
have had some revisions. The when addressing proposed changes to Eluting Stent With AMI)
commenter believed that, particularly the DRG system in the future. • DRG 527 (Percutaneous
with the removal of major trauma cases, Response: For this final rule, we will Cardiovascular Procedures With Drug-
age distinctions may no longer be not be making any changes to DRG 3. Eluting Stent Without AMI)
significant for craniotomies and the Decisions about the use of DRGs in One of the recommendations involved
other intracranial procedures classified Medicaid are made by the states. As we restructuring these DRGs to create two
in DRGs 1 through 3. The commenter stated previously, the primary focus of additional stent DRGs that are closely
stated that it may be more consistent, our updates to the Medicare DRG patterned after these existing pairs and
from both a clinical and resource classification system is on changes that would reflect insertion of multiple
perspective, to simply eliminate DRG 3 relating to the Medicare patient stents with and without AMI. The
and redistribute the pediatric and population. manufacturer recommended
juvenile cases to DRGs 1 and 2 based on incorporating either stenting code 36.06
the procedures performed and the b. Coronary Stent Procedures
(Insertion of nondrug-eluting coronary
complications or comorbidities present, In the May 18, 2004, proposed rule, artery stent(s)) or code 36.07 (Insertion
instead. We stated that this analysis we addressed recommendations that we of drug-eluting coronary artery stent(s))
would require supplemental data from had received from several industry when they are reported along with code
non-MedPAR sources. representatives about the DRG 36.05 (Multiple vessel percutaneous
We noted in the proposed rule that assignments for coronary artery stents. transluminal coronary angioplasty
the primary focus of updates to the These representatives expressed [PTCA] or coronary atherectomy
Medicare DRG classification system is concern about whether the performed during the same operation,
on changes relating to the Medicare reimbursement for stents is adequate, with or without mention of
patient population, not the pediatric especially for insertion of multiple thrombolytic agent). The manufacturer
patient population. In the FY 2003 data, stents. They also expressed concern expressed concern that hospitals are
there were only two cases assigned to about whether the current DRG steering patients toward coronary artery
DRG 3. Therefore, we did not believe a structure represents the most clinically bypass graft surgery in place of stenting
proposal to address the commenter’s coherent classification of stent cases. in order to avoid significant financial
request was warranted. We indicated We received two comprehensive losses due to what it considered the
that we are aware that the Medicare recommendations for refinement and inadequate reimbursement for inserting
DRGs are sometimes used to classify restructuring of the current coronary multiple stents.
other patient populations. We advised stent DRGs. The current DRG structure We appreciated receiving the
those non-Medicare systems that need a incorporates stent cases into the manufacturer’s recommendation, and
more up-to-date system to consider following two pairs of DRGs, depending agree that the DRG classification of
choosing from other systems that are on whether bare metal or drug-eluting cases involving coronary stents must be
currently in use in this country, or stents are used and whether acute clinically coherent and provide for
developing their own modifications. myocardial infarction (AMI) is present: adequate reimbursement, including

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adequate reimbursement of cases according to whether bare metal or DRG restructure and the current DRG
requiring multiple stents. We also agree drug-eluting stents are used (as with the structure, we do not believe that it is
that the recommendation has some present DRGs) and whether the cases are advisable to undertake a critical DRG
merits and deserves further study. ‘‘complex’’ or ‘‘noncomplex.’’ The restructuring without examining the
However, as stated in the proposed rule, manufacturer indicated that complex recommendation against actual
we believed that it was premature to act cases are those that include certain experience under the current structure.
on this recommendation for two comorbid conditions or procedural As we stated in the proposed rule, we
reasons. One reason is that the current factors such as hypertensive renal believe that this recommendation may
coding structure for coronary artery failure, diabetes, AMI, and multivessel have merit, and we will conduct a full
stents cannot distinguish cases in which PCI. The manufacturer further indicated analysis of the recommendation in
multiple stents are inserted from cases that this structure would provide an comparison to the other
in which only a single stent is inserted. improvement in both clinical and recommendation for DRG revision and
Current codes are able to identify resource coherence over the current to the current DRG structure once
performance of PTCA in more than one structure that classifies cases according adequate data become available.
vessel by use of code 36.05. However, to the type of stent inserted and the The drug-eluting stents had not yet
while this code indicates that PTCA was presence or absence of AMI alone, been FDA approved when we calculated
performed in more than one vessel, its without considering other complicating the relative weights for DRGs 526 and
use does not reflect the exact number of conditions. Specifically, the 527 for the FY 2003 IPPS final rule.
procedures performed or the exact manufacturer recommended replacing Therefore, in the absence of MedPAR
number of vessels treated. Similarly, the current structure with the following data, we based our FY 2003 relative
when codes 36.06 and 36.07 are used, four DRGs: weight calculations on prices in
they document the insertion of at least • Recommended restructured DRG countries where drug-eluting stents
one stent. However, these stenting codes 516 (Complex percutaneous were already being used. A full
do not identify how many stents were cardiovascular procedures with discussion of this process can be found
inserted in a procedure, nor distinguish nondrug-eluting stents) in the FY 2004 IPPS final rule (68 FR
insertion of a single stent from insertion • Recommended restructured DRG
45370). For computation of the
of multiple stents. Even the use of one 517 (Noncomplex percutaneous
proposed relative weights for FY 2005
of the stenting codes in conjunction cardiovascular procedures with
in the May 18, 2004 proposed rule, we
with multiple-PTCA code 36.05 does nondrug-eluting stents)
• Recommended restructured DRG used the December update of FY 2003
not distinguish insertion of a single MedPAR data. (As stated in the June 25,
stent from insertion of multiple stents. 526 (Complex percutaneous
cardiovascular procedures with drug- 2004 correction notice (69 FR 35921),
The use of code 36.05 in conjunction there have been a total of approximately
with code 36.06 or code 36.07 indicates eluting stents)
• Recommended restructured DRG 11,084 cases in DRG 526, and 48,097
only performance of PTCA in more than cases in DRG 527, with adjustments
one vessel, along with insertion of at 527 (Noncomplex percutaneous
cardiovascular procedures with drug- made for transfers to other facilities.)
least one stent. The precise numbers of For computation of the final FY 2005
PTCA-treated vessels, the number of eluting stents)
The manufacturer presented an relative weights, we are using the March
vessels into which stents were inserted,
analysis based on FY 2002 MedPAR FY 2004 update of the FY 2003 MedPAR
and the total number of stents inserted
data, in which it evaluated charges and data file for cases in these two DRGs. No
in all treated vessels cannot be
lengths of stay for cases with expected foreign data have been used to compute
determined. Therefore, the capabilities
high resource use, and reclassified cases the relative weights for DRGs 526 and
of the current coding structure do not
into the recommended new structure of 527 in FY 2005.
permit the distinction between single
vessel stenting and multiple vessel paired ‘‘complex’’ and ‘‘noncomplex’’ We received a number of comments
stenting that would be required under DRGs. The analysis shows some concerning coronary stents, both bare
the recommended restructuring of the evidence of clinical and resource and drug-eluting in response to the May
stenting DRGs. coherence in the recommended DRG 18, 2004, proposed rule. As noted
In addition, because the FDA structure. However, as we stated in the above, we had discussed two external
approved drug-eluting stents for use in proposed rule, the analysis does not yet recommendations for refinement or
April 2003, the distinct DRGs for drug- provide a convincing case for adopting restructuring of the current coronary
eluting stents have only been effective the recommended restructure. First, the stent DRGs (69 FR 28222). At that time,
for payment for a little over a year. The analysis does not reveal significant we indicated that we believed that
MedPAR file thus does not contain a gains in resource coherence compared arguments for change might have merit.
full year of data with which to conduct to existing DRGs for stenting cases. However, as there was not an adequate
the requisite analysis to evaluate the Second, the analysis is limited in database upon which to structure a DRG
adequacy of the current structure of four assessing the feasibility of using the revision, and because the two proposals
stenting DRGs. In the proposed rule, we recommended DRG restructure versus were so dissimilar, we indicated that we
indicated that we would consider this the current DRG structure for would continue to monitor the coronary
recommendation as we evaluate the classification of stent cases. Because the stent DRGs and would review the DRG
current DRG structure once adequate manufacturer used FY 2002 MedPAR structure once adequate data became
data on the current stenting DRGs data in its analysis, it was not able to available. We will continue to review
become available. We also stated in the compare the resource coherence of the the data carefully and will assess
proposed rule that we believe it is still recommended structure with the current whether a revised DRG structure is
premature to undertake such a thorough structure of four DRGs, but only with appropriate when we have more than 11
restructuring of the stent DRGs. the two DRGs that preceded the months of data experience. The FDA
The second recommendation was that approval of drug-eluting stents. While approved the drug-eluting stent for use
we transform the current structure of the manufacturer asserted that ‘‘similar in April 2003. Therefore, our MedPAR
stenting DRGs into two new pairs of results would be expected’’ from a payment data collection began at that
DRGs, reclassifying stenting cases comparison between its recommended time.

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Comment: Two commenters undertake a thorough restructuring of distinguishes between ‘‘with and
supported the complex vs. noncomplex the four current stent DRGs, both without AMI’’ and the presence of bare
case-mix DRG pairs option. The because the recommendations differed or drug-eluting stents with a structure
commenters suggested that the so completely from each other and distinguishing between ‘‘with and
complexities be based on diagnoses of because we lacked data of adequate without complexity.’’ In performing its
congestive heart failure, cerebral historical duration with which to make analysis, the commenter reviewed
vascular disease, renal failure, AMI, and a comprehensive analysis. charges within each of the four stent
the presence of a multiple vessel We note that FDA is in the process of DRGs and then stratified the cases into
procedure. (We believe that the determining the efficacy of drug-eluting groups with and without the following
commenter intended the latter stents in high-risk patient clinical trials, comorbidities or procedural
complexity to be the presence of code and acute myocardial infarction (AMI) characteristics: a principal diagnosis of
36.05 (Multiple vessel percutaneous has been identified as one of the high- AMI, or any secondary diagnosis of
transluminal coronary angioplasty risk triggers. We do not believe it is congestive heart failure, renal failure,
[PTCA] or coronary atherectomy appropriate to further use high-risk cerebrovascular disease, or cases
performed during the same operation, triggers such as AMI to structure the
including code 36.05, reflecting
with or without mention of stent DRGs until FDA’s work is
multiple vessel procedure. The
thrombolytic agent) in the same complete.
Comment: One commenter commenter classified cases with the
inpatient episode.)
Response: We take this opportunity to recommended restructuring of the four above characteristics as ‘‘complex’’ and
clarify that we did not offer a choice existing stent DRGs (DRG 516, 517, 526, cases without these characteristics as
between two options in the proposed and 527) by complex and noncomplex ‘‘noncomplex.’’
rule. We discussed the two options that components. Specifically, the The commenter included the
had been suggested to us. However, we commenter suggested replacing the following table for comparison
determined that it was premature to existing DRG structure that purposes:

The commenter’s conclusion was that revision of DRG 526 has mean charges Response: We appreciate the
a diagnosis of AMI, by itself, was not an of $51,054. This is a decrease of $692. commenter’s support of these temporary
accurate reflection of the most resource- These results indicate to us that the DRGs. In the FY 2003 IPPS final rule (67
intensive procedures associated with current DRG structure is accurate in FR 50004), we stated that we expect that
coronary stenting. terms of resource consumption. when claims data are available that
Response: We appreciate the In addition, we note that under the reflect the use of drug-eluting stents, we
considerable thought and study that commenter’s proposal, the number of would combine drug-eluting stents
went into the analysis that was cases with other stent cases in DRGs 516
cases in the complex DRG categories,
submitted. However, in reviewing the and 517. A change of that nature would
while the number of noncomplex cases
comparison, we identified the be subject to an analysis of the claims
decreases. There would be a shift in the
similarities of the mean charges between data to determine whether these data
number of cases per DRG, but each case
the current DRGs and the proposed reflect a significant reduction in the use
would have lower average charges per
complex DRGs, and the fact that in of bare stents, due to the overwhelming
every single comparison, the mean case, which would reduce the relative
industry acceptance of the more
charges go down in the complex DRGs. weight of all four DRGs. We are hesitant efficacious drug-eluting stent. At this
For example, according to the table, to adopt this approach, given the time, with only 11 months of claims
current DRG 516 has mean charges of comments and concerns that data, we believe that changes to these
$41,788, while the proposed complex reimbursement for stenting procedures DRG pairs would be premature. We will
revision of DRG 516 has mean charges is already under funded. continue our analysis and monitor the
of $41,762. This is a decrease of $26. Comment: One commenter supported data for these cases.
Also, current DRG 526 has mean charges our proposal to maintain temporary Comment: One commenter expressed
of $51,746, while the proposed complex DRGS 526 and 527. concern that the relative weights

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published in Table 5 of the Addendum angioplasty of a vessel and only to vessel procedures with drug-eluting
to the proposed rule (69 FR 28642) were include a code for insertion of a stent or stent(s) and the presence or absence of
inadequate to cover the costs of stents. an AMI. The suggester’s argument was
procedures involving this technology This action is not proper. The AHA that the presence of code 36.05, which
and might provide financial incentives publication, Coding Clinic for ICD–9– shows treatment of multiple vessels,
for hospitals to use less effective CM, Fourth Quarter, 1996, specifically also indicates that more than one stent
technologies (such as bare metal stents) instructs that a code for angioplasty, by was inserted. We considered this
or more invasive coronary artery bypass any technique, be used when an assertion in the proposed rule because
graft (CABG) procedures for Medicare angioplasty is performed in the we recognize that current ICD–9–CM
beneficiaries. placement of a stent or stents (page 63). codes do not adequately describe the
Response: We note that the relative Therefore, the correct coding for insertion of more than one stent.
weights listed in Table 5 of the insertion of coronary stent(s) requires However, as we discussed in the
proposed rule are based on MedPAR two codes. One code describes the proposed rule, we believe that the
hospital charge data as of the December angioplasty: 36.01 (Single vessel presence of code 36.05 only indicates
2003 update of the files, which were not percutaneous transluminal coronary that more than one vessel was surgically
as complete for FY 2003 as the data are angioplasty [PTCA] or coronary treated. It does not indicate that more
now. The relative weights in this final atherectomy without mention of than one stent was placed in all cases.
rule are based on the March FY 2004 thrombolytic agent); 36.02 (Single vessel We reiterate that no conclusions can be
update of the FY 2003 MedPAR file, and percutaneous transluminal coronary drawn regarding the number of stents
reflect a more comprehensive picture of angioplasty [PTCA] or coronary inserted based upon the number of
hospital charges. The final weight for atherectomy with mention of vessels treated. Therefore, we are not
DRG 516 is 2.6457, for DRG 517 is thrombolytic agent); or 36.03 (Open prepared to make DRG adjustments
2.1106, for DRG 526 is 2.9741, and for chest coronary artery angioplasty, or based on the commenter’s assertion. In
DRG 527 is 2.3282. 36.05. The second code describes which addition, we are not prepared to assume
We also point out that the DRG base stent was inserted: either 36.06 that the presence of code 36.05 is solely
rate computed using relative weights is (Insertion of non drug-eluting coronary responsible for any higher charges
only part of the formula used to artery stent(s)) or 36.07 (Insertion of associated with these cases.
determine what each hospital is paid for drug-eluting coronary artery stent(s)). We do believe that there is a need to
each case. Additional payment is made Failure to record the angioplasty further identify the insertion of multiple
to each hospital based on its unique procedure will result in assignment of stents and will work with industry
structure, including indirect medical the case to the medical DRG instead of representatives to conceptualize the
education, area wage levels, the correct surgical DRG. This erroneous most appropriate ICD–9–CM procedure
disproportionate share adjustment, and coding action will have an impact on code or codes to capture this data. The
any applicable cost-of-living many levels. It will result in incorrect topic of a new code or codes for
adjustments in Alaska and Hawaii. data in the database, which in turn will multiple stent insertion will be
Hospitals may also receive outlier result in an erroneous base upon which addressed at the October 7, 2004 ICD–
payments for certain cases involving future DRG relative weights are 9–CM Coordination and Maintenance
extraordinary high costs. calculated. In addition, in the short Committee meeting at CMS’
We are concerned by the comment term, it will result in reduced revenue headquarters in Baltimore, MD.
regarding the provision of CABG to the hospitals because of the incorrect Comment: One commenter expressed
procedures when less appropriate to the DRG assignment for all cases in which concern about the implication of
patient than drug-eluting therapy. One incorrect coding occurs. maintaining separate and distinct DRGs
commenter believed the conversion Comment: One commenter indicated for drug-eluting stents and encouraged
from CABG to drug-eluting stent therapy that there is a disincentive for the CMS to consider fully the impact on less
has already begun and cited MedPAR insertion of multiple drug-eluting stents expensive technologies, such as
data to prove its point. These data show placed during the same inpatient intravascular brachytherapy (IVBT).
that during the first quarter of full drug- admission. This commenter indicated IVBT is the use of vascular radiation
eluting stent availability (July, August, that there might be pressures on delivered inside an artery to reduce the
and September 2003), Medicare CABG physicians to bring patients back for an incidence of restenosis. The commenter
discharges declined 9.3 percent from the additional stent procedure on a noted that the DRG system should not
same quarter in the previous year. The subsequent admission. Another create financial incentives to use drug-
commenter also noted a corresponding commenter suggested that, as an interim eluting stents when the clinical
increase in stenting procedures. approach, code 36.05 be used as a outcomes and costs of other treatments
In addition, it has come to our trigger for DRG assignment to a newly are similar or better in the appropriate
attention that there may be some coding created DRG, or act as a trigger for an patient populations.
errors that are contributing to an add-on payment for each stent. The Response: As we have stated above in
erroneous data and reimbursement case- commenter’s justification for this response to other comments, in the
mix profile for hospitals. Specifically, it suggestion was that, because current absence of more complete data and
has been suggested that some hospitals medical practice indicates that over 85 without thorough evaluation, we are
may be reluctant to include a code for percent of balloon angioplasties reluctant to undertake any restructuring
vessel angioplasty in conjunction with currently involve a concurrent insertion of these four DRGs (516, 517, 526, and
stent placement. Apparently some of a stent, code 36.05 could serve as a 527) for FY 2005. Therefore, these DRGs
hospital staff have expressed concerns good surrogate code until such time as will continue to be structured as they
that a ‘‘true’’ angioplasty is not being new codes are created and available for currently are. In the upcoming fiscal
performed, and that they will therefore use. year, as in the past, we will be closely
be censured by regulatory agencies for Response: One of the suggestions monitoring our own data, outside data,
erroneous coding. Therefore, these received that we discussed in the and any FDA decision on the efficacy of
hospitals have instructed their coding proposed rule recommended that two stent placement in a high-risk AMI
staff not to include a code describing new DRGs be created based on multiple- population. We will also consider

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alternative therapies, such as IVBT, as that appear to be contradictory. The severe sepsis. We also note, as
part of that process. commenters agreed that it was not mentioned above, that improved and
appropriate to modify the DRGs at this modified coding instructions and
c. Severe Sepsis
time, given the uncertainty about the guidelines will be available in October
In the May 18, 2004, proposed rule, use of the SIRS codes and the accuracy 2004. However, we continue to believe
we addressed a comment we had of the reported data. that a separate DRG for severe sepsis is
received that recommended a separate One commenter recommended not appropriate at this time based on the
DRG be assigned to the diagnosis of continued monitoring of the population available data. We believe that the
severe sepsis. Patients admitted with with severe sepsis in the future. Another defining criteria for severe sepsis, using
sepsis currently are assigned to DRG 416 commenter supported our proposal not the currently available ICD–9–CM
(Septicemia Age > 17) and DRG 417 to create a new DRG for severe sepsis, codes, are not specific, accurate, or
(Septicemia Age 0–17) in MDC 18 given the data and information unique enough to warrant a new DRG
(Infectious and Parasitic Diseases, provided. classification. However, we anticipate
Systemic or Unspecified Sites). The Response: We agree with the receiving data using the new and
commenter contended that the costs of commenters that there has been modified codes and instructions and
caring for patients with severe sepsis confusion in the correct use of the SIRS will consider this issue again in the
exceed those costs associated with other codes based on use of the ICD–9–CM future.
types of sepsis. Therefore, the code book. The related section of the Comment: One commenter disagreed
commenter indicated, severe sepsis ICD–9–CM code book is being revised with our decision not to create a new
should be given a separate, unique DRG. on October 1, 2004, to help resolve this DRG for severe sepsis. The commenter
Furthermore, the commenter requested confusion. Additional coding urged CMS to ‘‘recognize severe sepsis
that all cases in which severe sepsis is instructions are also being developed on as a clinically coherent condition
present on admission, as well as those the correct use of these codes. These associated with high mortality and a
cases in which it develops after instructions will be published in the patient population displaying similar
admission (which are currently American Hospital Association’s Coding characteristics in terms of outcome and
classified elsewhere) be included in this Clinic for ICD–9–CM. These actions costs incurred for treatment, which
new DRG. The commenter suggested should lead to more consistency in thereby deserves its own DRG.’’ The
using various coexisting conditions and identifying and reporting cases of severe commenter asserted that the current
their corresponding ICD–9–CM codes sepsis. Once this information is DRG for sepsis uses the clinically
(for example, respiratory failure or available, CMS will review the data to obsolete term ‘‘septicemia.’’ The
hypotension and renal failure) to determine any needed modifications to commenter also stated that severe sepsis
identify patients with severe sepsis. The the DRG to better capture severe sepsis. cases now classify to 339 different
conditions suggested do not describe a We agree with the commenters that we DRGs; however, these DRGs do not
clinically coherent set of patients that should not create a new DRG for severe distinguish between cases with and
have severe sepsis. Using this list of sepsis based on the currently available without severe sepsis. The commenter
conditions would erroneously identify data, and that we should continue to believed that payment for cases in
patients as having severe sepsis. monitor the population with severe which severe sepsis occurs is
We acknowledge the high costs of sepsis in order to better characterize inadequate and urged us to work closely
caring for seriously ill patients with resource utilization in these patients. with the Critical Care Work Group in
sepsis. However, we do not find, from Comment: One commenter expressed the development of a new DRG.
a clinical perspective, that a subset of disagreement with our decision not to Response: We agree with the
patients with severe sepsis exists to the modify the DRGs to capture severe commenter that severe sepsis cases fall
degree that a separate DRG classification sepsis. The commenter asserted that into a wide spectrum of DRGs, and
is justified. Sepsis in all forms is quite using the accepted definition of severe therein lies the problem. The ICD–9–CM
common across many DRGs in the sepsis—‘‘a systemic inflammatory coding system has lacked the requisite
Medicare population. In addition, we do response to infection associated with specificity and accuracy needed to
not believe that the commenter’s acute organ dysfunction’’—was identify patients with severe sepsis.
suggested defining criteria for severe adequate to identify patients for the While new codes were created
sepsis are specific, accurate, or unique purpose of creating new DRGs. The specifically for this purpose (codes
enough to warrant a new DRG commenter also asserted that severe 995.90 through 995.94), coders have had
classification. Therefore, in the May 18, sepsis is common, deadly, and costly; difficulty in consistently using the
2004, proposed rule, we did not propose that it involves extensive use of codes. We have worked closely with the
any change to the current DRG structure intensive care unit resources; and that it Centers for Disease Control and
for sepsis. is inadequately represented by the use Prevention to make refinements to the
Comment: Several commenters agreed of ICD–9–CM procedure code coding notes and instructions so that
with our proposal not to create a new 00.11(Infusion of diotrecogin alfa these codes can be more consistently
DRG for severe sepsis. Some of the (activated)). applied. These revised notes and
commenters mentioned coding Response: We agree with the instructions will go into effect on
problems that exist with new codes commenter that severe sepsis is a October 1, 2004. We believe that when
995.90 through 995.94 that were created common, deadly, and costly clinical more consistent data are submitted, we
to capture Systemic Inflammatory entity. We also acknowledge that the will have the necessary information to
Response Syndrome (SIRS). The current coding for all forms of sepsis is propose further refinements in the DRGs
commenters acknowledged that the problematic. We believe that the to better capture severe sepsis. As
codes were specifically created to creation of code 00.17 (Infusion of mentioned before, CMS will closely
capture severe sepsis. However, they vasopressor agent), which goes into monitor the classification of patients
indicated that there has been much effect on October 1, 2004, in with severe sepsis in the near future,
confusion among coders in their use. combination with code 00.11 and the particularly with regard to the use of
The commenters mentioned coding SIRS codes 995.90 through 995.94, will other codes commonly reported for
notes included in the ICD–9–CM book help to better identify patients with patients with severe sepsis such as new

