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/ 2003
/ November
/ Friday, November 28, 2003
[Federal Register: November 28, 2003 (Volume 68, Number 229)]
[Proposed Rules]
[Page 66919-66978]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28no03-33]
[[Page 66919]]
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Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 412, 413, and 424
Medicare Program; Prospective Payment System for Inpatient Psychiatric
Facilities; Proposed Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 412, 413, and 424
[CMS-1213-P]
RIN 0938-AL50
Medicare Program; Prospective Payment System for Inpatient
Psychiatric Facilities
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: This rule proposes a prospective payment system for Medicare
payment of inpatient hospital services furnished in psychiatric
hospitals and psychiatric units of acute care hospitals. This rule
proposes to implement section 124 of the Medicare, Medicaid, andSCHIP
Balanced Budget Refinement Act of 1999 (BBRA), which requires the
implementation of a per diem prospective payment system for hospital
services of psychiatric hospitals and psychiatric units. The
prospective payment system described in this proposed rule would
replace the reasonable cost-based payment system currently in effect.
DATES: We will consider comments if we receive them at the appropriate
address, as provided below, no later than 5 p.m. on January 27, 2004.
ADDRESSES: In commenting, please refer to file code CMS-1213-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission. Mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-1213-P, P.O. Box 8012, Baltimore, MD 21244-8012. Please allow
sufficient time for mailed comments to be received timely in the event
of delivery delays.
If you prefer, you may deliver (by hand or courier) your written
comments (one original and two copies) to one of the following
addresses: Room 445-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201, or Room C5-14-03, 7500 Security
Boulevard, Baltimore, MD 21244-1850. (Because access to the interior of
the HHH Building is not readily available to persons without Federal
Government identification, commenters are encouraged to leave their
comments in the CMS drop slots located in the main lobby of the
building. A stamp-in clock is available for persons wishing to retain a
proof of filing by stamping in and retaining an extra copy of the
comments being filed.) Comments mailed to the addresses indicated as
appropriate for hand or courier delivery may be delayed and could be
considered late.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Janet Samen, (410) 786-4533. Philip
Cotterill, (410) 786-6598, for information regarding the regression
analysis.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: Comments received timely will be
available for public inspection as they are received, generally
beginning approximately 4 weeks after publication of a document, at the
headquarters of the Centers for Medicare & Medicaid Services, 7500
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view
public comments, phone (410) 786-9994.
Copies: To order copies of the Federal Register containing this
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number and expiration date. Credit card orders can also be placed by
calling the order desk at (202) 512-1800 (or toll-free at 1-888-293-
6498) or by faxing to (202) 512-2250. The cost for each copy is $10. As
an alternative, you can view and photocopy the Federal Register
document at most libraries designated as Federal Depository Libraries
and at many other public and academic libraries throughout the country
that receive the Federal Register.
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. The Web site address is: http://www.access.gpo.gov/nara/index.html
.
To assist readers in referencing sections contained in this
document, we are providing the following table of contents.