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code 00.17 (Infusion of vasopressor d. Implantable Cardiac Defibrillators averaged in with the higher charges for
agent) and code 00.11 (Infusion of There is a range of implantable the more complex devices in setting the
diotrecogin alfa (activated)). We will cardiac defibrillators (ICDs) available on DRG weights. However, it could lead to
also work closely with the American the market from extremely complex complaints that the program is
Hospital Association and the American devices with multiple leads, settings, underpaying for the more complex,
Health Information Management and functions to simpler models with a expensive devices as the lower charges
Association on their efforts to provide single lead and simpler functions. ICDs for simpler, less expensive devices
education to coders in the correct use of deliver electrical shocks to the heart to begin to affect (lower) the DRG weights.
the severe sepsis codes (SIRS codes Another approach would be to
eliminate the life-threatening abnormal
995.90 through 995.94). recognize the cost differences between
rhythms such as ventricular fibrillation
various classes of defibrillators by
Comment: One commenter believed or ventricular tachycardia.
establishing separate DRGs for basic
that CMS was shortsighted in its failure As indicated in the May 18, 2004,
single-lead implantable defibrillators as
to create a new DRG for severe sepsis. proposed rule, we received a coverage
opposed to more complex, expensive
The commenter also noted that severe request to expand the indications for
models. This approach would prevent
sepsis is a widespread and deadly implantable defibrillators to include the
payments for the use of more expensive
disease that has been defined since population studied in the Sudden
defibrillators (where medically
1992, and that severe sepsis cases Cardiac Death in Heart Failure Trial
necessary) from being diluted by the
currently classify into 339 DRGs. The (SCD–HeFT) sponsored by the National effect of the lower charges for basic
commenter asserted that grouping these Institutes of Health. SCD–HeFT treated single-lead implantable defibrillators on
cases together in at least one DRG would heart failure patients with conventional the weights within common DRGs.
enhance hospitals and practitioners’ therapy and randomized them to one of However, this policy would arguably
ability to understand the disease and its three additional treatment strategies: (1) provide less incentive for use of the
treatment as well as to evaluate the costs Placebo; (2) amiodarone (drug therapy); lower cost devices: the weights for the
of care. This commenter further asserted or (3) single lead implantable DRGs containing the less expensive
that only a small proportion of patients defibrillator. The SCD–HeFT devices would be driven solely by their
with severe sepsis and organ investigators presented results at the relatively lower charges, without being
dysfunction are assigned to DRG 416 American College of Cardiology annual lifted by the higher charges for the more
(Septicemia Age >17) and DRG 417 meeting that the basic single-lead expensive models. This approach might
(Septicemia Age 0–17), and that a large implantable defibrillator is effective for also be criticized for departing from the
number of surgical cases with severe saving lives in a population at low- averaging principle within the DRG
sepsis are ignored. The commenter also moderate risk for sudden cardiac death. system by basing too much on the cost
noted that cases of severe sepsis that As part of CMS’ coverage decisions, we differential alone in reconfiguring these
develop after admission typically are are considering whether to restrict the DRGs.
classified in other DRGs. use of complex defibrillators to patients We solicited comments on these and
for whom they are medically necessary, other approaches to paying for
This commenter mentioned the set of that is, the population at low-moderate
proposed criteria put forth by another defibrillators under the IPPS. We
risk for sudden cardiac death. discuss an application for new
commenter to define severe sepsis (‘‘a Given the potential increase of
systemic inflammatory response technology add-on payments for a
implantable defibrillator use in our Cardiac Resynchronization Therapy
syndrome associated with organ population, in the May 18, 2004,
dysfunction, hypoperfusion, or with Defibrillator (CRT–D) in section
proposed rule, we solicited input on II.E.4.c. of this final rule. We discuss
hypotension’’) and asserted that this how to encourage physicians to use the
definition has been widely accepted comments regarding payments for these
simpler, less costly device when devices in that section.
within the international clinical advanced devices are not medically
community, that it is encompassed by preferred. We also solicited input on the e. Intestinal Transplantation
code 995.92 (Systemic inflammatory appropriate measures within the Even though we did not address the
response syndrome due to infectious payment systems to accommodate issue of DRG payment for intestinal
process with organ dysfunction), and payment for classes of defibrillators transplantation in the May 18, 2004,
that it should be used to identify with very different costs. Ideally, we proposed rule, we received a comment
patients for classification to a new DRG. would like not only to align payments from an institution that performs
Response: As mentioned earlier, we with relative costs, but also to align the intestinal transplantation.
recognize that severe sepsis is a incentives within the payment system Comment: The commenter expressed
widespread and deadly disease that with medically appropriate uses of concern that the current payment policy
accompanies a wide spectrum of other different technologies. utilizes a relatively low weight DRG that
diagnoses. We also recognize that it We believe that, within the PPS for imposes a significant financial burden
frequently develops after admission, inpatient hospital operating costs, there on health care providers. The
and that it is a frequent complication of are several ways to deal with the commenter requested a new DRG for
surgical cases. In addition, we recognize expanding use of simpler, lower cost each of three main types of intestinal
that current coding practices are defibrillators. One possibility is to transplantation: isolated intestine, liver
problematic, and we look forward to maintain the current DRG configuration, plus intestine, and multivisceral (liver,
better refining our ability to identify under which complex, expensive stomach, duodenum, pancreas, and
patients with severe sepsis by using devices and simpler, less costly devices small bowel).
codes 00.11 and 00.17 and the SIRS would remain within the same DRGs Due to the small patient population
series of codes. We look forward to and receive the same payment rates. associated with these transplantations,
working with groups represented by the This approach would encourage use of the commenter suggested that CMS
commenters in the future to optimize the simpler devices, which would lower the number of cases required to
the DRG system to best serve this receive relatively higher reimbursement create a new DRG. In addition, the
important Medicare patient population. because their lower charges would be commenter suggested that CMS utilize

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data on non-Medicare patients and the intestinal transplantation, there was intestinal transplantation to determine
pediatric population to supplement another operation on the stomach. The appropriate assignment of these cases.
current MedPAR data. total charge for the one case in DRG 154
Response: We have been monitoring f. Cochlear Implants
was $1,105,627, with a length of stay of
intestinal transplantation cases since 32 days. Even though we did not specifically
October 2000, when Medicare issued a We are open to receiving non- address issues relating to the DRG
national coverage decision for this MedPAR data but would limit the data payment for cochlear implants in the
transplant, to determine whether it may to Medicare patients, rather than using May 18, 2004, proposed rule, we
be appropriate to establish a new DRG. non-Medicare data as suggested by the received public comments on this area.
An ICD–9-CM procedure code 46.97 commenter. We believe that, if we Comment: One commenter expressed
(Transplant of intestine) was created in received data from the five approved concern about the low reimbursement
October 1, 2000, to uniquely capture intestinal transplant centers regarding for cochlear implants. Cochlear
isolated intestinal transplantation. all Medicare patients receiving implants are currently assigned to DRG
Acquisition cost centers were intestinal transplantations during the 49 (Major Head and Neck Procedures).
established for intestines and fiscal year, the minimum requirement of The commenter stated that cochlear
multivisceral organs to be paid on a cases may be met. When we receive implants represent the only procedure
reasonable cost basis. Based on our past sufficient data, we will again consider a in DRG 49 involving implantation of a
annual reviews, we did not find a separate intestinal transplant DRG. high cost medical device. It was stated
sufficient number of cases to warrant We agree that payment for isolated that the acquisition cost alone represent
the creation of a new DRG. The intestinal transplant is too low in DRGs 85 percent of the total cost of the
commenter provided some rationale for 148 and 149. The average payments for procedure. The commenter noted that
the absence of cases, including the time DRGs 148 and 149 are approximately although CMS has acknowledged the
lag between the actual transplant date $15,314 and $6,567, respectively. As disparity between payment and cost and
and the submission of the bill and the mentioned earlier, it is not uncommon vowed to further evaluate possible
limited patient population involved. for an intestinal transplant to be reclassification options for cochlear
If an intestinal transplantation alone implants, nothing has been done to
performed in conjunction with
is performed on a patient with a
transplants of other organs, such as the mitigate this payment shortfall.
principal diagnosis in MDC 6 (Diseases
liver. As a matter of fact, intestinal Response: Although cochlear
and Disorders of the Digestive System),
transplants are assigned to DRG 480 implants was not addressed in our May
the case would be assigned to either
now since these patients frequently 18, 2004 proposed rule, we have
DRG 148 (Major Small & Large Bowel
have both an intestinal transplant and a continued to monitor these cases. In our
Procedures With CC) or DRG 149 (Major
Small & Large Bowel Procedures liver transplant. Therefore, DRG 480 analysis of the FY 2003 MedPAR file,
Without CC). If an intestinal already contains cases with intestinal we found 120 cochlear implant cases
transplantation was performed and the transplants. Therefore, we would not be with average charges of approximately
patient required a tracheostomy, the disrupting the clinical cohesiveness of $44,366. There were a total of 1,602
case would be assigned to DRG 483 DRG 480 by adding intestinal cases assigned to DRG 49 with average
(Tracheostomy With Mechanical transplant. charges of approximately $24,971.
Ventilation 96+ Hours or Principal Furthermore, intestinal Cochlear implant cases represent more
Diagnosis Except Face, Mouth & Neck transplantation has become a definitive than 7 percent of the total cases in DRG
Diagnosis). In cases where multiple treatment for patients with short gut 49.
surgical procedures are performed, the syndrome and intestinal diseases who We have been unable to identify an
case is assigned to the DRG associated no longer can be maintained on total alternative DRG assignment for these
with the most resource-intensive parenteral nutrition (TPN). Liver failure cases. As we discussed in the August 1,
surgical class. If an intestinal and liver may be induced by TPN. The average 2003, final rule (68 FR 45367), we
transplantation were performed charges for DRG 480 are approximately continue to believe that assignment of
simultaneously, the case would be $157,129. While the total charges for cochlear implant cases to DRG 482
assigned to DRG 480 (Liver Transplant). intestinal transplantation are higher (Tracheostomy for Face, Mouth and
It is not uncommon that a liver than the average charges for DRG 480, Neck Diagnoses) is inappropriate. A
transplant would be performed with an we believe that DRG 480 is a better tracheostomy must be performed in
intestinal transplant. If a multivisceral assignment of these cases. order for the case to be assigned to this
transplantation is performed, the case is Given this practice, we are moving DRG. We remain reluctant to create a
also assigned to DRG 480. intestinal transplantation cases out of new DRG for specific, low-volume
Based on our review of the FY 2003 DRGs 148 and 149 and into DRG 480 procedures. Doing so would create a
MedPAR data, we identified six cases (Liver Transplant), effective FY 2005. proliferation of DRGs and a loss of some
with procedure code 46.97 all ICD–9-CM procedure code 46.97 will be of the efficiency incentives inherent in
performed at one facility. We are assigned to pre-MDC, DRG 480. The title the current system.
concerned that only one facility’s data is for DRG 480 will change to ‘‘Liver
g. Artificial Hearts
contained in the MedPAR file when Transplant and/or Intestinal
there are five Medicare-approved Transplant’’. The result of this Comment: One commenter requested
intestinal transplant centers. Of the six reassignment would move intestinal that newly created procedure codes
cases, three cases were assigned to DRG transplant cases from a weight of 3.3871 37.52 (Implantation of total replacement
148, with total charges ranging from in DRG 148 and 1.4352 in DRG 149 to heart system), 37.53 (Replacement or
$839,802 to $903,518 and an average a weight of 9.8696. We are aware that, repair of thoracic unit of total
length of stay of 36 days. Two cases with this change, the three main types replacement heart system), and 37.54
were assigned to DRG 483. One case was of intestinal transplantation; isolated (Replacement or repair of other
assigned to DRG 154 (Stomach, intestine, liver plus intestine, and implantable component of total
Esophageal, & Duodenal Procedures Age multivisceral, will be assigned to DRG replacement heart system) be assigned
>17 With CC) because, in addition to the 480. We will continue to monitor to DRG 103 instead of DRG 525.

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Response: Codes 37.52, 37.53, and discharges for FY 2005. The new code catheterization laboratory using
37.54 are not new codes. They were is listed in Table 6B of the Addendum standard transseptal technique, with the
created for the October 1, 2003 ICD–9- (69 FR 28672 in the proposed rule). patient generally under local anesthesia.
CM update. In the proposed rule, CMS Table 6B represents a listing of The procedure takes approximately one
discussed the restructuring of DRG 525 approved final new codes. The codes hour, and most patients stay overnight
(69 FR 28208) and further listed the themselves are not subject to comment in the hospital.
codes that were included in that DRG. but their assignment regarding We received several comments
Codes 37.52, 37.53, and 37.54 are part placement as an O.R. procedure and the concerning the proposal to assign new
of that list. We did not propose the MDC and DRG placement are open to code 37.90 to DRG 518 (Percutaneous
addition of codes 37.52, 37.53, or 37.54 comment. As discussed elsewhere in Cardiovascular Procedure Without
to DRG 525 for FY 2005. These codes this preamble, the announcement of the Coronary Artery Stent or AMI).
were assigned to DRG 525 upon their adoption of the codes as final in the Comment: All of the commenters
formation, as it is our practice to assign IPPS proposed rule is included in the discussed the surgical technique
all codes to DRGs when they are ICD–9–CM Coordination and required for insertion of the device and
created. We take this opportunity to Maintenance Committee meeting cited the risk and complexity of the
note that Medicare does not cover the process. procedure, especially due to the
use of an artificial heart as a permanent
Background: Atrial fibrillation is a transseptal catheterization required. The
replacement for a human heart or as a
common heart rhythm disorder that can commenters noted that because
temporary life-support system until a
lead to cardiovascular blood clot comparatively simple procedures are
human heart becomes available for
transplant. Therefore, we believe that a formation leading to increased risk of already grouped to DRG 518, DRG 518
DRG reassignment would be stroke. According to product literature, does not reflect the resources used in
inappropriate at this time. No DRG nearly all strokes are from embolic clots this procedure. The commenters
assignment changes will be made to arising in the left atrial appendage of the suggested that insertion of a left atrial
codes 37.52, 37.53, or 37.54 for FY 2005. heart; an appendage for which there is appendage device more closely
no useful function. Standard therapy resembles the insertion of an atrial
h. Left Atrial Appendage Devices: DRG uses anticoagulation drugs. However, septal defect occluder.
Assignment for New Code 37.90 these drugs may be contraindicated in Response: Insertion of an atrial septal
The issue of the DRG assignment of certain patients and may cause defect occluder would be coded to the
new code 37.90 (Insertion of left atrial complications such as bleeding. The 35.xx series of ICD–9–CM procedure
appendage device) was not presented as underlying concept behind the left atrial codes. DRG 108 includes code 35.52
a topic in the May 18, 2004, proposed appendage device is to block off the left (Repair of atrial septal defect with
rule. At the April 1, 2004, ICD–9–CM atrial appendage so that blood clots prosthesis, closed technique) which
Coordination and Maintenance formed therein cannot travel to other may be similar to insertion of the left
Committee meeting, we discussed these sites in the vascular system. The device atrial appendage device. Codes in the
devices. A new code was created for use is implanted using a percutaneous 35.xx series are assigned to DRG 108
in upcoming clinical trials and was fast- catheter procedure under fluoroscopy (Other Cardiothoracic Procedures). We
tracked so that the code could be used through the femoral vein. Implantation reviewed the MedPAR data and found
beginning October 1, 2004, for is performed in a hospital the following:

Because code 37.90 was created for chest procedures in DRG 108, some these cases for both clinical coherence
use beginning on October 1, 2004, we requiring the use of cardiopulmonary and charge data as part of the process of
have no data history regarding its bypass, would also seem to indicate that identifying the most appropriate DRG
utilization. However, given that the DRG 108 is not the best choice for assignment for code 35.52.
atrial appendage device is clinical coherence. We are disinclined
percutaneously inserted, and that most to assign this new code to such a i. Carotid Artery Stents
of the procedures in DRG 108 are open resource intensive DRG without DRG Assignment for New Codes
chest procedures, we do not believe that appropriate data to reinforce and justify
DRG 108 is the most appropriate clinical such a decision. Therefore, we are At the April 1, 2004, ICD–9–CM
placement for new code 37.90. In maintaining the assignment of code Coordination and Maintenance
addition, review of the data in the table 37.90 to DRG 518 in this final rule. Committee meeting, we discussed
above shows a large variance between Review of code 35.52 (Repair of atrial creation of a new code or codes to
the hospital charges and length of stay septal defect with prosthesis, closed identify carotid artery stenting, along
between DRG 518 and DRG 108. technique) in the table above shows a with a concomitant percutaneous
According to one manufacturer, the decided similarity to the cases found in angioplasty or atherectomy (PTA) code
projected length of stay for insertion of DRG 518. We will analyze the for delivery of the stent(s). This subject
an atrial appendage is overnight for placement of code 35.52 as part of next was addressed in response to the need
observation purposes. The many open year’s proposed rule. We will analyze to identify carotid artery stenting for use

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in clinical trials in the upcoming fiscal lodge in the brain or in other arteries to protection devices, possibly because
year. Public comment confirmed the the head. The PTA procedure involves these devices are still in the trial stage
need for specific codes for this inflating a balloon-like device in the and no hospital costs have yet been
procedure. Implementation of the code narrowed section of the carotid artery to established. Two commenters stated
was fast-tracked so that the code could reopen the vessel. A carotid stent is then that they knew of reports that a number
be used beginning October 1, 2004, for placed in the artery to prevent the vessel of sites in one of the clinical trials have
discharges in FY 2005 for patients who from closing and to prevent pieces of indicated a reluctance to enroll patients
are enrolled in an FDA-approved plaque from entering the bloodstream. due to the low level of payment under
clinical trial and are using on-label FDA Effective July 1, 2001, Medicare DRG 534. One commenter reviewed
approved stents and embolic protection covers PTA of the carotid artery cases in the FY 2002 MedPAR data file
devices. concurrent with carotid stent placement and noted that the cases are primarily
The newly created codes 00.61 when furnished in accordance with the clinical trial cases that do not include a
(Percutaneous angioplasty or FDA-approved protocols governing charge for the carotid stent and embolic
atherectomy of precerebral (extracranial Category B Investigational Device protection device. Therefore, the
vessel(s)) and 00.63 (Percutaneous Exemption (IDE) clinical trials. PTA of commenter added, the reported hospital
insertion of carotid artery stent(s)) were the carotid artery, when provided solely
charges significantly understate the
published in Table 6B, New Procedure for the purpose of carotid artery dilation
charges that would be associated with
Codes in the proposed rule (69 FR concurrent with carotid stent
the carotid stenting procedure in a
28671). Table 6B in the proposed rule placement, is considered to be a
nonclinical trial setting.
represents final codes and the codes reasonable and necessary service only
themselves were not subject to when provided in the context of such Response: As we have created code
comment, as the notice and comments clinical trials, and therefore is 00.61 for use beginning October 1, 2004,
are part of the ICD–9–CM Coordination considered a covered service for the we have no data history regarding its
and Maintenance Committee process. purposes of these trials. Performance of utilization.
However, their assignment regarding PTA in the carotid artery when used to In FY 2003, any carotid stenting
placement as an OR procedure, as well treat obstructive lesions outside of procedures performed would have been
as MDC and DRG placement, were open approved protocols governing Category
assigned to DRG 5. Insertion of a carotid
to public comment. B IDE clinical trials remains a
stent or stents was a procedure for
New code 00.61 was assigned to four noncovered service.
which there was no specific coverage
MDCs and seven DRGs. The most likely We received several comments
scenario will have cases being assigned concerning the proposed assignment of decision. In addition, the ICD–9–CM
to MDC 1 (Diseases and Disorders of the new code 00.61 to MDC 1, DRG 533 and codes describing insertion of a stent
Nervous System in DRGs 533 DRG 534. were nonspecific, and the codes used to
(Extracranial Procedures With CC) and Comment: All commenters suggested describe that procedure also applied to
534 (Extracranial Procedures Without that instead of code 00.61 grouping to many other procedures for which there
CC). Cases could also be assigned to both DRGs 533 and 534, the cases was a coverage decision. The
MDC 5 (Diseases and Disorders of the should only be assigned to DRG 533. commenter is correct that any cases in
Circulatory System), MDC 21 (Injuries, Commenters have suggested that the our data may have been performed
Poisoning, and Toxic Effects of Drugs), patients in Category B IDE clinical trials within the setting of a clinical trial. In
and MDC 24 (Multiple Significant will not have the kinds of CCs that FY 2004, we restructured DRG 5,
Trauma). The less likely DRG would assure assignment to DRG 533. splitting all those cases into DRGs 533
assignments can be reviewed in Table Commenters cited other complications and 534, and ordered the DRGs based on
6B in the Addendum to this final rule. such as bilateral occlusion, certain the presence or absence of CCs. When
Background: Stroke is the third anatomical conditions such as a we reviewed the available MedPAR
leading cause of death in the United ‘‘surgically hostile neck,’’ and complex data, we used the following proxy:
States and the leading cause of serious, diseases, as complications in their cases. Principal diagnosis code 433.10
long-term disability. Approximately 70 However, most of the CCs cited by the (Occlusion and stenosis of carotid
percent of all strokes occur in people commenters are not able to be captured artery, without mention of cerebral
age 65 and older. The carotid artery is using current ICD–9–CM codes, and infarction), and procedure codes 39.50
located in the neck and is the principal therefore would not contribute to the (Angioplasty or atherectomy of
artery supplying the head and neck with assignment of these cases to DRG 533. noncoronary vessel), plus code 39.90
blood. Accumulation of plaque in the All of the commenters stated that the (Insertion of nondrug-eluting,
carotid artery can lead to stroke either payment for DRG 534 is inadequate, but noncoronary artery stent(s)). The
by decreasing the blood flow to the did not furnish data regarding the cost following table shows the results of our
brain or by having plaque break free and of the stent(s) and the embolic review:

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When we evaluated the data in the intracranial vessel(s), 00.64 angioplasty in conjunction with stent
above table, we found relative weights (Percutaneous insertion of other placement. Apparently, some hospital
have increased for DRG 533 over the precerebral (extracranial) artery stent(s), staff have expressed concerns that a
past two reporting periods compared to and 00.65 (Percutaneous insertion of ‘‘true’’ angioplasty is not being
the cases in DRG 5. In addition, we intracranial vascular stent(s). We performed, and that, therefore, they will
found that, although the hospital assigned procedure code 00.62 to the be censured by regulatory agencies for
charges had increased between same MDCs and DRGs as code 00.61, erroneous coding. As a result, these
reporting years 2002 and 2003, the mimicking the DRG assignment for hospitals have instructed their coding
charges were within the mean and .75 predecessor codes. staff not to include a code describing
standard deviation. As the DRG system Comment: One commenter angioplasty of a vessel, and to only
is one of averages, we are reassured that encouraged CMS to assign intracranial include a code for insertion of a stent or
this payment structure is appropriate. angioplasty cases containing procedure
The FDA has not given final approval code 00.62 to DRGs 1 and 2 instead of
to the safety and efficacy of carotid PTA DRGs 533 and 534. The commenter This is incorrect. The AHA
with stenting as clinical trials are still believed that DRGs 1 and 2 better reflect publication Coding Clinic for ICD–9–CM
ongoing. CMS has not yet approved this the grouping logic for clinical specifically instructs that a code for
procedure and device under Medicare, homogeneity and resource utilization. angioplasty, by any technique, is
outside of the clinical trial setting. To Response: When new ICD–9–CM performed in the placement of a stent or
reiterate, specific codes were recently codes are created, they are automatically stents (Fourth Quarter, 1996, page 63).
created and have not yet been put into assigned to an MDC and a DRG(s). We Therefore, the correct coding for
use in hospitals. We believe that the generally assign new codes to the insertion of coronary stent(s) requires
data that we have reviewed in DRGs 5, predecessor DRGs until we have two codes. One code describes the
533, and 534 are reasonably correct compelling MedPAR data that indicate angioplasty with 00.61, and the second
regarding hospital charges for this otherwise. In the case of code 00.62, the code describes the stent insertion with
procedure. We believe that adjusting the point is moot. Medicare does not cover code 00.63. To fail to record the
IPPS system for a specific device that PTA of intracranial vessels, and we are angioplasty procedure will result in
has not been used outside the clinical not aware of any clinical trials during assignment of the case to the medical
trial setting, without substantiating data, the upcoming fiscal year. We refer DRG instead of the correct surgical DRG.
obviates the intent of the diagnosis- readers to the discussion of changes to This erroneous coding action will have
related groups. Therefore, we believe Edit 11 (Non-Covered Procedures) of the
an impact on many levels. It will result
the assignment of code 00.61 to DRGs Medicare Code Editor under section
in incorrect data in the database, which
533 and 534 as proposed is appropriate II.B.10. of this preamble. Therefore, in
the absence of compelling evidence, we in turn will result in an erroneous base
at this time. We will continue to
monitor DRGs 533 and 534 and are not making any changes to the MDC upon which future DRG relative weights
procedure codes 00.61 in combination or DRG assignments of code 00.62. are calculated. In addition, in the short
with 00.63 in upcoming annual DRG In addition, it has come to our term, it will result in reduced revenue
reviews. attention that there may be some coding to the hospital because of the incorrect
At the April 1, 2004, ICD–9–CM errors that are contributing to an DRG assignment for all cases in which
Coordination and Maintenance erroneous reimbursement case-mix this occurs. To reiterate, the correct
Committee Meeting, we also created profile for hospitals. Specifically, it has procedure coding for insertion of a
procedure codes 00.62 (Percutaneous been suggested that some hospitals may carotid stent combines codes 00.61 and
angioplasty or atherectomy of be reluctant to include a code for vessel 00.63.