Table of Contents
I. Background
A. General and Legislative History
B. Overview of the Payment System for Psychiatric Hospitals and
Psychiatric Units before the BBA
1. Description of the TEFRA Payment Methodology
2. BBA Amendments to TEFRA
3. BBRA Amendments to TEFRA
4. BIPA Amendments to TEFRA
II. Overview of the Proposed IPF Prospective Payment System
A. Use of Diagnostic Codes for Payment
1. ICD
2. DRGs
B. Limitations of the DRG System for Psychiatric Patients
C. Proposed DRG Adjustments Under the Proposed IPF Prospective
Payment System
D. DRGs not Recognized in the Proposed IPF Prospective Payment
System
E. Applicability of the Proposed IPF Prospective Payment System
III. Development of the Proposed IPF Per Diem Payment Amount
A. Proposed Market Basket
B. Development of the Proposed Case-Mix Adjustment Regression.
1. Proposed Patient-Level Characteristics
a. DRGs
b. Comorbidities
c. Patient Age and Gender
d. Length of Stay
2. Proposed Facility-Level Characteristics
a. Rural Location
b. Teaching Status
c. Disproportionate Share Hospital Status
d. Psychiatric Units in General Acute Care Hospitals
e. Adjustment for Alaska and Hawaii IPFs
3. Proposed Payment Adjustments
a. Proposed Outlier Adjustment
b. Methodology for Proposed Outlier Payments
c. Proposed Implementation of the Outlier Policy
1. Statistical Accuracy of Cost-to-Charge Ratio
2. Adjustment of IPF Outlier Payments
d. Computation of Proposed Outlier Payments
e. Interrupted Stays
C. Development of the Proposed Budget-Neutral Federal Per Diem
Base Rate
1. Data Used to Develop the Proposed Federal Per Diem Base Rate
2. Calculation of the Proposed Per Diem Amount
3. Determining the Proposed Update Factors for the Budget-
Neutrality Calculation
a. Cost Report Data for April 1, 2004 through June 30, 2005
b. Estimate of Total Payments under the TEFRA Payment System
c. Payments Under the Proposed Prospective Payment System
without a Budget-Neutrality Adjustment
d. Calculation of the Proposed Budget-Neutrality Adjustment
4. The Proposed Behavioral Offset
5. Proposed Federal Per Diem Base Rate
6. Proposed Changes to Physician Recertification Requirements
E. Proposed Area Wage Adjustment
F. Effect of the Proposed Transition on Budget Neutrality
G. Calculation of the Proposed Payment
IV. Implementation of the Proposed IPF Prospective Payment System
[[Page 66921]]
A. Proposed Transition
B. New Providers
C. Claims Processing
D. Periodic Interim Payments (PIP)
E. Limitation on Beneficiaries Charges
V. Future Updates
A. Proposed Annual Update Strategy
B. Update of the ICD Codes and DRGs
C. Future Refinements
1. RTI International'' (trade name of Research Triangle
Institute)
a. Mode of Practice
b. Patient Characteristics
c. Analysis
2. University of Michigan Research
3. Case-Mix Tool
VI. Provisions of the Proposed Rule
VII. Collection of Information Requirements
VIII. Response to Comments
IX. Regulatory Impact Statement
A. Overall Impact
B. Anticipated Effects
1. Budgetary Impact
2. Impact on Providers
3. Results
a. Facility Type
b. Location
c. Teaching Status
d. Census Region
e. Size
4. Effect on the Medicare Program
5. Effect on Beneficiaries
6. Computer Hardware and Software
C. Alternatives Considered
Regulation Text
Addendum A: Proposed Psychiatric Prospective Payment Adjustment
Addendum B1: Proposed Pre-Reclassified Wage Index for Urban Areas
Addendum B2: Proposed Wage Index for Rural Areas
Addendum C: Proposed Case-Mix Assessment Tool
Acronyms
Because of the many terms to which we refer by acronym in this
proposed rule, we are listing the acronyms used and their corresponding
terms in alphabetical order below:
BBA Balanced Budget Act of 1997, (Pub. L. 105-33)
BBRA Medicare, Medicaid and SCHIP [State Children's Health Insurance
Program] Balanced Budget Refinement Act of 1999, (Pub. L. 106-113)
BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance
Program] Benefits Improvement and Protection Act of 2000, (Pub. L. 106-
554)
CMS Centers for Medicare & Medicaid Services DSM-IV-TR Diagnostic and
Statistical Manual of Mental Disorders Fourth Edition--Text Revision
DRGs Diagnosis-related groups
FY Federal fiscal year
HCRIS Hospital Cost Report Information System
ICD-9-CM International Classification of Diseases, 9th Revision,
Clinical Modification
IPFs Inpatient psychiatric facilities
IRFs Inpatient rehabilitation facilities
LTCHs Long-term care hospitals
MedPAR Medicare provider analysis and review file
PIP Periodic interim payments
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, (Pub. L. 97-
248)
I. Background
A. General and Legislative History
When the Medicare statute was originally enacted in 1965, Medicare
payment for hospital inpatient services was based on the reasonable
costs incurred in furnishing services to Medicare beneficiaries.