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j. Acute Intermittent Porphyria classification revisions discussed in When we recalibrated the DRG
In the May 18, 2004 IPPS proposed section II.B. of this preamble. weights for previous years, we set a
• The transplant cases that were used threshold of 10 cases as the minimum
rule, we did not present as an issue the
to establish the relative weight for heart number of cases required to compute a
DRG assignment of the code used for
and heart-lung, liver, and lung reasonable weight. We used that same
acute intermittent porphyria. However,
transplants (DRGs 103, 480, and 495) case threshold in recalibrating the final
we did receive one comment concerning
were limited to those Medicare- DRG weights for FY 2005. Using the FY
this condition.
approved transplant centers that have 2003 MedPAR data set, there are 41
Comment: One commenter requested
cases in the FY 2001 MedPAR file. DRGs that contain fewer than 10 cases.
that we give consideration to
(Medicare coverage for heart, heart-lung, We computed the weights for these low-
assignment of a DRG to an orphan
liver, and lung transplants is limited to volume DRGs by adjusting the FY 2004
biologic intended to treat acute
those facilities that have received weights of these DRGs by the percentage
intermittent porphyria. This condition approval from CMS as transplant change in the average weight of the
is a rare metabolic disorder affecting centers.) cases in the other DRGs.
fewer than 1,000 persons in the United • Organ acquisition costs for kidney, Section 1886(d)(4)(C)(iii) of the Act
States. The drug manufacturer was heart, heart-lung, liver, lung, pancreas, requires that, beginning with FY 1991,
concerned that Medicare hospitalization and intestinal (or multivisceral organs) reclassification and recalibration
payments do not accurately reflect the transplants continue to be paid on a changes be made in a manner that
cost of the treatment. The condition is reasonable cost basis. Because these assures that the aggregate payments are
coded to Code 277.1 (Disorders of acquisition costs are paid separately neither greater than nor less than the
porphyrin metabolism) and is assigned from the prospective payment rate, it is aggregate payments that would have
to DRG 299 (Inborn Errors of necessary to subtract the acquisition been made without the changes.
Metabolism). charges from the total charges on each Although normalization is intended to
Response: The DRG assignment of transplant bill that showed acquisition achieve this effect, equating the average
code 277.1 was not an issue that was charges before computing the average case weight after recalibration to the
addressed in the May 18, 2004 proposed charge for the DRG and before average case weight before recalibration
rule. We will take this comment into eliminating statistical outliers. does not necessarily achieve budget
consideration in the future as we • Charges were standardized to neutrality with respect to aggregate
conduct analysis of the MedPAR data remove the effects of differences in area payments to hospitals because payments
for next year’s proposed rule. wage levels, indirect medical education to hospitals are affected by factors other
C. Recalibration of DRG Weights and disproportionate share payments, than average case weight. Therefore, as
and, for hospitals in Alaska and Hawaii, we have done in past years and as
As we proposed, in this final rule, we the applicable cost-of-living adjustment. discussed in section II.A.4.a. of the
used the same basic methodology for the • The average standardized charge Addendum to this final rule, we are
FY 2005 recalibration as we did for FY per DRG was calculated by summing the making a budget neutrality adjustment
2004 (August 1, 2003 IPPS final rule (68 standardized charges for all cases in the to ensure that the requirement of section
FR 45373)). That is, we have DRG and dividing that amount by the 1886(d)(4)(C)(iii) of the Act is met.
recalibrated the DRG weights based on number of cases classified in the DRG. Comment: Two commenters
charge data for Medicare discharges A transfer case is counted as a fraction addressed the proposed DRG weights for
using the most current charge of a case based on the ratio of its transfer three DRGs. One commenter was
information available (the FY 2003 payment under the per diem payment appreciative of the increased proposed
MedPAR file). methodology to the full DRG payment DRG weight for DRG 36 (Retinal
The MedPAR file is based on fully for nontransfer cases. That is, a transfer Procedures). The current DRG weight is
coded diagnostic and procedure data for case receiving payment under the 0.6298 and the proposed weight was
all Medicare inpatient hospital bills. transfer methodology equal to half of 0.6766. Another commenter expressed
The FY 2003 MedPAR data used in this what the case would receive as a concern that the proposed weights for
final rule include discharges occurring nontransfer would be counted as 0.5 of DRGs 535 (Cardiac Defibrillator Implant
between October 1, 2002, and a total case. With Cardiac Catheterization With AMI,
September 30, 2003, based on bills • Statistical outliers were eliminated Heart Failure, or Shock) and DRG 536
received by CMS through March 31, by removing all cases that are beyond (Cardiac Defibrillator Implant With
2004, from all hospitals subject to the 3.0 standard deviations from the mean Cardiac Catheterization Without AMI,
IPPS and short-term acute care hospitals of the log distribution of both the Heart Failure or Shock) believes this
in Maryland (which are under a waiver charges per case and the charges per day would not cover the cost of the Cardiac
from the IPPS under section 1814(b)(3) for each DRG. Resynchronization Therapy Defibrillator
of the Act). The FY 2003 MedPAR file • The average charge for each DRG (CRT–D), much less the procedure and
includes data for approximately was then recomputed (excluding the nursing care costs associated with these
11,740,557 Medicare discharges. statistical outliers) and divided by the procedures. The commenter believed
Discharges for Medicare beneficiaries national average standardized charge that the DRG weight data are
enrolled in a Medicare+Choice managed per case to determine the relative problematic because they are based on
care plan are excluded from this weight. hospital charges. The commenter stated
analysis. The data excludes CAHs, The new weights are normalized by that hospitals do not like to mark up the
including hospitals that subsequently an adjustment factor of 1.46795 so that cost of an item at $34,000. The
became CAHs after the period from the average case weight after commenter inquired whether CMS has
which the data were taken. recalibration is equal to the average case evaluated the cost of the CRT–Ds from
The methodology used to calculate weight before recalibration. This the claims which was calculated using
the DRG relative weights from the FY adjustment is intended to ensure that the cost-to-charge ratio compared to
2003 MedPAR file is as follows: recalibration by itself neither increases outside data on the cost of the CRT–Ds.
• To the extent possible, all the nor decreases total payments under the Response: In the process of
claims were regrouped using the DRG IPPS. recalibration of the DRG weights, we

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consider the most recent charge data DRGs and relative weights for FY 2005 May 7, 2004, (69 FR 25674)), are applied
available. Both high and low cost in this final rule are based on the IPPS in conjunction with the LTC–DRGs and
technologies are absorbed gradually into DRGs (GROUPER Version 22.0) relative weights established in the
the data that are used to determine the discussed in section II. of this final rule. August 1, 2003, IPPS final rule (68 FR
DRG weight. Comment: One commenter questioned 45374) that are in effect through
whether the rate update cycle for the September 30, 2004, for LTCH
D. LTC–DRG Reclassifications and LTCH PPS will revert from a July 1 discharges occurring from July 1, 2004
Relative Weights for LTCHs for FY 2005 through June 30 cycle to the Federal through September 30, 2004. However,
1. Background fiscal year cycle (October 1 through beginning with discharges occurring on
September 30) since we proposed to or after October 1, 2004, the LTC–DRGs
In the June 6, 2003, LTCH PPS final
update the LTC–DRGs effective for and relative weights established in this
rule (68 FR 34122), we changed the
discharges on or after October 1, 2004. final rule will be applied in conjunction
LTCH PPS annual payment rate update Response: In the June 6, 2003 LTCH
cycle to be effective July 1 through June with the LTCH PPS Federal rate
PPS final rule (68 FR 34122), we ($36,833.69) and other payment factors
30 instead of October 1 through changed the LTCH PPS annual payment
September 30. In addition, because the (such as the outlier threshold and wage
rate update cycle to be effective July 1 index values) effective July 1, 2004, as
patient classification system utilized through June 30 instead of October 1
under the LTCH PPS is based directly established in the May 7, 2004 LTCH
through September 30. As we discussed PPS final rule (69 FR 25674), for
on the DRGs used under the IPPS for in that same LTCH PPS final rule and
acute care hospitals, in that same final discharges occurring through June 30,
as we discussed in the May 18, 2004, 2005.
rule, we explained that the annual IPPS proposed rule (69 FR 28225),
update of the long-term care diagnosis- because the patient classification system 2. Changes in the LTC–DRG
related group (LTC–DRG) classifications utilized under the LTCH PPS is based Classifications
and relative weights will continue to directly on the DRGs used under the
remain linked to the annual a. Background
IPPS for acute care hospitals, the annual
reclassification and recalibration of the update of the LTC–DRG classifications Section 123 of Public Law 106–113
CMS–DRGs used under the IPPS. and relative weights will continue to specifically requires that the PPS for
The annual update to the IPPS DRGs remain linked to the annual LTCHs be a per discharge system with
is based on the annual revisions to the reclassification and recalibration of the a DRG-based patient classification
ICD–9–CM codes and is effective each CMS–DRGs used under the IPPS. system reflecting the differences in
October 1. In the health care industry, The most recent annual LTCH PPS patient resources and costs in LTCHs
annual changes to the ICD–9–CM codes payment rate update and policy changes while maintaining budget neutrality.
are effective for discharges occurring on for the 2005 LTCH PPS rate year (July Section 307(b)(1) of Public Law 106–554
or after October 1 each year. The use of 1, 2004 through June 30, 2004) was modified the requirements of section
the ICD–9–CM coding system is also published in the Federal Register on 123 of Public Law 106–113 by
compliant with the requirements of the May 7, 2004 (69 FR 25674 through specifically requiring that the Secretary
Health Insurance Portability and 25749). In that same LTCH PPS final examine ‘‘the feasibility and the impact
Accountability Act (HIPAA), Public Law rule, we established rate updates and of basing payment under such a system
104–191, under 45 CFR parts 160 and policy changes that were effective for [the LTCH PPS] on the use of existing
162. Therefore, the manual and discharges occurring on or after July 1, (or refined) hospital diagnosis-related
electronic versions of the GROUPER 2004, including an update to the groups (DRGs) that have been modified
software, which are based on the ICD– standard Federal LTCH PPS rate, the to account for different resource use of
9–CM codes, are also revised annually LTCH PPS wage index and the LTCH long-term care hospital patients as well
and effective for discharges occurring on PPS outlier threshold. However, because as the use of the most recently available
or after October 1 each year. Because the the LTC–DRGS are linked to the IPPS hospital discharge data.’’
LTC–DRGs are based on the patient DRGs, the LTC–DRG classifications and In accordance with section 307(b)(1)
classification system used under the relative weights established in the of Public Law 106–554 and § 412.515 of
IPPS (CMS–DRGs), which is updated August 1, 2003, final rule (68 FR 45374), our existing regulations, the LTCH PPS
annually and effective for discharges which were effective beginning in uses information from LTCH patient
occurring on or after October 1 through Federal FY 2004, remain in effect records to classify patient cases into
September 30 each year, in the May 7, through September 30, 2004. The distinct LTC–DRGs based on clinical
2004, LTCH PPS final rule (69 FR updated LTC–DRG classifications and characteristics and expected resource
25674), we specified that we will relative weights established for FY 2005 needs. The LTC–DRGs used as the
continue to update the LTC–DRG shown in Table 11 of this final rule will patient classification component of the
classifications and relative weights to be be effective for LTCH discharges on or LTCH PPS correspond to the DRGs
effective for discharges occurring on or after October 1, 2004 and before under the IPPS for acute care hospitals.
after October 1 through September 30 September 30, 2005. As we stated in the Thus, as we proposed in the May 18,
each year. Furthermore, we stated that June 6, 2003 LTCH PPS final rule, the 2004, IPPS proposed rule, we will use
we will publish the annual update of rate update cycle for the LTCH PPS will the IPPS GROUPER Version 22.0 for FY
the LTC–DRGs in the proposed and final continue to remain on a July 1 through 2005 to process LTCH PPS claims in
rules for the IPPS. June 30 cycle while the annual update this final rule. The changes to the IPPS
In the May 18, 2004, IPPS proposed to the LTC–DRG classifications and DRG classification system for FY 2005
rule (69 FR 28225), we proposed relative weights will remain on a (GROUPER Version 22.0) are discussed
revisions to the LTC–DRG Federal fiscal year cycle (October 1 in section II.B. of this preamble.
classifications and relative weights. We through September 30). Accordingly, Under the LTCH PPS, we determine
are finalizing them in this IPPS final the updated LTCH PPS Federal rate relative weights for each of the CMS
rule, to be effective October 1, 2004, ($36,833.69) and other payment factors DRGs to account for the difference in
through September 30, 2005, using the (such as the outlier threshold and wage resource use by patients exhibiting the
latest available data. The final LTC– index values) effective July 1, 2004 (see case complexity and multiple medical

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problems characteristic of LTCH under the LTCH PPS are consistent with Medicare LTCH GROUPER. The LTCH
patients. In a departure from the IPPS, the ICD–9–CM and the Uniform GROUPER is specialized computer
as we discussed in the August 30, 2002, Hospital Discharge Data Set (UHDDS), software based on the same GROUPER
final rule (67 FR 55985), which as recommended to the Secretary by the used under the IPPS. After the LTC–
implemented the LTCH PPS, and the National Committee on Vital and Health DRG is assigned, the Medicare fiscal
August 1, 2003, IPPS final rule (68 FR Statistics (‘‘Uniform Hospital Discharge intermediary determines the prospective
45374), we use low-volume quintiles in Data: Minimum Data Set, National payment by using the Medicare LTCH
determining the LTC–DRG weights for Center for Health Statistics, April PPS PRICER program, which accounts
LTC–DRGs with less than 25 LTCH 1980’’) and as revised in 1984 by the for LTCH hospital-specific adjustments.
cases, since LTCHs do not typically treat Health Information Policy Council As provided for under the IPPS, we
the full range of diagnoses as do acute (HIPC) of the U.S. Department of Health provide an opportunity for the LTCH to
care hospitals. Specifically, we group and Human Services. We wish to point review the LTC–DRG assignments made
those low-volume LTC–DRGs (LTC– out again that the ICD–9–CM coding by the fiscal intermediary and to submit
DRGs with fewer than 25 cases) into 5 terminology and the definitions of additional information within a
quintiles based on average charge per principal and other diagnoses of the specified timeframe (§ 412.513(c)).
discharge. (A listing of the composition UHDDS are consistent with the The GROUPER is used both to classify
of low-volume quintiles for the FY 2004 requirements of the Administrative past cases in order to measure relative
LTC–DRGs (based on FY 2002 MedPAR Simplification Act of 1996 of the HIPAA hospital resource consumption to
data) appears in section II.D.3. of the (45 CFR parts 160 and 162). establish the LTC–DRG weights and to
August 1, 2003 IPPS final rule (68 FR The emphasis on the need for proper classify current cases for purposes of
45377 through 45380).) We also adjust coding cannot be overstated. determining payment. The records for
for cases in which the stay at the LTCH Inappropriate coding of cases can all Medicare hospital inpatient
is less than or equal to five-sixths of the adversely affect the uniformity of cases discharges are maintained in the
geometric average length of stay; that is, in each LTC–DRG and produce MedPAR file. The data in this file are
short-stay outlier cases (§ 412.529), as inappropriate weighting factors at used to evaluate possible DRG
discussed below in section II.D.4. of this recalibration and result in inappropriate classification changes and to recalibrate
preamble. payments under the LTCH PPS. LTCHs the DRG weights during our annual
are to follow the same coding guidelines update (as discussed in section II. of this
b. Patient Classifications Into DRGs used by the acute care hospitals to preamble). The LTC–DRG relative
Generally, under the LTCH PPS, ensure accuracy and consistency in weights are based on data for the
Medicare payment is made at a coding practices. There will be only one population of LTCH discharges,
predetermined specific rate for each LTC–DRG assigned per long-term care reflecting the fact that LTCH patients
discharge; that is, payment varies by the hospitalization; it will be assigned at the represent a different patient mix than
LTC–DRG to which a beneficiary’s stay discharge. Therefore, it is mandatory patients in short-term acute care
is assigned. Similar to case classification that the coders continue to report the hospitals.
for acute care hospitals under the IPPS same principal diagnosis on all claims
(see section II.B. of this preamble), cases and include all diagnostic codes that 3. Development of the FY 2005 LTC–
are classified into LTC–DRGs for coexist at the time of admission, that are DRG Relative Weights
payment under the LTCH PPS based on subsequently developed, or that affect a. General Overview of Development of
the principal diagnosis, up to eight the treatment received. Similarly, all the LTC–DRG Relative Weights
additional diagnoses, and up to six procedures performed during that stay
procedures performed during the stay, are to be reported on each claim. As we stated in the August 30, 2002,
as well as age, sex, and discharge status Upon the discharge of the patient LTCH PPS final rule (67 FR 55981), one
of the patient. The diagnosis and from a LTCH, the LTCH must assign of the primary goals for the
procedure information is reported by appropriate diagnosis and procedure implementation of the LTCH PPS is to
the hospital using codes from the ICD– codes from the ICD–9–CM. As of pay each LTCH an appropriate amount
9–CM. October 16, 2002, a LTCH that was for the efficient delivery of care to
As discussed in section II.B. of this required to comply with the HIPAA Medicare patients. The system must be
preamble, the CMS DRGs are organized Administrative Simplification able to account adequately for each
into 25 major diagnostic categories Standards and that had not obtained an LTCH’s case-mix in order to ensure both
(MDCs), most of which are based on a extension in compliance with the fair distribution of Medicare payments
particular organ system of the body; the Administrative Compliance Act (Pub. L. and access to adequate care for those
remainder involve multiple organ 107–105) is obligated to comply with Medicare patients whose care is more
systems (such as MDC 22, Burns). the standards at 45 CFR 162.1002 and costly. To accomplish these goals, we
Accordingly, the principal diagnosis 45 CFR 162.1102. Completed claim adjust the LTCH PPS standard Federal
determines MDC assignment. Within forms are to be submitted to the LTCH’s prospective payment system rate by the
most MDCs, cases are then divided into Medicare fiscal intermediary. Medicare applicable LTC–DRG relative weight in
surgical DRGs and medical DRGs. Some fiscal intermediaries enter the clinical determining payment to LTCHs for each
surgical and medical DRGs are further and demographic information into their case.
differentiated based on the presence or claims processing systems and subject Under the LTCH PPS, relative weights
absence of CCs. (See section II.B. of this this information to a series of automated for each LTC–DRG are a primary
preamble for further discussion of screening processes called the Medicare element used to account for the
surgical DRGs and medical DRGs.) Code Editor (MCE). These screens are variations in cost per discharge and
Because the assignment of a case to a designed to identify cases that require resource utilization among the payment
particular LTC–DRG will help further review before assignment into an groups (§ 412.515). To ensure that
determine the amount that is paid for LTC–DRG can be made. Medicare patients classified to each
the case, it is important that the coding After screening through the MCE, LTC–DRG have access to an appropriate
is accurate. As used under the IPPS, each LTCH claim will be classified into level of services and to encourage
classifications and terminology used the appropriate LTC–DRG by the efficiency, we calculate a relative weight

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for each LTC–DRG that represents the MedPAR file contained coding errors. for each case to hospital-specific relative
resources needed by an average Specifically, a large hospital chain of charge values and then adjusting those
inpatient LTCH case in that LTC–DRG. LTCHs continued to consistently code values for the LTCH’s case-mix. The
For example, cases in an LTC–DRG with diagnoses inaccurately on the claims it adjustment for case-mix is needed to
a relative weight of 2 will, on average, submitted, and these coding errors were rescale the hospital-specific relative
cost twice as much as cases in an LTC– reflected in the September 2003 update charge values (which, by definition,
DRG with a weight of 1. of the FY 2003 MedPAR file. Upon averages 1.0 for each LTCH). The
discovering the coding errors, we average relative weight for a LTCH is its
b. Data
notified the large chain of LTCHs whose case-mix, so it is reasonable to scale
To calculate the LTC–DRG relative claims contained the coding each LTCH’s average relative charge
weights for FY 2005 in this final rule, inaccuracies to request that they value by its case-mix. In this way, each
we obtained total Medicare allowable resubmit those claims with the correct LTCH’s relative charge value is adjusted
charges from FY 2003 Medicare hospital diagnoses codes by December 31, 2003, by its case-mix to an average that
bill data from the March 2004 update of so that those corrected claims would be reflects the complexity of the cases it
the MedPAR file, and we used Version contained in the December 2003 update treats relative to the complexity of the
22.0 of the CMS GROUPER for IPPS, as of the FY 2003 MedPAR file. As we cases treated by all other LTCHs (the
discussed in section II.B. of this discussed in that same final rule, it average case-mix of all LTCHs).
preamble, to classify cases. Consistent appears that those claims were In accordance with the methodology
with the methodology under the IPPS, submitted timely with the correct established under § 412.523, we
we recalculated the FY 2005 LTC–DRG diagnoses codes. Therefore, it was not standardize charges for each case by
relative weights based on the best necessary to correct the FY 2003 first dividing the adjusted charge for the
available data for this final rule. MedPAR data for the development of case (adjusted for short-stay outliers
As we discussed in the May 18, 2004 the rates and factors established in the under § 412.529 as described in section
proposed rule (69 FR 28227), we have May 7, 2004, LTCH PPS final rule. II.D.4. (step 3) of this preamble) by the
excluded the data from LTCHs that are Accordingly, in the May 18, 2004, IPPS average adjusted charge for all cases at
all-inclusive rate providers and LTCHs proposed rule, we used LTCH claims the LTCH in which the case was treated.
that are reimbursed in accordance with data from the December 2003 update of Short-stay outliers under § 412.529 are
demonstration projects authorized the FY 2003 MedPAR file for the cases with a length of stay that is less
under section 402(a) of Public Law 90– determination of the proposed FY 2005 than or equal to five-sixths the average
248 (42 U.S.C. 1395b–1) or section LTC–DRG relative weights. For this final length of stay of the LTC–DRG. The
222(a) of Public Law 92–603 (42 U.S.C. rule, we used the latest available LTCH average adjusted charge reflects the
1395b–1). Therefore, in the claims data from the March 2004 update average intensity of the health care
development of the FY 2005 LTC–DRG of the FY 2003 MedPAR file. services delivered by a particular LTCH
relative weights, we have excluded the and the average cost level of that LTCH.
data of the 22 all-inclusive rate c. Hospital-Specific Relative Value The resulting ratio is multiplied by that
providers and the 3 LTCHs that are paid Methodology LTCH’s case-mix index to determine the
in accordance with demonstration By nature LTCHs often specialize in standardized charge for the case.
projects that had claims in the FY 2003 certain areas, such as ventilator- Multiplying by the LTCH’s case-mix
MedPAR file. dependent patients and rehabilitation index accounts for the fact that the same
In the August 1, 2003, final rule (68 and wound care. Some case types relative charges are given greater weight
FR 45367), we discussed coding (DRGs) may be treated, to a large extent, in a LTCH with higher average costs
inaccuracies that were found in claims in hospitals that have, from a than they would at a LTCH with low
data for a large chain of LTCHs in the perspective of charges, relatively high average costs which is needed to adjust
FY 2002 MedPAR file used to determine (or low) charges. This nonarbitrary each LTCH’s relative charge value to
the LTC–DRG relative weights for FY distribution of cases with relatively high reflect its case-mix relative to the
2004. Specifically, the principal (or low) charges in specific LTC–DRGs average case-mix for all LTCHs. Because
diagnosis was not reported correctly on has the potential to inappropriately we standardize charges in this manner,
many of those LTCHs’ claims, which distort the measure of average charges. we count charges for a Medicare patient
resulted in those claims being To account for the fact that cases may at a LTCH with high average charges as
incorrectly assigned to an LTC–DRG. As not be randomly distributed across less resource intensive than they would
we explained in the same final rule, we LTCHs, we use a hospital-specific be at a LTCH with low average charges.
were able to determine the correct relative value method to calculate the For example, a $10,000 charge for a case
diagnoses and procedure codes for the LTC–DRG relative weights instead of the in a LTCH with an average adjusted
claims that contained the coding errors, methodology used to determine the DRG charge of $17,500 reflects a higher level
and we used them to group each LTCH relative weights under the IPPS of relative resource use than a $10,000
case to the appropriate LTC–DRG for described above in section II.C. of this charge for a case in a LTCH with the
determining the LTC–DRG relative preamble. We believe this method will same case-mix, but an average adjusted
weights for FY 2004. In addition, we remove this hospital-specific source of charge of $35,000. We believe that the
stated that since the LTCH PPS was bias in measuring LTCH average adjusted charge of an individual case
implemented for cost reporting periods charges. Specifically, we reduce the more accurately reflects actual resource
beginning on or after October 1, 2002 impact of the variation in charges across use for an individual LTCH because the
(FY 2003), we believe that this problem providers on any particular LTC–DRG variation in charges due to systematic
will be self-correcting as LTCHs submit relative weight by converting each differences in the markup of charges
more completely coded data in the LTCH’s charge for a case to a relative among LTCHs is taken into account.
future. value based on that LTCH’s average Comment: MedPAC supported the use
As we discussed in the May 7, 2004, charge. of the hospital-specific relative value
LTCH PPS final rule (69 FR 25674), an Under the hospital-specific relative methodology for determining the LTC–
analysis of LTCH claims data from the value method, we standardize charges DRG relative weights, stating that ‘‘[t]his
September 2003 update of the FY 2003 for each LTCH by converting its charges method eliminates distortions in

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weights due to systematic differences IPPS DRG weights on standardized average charge. For this final rule, this
among hospitals in the level of costs per charges results in weights that are results in an assignment to a specific
case and in charge markups.’’ The somewhat distorted as measures of the low volume quintile of the sorted 172
Commission believed that we should relative costliness of treating a typical low-volume LTC–DRGs by ascending
explore the use of this methodology for case in each DRG, and that the hospital- order by average charge. Since the
the DRG relative weights used under the specific relative value method of setting number of LTC–DRGs with less than 25
IPPS. weights may reduce or eliminate LTCH cases is not evenly divisible by
Response: We appreciate MedPAC’s distortions present in the current five, the average charge of the low-
support of the use of the hospital- system. However, in our discussion on volume LTC–DRG was used to
specific relative value methodology for DRG refinements under the IPPS in the determine which low-volume quintile
determining the LTC–DRG relative same rule (60 FR 29209), we reiterated received the additional LTC–DRG. After
weights. As we discuss above, because our position published in the final rule sorting the 172 low-volume LTC–DRGs
by nature LTCHs often specialize in on September 1, 1992 (57 FR 39761), in ascending order, we grouped the first
certain types of care, we believe it is that we would not propose to make fifth (34) of low-volume LTC–DRGs with
important to remove any hospital- significant changes to the DRG the lowest average charge would be
specific source of bias in measuring classification system under the IPPS, grouped into Quintile 1. The highest
LTCHs’ average charges. Therefore, we unless we are able to either improve our average charge cases are grouped into
have continued to use of the hospital- ability to predict coding changes by Quintile 5. Since the average charge of
specific relative value methodology for validating in advance the impact that the 103rd LTC–DRG in the sorted list is
determining the final FY 2005 LTC– potential DRG changes may have on closer to the previous LTC–DRG’s
DRG relative weights shown in Table 11 coding behavior, or to make average charge (assigned to Quintile 3)
of this final rule. methodological changes to prevent than to the average charge of the 104th
As discussed above, we believe that building the inflationary effects of the LTC–DRG in the sorted list (to be
the LTCHs’ charge data are particularly coding changes into future program assigned to Quintile 4), we placed it into
vunerable to having a hospital-specific payments. Without further evaluation, Quintile 3. This process was repeated
source of bias when measuring LTCHs’ we do not believe it would be through the remaining low-volume
average charges because of the small appropriate to change the methodology LTC–DRGs so that 3 low-volume
number of LTCHs (approximately 300 for determining the DRG relative quintiles contain 34 LTC–DRGs and 2
hospitals with approximately 100,00 weights under the IPPS at this time. The low-volume quintiles contain 35 LTC–
discharges annually) and the relatively development of the FY 2005 DRG DRGs.
high degree of specialization of many relative weights used under the IPPS for In order to determine the relative
LTCHs. There are over 4,000 short-term short-term acute care hospitals is weights for the LTC–DRGs with low
acute care hospitals paid under the discussed in section II.C. of this volume for FY 2005, in accordance with
IPPS, with approximately 11.9 million preamble. the methodology described in the
discharges annually, that generally treat d. Low-Volume LTC–DRGs August 30, 2002 LTCH PPS final rule
a wide range of conditions, rather than (67 FR 55984) and cited in the May 18,
specializing in one or two types of In order to account for LTC–DRGs 2004 IPPS proposed rule, we used the
conditions. Therefore, although we with low-volume (that is, with fewer five low-volume quintiles described
agree with the Commission that the than 25 LTCH cases), in accordance above. The composition of each of the
hospital-specific relative value with the methodology discussed in the five low-volume quintiles shown below
methodology eliminates distortions in August 30, 2002, LTCH PPS final rule in Table 1 is used in determining the
relative weights due to systematic (67 FR 55984) and in the May 18, 2004, LTC–DRG relative weights for FY 2005.
differences among hospitals’ charges, IPPS proposed rule (69 FR 28228), we We determine a relative weight and
we do not believe that it is necessary to group those low-volume LTC–DRGs into (geometric) average length of stay for
use the hospital-specific relative value one of five categories (quintiles) based each of the five low-volume quintiles
methodology under the IPPS since on average charges, for the purposes of using the formula that we apply to the
short-term acute care hospitals’ charge determining relative weights. For this regular LTC–DRGs (25 or more cases), as
data is not as susceptible to having a final rule, using LTCH cases from the described below in section II.D.4. of this
hospital-specific source of bias when March 2004 update of the FY 2003 preamble. We assign the same relative
measuring average charges. MedPAR file, we identified 172 LTC– weight and average length of stay to
Furthermore, as we discussed in the DRGs that contained between 1 and 24 each of the LTC–DRGs that make up that
August 1, 2000, IPPS final rule (65 FR cases. This list of LTC–DRGs was then low-volume quintile. We note that, as
47103), in 1995 the MedPAC’s divided into one of the 5 low-volume this system is dynamic, it is possible
predecessor, the Prospective Payment quintiles, each containing a minimum of that the number and specific type of
Assessment Commission, made a 34 LTC–DRGs (172/5 = 34 with 2 LTC– LTC–DRGs with a low volume of LTCH
similar recommendation to adopt the DRGs as the remainder). For FY 2005, as cases will vary in the future. We use the
hospital-specific relative value we described in the May 18, 2004 IPPS best available claims data in the
methodology under the IPPS. In the proposed rule, we are making an MedPAR file to identify low-volume
June 2, 1995, proposed rule (60 FR assignment to a specific low-volume LTC–DRGs and to calculate the relative
29246), we agreed with the quintile by sorting the low-volume weights based on our methodology.
Commission’s judgment that basing the LTC–DRGs in ascending order by BILLING CODE 4121–01–P

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BILLING CODE 4121–01–C outliers and cases with a length of stay both charges per case and the charges
4. Steps for Determining the FY 2005 of 7 days or less. Next, we adjust the per day for each LTC–DRG. These
LTC–DRG Relative Weights number of cases in each LTC–DRG for statistical outliers are removed prior to
the effect of short-stay outlier cases calculating the relative weights. We
As we noted previously, the FY 2005 under § 412.529. The short-stay adjusted believe that they may represent
LTC–DRG relative weights are discharges and corresponding charges aberrations in the data that distort the
determined in accordance with the are used to calculate ‘‘relative adjusted measure of average resource use.
methodology described in the August 1, weights’’ in each LTC–DRG using the Including those LTCH cases in the
2003 IPPS final rule (68 FR 45367) and hospital-specific relative value method calculation of the relative weights could
cited in the May 18, 2004 IPPS proposed described above. result in an inaccurate relative weight
rule (69 FR 28231). In summary, LTCH Below we discuss in detail the steps that does not truly reflect relative
cases must be grouped in the for calculating the FY 2005 LTC–DRG resource use among the LTC–DRGs.
appropriate LTC–DRG, while taking into relative weights. Step 2—Remove cases with a length of
account the low-volume LTC–DRGs as Step 1—Remove statistical outliers. stay of 7 days or less.
described above, before the FY 2005 The first step in the calculation of the The FY 2005 LTC–DRG relative
LTC–DRG relative weights can be FY 2005 LTC–DRG relative weights is to weights reflect the average of resources
determined. After grouping the cases in remove statistical outlier cases. We used on representative cases of a
the appropriate LTC–DRG, we calculate define statistical outliers as cases that specific type. Generally, cases with a
the relative weights for FY 2005 in this are outside of 3.0 standard deviations length of stay 7 days or less do not
final rule by first removing statistical from the mean of the log distribution of belong in a LTCH because these stays do

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not fully receive or benefit from adjusted short-stay outlier payment or a also discussed in the August 30, 2002,
treatment that is typical in a LTCH stay, high-cost outlier payment). LTCH LTCH PPS final rule (67 FR 56002), we
and full resources are often not used in discharges with very short lengths of do not believe that a separate LTC–DRG
the earlier stages of admission to a stay (that is, 7 days or less) often occur for patients who expire is necessary. We
LTCH. If we were to include stays of 7 when it is determined, following continue to believe that the short-stay
days or less in the computation of the admission to a LTCH, that the outlier policy at § 412.529 adequately
FY 2005 LTC–DRG relative weights, the beneficiary would receive more addresses payments for patients who
value of many relative weights would appropriate care at another setting. expire August 30, 2002, LTCH PPS final
decrease and, therefore, payments Other circumstances that result in cases rule (65 FR 56006), because a case with
would decrease to a level that may no with very short stays (that is, 7 days or a length of stay up to and including five-
longer be appropriate. less) would involve patients who were sixths of the average length of stay of the
We do not believe that it would be either discharged to their home or who LTC–DRG is paid under the short-stay
appropriate to compromise the integrity expired within the first 7 days of being outlier policy regardless of whether or
of the payment determination for those admitted to an LTCH. Because LTCH not the patient expires. Under the short-
LTCH cases that actually benefit from cases with very short lengths of stay stay outlier policy (§ 412.529), generally
and receive a full course of treatment at (that is, 7 days or less) do not use the a case is paid the least of 120 percent
a LTCH, in order to include data from same amount or type of resources as of the estimated cost of the case, 120
these very short-stays. Thus, in typical LTCH inlier cases, our percent of the LTC–DRG specific per
determining the FY 2005 LTC–DRG simulations indicate that including diem amount, or the full LTC–DRG
relative weights, we remove LTCH cases these cases would significantly bias payment.
with a length of stay of 7 days or less. payments against LTCH inlier cases to a We continue to believe that adjusted
Comment: One commenter believes point where LTCH inlier cases would be payments under the short-stay outlier
that it is inappropriate to exclude cases underpaid. policy for cases that expire generally
with a length of stay of 7 days or less As we also discussed in the August compensate for any increased costs
from the calculation of the proposed 30, 2002, LTCH PPS final rule (65 FR associated with treating a severely ill
LTC–DRG relative weights since it is not 55989), the LTC–DRG relative weights patient who dies, including those who
uncommon for very resource intensive reflect the average resources used on expire within 7 days of being admitted
patients to expire within the first 7 days representative cases of a specific type. to a LTCH. We note that one of the
of the stay. The commenter also Stays of 7 days or less generally do not principles underlying prospective
suggested that we consider creating a fully receive or benefit from treatment payment is that it is a system of
separate LTC–DRG for LTCH patients that is typical in a LTCH stay because payments based on average costs that
that expire within the first 7 days of the the patient is discharged prior to assumes that some patient stays will
stay. receiving a full course of treatment that consume more resources than the
Response: While we understand the a LTCH inlier patient would receive. In typical stay, while other patients will
commenters concerns, as we discussed addition, full resources are often not demand fewer resources. Thus, an
in the August 30, 2002, final rule (67 FR used in the earlier stages of an efficiently operated hospital should be
55989) which implemented the LTCH admission to a LTCH because the able to deliver care to its Medicare
PPS, in calculating the LTC–DRG patient is often medically unstable, and patients for an overall cost that is at or
relative weights, we exclude cases with initial efforts are focused on stabilizing below the amount paid under the LTCH
a length of stay of 7 days or less because the patient before beginning treatment PPS. We continue to believe the LTCH
we believe that, generally, cases with a of the patient’s additional complications PPS payment adequately address
length of stay of 7 days or less do not and comorbidities. If we did include payments for patients who expire, and
belong in a LTCH. In general, LTCHs are stays of 7 days or less in the calculation therefore, we are not adopting the
defined by statute as hospitals having an of the LTC–DRG relative weights, the commenter’s suggestion to create a
average length of stay of greater than 25 value of many relative weights would separate LTC–DRG for LTCH patients
days. LTCHs typically furnish extended decrease for cases that do, in fact, that expire within the first 7 days of the
medical and rehabilitative care for receive a full course of treatment, and, stay. Accordingly, in establishing the
patients who are clinically complex and therefore, LTCH inlier payments could final FY 2005 LTC–DRG relative
have multiple or chronic conditions. decrease to a level that would not be weights, we continue to exclude cases
Generally, LTCH cases with very short appropriate (that is, provide sufficient with a length of stay of 7 days or less
lengths of stay (that is, 7 days or less) payment). We continue to believe that it and we continue to include the total
are discharged from the LTCH before the is not appropriate to compromise the charges of cases with a length of stay of
patient receives a full course of integrity of the payment amounts for 8 days or more, including patients who
treatment, and therefore do not use the LTCH inlier cases that actually benefit expire, in the LTC–DRG to which the
same amount or type of resources as from and receive a full course of case is assigned based on version 22.0
typical LTCH ‘‘inlier’’ cases (that is, treatment at a LTCH in order to include of the GROUPER.
cases in which Medicare covered days data from cases with stays of 7 days or Step 3—Adjust charges for the effects
exceed five-sixths of the geometric less. Therefore, we disagree with the of short-stay outliers.
average length of stay for the LTC–DRG commenter that cases with lengths of The third step in the calculation of
and the patient is discharged prior to stay of 7 days or less should be included the FY 2005 LTC–DRG relative weights
receiving a LTCH PPS high cost outlier in the calculation of the LTC–DRG is to adjust each LTCH’s charges per
payment). We believe that the length of relative weights. Accordingly, in this discharge for short-stay outlier cases
stay of an ‘‘inlier’’ case is indicative of final rule, in calculating the FY 2005 (that is, a patient with a length of stay
a LTCH patient receiving a full course LTC–DRG relative weights, as we that is less than or equal to five-sixths
of treatment because such cases include proposed, we have removed cases with the average length of stay of the LTC–
cases with stays that received a full a length of stay of 7 days or less. DRG).
LTC–DRG payment, which represents With regard to the commenter’s We make this adjustment by counting
the average resources used for that DRG suggestion that we create a separate a short-stay outlier as a fraction of a
(that is, the case does not receive an LTC–DRG for patients who expire, as we discharge based on the ratio of the

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length of stay of the case to the average multiplied by these hospital specific LTCH PPS final rule (67 FR 55990), we
length of stay for the LTC–DRG for case-mix indexes. These hospital- found on occasion that the data
nonshort-stay outlier cases. This has the specific case-mix adjusted relative suggested that cases classified to the
effect of proportionately reducing the charge values are then used to calculate LTC–DRG ‘‘with CCs’’ of a ‘‘with CC’’/
impact of the lower charges for the a new set of LTC–DRG relative weights ‘‘without CC’’ pair had a lower average
short-stay outlier cases in calculating across all LTCHs. In this final rule, this charge than the corresponding LTC–
the average charge for the LTC–DRG. iterative process is continued until there DRG ‘‘without CCs.’’ Similarly, based on
This process produces the same result is convergence between the weights FY 2003 claims data, we also found on
as if the actual charges per discharge of produced at adjacent steps, for example, occasion that the data suggested that
a short-stay outlier case were adjusted to when the maximum difference is less cases classified to the LTC–DRG ‘‘with
what they would have been had the than 0.0001. CCs’’ of a ‘‘with CC’’/without CC’’ pair
patient’s length of stay been equal to the Step 5—Adjust the FY 2005 LTC-DRG have a lower average charge than the
average length of stay of the LTC–DRG. relative weights to account for corresponding LTC–DRG ‘‘without CCs’’
As we explained in the May 18, 2004 nonmonotonically increasing relative for FY 2005.
proposed rule (69 FR 28231), counting weights. We believe this anomaly may be due
short-stay outlier cases as full As explained in section II.B. of this to coding that may not have fully
discharges with no adjustment in preamble, the FY 2005 CMS DRGs, reflected all comorbidities that were
determining the LTC–DRG relative which the FY 2005 LTC–DRGs are present. Specifically, LTCHs may have
weights would lower the LTC–DRG based, contain ‘‘pairs’’ that are failed to code relevant secondary
relative weight for affected LTC–DRGs differentiated based on the presence or diagnoses, which resulted in cases that
because the relatively lower charges of absence of CCs. The LTC–DRGs with actually had CCs being classified into a
the short-stay outlier cases would bring CCs are defined by certain secondary ‘‘without CC’’ LTC–DRG. It would not
down the average charge for all cases diagnoses not related to or inherently a be appropriate to pay a lower amount
within an LTC–DRG. This would result part of the disease process identified by for the ‘‘with CC’’ LTC–DRG. Therefore,
in an ‘‘underpayment’’ to nonshort-stay the principal diagnosis, but the presence in this final rule, we grouped both the
outlier cases and an ‘‘overpayment’’ to of additional diagnoses does not cases ‘‘with CCs’’ and ‘‘without CCs’’
short-stay outlier cases. Therefore, in automatically generate a CC. As we together for the purpose of calculating
this final rule, we adjust for short-stay discussed in the May 18, 2004 IPPS the FY 2005 LTC–DRG relative weights
outlier cases under § 412.529 in this proposed rule (69 FR 28232), the value in this final rule. As we stated in the
manner because it results in more of monotonically increasing relative August 30, 2002 LTCH PPS final rule
appropriate payments for all LTCH weights rises as the resource use (67 FR 55990), we will continue to
cases. increases (for example, from employ this methodology to account for
Step 4—Calculate the FY 2005 LTC– uncomplicated to more complicated). nonmonotonically increasing relative
DRG relative weights on an iterative The presence of CCs in an LTC-DRG weights until we have adequate data to
basis. means that cases classified into a calculate appropriate separate weights
The process of calculating the LTC– ‘‘without CC’’ LTC-DRG are expected to for these anomalous LTC–DRG pairs.
DRG relative weights using the hospital have lower resource use (and lower We expect that, as was the case when
specific relative value methodology is costs). In other words, resource use (and we first implemented the IPPS, this
iterative. First, for each LTCH case, we costs) are expected to decrease across problem will be self-correcting, as
calculate a hospital-specific relative ‘‘with CC’’/‘‘without CC’’ pairs of LTC– LTCHs submit more completely coded
charge value by dividing the short-stay DRGs. data in the future.
outlier adjusted charge per discharge For a case to be assigned to a LTC– There are three types of ‘‘with CC’’
(see step 3) of the LTCH case (after DRG with CCs, more coded information and ‘‘without CC’’ pairs that could be
removing the statistical outliers (see is called for (that is, at least one relevant nonmonotonic, that is, where the
step 1)) and LTCH cases with a length secondary diagnosis), than for a case to ‘‘without CC’’ LTC–DRG would have a
of stay of 7 days or less (see step 2) by be assigned to an LTC–DRG ‘‘without higher average charge than the ‘‘with
the average charge per discharge for the CCs’’ (which is based on only one CC’’ LTC–DRG. For this final rule, using
LTCH in which the case occurred. The principal diagnosis and no relevant the LTCH cases in the March 2004
resulting ratio is then multiplied by the secondary diagnoses). Currently, the update of the FY 2003 MedPAR file, we
LTCH’s case-mix index to produce an LTCH claims data include both identified two of the three types of
adjusted hospital-specific relative accurately coded cases without nonmonotonic LTC–DRG pairs.
charge value for the case. An initial complications and cases that have The first category of
case-mix index value of 1.0 is used for complications (and cost more), but were nonmonotonically increasing relative
each LTCH. not coded completely. Both types of weights for FY 2005 LTC–DRG pairs
For each LTC–DRG, the FY 2005 cases are grouped to an LTC–DRG ‘‘with and without CCs’’ contains 2
LTC–DRG relative weight is calculated ‘‘without CCs’’ because only one pairs of LTC–DRGs in which both the
by dividing the average of the adjusted principal diagnosis was coded. Since LTC–DRG ‘‘with CCs’’ and the LTC–
hospital-specific relative charge values the LTCH PPS was only implemented DRG ‘‘without CCs’’ had 25 or more
(from above) for the LTC–DRG by the for cost reporting periods beginning on LTCH cases and, therefore, did not fall
overall average hospital-specific relative or after October 1, 2002 (FY 2003) and into one of the 5 low-volume quintiles.
charge value across all cases for all LTCHs were previously paid under cost- For those nonmonotonic LTC–DRG
LTCHs. Using these recalculated LTC– based reimbursement, which is not pairs, as discussed in the May 18, 2004,
DRG relative weights, each LTCH’s based on patient diagnoses, coding by proposed rule, we combine the LTCH
average relative weight for all of its LTCHs for these cases may not have cases and compute a new relative
cases (case-mix) is calculated by been as detailed as possible. weight based on the case-weighted
dividing the sum of all the LTCH’s LTC– Thus, in developing the FY 2003 average of the combined LTCH cases of
DRG relative weights by its total number LTC–DRG relative weights for the LTCH the LTC–DRGs. The case-weighted
of cases. The LTCHs’ hospital-specific PPS based on FY 2001 claims data, as average charge is determined by
relative charge values above are we discussed in the August 30, 2002 dividing the total charges for all LTCH