Section 223 of the Social Security Act Amendments of 1972 (Pub. L. 92-
603) amended section 1861(v)(1) of the Social Security Act (the Act) to
set forth limits on reasonable costs for hospital inpatient services.
The statute was later amended by section 101(a) of the Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248) to limit
payment by placing a limit on allowable costs per discharge.
The Congress directed implementation of a prospective payment
system for acute care hospitals in 1983, with the enactment of Pub. L.
98-21. Section 601 of the Social Security Amendments of 1983 (Pub. L.
98-21) added a new section 1886(d) to the Act that replaced the
reasonable cost-based payment system for most hospital inpatient
services with a prospective payment system.
Although most hospital inpatient services became subject to the
prospective payment system, certain specialty hospitals were excluded
from the prospective payment system and continued to be paid reasonable
costs subject to limits imposed by TEFRA. These hospitals included
psychiatric hospitals and psychiatric units in acute care hospitals,
long-term care hospitals (LTCHs), children's hospitals, and
rehabilitation hospitals and units. Cancer hospitals were added to the
list of excluded hospitals by section 6004(a) of the Omnibus Budget
Reconciliation Act of 1989 (Pub. L. 101-239).
The Congress enacted various provisions in the Balanced Budget Act
of 1997 (BBA) (Pub. L. 105-33), the Medicare, Medicaid, and SCHIP
[State Children's Health Insurance Program] Balanced Budget Refinement
ACT (BBRA) (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act (BIPA) (Pub. L. 106-554) to
replace the cost-based methods of reimbursement with a prospective
payment system for the following excluded hospitals:
[sbull] Rehabilitation hospitals (including units in acute care
hospitals).
[sbull] Psychiatric hospitals (including units in acute care
hospitals.
[sbull] LTCHs.
The BBA also imposed national limits (or caps) on hospital-specific
target amounts (that is, annual per discharge limits) for these
hospitals until cost reporting periods beginning on or after October 1,
2002. A detailed description of the TEFRA payment methodology is
provided in section I.B.1. of this proposed rule.
Section 124 of the BBRA mandated that the Secretary--(1) develop a
per diem prospective payment system for inpatient hospital services
furnished in psychiatric hospitals and psychiatric units; (2) include
in the prospective payment system an adequate patient classification
system that reflects the differences in patient resource use and costs
among psychiatric hospitals and psychiatric units; (3) maintain budget
neutrality; (4) permit the Secretary to require psychiatric hospitals
and psychiatric units to submit information necessary for the
development of the prospective payment system; and (5) submit a report
to the Congress describing the development of the prospective payment
system.
Section 124 also required that the payment system for inpatient
psychiatric services be implemented for cost reporting periods
beginning on or after October 1, 2002. The creation of each new payment
system requires an extraordinary amount of lead-time to develop and
implement the necessary changes to our existing computerize claims
processing systems. In order to meet the BBRA requirement to develop an
adequate patient classification system, we undertook two research
projects. It became apparent that the two research projects could not
be completed in time for us to implement an inpatient psychiatric
facility prospective payment system by October 1, 2002. It was
impossible for us to analyze our existing administrative data in a
sufficient amount of time to go through notice and comment rulemaking
and implementation of the inpatient psychiatric facility prospective
payment system by the statutory deadline. This delay enabled us to
analyze our existing administrative data to determine the feasibility
and validity of using these data to develop the proposed inpatient
psychiatric facility prospective payment system. We are using a
combination of available facility and patient specific data for this
proposed rule. Our research efforts will
[[Page 66922]]
continue and will be used to refine the proposed system.