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cases by the total number of LTCH cases each of these LTC–DRGs. This new we are able to determine relative
for the combined LTC–DRG. This new relative weight is assigned to both LTC– weights, based on FY 2003 claims data.
relative weight is then assigned to both DRGs, so they each have the same As there are currently no LTCH cases
of the LTC–DRGs in the pair. In this relative weight. In this final rule, for FY in these ‘‘no volume’’ LTC–DRGs, as we
final rule, for FY 2005, LTC–DRGs 144 2005, the following LTC–DRGs are in discussed in the May 18, 2004 proposed
and 145 and LTC–DRGs 444 and 445 are this category: LTC–DRGs 85 and 86; rule (69 FR 28233), we determine
in this category. LTC–DRGs 101 and 102; LTC–DRGs 141 relative weights for the 171 LTC–DRGs
The second category of and 142; LTC–DRGs 170 and 171; LTC– with no LTCH cases in the FY 2003
nonmonotonically increasing relative DRGs 172 and 173; LTC–DRGs 175 and MedPAR file used in this final rule by
weights for LTC–DRG pairs with and 175; LTC–DRGs 300 and 301; LTC– grouping them to the appropriate low-
without CCs consists of zero pairs of DRGs 318 and 319; LTC–DRGs 442 and volume quintile. This methodology is
LTC–DRGs that has fewer than 25 cases, 443; and LTC–DRGs 521, 522 and 523 consistent with our methodology used
and each LTC–DRG is grouped to (We note, 3 LTC–DRGs make up this in determining relative weights to
different low-volume quintiles in which non-monotonic ‘‘pair’’ of DRGs because account for the low-volume LTC–DRGs
the ‘‘without CC’’ LTC–DRG is in a the ‘‘without CCs’’ DRG is further described above.
higher-weighted low-volume quintile divided into two DRGs based on the Our methodology for determining
than the ‘‘with CC’’ LTC–DRG. For those presence or absence of rehabilitation relative weights for the ‘‘no volume’’
pairs, as we discussed in the May 18, therapy, so that there is one DRG in this LTC–DRGs is as follows: We crosswalk
2004, proposed rule (69 FR 28232), we non-monotonic ‘‘pair’’ with CCs and the no volume LTC–DRGs by matching
combine the LTCH cases and determine two DRGs in this non-monotonic ‘‘pair’’ them to other similar LTC–DRGs for
the case-weighted average charge for all without CCs). which there were LTCH cases in the FY
LTCH cases. The case-weighted average 2003 MedPAR file based on clinical
Step 6—Determine an FY 2005 LTC–
charge is determined by dividing the similarity and intensity of use of
DRG relative weight for LTC–DRGs with
total charges for all LTCH cases by the resources as determined by care
no LTCH cases.
total number of LTCH cases for the provided during the period of time
combined LTC–DRG. Based on the case- As we stated above, we determine the surrounding surgery, surgical approach
weighted average LTCH charge, we relative weight for each LTC–DRG using (if applicable), length of time of surgical
determine which low-volume quintile charges reported in the March 2004 procedure, post-operative care, and
the ‘‘combined LTC–DRG’’ is grouped. update of the FY 2003 MedPAR file. Of length of stay. We assign the relative
Both LTC–DRGs in the pair are then the 520 LTC–DRGs for FY 2005, we weight for the applicable low-volume
grouped into the same low-volume identified 171 LTC–DRGs for which quintile to the no volume LTC–DRG if
quintile, and thus have the same relative there were no LTCH cases in the the LTC–DRG to which it is crosswalked
weight. In this final rule, for FY 2005, database. That is, based on data from the is grouped to one of the low-volume
there are no LTC–DRGs that fall into FY 2003 MedPAR file used in this final quintiles. If the LTC–DRG to which the
this category. rule, no patients who would have been no volume LTC–DRG is crosswalked is
The third category of classified to those LTC–DRGs were not one of the LTC–DRGs to be grouped
nonmonotonically increasing relative treated in LTCHs during FY 2003 and, to one of the low-volume quintiles, we
weights for LTC–DRG pairs with and therefore, no charge data were reported compare the relative weight of the LTC–
without CCs consists of 10 pairs of LTC– for those LTC–DRGs. Thus, in the DRG to which the no volume LTC–DRG
DRGs where one of the LTC–DRGs has process of determining the LTC–DRG is crosswalked to the relative weights of
fewer than 25 LTCH cases and is relative weights, we are unable to each of the five quintiles and we assign
grouped to a low-volume quintile and determine weights for these 171 LTC– the no volume LTC–DRG the relative
the other LTC–DRG has 25 or more DRGs using the methodology described weight of the low-volume quintile with
LTCH cases and has its own LTC–DRG in steps 1 through 5 above. However, the closest weight. For this final rule, a
relative weight, and the LTC–DRG because patients with a number of the list of the no volume FY 2005 LTC–
‘‘without CCs’’ has the higher relative diagnoses under these LTC–DRGs may DRGs and the FY 2005 LTC–DRG to
weight. As discussed in the May 18, be treated at LTCHs beginning in FY which it is crosswalked in order to
2004 proposed rule (69 FR 28232), we 2005, we assign relative weights to each determine the appropriate low-volume
remove the low-volume LTC–DRG from of the 171 ‘‘no volume’’ LTC–DRGs quintile for the assignment of a relative
the low-volume quintile and combine it based on clinical similarity and relative weight for FY 2005 is shown below in
with the other LTC–DRG for the costliness to one of the remaining 349 Table 2.
computation of a new relative weight for (520 ¥ 171 = 349) LTC–DRGs for which BILLING CODE 4121–01–P

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171 LTC–DRGs with no LTCH cases, we crosswalk information for FY 2005
To illustrate this methodology for are providing the following examples, provided above in Table 2:
determining the relative weights for the which refer to the no volume LTC–DRGs

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Example 1: There were no cases in the FY procedure would allow sufficient time the LTCH claims in the FY 2003
2003 MedPAR file used for this final rule for for us to determine appropriate weights MedPAR files, the average LTC–DRG
LTC–DRG 163 (Hernia Procedures Age 0–17). for the LTC–DRGs affected. At the relative weight across all LTC–DRGs has
Since the procedure is similar in resource use present time, we are only including increased due to an increase in the
and the length and complexity of the
procedures and the length of stay are similar,
these six transplant LTC–DRGs in the number of cases being assigned to
we determined that LTC–DRG 178 GROUPER program for administrative higher weighted LTC–DRGs. As a result,
(Uncomplicated Peptic Ulcer Without CC), purposes. Because we use the same including cases with relatively lower
which is assigned to low-volume quintile 1 GROUPER program for LTCHs as is used charges into LTC–DRGs that have a
for the purpose of determining the FY 2005 under the IPPS, removing these LTC– relatively higher relative weight in the
relative weights, would display similar DRGs would be administratively GROUPER version 21.0 (FY 2004)
clinical and resource use. Therefore, we burdensome. decreases the average relative weight in
assign the same relative weight of LTC–DRG Again, we note that as this system is the proposed GROUPER version 22.0
178 of 0.4586 (Quintile 1) for FY 2005 (Table dynamic, it is entirely possible that the (FY 2005).
11 in the Addendum to this final rule) to number of LTC–DRGs with a zero As we discussed in the August 30,
LTC–DRG 163. volume of LTCH cases based on the 2002 LTCH PPS final rule (67 FR
Example 2: There were no LTCH cases in
the FY 2003 MedPAR file used in this final
system will vary in the future. We used 55960), which implemented the LTCH
rule for LTC–DRG 91 (Simple Pneumonia the best most recent available claims PPS, section 123 of Public Law 106–113
and Pleurisy Age 0–17). Since the severity of data in the MedPAR file to identify zero requires that the LTCH PPS, among
illness in patients with bronchitis and volume LTC–DRGs and to determine the other things, shall include an adequate
asthma is similar in patients regardless of relative weights in this final rule. patient classification system that is
age, we determined that LTC–DRG 90 Table 11 in the Addendum to this based on DRGs and that reflects the
(Simple Pneumonia and Pleurisy Age >17 final rule lists the LTC–DRGs and their differences in patient resource use and
Without CC) would display similar clinical respective relative weights, geometric costs, and shall maintain budget
and resource use characteristics and have a mean length of stay, and five-sixths of neutrality. With respect to budget
similar length of stay to LTC–DRG 91. There the geometric mean length of stay (to neutrality, we interpreted section
were over 25 cases in LTC–DRG 90.
assist in the determination of short-stay 123(a)(1) of Public Law 106–113 to
Therefore, it would not be assigned to a low-
volume quintile for the purpose of
outlier payments under § 412.529) for require that total payments under the
determining the LTC–DRG relative weights. FY 2005. LTCH PPS during FY 2003 will be
However, under our established Comment: A few commenters believe projected to equal estimated payments
methodology, LTC–DRG 91, with no LTCH that the budget neutrality requirement that would have been made for LTCHs’
cases, would need to be grouped to a low- found in section 123 of the Public Law operating and capital-related inpatient
volume quintile. We identified that the low- 106–113 requires CMS to adjust the hospital costs had the LTCH PPS not
volume quintile with the closest weight to LTC–DRG relative weights to ensure have been implemented. Consistent
LTC–DRG 90 (0.7494; see Table 11 in the that total payments to LTCHs are budget with this requirement, under
Addendum to this final rule) would be low- neutral for the proposed changes to the § 412.523(d)(2) an adjustment is made in
volume quintile 2 (0.8508; see Table 11 in the LTC–DRG classifications and relative
Addendum to this final rule). Therefore, we
determining the standard Federal rate
weights. Alternatively, the commenters for FY 2003 so that aggregate payments
assign LTC–DRG 91 a relative weight of 0.
8508 for FY 2005. suggested that we make an adjustment under the LTCH PPS are estimated to
to the LTCH PPS Federal rate to account equal the amount that would have been
Furthermore, we are providing LTC– for the estimated $55 million reduction paid to LTCHs under the reasonable
DRG relative weights of 0.0000 for heart, in LTCH PPS payments which resulted cost-based (TEFRA) payment system if
kidney, liver, lung, pancreas, and from the proposed changes in the LTC– the LTCH PPS were not implemented.
simultaneous pancreas/kidney DRG classifications and relative Therefore, in that same final rule (67 FR
transplants (LTC–DRGs 103, 302, 480, weights. 56027 through 56037), in order to
495, 512, and 513, respectively) for FY Response: In the May 18, 2004 maintain budget neutrality, we adjusted
2005 because Medicare will only cover proposed rule (69 FR 28806), we the LTCH PPS Federal rate for FY 2003
these procedures if they are performed estimated a $55 million aggregate so that aggregate payments under the
at a hospital that has been certified for decrease in LTCH PPS payments as a LTCH PPS are estimated to equal the
the specific procedures by Medicare and result of the proposed changes in the amount that would have been paid to
presently no LTCH has been so certified. LTC–DRG relative weights and LTCHs under the reasonable cost-based
Based on our research, we found that proposed version 22.0 GROUPER for FY (TERFA) payment system had the LTCH
most LTCHs only perform minor 2005. We note that we incorrectly PPS had not been implemented.
surgeries, such as minor small and large estimated the impact of the change in In addition, when we implemented
bowel procedures, to the extent any the proposed LTC–DRGs for FY 2005 in the LTCH PPS in the August 30, 2002
surgeries are performed at all. Given the the proposed rule because we failed to LTCH PPS final rule, we provided
extensive criteria that must be met to account for the change in DRG subpart O of the regulations at 42 CFR,
become certified as a transplant center classifications and the change in the including § 412.517, for an annual
for Medicare, we believe it is unlikely geometric average length of stay for each adjustment to the LTC–DRG
that any LTCHs would become certified LTC–DRG. As discussed in section classifications and weighting factors to
as a transplant center. In fact, in the VII.B. of Appendix A to this final rule, reflect changes in treatment patterns,
nearly 20 years since the we are estimating that the impact of the technology, number of discharges, and
implementation of the IPPS, there has change in LTC–DRGs for FY 2005 other factors affecting the relative use of
never been a LTCH that even expressed (including changes in the DRG hospital resources. We do not believe
an interest in becoming a transplant classifications, relative weights and that section 123 of the Pub. L. 106–113
center. geometric average lent of stay) will requires that the annual update to the
However, if in the future a LTCH result in approximately a $14.9 million LTC–DRG classifications and relative
applies for certification as a Medicare- decrease in LTCH PPS payments. In that weights maintain budget neutrality. We
approved transplant center, we believe same proposed rule, we explained that believe we have satisfied the budget
that the application and approval we found that based on an analysis of neutrality requirement of section 123 of

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the Pub. L. 106–113 by establishing the classification, outliers, updates, and a technology add-on payments. The
LTCH PPS Federal rate for FY 2003 disproportionate share adjustment statutory provision contemplated the
under § 412.523(d)(2) so that aggregate [* * *].’’ We will consider whether it is special payment treatment for new
payment under the LTCH PPS are appropriate for use to propose a future medical services or technologies until
projected equal to estimated aggregate revision to the LTCH PPS regulations at such time as data are available to reflect
payments under the reasonable cost- subpart O of 42 CFR to maintain budget the cost of the technology in the DRG
based payment system if the LTCH PPS neutrality in the annual update of some weights through recalibration. There is
were not implemented. Therefore, we aspects of the LTCH PPS under our a lag of 2 to 3 years from the point a new
disagree with the commenters that an broad discretionary authority under the medical service or technology is first
adjustment to the FY 2005 LTC–DRG statute to provide ‘‘appropriate introduced on the market and when
relative weights or to the LTCH PPS adjustments to the long-term hospital data reflecting the use of the medical
Federal rate is required as a result of the payment system.’’ Any changes to the service or technology are used to
annual update to the LTC–DRGs under LTCH PPS regulations would be made calculate the DRG weights. For example,
§ 412.517 for FY 2005. Accordingly, we in accordance with Administrative data from discharges occurring during
have updated the LTC–DRG Procedures Act guidelines. FY 2003 are used to calculate the FY
classifications and relative weights for 2005 DRG weights in this final rule.
5. Out of Scope Comments Relating to Section 412.87(b)(2) provides that a
FY 2005 (as shown in Table 11 of
the LTCH PPS Payment Rates ‘‘medical service or technology may be
Addendum to this final rule) without an
adjustment for budget neutrality. We Comment: A few commenters considered new within 2 or 3 years after
note that this is our policy regardless of submitted comments that addressed the point at which data begin to become
whether the annual update to the LTC– aspects of the existing LTCH PPS, available reflecting the ICD–9–CM code
DRG classifications and relative weights including the standard Federal rate and assigned to the new medical service or
results in higher or lower estimated outlier methodology, which are not technology (depending on when a new
aggregate payments. For instance we relevant to the LTCH policy proposals code is assigned and data on the new
estimate that the annual update to the set forth in the May 18, 2004 IPPS medical service or technology become
LTC–DRG classifications and relative proposed rule. available for DRG recalibration). After
weights from FY 2003 to FY 2004 Response: Because those comments CMS has recalibrated the DRGs, based
resulted in an estimated increase in pertain to specific aspects of the existing on available data, to reflect the costs of
LTCH PPS payments, yet the update to LTCH PPS rather than to any specific an otherwise new medical service or
the LTC–DRGs in the August 1, 2003 proposed changes to the LTCH PPS technology, the medical service or
final rule for FY 2004 were not adjusted presented in the May 18, 2004 IPPS technology will no longer be considered
to maintain budget neutrality. In either proposed rule, we are unable to respond ‘new’ under the criterion for this
case, at this time we do not make an to those comments at this time. Rather, section.’’
adjustment to maintain budget we believe it is more appropriate to In the May 18, 2004, proposed rule
neutrality for the effects of changes in address those issues in the annual LTCH (69 FR 28237), we stated that the 2-year
the LTC–DRG classifications and PPS proposed and final rules, and we to 3-year period of newness for a
relative weights. Accordingly, in will consider the issues raised in those technology or medical service would
developing the FY 2005 LTC–DRGs and comments in the context of future ordinarily begin with FDA approval,
rulemaking for the LTCH PPS. unless there was some documented
relative weights shown in Table 11 of
delay in bringing the product onto the
this final rule, we have not applied an E. Add-On Payments for New Services market after that approval (for instance,
adjustment for budget neutrality nor are and Technologies component production or drug
we adjusting the 2005 LTCH PPS rate
1. Background production had been postponed until
year Federal rate established in the May
FDA approval due to shelf life concerns
7, 2004, LTCH PPS final rule (69 FR Sections 1886(d)(5)(K) and (L) of the or manufacturing issues). After the
25674) to account for the estimated Act establish a process of identifying DRGs have been recalibrated to reflect
change in LTCH PPS payments which and ensuring adequate payment for new the costs of an otherwise new medical
result from the annual update to the medical services and technologies under service or technology, the special add-
LTC–DRG classifications and relative the IPPS. Section 1886(d)(5)(K)(vi) of on payment for new medical services or
weights for FY 2005. the Act specifies that a medical service technology ceases (§ 412.87(b)(2)). For
The commenter raises the issue that it or technology will be considered new if example, an approved new technology
may be appropriate for certain aspects of it meets criteria established by the that received FDA approval in October
the LTCH PPS to maintain budget Secretary after notice and opportunity 2003 and entered the market at that time
neutrality when they are updated for public comment. Section may be eligible to receive add-on
annually as they are in other PPSs, such 1886(d)(5)(K)(ii)(I) of the Act specifies payments as a new technology until FY
as the annual update to the DRGs and that the process must apply to a new 2006 (discharges occurring before
wage index. Under section 123 of Public medical service or technology if, ‘‘based October 1, 2005), when data reflecting
Law 106–113 and section 307 of Publicl on the estimated costs incurred with the costs of the technology would be
Law 106–554, the Secretary generally respect to discharges involving such used to recalibrate the DRG weights.
has broad authority in developing the service or technology, the DRG Because the FY 2006 DRG weights will
LTCH PPS, including whether and how prospective payment rate otherwise be calculated using FY 2004 MedPAR
to make adjustments to LTCH PPS applicable to such discharges under this data, the costs of such a new technology
payments. Specifically, section 307(b)(1) subsection is inadequate.’’ would likely be reflected in the FY 2006
of Public Law 106–554 provides that The regulations implementing this DRG weights.
‘‘the Secretary shall examine and may provision establish three criteria for Section 412.87(b)(3) further provides
provide for appropriate adjustments to special treatment. First, § 412.87(b)(2) that, to receive special payment
the long-term hospital payment system, defines when a specific medical service treatment, new medical services or
including adjustments to DRG weights, or technology will be considered new technologies must be inadequately paid
area wage adjustments, geographic for purposes of new medical service or otherwise under the DRG system. To

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assess whether technologies would be clinical improvement when it reduces Applicants for add-on payments for
inadequately paid under the DRGs, we mortality, decreases the number of new medical services or technologies for
establish thresholds to evaluate hospitalizations or physician visits or FY 2006 must submit a formal request,
applicants for new technology add-on reduces recovery time compared to the including a full description of the
payments. In the August 1, 2003, final technologies previously available. (See clinical applications of the medical
rule (68 FR 45385), we established the the September 7, 2001 final rule (66 FR service or technology and the results of
threshold at the geometric mean 46902) for a complete discussion of this any clinical evaluations demonstrating
standardized charge for all cases in the criterion.) that the new medical service or
DRG plus 75 percent of 1 standard The new medical service or technology represents a substantial
deviation above the geometric mean technology add-on payment policy clinical improvement, along with a
standardized charge (based on the provides additional payments for cases significant sample of data to
logarithmic values of the charges and with high costs involving eligible new demonstrate the medical service or
transformed back to charges) for all medical services or technologies while technology meets the high-cost
cases in the DRG to which the new preserving some of the incentives under threshold, no later than early October
medical service or technology is the average-based payment system. The 2004. Applicants must submit a
assigned (or the case-weighted average payment mechanism is based on the complete database no later than mid-
of all relevant DRGs, if the new medical cost to hospitals for the new medical December 2004. Complete application
service or technology occurs in many service or technology. Under § 412.88, information, along with final deadlines
different DRGs). Table 10 in the Medicare pays a marginal cost factor of for submitting a full application, will be
Addendum to the August 1, 2003, final 50 percent for the costs of a new available at our Web site after
rule (68 FR 45648) listed the qualifying medical service or technology in excess publication of this FY 2005 final rule at:
threshold by DRG, based on the of the full DRG payment. If the actual
discharge data that we used to calculate costs of a new medical service or hipps/default.asp. To allow interested
the FY 2004 DRG weights. technology case exceed the DRG parties to identify the new medical
However, section 503(b)(1) of Public payment by more than the 50-percent services or technologies under review
Law 108–173 amended section marginal cost factor of the new medical before the publication of the proposed
1886(d)(5)(K)(ii)(I) of the Act to provide service or technology, Medicare rule for FY 2006, the Web site will also
for ‘‘applying a threshold * * * that is payment is limited to the DRG payment list the tracking forms completed by
the lesser of 75 percent of the plus 50 percent of the estimated costs of each applicant.
standardized amount (increased to the new technology.
reflect the difference between cost and 2. Other Provisions of Section 503 of
The report language accompanying Public Law 108–173
charges) or 75 percent of one standard
section 533 of Public Law 106–554
deviation for the diagnosis-related group Section 503(b)(2) of Public Law 108–
indicated Congressional intent that the
involved.’’ The provisions of section 173 amended section 1886(d)(5)(K) of
Secretary implement the new
503(b)(1) apply to classification for the Act by adding a new clause (viii) to
fiscal years beginning with FY 2005. We mechanism on a budget neutral basis
(H.R. Conf. Rep. No. 106–1033, 106th provide for a mechanism for public
updated Table 10 from the October 6, input before publication of a notice of
2003, Federal Register correction Cong., 2nd Sess. at 897 (2000)). Section
1886(d)(4)(C)(iii) of the Act requires that proposed rulemaking regarding whether
document, which contains the a medical service or technology
thresholds that we used to evaluate the adjustments to annual DRG
classifications and relative weights must represents a substantial improvement or
applications for new service or advancement. The revised process for
technology add-on payments for FY be made in a manner that ensures that
aggregate payments to hospitals are not evaluating new medical service and
2005, using the section 503(b)(1) technology applications requires the
measures stated above, and posted these affected. Therefore, in the past, we
accounted for projected payments under Secretary to—
new thresholds on our Web site at:
the new medical service and technology • Provide, before publication of a
provision during the upcoming fiscal proposed rule, for public input
hipps/newtech.asp. In the May 18, 2004,
proposed rule, we included preliminary year at the same time we estimated the regarding whether a new service or
thresholds for evaluating applicants for payment effect of changes to the DRG technology represents an advance in
new technology add-on payments for FY classifications and recalibration. The medical technology that substantially
2006. Table 10 of this final rule contains impact of additional payments under improves the diagnosis or treatment of
the final thresholds that will be used to this provision was then included in the Medicare beneficiaries.
evaluate applicants for new technology budget neutrality factor, which was • Make public and periodically
add-on payments for FY 2006. (Refer to applied to the standardized amounts update a list of the services and
section IV.D. of this preamble for a and the hospital-specific amounts. technologies for which an application
discussion of a revision of the Section 503(d)(2) of Public Law 108– for add-on payments is pending.
regulations to incorporate the change 173 amended section • Accept comments,
made by section 503(b)(1) of Public Law 1886(d)(5)(K)(ii)(III) of the Act to recommendations, and data from the
108–173.) provide that there shall be no reduction public regarding whether a service or
Section 412.87(b)(1) of our existing or adjustment in aggregate payments technology represents a substantial
regulations provides that a new under the IPPS due to add-on payments improvement.
technology is an appropriate candidate for new medical services and • Provide, before publication of a
for an additional payment when it technologies. Therefore, add-on proposed rule, for a meeting at which
represents an advance in medical payments for new medical services or organizations representing hospitals,
technology that substantially improves, technologies for FY 2005 and later years physicians, manufacturers, and any
relative to technologies previously will not be budget neutral. We discuss other interested party may present
available, the diagnosis or treatment of the regulation change necessary to comments, recommendations, and data
Medicare beneficiaries. For example, a implement this provision in section regarding whether a new service or
new technology represents a substantial IV.H. of this final rule. technology represents a substantial