In this proposed rule, as required under section 124 of the BBRA,
we set forth the proposed Medicare prospective payment system for
psychiatric hospitals and psychiatric units of acute care hospitals. We
note that many hospitals have ``psychiatric units,'' however; only
those units that are separately certified from the hospital and meet
the requirements of Sec. 412.23, Sec. 412.25, and Sec. 412.27 are
excluded from the hospital inpatient prospective payment system and
would be subject to this proposed prospective payment system.
Psychiatric units that are currently paid under the hospital inpatient
prospective payment system and do not meet the requirements of Sec.
412.22, Sec. 412.25 and Sec. 412.27 would not be paid under the
proposed IPF prospective payment system. The proposed system includes
an adequate patient classification system that would result in higher
prospective payments to providers treating more costly, resource
intensive patients using statistically objective criteria.
We are proposing to establish a base payment rate that would be
paid to inpatient psychiatric facilities for each day of inpatient
psychiatric care (the Federal per diem base rate). The proposed base
rate would be adjusted by certain proposed patient-level and facility-
level characteristics.
B. Overview of the Payment System for Psychiatric Hospitals and
Psychiatric Units Before the BBA
1. Description of the TEFRA Payment Methodology
Hospitals and units that are excluded from the hospital inpatient
prospective payment system under section 1886(d)(1)(B) of the Act are
paid for their inpatient operating costs under the provisions of Pub.
L. 97-248 (TEFRA). The TEFRA provisions are found in section 1886(b) of
the Act and implemented in regulations at 42 CFR Part 413. TEFRA
established payments based on hospital-specific limits for inpatient
operating costs. As specified in Sec. 413.40, TEFRA established a
ceiling on payments for hospitals excluded from the acute care hospital
inpatient prospective payment system. A ceiling on payments is
determined by calculating the product of a facility's base year costs
(the year in which its target reimbursement limit is based) per
discharge, updated to the current year by a rate-of-increase
percentage, and multiplied by the number of total current year
discharges. A detailed discussion of target amount payment limits under
TEFRA can be found in the final rule concerning the hospital inpatient
prospective payment system published in the Federal Register on
September 1, 1983 (48 FR 39746).
The base year for a facility varied, depending on when the facility
was initially determined to be a prospective payment system-excluded
provider. The base year for facilities that were established before the
implementation of the TEFRA provision was 1982. For facilities
established after the implementation of the TEFRA provision, facilities
were allowed to choose which of their first 3 cost-reporting years
would be used in the future to determine their target limit. In 1992,
the ``new provider'' period was shortened to 2 full years of cost-
reporting periods (Sec. 413.40(f)(1)).
Excluded facilities whose costs were below their target amounts
would receive bonus payments equal to the lesser of half of the
difference between costs and the target amount, up to a maximum of 5
percent of the target amount, or the hospital's costs. For excluded
hospitals whose costs exceeded their target amounts, Medicare provided
relief payments equal to half of the amount by which the hospital's
costs exceeded the target amount up to 10 percent of the target amount.
Excluded facilities that experienced a more significant increase in
patient acuity could also apply for an additional amount as specified
in Sec. 413.40(d) for Medicare exception payments.
2. BBA Amendments to TEFRA
The BBA amendments to section 1886 of the Act significantly altered
the payment provisions for hospitals and units paid under the TEFRA
provisions and added other qualifying criteria for certain hospitals
excluded from the hospital inpatient prospective payment system. A
complete explanation of these amendments can be found in the final rule
concerning the hospital inpatient prospective payment system we
published in the Federal Register on August 29, 1997 (62 FR 45966).
The BBA made the following changes to section 1886 of the Act for
TEFRA hospitals:
[sbull] Section 4411 of the BBA amended section 1886(b)(3)(B) of
the Act and restricted the rate-of-increase percentages that are
applied to each provider's target amount so that excluded hospitals and
units experiencing lower inpatient operating costs relative to their
target amounts receive lower rates of increase.
[sbull] Section 4412 of the BBA amended section 1886(g) of the Act
to establish a 15-percent reduction in capital payments for excluded
psychiatric and rehabilitation hospitals and units and LTCHs, for
portions of cost reporting periods occurring during the period of
October 1, 1997, through September 30, 2002.