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49002 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

clinical improvement to the clinical payment system in section II.B. of this technologies.’’ The commenters urged
staff of CMS. final rule. The comment regarding the us to ‘‘reaffirm’’ our September 7, 2001,
In order to satisfy the requirements of DRG assignment of the treatment for AIP policy and reevaluate the applications
this last provision, we published a is addressed in section II.B.16.i. of this that CMS proposed to deny on the
notice in the Federal Register on final rule. newness issue.
February 27, 2004, and held a town Comment: We received several letters Response: The intent of section
meeting at the CMS Headquarters Office from commenters stating that we should 1886(d)(5)(K) of the Act and regulations
in Baltimore, MD, on March 15, 2004. In address the inequities in the DRG under § 412.87(b)(2) is to pay for new
the announcement notice for the system with respect to several drugs and medical services and technologies for
meeting, we stated that the opinions and technologies that appeared to go the first 2 to 3 years that a product
alternatives provided during the unnoticed by us, according to the comes on the market, during the period
meeting would assist us in our commenters. Specifically, payments for when the costs of the new technology
evaluations of applications by allowing the treatment of acute intermittent are not yet fully reflected in the DRG
public discussions of the substantial porphyria (AIP) were brought to our weights. Generally, we use the FDA
clinical improvement criteria for each of attention. We received additional approval as the indicator of the time
the FY 2005 new medical service and comments from physicians and a when a technology begins to become
technology add-on payment company concerning new procedure available on the market and data
applications before the publication of code 00.16 (Pressurized treatment of reflecting the costs of the technology
the FY 2005 IPPS proposed rule. venous bypass graft (conduit) with begin to become available for
Approximately 70 participants pharmaceutical substance). The recalibration of the DRGs. In some
registered and attended in person, while commenters requested that we evaluate specific circumstances, we have
additional participants listened over an potential reimbursement scenarios for recognized a date later than the FDA
open telephone line. The participants these new procedures. approval as the appropriate starting
focused on presenting data on the Response: We discuss the method for point for the 2-year to 3-year period. For
substantial clinical improvement aspect applying for consideration for the new example, we have recognized a later
of their products, as well as the need for technology add-on payment in section date where an applicant could prove a
additional payments to ensure access to II.E.1. of this preamble. The Medicare delay in actual availability of a product
Medicare beneficiaries. In addition, we program pays for thousands of medical after FDA approval. The costs of the
also received many written comments services, drugs and technologies and new medical service or technology, once
regarding the substantial clinical may not necessarily be aware of all new paid for by Medicare for this 2-year to
improvement criterion for the technologies that come to the market. 3-year period, are accounted for in the
applicants. As indicated in the May 18, We have implemented the new MedPAR data that are used to
2004, proposed rule, we considered technology add-on payment provision recalibrate the DRG weights on an
these comments in our evaluation of by providing a process by which annual basis. Therefore, it is appropriate
each new application for FY 2005 in the applicants can present these to limit the add-on payment window for
proposed rule. In the proposed rule, we technologies to us for add-on payment those technologies that have passed this
summarized these comments or, if consideration. Commenters should also 2-to 3-year timeframe.
applicable, indicated that no comments consider the application process for We disagree that our statement of the
were received, at the end of the obtaining new ICD–9–CM codes to policy in the proposed rule is
discussion of the individual further aid in obtaining specifically inconsistent with policy that was
applications. identifying procedure codes in an effort implemented in previous rules. In the
Section 503(c) of Public Law 108–173 to seek new technology add-on first year that new technology
amended section 1886(d)(5)(K) of the payments. We discuss the DRG applications were considered in the
Act by adding a new clause (ix) assignment of procedure code 00.16 in IPPS (that is, during calendar year
requiring that before establishing any section II.B.16.c. of this final rule. The 2002), we discussed several applications
add-on payment for a new medical comment regarding the DRG assignment and determined whether they could be
service or technology, that the Secretary of the treatment for AIP is addressed in considered new on the basis of when
shall seek to identify one or more DRGs section II.B.16.i. of this final rule. FDA approval was granted to the
associated with the new technology, Comment: Some commenters objected technologies. Again in our August 1,
based on similar clinical or anatomical to the application of the newness 2003 final rule for FY 2004, we denied
characteristics and the costs of the criterion in the proposed rule. These applicants on the basis that the
technology and assign the new commenters asserted that CMS’s technologies had gained FDA approval
technology into a DRG where the description of the criterion requiring a prior to FY 2001; and thus, were not
average costs of care most closely technology to be new was inconsistent eligible for new technology add-on
approximate the costs of care using the with the statute and the September 7, payments. In these instances, we
new technology. No add-on payment 2001 final rule. Specifically, the employed the actual date of FDA market
shall be made with respect to such a commenters maintained that defining approval, not the date a separate ICD–
new technology. the period of new as during the 2-year 9–CM code became available, since data
At the time an application is to 3-year period after FDA market reflecting the costs associated with
submitted, the DRGs associated with the approval would ‘‘represent a significant those technologies had already been
new technology are identified. We only shift, retroactively changing the included in the DRG weights prior to
determine that a new technology add-on conditions under which companies the adoption of a separate ICD–9–CM
payment is appropriate when the have been developing innovative code.
reimbursement under these DRGs is not technologies and filing new technology Using the ICD–9–CM code alone is
adequate for this new technology. The applications.’’ These commenters not an appropriate test of newness
criterion for this determination is the further stated that this makes the because technologies that are new to the
cost threshold, which we discuss below. regulatory process unpredictable, market are automatically placed into the
We discuss the assignments of several ‘‘potentially having an adverse effect on closest ICD–9–CM category when they
new technologies within the DRG patient access to breakthrough medical first come on the market, unless the

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manufacturer requests the assignment of technology payment under the involve consideration of both the FDA
a new ICD–9–CM code because existing commenters’ approach, the technology approval date and the date of issuance
codes do not adequately reflect or could qualify as new, although the of an ICD–9–CM code. The commenter
describe the medical service or device. procedure has been used for the last 20 explained that if an ICD–9–CM code is
The services and technologies that have years. issued within 12 months of FDA
been placed into existing ICD–9–CM We also note that our existing approval, the 2-to 3-year period of a
codes have been paid for using those interpretation does not hamper the technology being considered new
descriptors. Therefore, while it may be ability of patients to receive should begin from the date of issuance
impossible to actually identify when a technologies that do not qualify for new of the ICD–9–CM code. If a code is
particular product was used because technology add-on payments. The IPPS issued more than 12 months after FDA
there is no unique code to identify it will continue to pay for existing and approval, the 2-to 3-year period should
amongst other products in the category, new medical services and technologies begin from the FDA approval date. The
the product is nonetheless used and through the regular payment mechanism commenter noted that adoption of this
paid for. In addition, hospital charges established by the DRG payment interpretation would strike a balance
reflect the services provided to patients methodology. Therefore, patient access between the FDA approval date and the
receiving the new service or device to these technologies is not adversely procedure code effective date and is
whether or not a specific code is affected by this interpretation, and this consistent with the preamble of the
assigned. Therefore, data containing interpretation is not inconsistent with September 7, 2001 Federal Register (66
payments for these new technologies are the framework used to review new FR 46914) and the text of the regulation
already in our MedPAR database and technology applications in previous (42 CFR 412.87(b)(2)).
when DRG recalibration occurs these years. Response: We note that the time
costs are accounted for. Furthermore, Comment: One commenter stated, period does not necessarily start with
assignment of new codes can occur for ‘‘we believe that the 2-to 3-year clock the approval date for the medical
many reasons other than the should not start until a technology service or technology and does not
introduction of new procedures and receives final approval by the Food and necessarily start with the issuance of a
technologies. For example, new codes Drug Administration.’’ The commenter distinct code. Instead, it begins with
can simply reflect more refined and also submitted an additional comment availability of the product on the
discriminating descriptions of existing that stated that the ‘‘date of ICD–9 code market, which is when data become
procedures and technologies. assignment should start the add-on available. We have consistently applied
payment eligibility time clock, not the this standard, and believe that it is most
If we were strictly to use the ICD–9– date of FDA approval.’’ consistent with the purpose of new
CM coding system for the purposes of Response: We note that the technology add-on payments.
identifying what technologies are new, commenter’s comments were somewhat Comment: MedPAC recommended
there would be an incentive for nearly contradictory on the issue of newness. that we use a different approach to DRG
every product, service and surgical The timeframe that a new technology recalibration. In these instances,
technique to apply for a new, unique can be eligible to receive new MedPAC recommends that we exclude
ICD–9–CM code. The ICD–9–CM system technology add-on payments begins those cases involving a new technology
could not absorb all these potential new when data become available. Section from our DRG recalibration method.
codes. It would also be inappropriate to 412.87(b)(2) clearly states that ‘‘a Doing so ‘‘would avoid overpaying for
pay more, in the form of new technology medical service or technology may be the technology by including its costs in
add-on payments, for most of the codes, considered new within the 2 to 3 year the base payment while also providing
as the technology may have been in use after the point at which data begins to an add-on payment’’ during the
prior to the assignment of the new code become available reflecting the ICD–9– overlapping 2-to 3-year period in
for several years, or several decades in CM code assigned to the new service or question. MedPAC further stipulates
some cases. For example, there is technology (depending on when a new that this approach ‘‘should be used for
currently no procedural distinction code is assigned and data on the new all cases where the new technology can
between a patient receiving a kidney service or technology become available be tracked’’ with an ICD–9–CM code or
transplant from a living or cadaver for DRG recalibration).’’ Section where cases can be identified by other
donor. It is conceivable that this kidney 412.87(b)(2) also states ‘‘***[a]fter CMS characteristics in our MedPAR data.
transplant could be broken out into has recalibrated the DRGs, based on They also stressed the importance of
several procedures, identifying the available data, to reflect the costs of an maintaining a conservative approach
source of the kidney (from living/ otherwise new medical service or when CMS evaluates technologies for
deceased, relative/stranger, etc.), and technology, the medical service or add-on payments. In addition, they
each would be a ‘‘new’’ procedure if we technology will no longer be considered noted that paying indiscriminately for
were to adopt the commenters’ ‘new’ under the criterion of this too many technologies ‘‘can be seen as
approach. These procedures have been section.’’ Therefore, regardless of unbundling of the DRG system’’ which
in use for up to half a century; and whether a technology can be would threaten the ‘‘incentives for
therefore, clearly should not qualify as individually identified by a separate hospitals to be efficient and weigh the
a new medical service or technology ICD–9–CM code, if the costs of the benefits of new technologies against
simply because a new ICD–9–CM code technology are included in the charge their costs.’’ Moreover, they noted that
has been assigned. Another example data, and the DRGs have been section 503(b)(1) of Public Law 108–173
that further exemplifies the limitations recalibrated using that data, then the changed the cost criteria by lowering the
of this ICD–9–CM-based approach is the device can no longer be considered new threshold to qualify for add-on
esophageal permanent tube, which is a for the purposes of this provision. payments. As such, MedPAC believes
stent implanted in a patient who cannot Comment: A commenter suggested that the number of technologies that
be medically treated and is unable to that CMS adopt a different strategy for could potentially be eligible to qualify
swallow. If we create a new code, and defining the newness criterion. The will likely increase expenditures to the
use it to determine if the esophageal commenter believes that the decision of program since these payments are no
permanent tube should qualify for new whether a technology is new should longer budget neutral.

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Response: We appreciate MedPAC’s commenters stated, despite or because payments for new technologies may be
recommendations and will consider its of these problems of distribution, the appropriately proprietary in these cases
suggestion regarding excluding the costs rates of adoption and utilization of new and the commenter believes CMS
of cases involving new technologies products should be accounted for before should release such data in a summary
from DRG recalibration calculations in we decide technologies are no longer format agreed to by the companies and
the future. We also believe that we have new. In addition, commenters call for should not make the data available for
consistently applied an appropriately CMS to ‘‘clarify what the bar is for a public inspection without the
high standard of clinical improvement device to represent a substantial companies’ consent. The commenter
to restrict these types of payments to [clinical] improvement.’’ Commenters also suggested that CMS should not
relatively few technologies that are truly stated that determinations of what require identification of a hospital by its
new. We will continue to apply this represents a substantial clinical Medicare provider number in cases
high standard in our review of improvement have been largely where there may be a confidentiality
applications for new technology add-on subjective, but that, ‘‘for future agreement between the manufacturer or
payments in the future. generations of add-on applicants, an data vendor and the hospital submitting
Comment: A commenter noted that if elaborated definition would be helpful.’’ the data. The commenter recommended
‘‘CMS believes that it erred in Response: As stated previously, we that CMS use pseudo-identifiers as an
developing the payment period policy have used as our uniform standard, the alternative to actual provider numbers.
published in the September 7, 2001 date of FDA approval in combination The commenter also proposed that CMS
final rule, then it should propose a with market availability to evaluate new allow the use of external data from
policy change applying to all technology applications. We also note recent timeframes without
applications for new technology add-on that in our evaluation of previous new corresponding MedPAR data,
payments.’’ The commenter also stated, technology applications, we have stated particularly for procedures involving
that ‘‘the implementation of such a whether or not the applicants have met new technologies and codes. The
policy change should affect only the the substantial clinical improvement commenter explained that external data
applications received thereafter, and criterion as part of the basis for our from private vendors has only a 60–90
should not apply to any applications approval or disapproval of the day time lag compared to MedPAR,
currently under consideration.’’ application. We follow the guidelines, which has a lengthier time lag. The
Response: We believe that the as listed in the September 7, 2001 final commenter further recommended that
commenter, the manufacturer of rule, to make these determinations as when determining the price of a drug or
InFUSE TM Bone Graft, wanted to ensure they apply to improving the quality of device CMS should accept the
that if we made a change in the policy, care for the elderly Medicare disclosure of discounts and rebates at
that change would be done through population. However, as discussed in the estimated aggregate level since the
notice and comment rulemaking and response to several of the other company may not know the final price
that the change would not be applied comments, we may need to consider paid by the hospital for a given product.
retroactively to applicants that are revising our policies in the future to Finally, the commenter recommended
currently under consideration. make the process more streamlined as that CMS should request that medical
However, we note that we have not more technologies apply for the new technology companies offer the HCPCS
made any changes to the policies technology add-on payments. We will codes and ICD–9–CM codes that seem
implemented in the September 7, 2001 also consider the commenter’s views most clinically appropriate to the
final rule. concerning the payment lag for new procedure since this information would
Comment: Several commenters urged products as we continue to develop be most helpful to CMS and allow
us to be as clear as possible in policy in this area. However, at this time companies to target their resources in
implementing section 503 of Public Law we believe that the 2-to 3-years providing external data. Another
108–173. The commenters stated that timeframe remains an appropriate commenter expressed that companies
transparency is necessary, particularly standard for determining when the costs will not make the best data available
for ‘‘small companies doing a of new technologies have been ‘‘unless CMS agrees to hold it
disproportionate amount of the medical incorporated into the DRG weights. confidential.’’
device research and development.’’ Comment: Several commenters urged Another commenter encouraged CMS
Many commenters urged us to clearly CMS to adopt a uniform standard for to expand its acceptance of external data
state and adopt an approach to the reviewing new technology add-on in order to ease the process of
provision so there is ‘‘a clear path to payment applications that is consistent establishing adequate initial inpatient
follow and a reliable set of requirements between both the IPPS and the OPPS. payment for new technology procedures
to meet.’’ Several commenters also Additionally, one commenter believes at or as close as possible to the time of
noted that, despite how we have been that CMS is inconsistent in its use of FDA approval. The commenter also
applying the definition of new, many of external data for verifying or amending urged CMS to accept external data as
the companies that have applied or payment rates. The commenter part of the recalibration of the DRG
could apply for new technology add-on recommended that CMS should weights. The commenter also
payments do not neatly fall into a acknowledge that different types of data recommended that CMS apply
standard definition because different are appropriate for different uses such reasonable standards that take into
manufacturers follow different as revisions to APCs in the outpatient account the limited amount of data that
pathways. These commenters stated, setting and adjustment of DRG relative may be available for new technologies
‘‘many device manufacturers, especially weights in the inpatient setting. The and the difficulties involved in
small device entrepreneurs, lack the commenter added that data collecting such data in determining
nationwide marketing, distribution, and requirements for determining eligibility whether external data provides an
reputation of the larger companies in for a new technology add-on payment acceptable basis for making a new DRG
the industry. These small companies are should not be the same as for adjusting assignment or adjustment of the DRG
most affected by the so-called ’payment DRG relative weights. The commenter weights.
lag’ during which new products are also recommended that external data One commenter, a company that
under-reimbursed.***’’ In addition, provided for DRG assignments or gathers data on hospital services, noted

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that its data could be used to project Comment: Commenters in general substantial clinical improvement prior
national trends and establish Medicare contended that they ‘‘cannot meet the to the public meeting on this topic.
policies. The commenter also noted that public’s demands to adopt new Response: We have traditionally not
there are instances where its data are technologies * * * because their ability provided our opinion on substantial
more detailed than MedPAR. The to access capital is deteriorating’’. clinical improvement of applicants for
commenter believes CMS should work Commenters stated that since very few new technology add-on payments until
with the industry to develop criteria for new technologies have qualified for this the final rule. We note that if all the
making use of external data. The add-on payment, hospitals continue to criteria are met prior to the publication
commenter was also concerned about underutilize and potentially limit use of of the proposed rule, we would prefer
the difficulty of obtaining MedPAR data. clinically important new technologies in to make our preliminary determinations
The commenter explained that CMS no the absence of these higher payments. available at that time. However, to date
longer makes available quarterly Commenters again urged CMS to we have not been able to make a sound
updates to the MedPAR and that the increase the payment for new determination regarding substantial
MedPAR data used to develop the FY technology add-on payments from 50 clinical improvement until after the
2005 proposed rule were not made percent of the cost of the device to 80 publication of the proposed rule.
available in a timely manner. percent of the costs. They stated that to Section 503(b)(2) of Public Law 108–
Response: We note that we have do so would be in line with the 173 requires CMS to consider public
followed many of these examples when Conference Committee Agreement comments regarding whether an
reviewing previous technologies. In the accompanying Public Law 108–173 applicant for new technology payments
case of Xigris(), we worked very which states, ‘‘the Secretary should meets the substantial clinical
closely with the applicant to review the consider increasing the percent of improvement criterion. Comments must
payment associated with the add-on be received and considered prior to the
applicant’s data in order to identify a
payments up to the marginal rate used publication of the proposed rule for the
cohort of cases that would be
for the inpatient outlier.’’ (108 Cong., 2d annual IPPS update. This requirement,
appropriate candidates to receive the
Sess., 212(2003)). Commenters further which was implemented for the first
new drug. For FY 2005, we have also
stated that CMS ‘‘apparently believes time through the new technology town
worked very closely with the applicants
that this outlier payment level strikes hall meeting held in March of this year,
to help them identify what data
the appropriate balance between and the subsequent comment period is
requirements needed to be met and to
ensuring that providers are not unduly further evidence that we do take the
help them to determine the best
at financial risk for expensive cases issue of substantial clinical
strategies to meet these requirements.
* * *’’, yet has offered no explanation improvement into account prior to the
We note, however, that applicants publication of the proposed rule.
should weigh the advantages of for why this payment level would not be
However, the MMA provision does not
submitting additional data in support of appropriate for the new technology add-
require the type of procedure
an application for new technology add- on payment as well.
recommended by the commenter, but
on payments with the need to preserve Response: We note that we have made merely the opportunity for presentation
the confidentiality of certain proprietary substantial changes to the application of comments, recommendations, and
data. We thank the commenters for their threshold in the last year, reducing the data to CMS.
other comments and recommendations cost threshold to qualify for new We designed the town hall-styled
regarding accepting non-MedPAR data. technology add-on payments twice. In meeting this spring to provide a forum
We intend to take these comments into addition, we have eliminated the budget for public comment on the applicants.
consideration and review the feasibility neutrality provision, thus increasing the This format appeared to be received
of adopting one or more of these total moneys spent to pay for deserving, well by most of the attendees. We
approaches at some time in the future. new technologies. While the conference accepted comments and topics from
Because we did not make any proposals report to the MMA recommended that attendees and presenters at the meeting,
regarding the use of external data in the the Secretary should consider changing as well as accepting comments on
May 18, 2004 proposed rule, we are not the payment factor, we will not make substantial clinical improvement of the
making any changes at this time. such a change this year. Rather, we will applicants after the meeting. If
However, we will consider the analyze the impacts of the other MMA presenters would like a more detailed
comments in developing future changes, especially the reduction in the agenda to be published prior to the rule,
proposals. cost threshold and the elimination of we welcome them to register to attend
We also note that we offer two annual the budget neutrality of the add-on the annual meeting and provide the
updates of the MedPAR data used for payments, before we consider making information requested in the Federal
determining the rates in FY 2005. One changes in the payment percentage. We Register notice announcing the meeting
update is based on the data used for the will continue to consider the conference (this includes personal information for
proposed rule. This update is usually report’s recommendation and will registration purposes as well as topics to
issued in May. The second update is determine whether to proceed with a be presented at the meeting). If we have
based on the data used in the final rule change in the light of our continuing this information well in advance of the
and is usually issued in September. analysis. meeting, the agenda will reflect all
Information on purchasing the MedPAR Comment: Commenters urged CMS to issues that have been raised regarding
data used in determining the rates for adopt an approach to the public the assessment of the substantial
FY 2005 can be found on our Web site meetings required by the MMA in a clinical improvement criterion for each
at manner that is similar to the ICD–9 applicant. We welcome further input on
default.asp. Finally, we note, that in the Coordination and Maintenance how to better incorporate input prior to
interests of providing the most accurate Committee meetings. Commenters noted the announcement of the next town hall
and complete data files and due to time that a specific agenda and preliminary meeting on this topic.
and work constraints, we are no longer opinions are released to the public prior In the May 18, 2004 proposed rule (69
able to issue quarterly updates of the to these meetings and urged CMS to FR 28236), we also evaluated whether
MedPAR to the public. present preliminary opinions on new technology add-on payments will

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continue in FY 2005 for the two continuation of add-on payments for significance of correctly coding the new
technologies that currently receive such Xigris. During the 60-day comment ICD–9-CM code identifying Xigris, and
payments. In accordance with section period for the proposed rule, we therefore, the data for the first year of
503(e)(2) of Public Law 108–173, we received 3 comments on this add-on payments do not adequately
also reconsidered one application for application. reflect the actual use of the drug.
new technology add-on payments that Comment: The manufacturer Response: As stated previously, when
was denied last year. Finally, we submitted comments that were highly we determine the newness criterion for
presented our evaluations of 10 new critical of CMS’ proposal to discontinue new technology add-on applications, we
applications for add-on payments in FY add-on payments for Xigris. The use the date of FDA approval to
2005. commenter brought up several points, determine that data including the
which it believes, show that CMS is in technology are being incorporated into
3. FY 2005 Status of Technology violation of the statutory provisions. DRG recalibration, except in those rare
Approved for FY 2004 Add-On First, the manufacturer expressed cases where evidence can be presented
Payments opposition to the proposal to terminate that demonstrates that the product
a. Drotrecogin Alfa (Activated)—Xigris the new technology add-on payments. It could not be marketed immediately after
agreed that it was important to consider FDA approval. We have used this
Xigris, a biotechnology product that
when a product comes on the market, method of determining newness since
is a recombinant version of naturally
but stated, ‘‘[w]hether a technology is we began reviewing new technology
occurring Activated Protein C (APC),
‘new’ is not salient in determining applications. While there was no clearly
was approved by the FDA on November
whether a third year of add-on distinguishable code assigned to Xigris
21, 2001. In the August 1, 2002, IPPS
payments should continue.’’ It stated prior to the implementation of the new
final rule (67 FR 50013), we determined that the costs of the drug had not been ICD–9–CM code 00.11 on October 1,
that cases involving the administration adequately accounted for as required by 2002, treatment with Xigris was
of Xigris, (as identified by the statute and that the period during which identified prior to that time by
presence of code 00.11 (Infusion of it was eligible to receive add-on procedure code 99.19. While this may
drotrecogin alfa (activated)) were payments should continue another year, not suit the applicant in terms of the
eligible for additional payments in FY until 3 full years of add-on payments ability to track specific cases that
2003. (The August 1, 2002, final rule had been made. It stated, that ‘‘the fact involved the use of Xigris, the drug
contains a detailed discussion of this that costs of a new technology or service was being used for more than 10 months
technology.) may be included in the Medicare prior to the assignment of code 00.11
In the August 1, 2003, final IPPS rule hospital discharge database (MedPAR) and the costs associated with the drug
(68 FR 45387), we indicated that, for FY starting at the time an item or service is were, therefore, clearly included in the
2004, we would continue to make add- introduced into the marketplace is FY 2003 MedPAR update. Additionally,
on payments for cases involving the irrelevant. What matters is the ability to we note that the manufacturer itself was
administration of Xigris as identified examine 2 years of cost data for cases able to identify patients that would or
by the presence of code 00.11. This was coded as having used the new could use Xigris(r), as discussed in the
because we determined that Xigris was technology or service.’’ Further, it May 9, 2002 proposed rule. There we
still within the 2-year to 3-year period argued, ‘‘these cost data cannot be stated, ‘‘Lilly also submitted detailed
before the costs of this new technology identified and collected until the ICD ICD–9–CM diagnosis and procedure
would be reflected in the DRG weights. code is assigned and used in the coding codes for a subset of * * * patients with
Xigris became available on the of cases.’’ It also stated that, since this billing data. * * *’’ (67 FR 31428).
market at the time of its FDA licensure 3-year maximum period had not yet Because the manufacturer was able to
on November 21, 2001. Early in FY ended, the costs of the cases could not identify a subset of patients without
2005, Xigris will be beyond the 2-year have adequately been accounted for in billing data at that time, we have met
to 3-year period during which a our DRG recalibration using only data the criteria set forth by the manufacturer
technology can be considered new. from FY 2003. It further stated that we itself in being able to identify ‘‘2 years
Therefore, in the May 18, 2004 proposed should wait to remove them from add- of cost data for cases coded as having
rule, we proposed that Xigris would on payment status until data from the used the new technology. * * *’’ The
not continue to receive new technology FY 2004 MedPAR are available to data we have captured since including
add-on payments in FY 2005. During recalibrate the DRGs. The manufacturer the data used for the FY 2003 proposed
the period of 2 years and 8 months since also stated that ‘‘the point of the rule analysis, have adequately
it came onto the market, Xigris has legislative changes was to improve the accounted for costs associated with
been used frequently in the appropriate old way of doing business * * *. It is these cases. Including the 2 subsequent
DRGs. For FY 2005, we analyzed the unfortunate that CMS proposes to take years during which Xigris was eligible
number of cases involving this the path of least resistance because it is to receive new technology add-on
technology in the FY 2003 MedPAR file. the Medicare beneficiaries who will payments, this makes a total of 3 years
We found 4,243 cases that received ultimately suffer.’’ of data that CMS has used to incorporate
Xigris, the majority of which fell Another commenter stated that our the costs associated with the drug into
appropriately into DRGs 415, 416, 475, proposal to deny additional add-on the weights of the DRGs into which
and 483, with by far the most cases in payments in FY 2005 will deny these cases fall.
DRG 416 (Septicemia Age >17). Medicare beneficiaries the access to In the FY 2004 annual update, we
Accordingly, the costs of Xigris are Xigris. An additional commenter estimated that there would be 3,000
now well represented in those DRGs. noted that, particularly because CMS cases involving Xigris in the relevant
Therefore, we proposed that FY 2004 was unable to implement the systems DRGs and we note that there are now
would be the final year for Xigris to changes necessary to pay the new 4,313 cases involving the drug in the
receive add-on payments. technology add-on payment for Xigris March update of the FY 2003 MedPAR.
Prior to the publication of the May 18, until 8 months after the new code and We have conducted an analysis of the
2004, proposed rule, we received no higher payment were allowed, many FY 2002 MedPAR to determine the
public comments regarding the hospitals were unclear as to the frequency of these cases in the DRGs in

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which Xigris has been used. We have above, the costs associated with the technology is new for add-on payment
identified 593 cases using procedure drug have been included in the weights purposes. The association strongly
code 99.19 in these 5 DRGs, which is of the relevant DRGs through the DRG encouraged CMS to continue monitoring
significantly lower than the most recent recalibration. the use of Xigris and associated
2 years of data. Additionally, we Comment: The manufacturer also conditions of severe sepsis to determine
recognize that this code included other noted that section 1886(d)(5)(K)(ii)(IV) if future revisions to the current DRGs
drugs and that not all 593 cases of the Act requires, ‘‘that discharges will be necessary. Another commenter
reporting this code in these 5 DRGs involving such a service or technology urged us to continue to monitor the use
necessarily involved Xigris. However, that occur after the close of the period and diffusion of all new technologies
this low number of cases is consistent [of add-on payments] will be classified that qualify or have previously qualified
with what we would expect, given that within a new or existing diagnosis- for this provision. Commenters urged
the initial ICD–9–CM code did not drive related group with a weighting factor CMS to require that all hospitals
DRG placement or payments. It is also * * * that is derived from the cost data continue to code for the use of the new
consistent with the reasoning behind collected with respect to discharges technologies, even after the period of
our of approval Xigris for new occurring during such period.’’ The add-on payment for the technologies has
technology add-on payments, since it commenter argues that there is no room ended, thus ensuring adequate tracking
was clearly a new technology that for interpretation of the statute and that, of diffusion of the new technologies as
provided great potential benefit to since the average costs of cases they continue to be used.
Medicare beneficiaries and met the involving the technology are very high, Response: We appreciate the
they should be assigned either to a new commenter’s support for our decision to
other criteria as defined by the statute.
DRG or remapped to higher-weighted remove this technology from add-on
It is also reasonable to expect that, once
DRGs to reflect the cost of the cases. payment status. We note that we review
the new ICD–9–CM code went into
Another commenter asked that, if CMS new technology add-on payment
effect, with a payment incentive to
refused to continue add-on payments for recipients annually to determine
encourage its rapid adoption and use,
the entirety of FY 2005, such payments whether they continue to meet the
the number of cases including this code
should be ‘‘maintained at least until the criteria to receive add-on payments. In
rose dramatically. While the figure of
agency has analyzed the available data the case of Xigris, this review led us
593 cases using procedure code 99.19 in
and has classified cases in which to find that it no longer meets the
the relevant cases in FY 2002 is not very Xigris is administered into an newness criterion. While we encourage
high, we note that in the August 1, 2002 appropriate DRG.’’ hospitals to continue to code for the
final rule we stated that, based on the Response: We do not agree with the drug, even though there is no longer a
sales figures from the company at that implications the commenter draws from payment incentive to do so, we cannot
time, there was already ‘‘$35 million in the statutory language. We have require hospitals to code for the use of
sales reported by Lilly through February assigned cases involving the use of the drug.
2002 (since the drug was approved in Xigris to clinically coherent DRGs, and We are finalizing our proposal to
November 2001). (At $6,800 per patient, the weights of these DRGs have been remove Xigris from new technology
$35 million in sales equates to just over recalibrated to reflect the costs of these status and will no longer pay new
5,000 cases for the first 4 months since technology. We have also analyzed the technology add-on payments for this
FDA approval.)’’ (67 FR 50015). costs of these cases and determined that, technology, starting October 1, 2004.
Therefore, we are confident that we although the average standardized The manufacturer also asked us to
have adequate data reflecting the use of charge for these cases is higher than the consider creating a DRG specifically for
Xigris over the past 3 years. If we were average charges for the DRGs into which severe sepsis. We discuss this request in
to continue add-on payments beyond the cases involving Xigris fall, there section II.B.16.c. of the preamble to this
FY 2004, the technology would be appears to be no justification to warrant final rule.
beyond its 2–3 year maximum as creation of a new DRG or re-assignment
allowed by the statute. We have used b. InFUSETM (Bone Morphogenetic
of cases involving Xigris into higher-
these data to recalibrate the DRGs into Proteins (BMPs) for Spinal Fusions)
weighted DRGs. We do not believe that
which these cases most frequently fall, it is necessary to assign cases involving InFUSETM was approved by FDA for
so the costs of the technology have Xigris to a separate unique DRG, as use on July 2, 2002, and became
already been accounted for in those requested by the manufacturer, in order available on the market immediately
DRG weights. Similarly, although we to satisfy the statutory requirement. thereafter. In the August 1, 2003 IPPS
regret that systems changes delayed the Indeed, we note that the commenter’s final rule (68 FR 45388), we approved
processing of add-on payments for own comment stated, ‘‘Xigris is InFUSETM for add-on payments under
Xigris in FY 2003, hospitals received administered to only a small proportion § 412.88, effective for FY 2004. This
add-on payments for all cases reporting of the severe sepsis population and is approval was on the basis of using
the ICD–9-CM code for Xigris. not representative of the comprehensive InFUSETM for single-level, lumbar
Furthermore, the costs of the new incidence of the disease.’’ Therefore, by spinal fusion, consistent with the FDA’s
technology are nonetheless represented the manufacturer’s own statements, we approval and the data presented to us by
in the 2003 MedPAR data, whether cannot use cases involving the code for the applicant. Therefore, we limited the
hospitals used the new ICD–9–CM code Xigris as the standard by which to add-on payment to cases using this
for Xigris (00.11) or the earlier assign severe sepsis cases. We discuss technology for anterior lumbar fusions
procedure code (99.19). We do not agree the DRG assignment of Xigris in in DRGs 497 (Spinal Fusion Except
with the assertion that Medicare section II B.16.c. of this final rule. Cervical With CC) and 498 (Spinal
beneficiaries will no longer have access Comment: One national hospital Fusion Except Cervical Without CC).
to this important drug once the new association agreed with our proposal to Cases involving InFUSETM that are
technology add-on payments associated discontinue add-on payments for this eligible for the new technology add-on
with it are terminated. To the contrary, technology. The commenter noted that payment are identified by assignment to
we will continue to pay for the drug the termination of the add-on payments DRGs 497 and 498 as a lumbar spinal
through DRG payment, and as noted falls outside the timeframe in which a fusion, with the combination of ICD–9–

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49008 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

CM procedure codes 84.51 (Insertion of Commenters expressed support for the already been in use for 9 years and has
interbody spinal fusion device) and continuation of new technology add-on been accounted for in DRG payments.
84.52 (Insertion of recombinant bone payments for this technology in FY We are finalizing our proposal to
morphogenetic protein). 2005. approve InFUSETM for spinal fusion for
Because InFUSETM was approved by We are finalizing that proposal in this an additional year of new technology
the FDA for use on July 2, 2003, it is still final rule. add-on payments, through the end of FY
within the 2-year to 3-year period We received the following comments 2005. We note that in order to receive
during which a technology can be in response to the May 18, 2004 new technology add-on payment for
considered new under the regulations. proposed rule. InFUSETM, we are continuing to require
Therefore, in the May 18, 2004 proposed Comment: Several commenters both the procedure code for InFUSETM
rule, we proposed to continue add-on supported our proposal to no longer pay (84.52) and the code for the LT Cage
payments for FY 2005 for cases for the LT Cage as a bundled add-on (84.51) due to the FDA label that
receiving InFUSETM for spinal fusions payment with InFUSETM. They noted requires the LT Cage to be used in
in DRGs 497 (Spinal Fusion Except that it was not appropriate to pay for the conjunction with the InFUSETM
Cervical With CC) and 498 (Spinal LT Cage as part of the InFUSETM add- product. While the procedure code for
Fusion Except Cervical Without CC). We on since the technology has been the LT Cage (84.51) does include other
also proposed to continue limiting the available for several years. brands and types of cages for spinal
add-on payment for cases receiving Response: When we initially reviewed fusion, we expect that doctors will
InFUSETM, to those cases identified by the application, the applicant indicated maintain the best clinical standard for
the presence of procedure codes 84.51 to us that the FDA approval was for a their patients and will continue to use
and 84.52. However, we proposed to pre-packaged product that included the the LT Cage with the InFUSETM
eliminate add-on payment for the LT Cage, the InFUSETM biotechnology product. We are therefore finalizing our
interbody fusion device that is used in product, and an absorbable collagen proposal to unbundle the new
combination with this recombinant sponge to carry the rhBMP. While the technology add-on payments for this
human bone morphogenetic protein FDA label required the product to be device for FY 2005 by removing
(rhBMP) product (procedure code used with the LT Cage, we were initially payment for the LT Cage from the add-
84.52). We note that currently add-on under the impression that these devices on payment for cases involving
payments for InFUSETM include costs were provided to hospitals in the same InFUSETM. We are also finalizing the
for the interbody fusion device (the LT package. It later was brought to our maximum add-on payment amount of
Cage, identified by procedure code attention that the product was not $1955 for cases that are eligible to
84.51), used in the spinal fusion marketed this way and that in fact the receive the add-on payment.
procedure with the InFUSETM product. rhBMP product is supplied to hospitals Comment: Other commenters were
Because this device is not a new in several different sized ‘‘kits’’ that pleased about our proposal to
technology, but in fact has been in use have differing amounts of InFUSETM in discontinue bundled payments that
for 9 years for spinal fusions, we believe them, and that the LT Cage is purchased include the LT Cage for spinal fusions
that it is inappropriate to pay for this separately. As such, it is not only easy because this bundled payment
device in conjunction with the to see why the add-on payment should precluded payment for similar
genuinely new rhBMP technology. be unbundled, but also easy to do so. technologies that are used in spinal
Therefore, we proposed no longer to pay Comment: Some commenters, fusion surgery but that do not require
for the interbody fusion device as including the manufacturer, were use of the LT Cage. One commenter
bundled in the current maximum add- opposed to our proposal to discontinue noted that another BMP product was
on payment amount of $4,450 for cases bundled payment for InFUSETM in just awarded FDA approval for spinal
that qualify for additional payment. The combination with the LT Cage. They fusion involving posterolateral
proposal would reduce the add-on argue that to remove the payment for the approach. This commenter requested
payment to account for no longer LT Cage would result in even further that the other devices of this nature be
including the costs of the LT Cage in restricting the use of this much needed included in any approval of rhBMPs for
computing the add-on payment amount. technology that eliminates a painful new technology add-on payments or an
This would reduce the cost of this new second surgery and extensive blood loss unfair economic advantage would be
technology by $4,990, which results in for the patients who must otherwise created.
a total cost of $3,910 for InFUSETM. undergo spinal fusions via Response: As we discussed in the
Therefore, we proposed a maximum conventional, autogeneous bone- September 7, 2001, final rule (66 FR
add-on amount of $1,955 for cases that harvesting methods. Other commenters 46915), an approval of a new technology
qualify for additional payment. were very concerned that the lower add- for special payment should extend to all
Although we proposed to eliminate on payment amount would result in technologies that are substantially
payment for the LT Cage, we would still hospitals using cages other than the similar. Otherwise, our payment policy
require the presence of procedure code FDA-approved LT Cage with this would bestow an advantage to the first
84.51 (in combination with procedure technology. These commenters stated applicant to receive approval for a
code 84.52) when making new that to encourage this off-label use by particular new technology. The new
technology add-on payments for not continuing the higher payments is product, called OP–1 Putty,
InFUSETM. This is due to the fact that contrary to our statement in last year’s manufactured by Stryker Biotech,
the LT Cage is still required by the FDA final rule requiring that a product utilizes a similar mechanism to promote
when InFUSETM is used for single level qualify for add-on payments based upon natural bone growth by using a closely
spinal fusions. usage consistent with its FDA labeling. related bone morphogenetic protein
Prior to the publication of the May 18, Response: In this clear case where a called rhBMP–7 (InFUSETM is rhBMP–
2004 proposed rule, we received public new technology is being used in 2). Because the OP–1 Putty is now
comments in accordance with section conjunction with an old technology, we available on the market (it received FDA
503(b)(2) of Public Law 108–173 do not believe it is appropriate to approval for spinal fusions in May of
regarding the continuation of add-on continue to pay an add-on payment for this year) for similar spinal fusion
payments for this technology. the old device, as this device has procedures and also eliminates the need

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for the autograft bone surgery, we are GLIADEL  Wafer application, but did not revise the
extending new technology add-on Gliablastoma Multiforme (GBM) is a criterion for determining whether a
payments to this technology as well, for very aggressive primary brain tumor. medical service or technology is new.
FY 2005. Because the new product does Standard care for patients diagnosed As stated above, the FDA originally
not require the LT Cage to be used with GBM includes surgical resection approved the GLIADEL wafer on
simultaneously, we are requiring that followed by radiation and, in some September 23, 1996. Therefore, this
providers use different codes when the cases, systemic chemotherapy. technology is beyond the period in
different products are used. According to the manufacturer, the which it can be considered new.
GLIADEL wafer is indicated for use at Accordingly, in the May 18, 2004,
Cases using InFUSETM should be
the time of surgery in order to prolong proposed rule, we proposed to deny this
identified by the combination of
survival in patients with GBM. application for new technology add-on
procedure codes 84.51 and 84.52, as
Implanted directly into the cavity that is payments for FY 2005.
described above and as required in the Prior to the publication of the May 18,
previous year of new technology add-on created when a brain tumor is surgically
2004, proposed rule, we received no
payments for this technology. For cases removed, the GLIADEL wafer delivers
public comments regarding our
using the OP–1 Putty, the procedure chemotherapy directly to the site where
reconsideration of this application for
code 84.52 (Insertion of recombinant the tumor is most likely to recur. add-on payments. During the 60-day
bone morphogenetic protein) must be The FDA gave initial approval for the
comment period for the May 18, 2004,
coded in combination with procedure GLIADEL wafer on September 23,
proposed rule, we received the
codes identifying posterolateral spinal 1996, for use as an adjunct to surgery to
following public comments regarding
fusions, as is consistent with the FDA prolong survival in patients with
our reconsideration of the application.
approval for this device. Therefore, recurrent GBM for whom surgical Comment: One commenter stated,
procedure code 84.52 must be coded resection is indicated. In 2003, Guilford ‘‘[a]s a country that prides itself on
with any of the following procedure Pharmaceuticals submitted an being a leader in cancer research, it is
codes: 81.08 (Lumbar/lumbosac fusion application for approval of the disheartening that patients must battle
posterior technique), 81.38 (refusion of GLIADEL wafer for add-on payments to gain access to the benefits that this
lumbar posterior approach), 81.05 and stated that the technology should research has provided.’’
(Dorsal and dorsolumbar fusion, still be considered new for FY 2004, Response: We continue to pay for
posterior technique), or 81.35 (Refusion despite its approval by the FDA on technologies that do not meet the
of dorsal and dorsolumbar spine, September 23, 1996. The manufacturer criteria to receive new technology add-
posterior technique) in order to receive stated that the technology was still new on payments through the regular
add-on payments under this provision. because it had not been possible to payment mechanism established by the
Both of these devices have FDA specifically identify cases involving use DRG payment methodology. Therefore,
approval that is consistent with cases of the GLIADEL wafer in the MedPAR patient access to these technologies
that would be assigned to DRGs 497 or data prior to the adoption of a new ICD– should not be adversely affected by a
498. Because Stryker Biotech did not 9–CM code 00.10 (Implantation of a determination that a technology does
submit a new technology add-on chemotherapeutic agent) on October 1, not qualify to receive add-on payments.
payment application, we were unable to 2002. However, as discussed in the Comment: One commenter believes
do a complete analysis of the cost of the September 7, 2001 final rule (66 FR that the GLIADEL chemotherapy wafer
device. However, we have been able to 46914), the determination concerning merits a separate DRG, which the
determine that the costs associated with whether a technology meets this applicant contends would be similar to
the OP–1 Implant are similar to those criterion depends on the date of its our treatment of the establishment of
availability for use in the Medicare new DRGs for drug-eluting stents. The
associated with InFUSETM. Therefore,
population rather than the date a commenter acknowledges that DRGs are
we believe that the same payment
specific code may be assigned. A ‘‘not normally created to recognize the
amount for new technology add-on
technology can be considered new for 2 presence or absence of new
payments is appropriate for both
or 3 years after data reflecting the costs technology.’’ Nevertheless, the
devices. Accordingly, cases containing
of the technology begin to become commenter argues that CMS’
one of the above combinations of
available. Data on the costs of this recognition of the ‘‘unique
procedure codes and that fall into DRGs
technology began to become available in circumstances surrounding the potential
497 or 498 will be eligible to receive the
September 1996. As a result, the costs breakthrough nature’’ of drug-eluting
add-on payment, with a maximum of
of this technology are currently reflected stents should also be applied to
$1,955 for FY 2005.
in the DRG weights. As discussed in the GLIADEL wafer.
4. Reevaluation of FY 2004 Applications final rule for FY 2004 (68 FR 45391), on Response: Guilford asked us to
That Were Not Approved February 26, 2003, the FDA approved consider reclassifying this device into
the GLIADEL wafer for use in newly another DRG. We discuss issues relating
Section 503(e)(2) of Public Law 108– diagnosed patients with high-grade to the DRG assignment of the GLIADEL
173 requires us to reconsider all malignant glioma as an adjunct to wafer in section II.B.16.c. of this final
applications for new medical service or surgery and radiation. However, our rule. In that discussion, we announce
technology add-on payments that were understanding is that many newly our decision to create a new DRG 543
denied for FY 2004. We received two diagnosed patients were already (Craniotomy with implantation of
applications for new technologies to be receiving this therapy. To the extent that chemotherapeutic agent or acute
designated eligible for add-on payments this is true, the charges associated with complex central nervous system
for new technology for FY 2004. We this use of the GLIADEL wafer were principle diagnosis) to which Gliadel
approved InFUSETM for use in spinal also reflected in the DRG relative cases will be assigned. The cases
fusions for new technology add-on weights. Therefore, the GLIADEL wafer assigned to this new DRG have similar
payments in FY 2004. We denied the did not meet this criterion for FY 2004. resource utilization and comparable
application for new technology add-on Section 503(e)(2) of Public Law 108– charges to cases involving the
payments for the GLIADEL  wafer. 173 required us to reconsider this GLIADEL wafer. As a result, we

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49010 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

believe this DRG assignment will result currently associated with the treatment (Fracture of fibula with tibia, shaft,
in appropriate payments for these cases. of these injuries. open), 733.81 (Malunion of fracture), or
In this rule we are finalizing our denial The manufacturer submitted data on 733.82 (Nonunion of fracture). We
of new technology add-on payments for 315 cases using InFUSETM for open tibia identified 38 cases in DRGs 218 and 219
this technology. fractures in the FY 2002 MedPAR file, that contained a code identifying a BMP
as identified by procedure code 79.36 product (identified by the presence of
5. FY 2005 Applicants for New (Reduction, fracture, open, internal procedure code 84.52) in the FY 2003
Technology Add-On Payments fixation, tibia and fibula) and diagnosis MedPAR.
a. InFUSETM Bone Graft (Bone codes of either 823.30 (Fracture of tibia In the May 18, 2004, proposed rule,
Morphogenetic Proteins (BMPs) for alone, shaft, open) or 823.32 (Fracture of we noted that as part of its application,
Tibia Fractures) fibula and tibia, shaft, open). The the applicant submitted evidence on the
Bone Morphogenetic Proteins (BMPs) applicant also noted that the patients in substantial clinical improvement
have been shown to have the capacity their clinical trials as well as patients criterion. The applicant cited data from
that would be likely candidates to a prospective, controlled study
to induce new bone formation and,
receive InFUSETM for tibia fractures published on December 12, 2002 in The
therefore, to enhance healing. Using
would include those cases that had Journal of Bone and Joint Surgery
recombinant techniques, some BMPs
malunion of their fractures (diagnosis (Govender , S., Crismma, C., Genant,
(referred to as rhBMPs) can be produced
code 733.81) or nonunion of fractures H.K., Valentin-Opran, V., ‘‘Recombinant
in large quantities. This has cleared the
(diagnosis code 733.82). The applicant Human Bone Morphogenetic Protein–2
way for their potential use in a variety
also submitted data for a hospital for Treatment of Open Tibia Fractures,’’
of clinical applications such as in
sample that included 63 cases using the Vol. 84–A, No. 12. p. 2123). The study,
delayed unions and nonunions of
same identifying codes. Based on the also known as BESTT study group,
fractured bones and spinal fusions. One
data submitted by the applicant, involved 49 trauma centers in 11
such product, rhBMP–2, is developed InFUSETM would be used in four countries. The study enrolled 450
for use instead of a bone graft with different DRGs: 217 (Wound patients who had sustained an open
spinal fusions. Debridement and Skin Graft Except tibia shaft fracture that normally would
Medtronic Sofamor Danek submitted Hand, for Musculoskeletal and be treated by intramedullary nail
an application for the InFUSETM Bone Connective Tissue Disorders), 218 and fixation and soft tissue management.
Graft for use in tibia fractures for 219 (Lower Extremity and Humerus The patients were randomly and blindly
approval as a new technology eligible Procedures Except Hip, Foot, Femur assigned to one of three groups: The
for add-on payments in FY 2005. Age > 17, With and Without CCs, standard of care as stated above, the
Medtronic submitted a similar respectively) and 486 (Other O.R. standard of care plus implantation of an
application for new technology add-on Procedures for Multiple Significant absorbable collagen sponge soaked with
payments in FY 2004 for InFUSETM Trauma). The analysis performed by the .75 mg/ml of rhBmP–2, or the standard
Bone Graft/LT-CAGETM Lumbar applicant resulted in a case-weighted of care plus implantation of an
Tapered Fusion Device. As discussed cost threshold of $27,111 for these four absorbable collagen sponge soaked with
above, we approved this application for DRGs. The average case-weighted 1.50 mg/ml of rhBMP–2. The study
FY 2004, and will continue to make new standardized charge for cases using followed up with 421 (94 percent) of all
technology payments for FY 2005 for InFUSETM in these four DRGs would be patients. The applicant stated that the
InFUSETM when used in spinal fusions $46,468. Therefore, the applicant study found that patients who received
(refer to section III.E.3.b. of this maintains that InFUSETM for open tibia the standard of care plus an absorbable
preamble). fractures meets the cost criterion. collagen sponge soaked with 1.50 mg/ml
In cases of open tibia fractures, Further discussions with the of rhBMP–2 achieved the following
InFUSETM is applied using an applicant revealed that the more results compared to the standard of care
absorbable collagen sponge, which is appropriate DRGs to which this device without the rhBMP: a 44-percent
then applied to the fractured bone in should be limited are DRGs 218 and 219 reduction in the rate of secondary
order to promote new bone formation. (Lower Extremity and Humerus surgery, an average of 39 days reduction
The manufacturer contends that this use Procedures Except Hip, Foot and Femur in time of clinical healing and lower
is severely limited due to the greatly Age > 17, With and Without CC). The infection rates. As a result, the applicant
increased costs for treating these cases manufacturer projects that there would maintains that InFUSETM in tibia
with InFUSETM at the time of wound be approximately 550 cases (based on fractures represents a substantial
debridement and closure. The the number of open tibia fractures that clinical improvement over previously
manufacturer has conducted a clinical would have qualified for InFUSETM in available technologies.
trial and FDA approval for the use of the FY 2002 MedPAR) in FY 2005. In the May 18, 2004, proposed rule,
InFUSETM for open tibia fractures was Since FDA approval for use of we did not present a full analysis of this
awarded on April 30, 2004. The InFUSETM for open tibia fractures, we application under the substantial
application for add-on payments for the have performed an analysis to clinical improvement criterion because
use of InFUSETM for open tibia fractures determine the number of cases that may the technology had not yet received
proposes that such payment would have already received InFUSETM for FDA approval for this use in time for
encourage the use of InFUSETM for treatment of open tibia fractures. We consideration in the proposed rule.
treatment of these fractures of grade II identified 3,788 cases in DRGs 218 and However, we noted that, although the
or higher (up to and including grade III, 219 (Lower Extremity & Humerus cited study provides some evidence of
which often must be amputated due to Procedures except hip, foot, femur, age clinical efficacy, we had some concerns
the severity of injury). The additional >17, with and without CCs) that also about whether the study conclusively
payment, according to the applicant, had procedure code 79.36 (Reduction, demonstrates substantial clinical
would encourage more hospitals to use fracture, open, internal fixation, tibia improvement over previously available
the technology at the time of initial and fibula) and any of the following technologies because of its design. (It is
wound closure and would result in diagnosis codes: 823.30 (Fracture of important to note, as we stated in the
reduced rates of infection and nonunion tibia alone, shaft, open), 823.32 August 1, 2002, Federal Register (67 FR

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50015), that we do not employ FDA payments under the cost and substantial complicated fractures of the tibia.3
guidelines to determine what drugs, clinical improvement criteria. These cases and the study protocol are
devices, or technologies qualify for new Comment: One commenter wrote ‘‘to similar to those described in the clinical
technology add-on payments under bring to Medicare’s immediate attention trials involving InFUSETM for open tibia
Medicare. Our criteria do not depend on that there is more that one BMP fractures. In fact, many of the cases that
the standard of safety and efficacy that manufacturer with approved indications were brought for review during the
the FDA sets for general use, but on a for long bone fractures * * *’’. The application process for InfuseTM were
demonstration of substantial clinical commenter went on to note that patients that had already experienced
improvement in the Medicare ‘‘Stryker[Biotech]’s * * * OP–1 Implant non-union, were not candidates for
population, particularly patients over for recalcitrant long bone non-unions autograft (due to already having
age 65.) We indicated that we would received FDA clearance in October, autograft surgery and there not being
present our full analysis of the evidence 2001.’’ The commenter urged Medicare enough material left in the hip to
regarding clinical improvement in the that ‘‘the decision for add-on payment acquire more, or poor quality of the
final rule. should be for the BMP, not the bone, etc.), or had fractures in long
Since the publication of the proposed manufacturer.’’ bones other than the tibia (many cases
rule, the manufacturer has provided Response: We agree with the were femur fractures). Therefore, we
additional information regarding commenter that determinations believe the technology involving use of
substantial clinical improvement. The concerning new technology add-on rhBMP to treat severe long bone
applicant provided research indicating payments should not make distinctions fractures, including open tibial
both the efficacy of the rhBMP product between different manufacturers of the fractures, and recalcitrant long bone
in the elderly, Medicare population as same technology. As we stated in the fractures has been in use for more than
well as satisfactorily answering any proposed rule on May 18, 2004: ‘‘an 3 years. In addition, cases involving use
approval of a new technology for special of the OP–1 Implant for long bone
remaining questions our physicians had
payment should extend to all nonunions and open tibia fractures are
regarding the clinical trials for this use
technologies that are substantially assigned to the same DRGs (218 and
similar. Otherwise, our payment policy 219, Lower extremity procedures with
In the proposed rule, we indicated would bestow an advantage to the first and without complication or
that we determined that this technology applicant to receive approval for a comorbidity, respectively). Therefore,
still qualifies as new in the context of particular new technology.’’ (69 FR data reflecting the costs associated with
extending new technology add-on 28242). In this case, we had received no this technology began to become
payments for InFUSETM for single-level information concerning the existence of available in the relevant DRGs in 2001,
spinal fusions (refer to InFUSETM for the OP–1 Implant for long bone fusion, and are now reflected in the DRG
spinal fusion in section 3(b) above). We created by Stryker Biotech, prior to this weights. We therefore find that the use
noted that, in the September 7, 2001 comment. Since the OP–1 Implant of rhBMPs for these indications is not a
final rule (66 FR 46915), we stated that received FDA clearance in October, new technology for the purposes of the
if an existing technology was assigned 2001, it has been necessary to reevaluate new technology add-on payment. In
to different DRGs than those in which whether InFUSETM for open tibia addition, if we were to approve
the technology was initially used, the fractures can still be considered new in InFUSETM for open tibia fractures for
new use may be considered for new the light of this new information. This the new technology add-on payment
technology add-on payments if it also determination turns on two there would be no way to distinguish
meets the substantial clinical considerations: whether these products the claims getting InFUSETM BMP and
improvement and inadequacy of are substantially similar, and whether those cases receiving the OP–1 Implant
payment criteria. Under the policy the indications for the two products BMP, because they are indistinguishable
suggested in that rule, approval of lead to the assignment of cases by patient characteristics or ICD–9 code.
InFUSETM for tibia fractures would start involving the use of the two products to Accordingly, we are denying the
a new period of add-on payments for the the same DRGs. The crucial application for add-on payments for
new use of this technology. However, consideration in determining whether a InFUSETM for open tibia fractures
we stated that we had some reservations technology is new from a payment because this device is not a substantial
about whether this result would be policy perspective is whether data clinical improvement over existing
appropriate. We stated that it might be reflecting the costs of the technology technologies, and therefore is not a new
possible, under the policy described in have been incorporated into setting the technology for purposes of new
the September 7, 2001 final rule, for a DRG weights. A technology can be technology add-on payments. We
technology to receive new technology considered new for 2 to 3 years after the acknowledge, however, that products
add-on payments for many years after it point at which charge data begin to may evolve that are very closely related
is introduced, provided that use of the become available. but that have very different clinical
technology is continually expanded to We have been able to determine that efficacies, and we are committed to
treatment of new conditions (in this the OP–1 Implant created by Stryker continuing to refine and share our
case, every time the product is used to Biotech in fact was approved by the methodology for deciding what should
treat a new bone injury). We invited FDA under Humanitarian Device or should not be considered a new and
comment on whether it would be more Exemption (HDE) on October 17, 2001, innovative technology. In this context,
appropriate merely to extend the for the indication of ‘‘use as an we would note that MedPAC has
existing approval of InFUSETM for alternative to autograft in recalcitrant encouraged us ‘‘to be conservative in
spinal fusions to cases where InFUSETM long bone nonunions where use of [evaluating] * * * technologies for add-
is used for open tibia fractures, without autograft is unfeasible and alternative
extending the time period during which treatments have failed.’’ It came onto the 3 Friedlaender, GE, at al. ‘‘Osteogenic Protein–1

the technology will qualify for add-on market shortly after approval. The trials (Bone Morphogenetic Protein–7) in the Treatment
of Tibial Nonunions: A Prospective, Randomize
payments. We also invited comments on where the OP–1 Implant was used Clinical Trial Comparing rhOP–1 with Fresh Bone
whether use of InFUSETM for open tibia demonstrated the safety and efficacy of Autograft.’’ Journal of Bone & Joint Surgery.
fractures should qualify for add-on OP–1 Implant for patients with 2001;83A(S1): 151–158.

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on payments, ensuring that technologies According to the manufacturer, Norian after data reflecting the costs of the
are substantially different from SRS Cement is an injectable, fast- technology begin to become available.
predecessor technologies, costly, and setting carbonated apatite cement used Data on the costs of this technology
with clinical benefit.’’ to fill defects in areas of compromised began to become available after FDA
Comment: Several commenters stated cancellous bone during restoration or approval in 1998, and these costs are
their concerns regarding a number of augmentation of the skeleton. The currently reflected in the DRG weights.
issues raised in our discussion in the product provides a bone-void filler that As we discussed in the September 7,
proposed rule. They do not think that it resorbs and is replaced with bone 2001, final rule (66 FR 46914), the
would be appropriate to deny add-on during the healing process. determination concerning whether a
payments for InFUSETM for tibia On December 23, 1998, the FDA technology meets this criterion depends
fractures regardless of the existing status approved Norian SRS for use as an on the date of its availability for use in
of the device for use in other surgeries. adjunct for fracture stabilization in the the Medicare population rather than the
They stated that CMS should not treatment of low impact, unstable, date a specific code may be assigned.
indiscriminately impose our policy metaphyseal distal radius fractures, in Therefore, we proposed that Norian
criteria without considering the clinical cases where early mobilization is SRS Cement does not meet the
opinions of experts involved in these indicated. On December 20, 2001, the newness criterion.
cases and as a result deny patients FDA approved Norian SRS Cement for Although we proposed to deny add-
access to the latest breakthrough use in bony voids or defects that are not on payments because the technology
medical technologies. Several other intrinsic to the stability of the bony does not meet the newness criterion, we
commenters wrote to encourage CMS to structure. Norian SRS Cement is noted that the manufacturer submitted
make add-on payments for the intended to be placed or injected into information on the cost criterion and the
InFUSETM bone graft for treatment of bony voids or gaps in the skeletal substantial clinical improvement
‘‘compound fractures of the tibia.’’ The system. These defects may be surgically criterion. The manufacturer submitted
manufacturer commented that it would created osseous defects or osseous 52 Medicare and non-Medicare cases
go against CMS precedent not to defects caused by traumatic injury to the using Norian SRS Cement. There are
consider the new indication for bone. currently no ICD–9–CM codes that can
InFUSETM as qualifying for its own Despite the time that has elapsed distinctly identify Norian SRS Cement
determination of substantial clinical since FDA approval, the manufacturer within the MedPAR data; therefore, we
improvement since we had made a contends that Norian SRS Cement cannot track this technology with our
similar analysis in FY 2004 for should still be considered new for own analysis of MedPAR data. Based on
GLIADEL wafer. One commenter also several reasons. First, until April 2002, the data submitted by the manufacturer,
supported the review and approval of Norian SRS Cement was hand mixed cases using Norian SRS Cement were
new technology add-on payments where using a mortar and pestle. Once Norian found in 12 DRGs, with 71.1 percent of
the new technology is being used for a SRS Cement was approved by the FDA the cases in DRGs 210, 218, 219, and
different medical procedure than the in December 2001 (for the indication of 225. Based on the 52 cases submitted by
original use and will group to separate use in bony voids or defects that are not the applicant, the case-weighted
DRGs. intrinsic to the stability of the bony threshold across all DRGs was $22,493.
Response: As stated previously, we do structure), the manufacturer issued a The average case-weighted standardized
not believe that patient access to new pneumatic mixer. According to the charge was $29,032. As a result, the
breakthrough technologies is being manufacturer, this new pneumatic applicant and manufacturer maintained
denied. Because another device using mixer allows for better preparation, that Norian SRS Cement meets the cost
rhBMPs for these indications has been reliability, and ease of use. In addition, criterion.
in use for 3 years and the costs for this a new injection syringe mechanism was According to the manufacturer,
technology have been included in the developed and made available in May Norian SRS Cement represents a
weights for the DRGs where cases 2002 and replaced the ‘‘Norian Delivery substantial clinical improvement for the
involving InFUSETM for open tibia Device’’. The manufacturer believes following reasons: It enhances short-
fractures have been assigned, this these new procedures for mixing and term and long-term structural support,
technology is not a substantial clinical delivery of the product to the patient improves the rate and durability of
improvement over exisitng technologies should be considered new services as healing, decreases donor site morbidity,
and can no longer be considered ‘‘new.’’ stated in section 1886(d)(5)(k)(ii) of the decreases risk of infection at graft site,
We further note that because we Act and § 412.87(b)(1) of the regulations. lowers the risk of operative
determined that the GLIADEL wafer Second, the manufacturer contends that complications from shorter operative
did not meet the newness criterion, we the cement should still be considered procedures, lowers the rate of post-
did not conduct an analysis on the new because there is no ICD–9–CM code treatment hospitalizations and
substantial clinical improvement to uniquely identify Norian SRS physician visits, and finally, reduces
criterion in FY 2004. Cement within the DRGs. pain.
In the May 18, 2004, proposed rule, In the May 18, 2004, proposed rule,
b. Norian Skeletal Repair System we indicated that, although there have we did not present a full evaluation of
(SRS) Bone Void Filler been changes in the way Norian SRS the application for add-on payments for
Brigham and Women’s Hospital Cement is mixed and delivered to the Norian SRS Cement under these
submitted an application for approval of patient, we do not believe these changes criteria because the technology did not
the Norian Skeletal Repair System are significant enough to regard the meet the newness criterion. Therefore,
(SRS) Bone Void Filler (Norian SRS technology as new. While these changes we proposed to deny add-on payments
Cement), manufactured by Synthes for may enhance the ease with which the for this technology.
new technology add-on payments for FY technology is used, the product remains In the proposed rule we indicated that
2005. Synthes has been assisting the substantially the same as when it was prior to publication of the proposed
applicant with supplemental initially developed. As we have rule, we had received no public
information and data to help the indicated previously, technology can be comments on this application for add-
applicant with the application process. considered new only for 2 to 3 years on payments. During the 60-day

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comment period for the proposed rule, Another commenter also noted that the medical records would provide this type
we received the following public clinical benefits of Norian SRS cement of documentation.
comments on this application. allow for earlier removal of external The American Hospital Association
Comment: One commenter, the fixators and pins without risk of will be providing education to hospital
manufacturer, noted that Norian SRS collapse of the fracture site and allow coders on the use of this and other new
Cement should still be considered permanent internal fixation to load codes. We will review data on claims
‘‘new’’ since there is sufficient share with the Norian SRS cement. submitted using this new code to
information on the record, including This results in earlier range of motion in determine if DRG modifications are
sales data, to prove that Norian SRS a safe manner, which ultimately results necessary.
Cement could not have been included in in earlier return to a functional and We are finalizing our proposal not to
the DRGs until the middle of 2002. The productive lifestyle for patients. approve this technology for new
commenter also noted that public Response: We thank the commenters technology add-on payments.
comments were indeed submitted prior for providing information on the clinical c. InSync Defibrillator System
to the proposed rule supporting a new benefits of Norian SRS cement. (Cardiac Resynchronization Therapy
technology add-on payment for Norian However, as stated above, we do not with Defibrillation (CRT–D))
SRS Cement. Another commenter also consider Norian SRS cement to meet Cardiac Resynchronization Therapy
explained that Norian SRS Cement the newness criterion and are denying (CRT), also known as bi-ventricular
should be considered new since it was add-on payments for this technology in pacing, is a therapy for chronic heart
not generally distributed to the public FY 2005. failure. A CRT implantable system
for use because of technical difficulties Comment: Some commenters provides electrical stimulation to the
in mixing the product even though the supported the creation of procedure right atrium, right ventricle, and left
product had been produced and code 84.55 (insertion of bone filler) but ventricle to recoordinate or
released for quite some time. requested the title of the code be revised resynchronize ventricular contractions
Response: As stated previously and as to injection of bone void filler cement and improve the oxygenated blood flow
we discussed in the September 7, 2001 from insertion of bone filler in order to to the body (cardiac output).
final rule (66 FR 46914), the capture cases of bone void filler cements Medtronic submitted an application
determination concerning whether a that require mixing and are applied via for approval of the InSync Defibrillator
technology is new depends on the date injection. One commenter requested we System, a cardiac resynchronization
of its availability for use in the Medicare review the data upon implementation of therapy with defibrillation system
population, rather than the date a this code to see how these devices affect (CRT–D), for new technology add-on
specific code may be assigned. Data on the DRG weights. payments for FY 2005. This technology
the costs of this technology began to Response: A new code was created for combines resynchronization therapy
become available after FDA approval in bone void filler which will be with defibrillation for patients with
1998, and these costs are currently implemented on October 1, 2004. The chronic, moderate-to-severe heart failure
reflected in the DRG weights. Therefore code is as follows: 84.55 Insertion of who meet the criteria for an implantable
we do not consider Norian SRS cement bone void filler. Various options for this cardiac defibrillator. Unlike
to meet the newness criterion. As a new code were discussed at the April 1– conventional implantable cardiac
result we are denying add-on payments 2, 2004, ICD–9–CM Coordination and defibrillators, which treat only
for this technology in FY 2005. Maintenance Committee. A summary of arrhythmias, CRT–D devices have a dual
As a final note, the February 27, 2004, this meeting can be found at: http:// therapeutic nature intended to treat two
Federal Register notice specified the aspects of a patient’s heart disease
method of submitting comments on the icd9. concurrently: (1) The symptoms of
town hall meeting. Our statement in the Public comments received at the moderate to severe heart failure (that is,
proposed rule that we did not receive meeting and later submitted in writing the ventricular dysynchrony); and (2)
comments regarding this application were mixed. The manufacturer and high risk of ventricular arrhythmias, as
referred to not having received any some physicians supported new codes documented by a electrophysiologic
comments using that method. We are that differentiated between bone void testing or clinical history or both, which
glad to receive the information now. We fillers that were pre-mixed and required would cause sudden cardiac death.
did, however, consider this comment as little or no mixing prior to insertion InSync Defibrillation System
part of our discussion to deny add-on versus those that required more received FDA approval on June 26,
payments for this technology in FY extensive pre-mixing. The manufacturer 2002. However, another manufacturer,
2005. suggested a new code for the injection Guidant, received FDA approval for its
Comment: One commenter noted that of bone void filler and another new code CRT–D device on May 2, 2002. Guidant,
the Norian SRS Cement is an for insertion of bone void filler. and another competitor that has yet to
outstanding product that allows the Representatives of hospital and coder receive FDA approval for its CRT–D
stabilization of fractures that would organizations were opposed to such a device, have requested that their devices
normally develop postoperative differentiation and recommended the be included in any approval of CRT–D
deformity and problems after surgery. creation of a single new code to capture for new technology add-on payments.
The commenter added that allograft or this technology: 84.55, Insertion of bone As we discussed in the September 7,
autogenic bone graft that uses a bone void filler. The hospital and coding 2001 final rule (66 FR 46915), an
void filler would often deform and organizations stated that hospital coders approval of a new technology for special
cause settling of the joint while the would have difficulty differentiating payment should extend to all
Norian SRS cement seems to glue all between the insertion versus the technologies that are substantially
of the small fracture fragments together injection of bone void filler. They stated similar. Otherwise, our payment policy
and can hold together very tenuous that this would be especially true in would bestow an advantage to the first
reductions extremely well. The cases where it would be necessary to applicant to receive approval for a
commenter also noted that it only began determine the amount of mixing of the particular new technology.
to use the Norian SRS Cement once the product that was necessary. These The applicant contends that, despite
new mixer system became available. organizations did not believe that the the approval of a similar device in May

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49014 Federal Register / Vol. 69, No. 154 / Wednesday, August 11, 2004 / Rules and Regulations

2002, the InSync Defibrillator System and 515 were 48,700. Cases reporting However, MedPAC believes it is clear
should still be considered new for CRT–Ds thus represent 22 percent of all that costs of the technology are already
several reasons: First, an ICD–9–CM cases for these DRGs. reflected in the data used to set the DRG
code was only issued in FY 2003, which A medical service or technology can weights. MedPAC recommended that
falls within the 2-year to 3-year range no longer be considered new after 2 to one way to deal with this issue would
provided in the regulations. Second, the 3 years, when data reflecting the costs be to exclude cases of the technology
utilization of CRT–Ds is still growing of the technology begin to become when it can be tracked from the
and has not reached full utilization and, available. Data on the costs of this calculation of the mean charges from the
therefore, CRT–Ds remain technology began to become available in DRG during recalibration of the relative
underreported within the FY 2003 May 2002. Our analysis of data from the weights. This would avoid overpaying
MedPAR data that are being used to FY 2003 MedPAR file also shows that for the technology by including its costs
recalibrate the DRG weights for FY the costs of CRT–D are represented by in the base payment while also
2005. Finally, the applicant believes a substantial number of cases within the providing an add-on payment.
reporting of CRT–Ds may be insufficient DRGs. However, as discussed above, the One commenter, the applicant, was
to accurately recalibrate the DRGs technology still remains within the 2- concerned that MedPAC’s
because the new ICD–9–CM codes for year to 3-year period during which it recommendation might lead to the
CRT–Ds are unlikely to be used can be considered new. Therefore, we lowering of payment for implantable
consistently and accurately by hospitals indicated in the proposed rule that we cardioverter defibrillators (ICDs). The
in the first year. were considering whether the CRT–D commenter recommended that CMS not
We have discussed the relationship technology still meets the newness take any action that would lower
between existence of a specific ICD–9– criterion. We stated that we would payment for a technology that already
CM code for a technology and our welcome comments on this issue as we experiences inadequate payment.
determination of its status as a new analyzed whether to approve this Response: Although we have a large
technology. As discussed in the technology in the final rule. amount of cases of CRT–D reflected
September 7, 2001 final rule (66 FR Comment: Two commenters, the within the DRGs, as stated by the
46914), the determination of whether a applicant and another manufacturer of commenter, the potential population
technology is new depends on the date CRT–D devices, commented that the that can receive the CRT–D could be
of its availability for use in the Medicare utilization of CRT–D is still growing and much larger as time elapses. While the
population, rather than the date a has not reached full utilization. One of regulations state that a technology is no
specific code may be assigned. Because the commenters further noted that longer new when data begin to become
CRT–Ds were available upon the initial industry estimates forecast that CRT–D available reflecting the new technology
FDA approval in May 2002, we consider will ultimately account for over 50