[sbull] Section 4414 of the BBA amended section 1886(b)(3) of the
Act to establish caps on the target amounts for excluded hospitals and
units at the 75th percentile of target amounts for similar facilities
for cost reporting periods beginning on or after October 1, 1997,
through September 30, 2002. The caps on these target amounts apply only
to psychiatric and rehabilitation hospitals and units and LTCHs.
Payments for these excluded hospitals and units are based on the lesser
of a provider's cost per discharge or its hospital-specific cost per
discharge, subject to this cap.
[sbull] Section 4415 of the BBA amended section 1886(b)(1) of the
Act by revising the percentage factors used to determine the amount of
bonus and relief payments and establishing continuous improvement bonus
payments for excluded hospitals and units for cost reporting periods
beginning on or after October 1, 1997. If a hospital is eligible for
the continuous improvement bonus, the bonus payment is equal to the
lesser of: (1) 50 percent of the amount by which operating costs are
less than expected costs; or (2) 1 percent of the target amount.
[sbull] Sections 4416 and 4419 of the BBA amended sections 1886(b)
of the Act to establish a new framework for payments for new excluded
providers. Section 4416 added a new section 1886(b)(7) to the Act that
established a new statutory methodology for new psychiatric and
rehabilitation hospitals and units, and LTCHs. Under section 4416,
payment to these providers for their first two cost reporting periods
is limited to the lesser of the operating costs per case, or 110
percent of the national median of target amounts, as adjusted for
differences in wage levels, for the same class of hospital for cost
reporting periods ending during FY 1996, updated to the applicable
period.
3. BBRA Amendments to TEFRA
The BBRA of 1999 refined some of the policies mandated by the BBA
for hospitals and units paid under the TEFRA provisions. The provisions
of the BBRA, which amended section 1886(b)(3)(H) of the Act, were
explained in detail and implemented in the hospital inpatient
prospective payment system interim final rule published in the Federal
Register on August 1, 2000 (65 FR 47026) and in the hospital inpatient
prospective payment system
[[Page 66923]]
final rule also published on August 1, 2000 (65 FR 47054).
With respect to the TEFRA payment methodology, section 4414 of the
BBA had provided for caps on target amounts for excluded hospitals and
units for cost reporting periods beginning on or after October 1, 1997.
Section 121 of the BBRA amended section 1886(b)(3)(H) of the Act to
provide for an appropriate wage adjustment to these caps on the target
amounts for certain hospitals and units paid under the TEFRA
provisions, effective for cost reporting periods beginning on or after
October 1, 1999 through September 30, 2002.
4. BIPA Amendments to TEFRA
Section 306 of BIPA amended section 1886 of the Act by increasing
the incentive payments for psychiatric hospitals and psychiatric units
to 3 percent for cost reporting periods beginning on or after October
1, 2000 and before October 1, 2001.
II. Overview of the Proposed IPF Prospective Payment System
As required by statute, we are proposing a per diem prospective
payment system for psychiatric hospitals and psychiatric units
(hereinafter referred to as inpatient psychiatric facilities (IPFs))
that would replace the current reasonable cost-based payment system
under the TEFRA provisions. In this rule, we are proposing to base the
system on data from the 1999 Medicare Provider Analysis and Review
(MedPAR) file, which includes patient characteristics (for example,
patients' diagnoses and age), and data from the 1999 Hospital Cost
Report Information System (HCRIS), which includes facility
characteristics (for example, location and teaching status). We are
using the 1999 MedPAR and HCRIS data because they are the best
available data.
Based on our analysis, we are proposing the following methodology
as the basis of the proposed IPF prospective payment system:
[sbull] Compute a Federal per diem base rate to be paid to all
psychiatric hospitals and psychiatric units based on the sum of the
average routine operating, ancillary, and capital costs for each
patient day of psychiatric care in an IPF adjusted for budget
neutrality (see section III.C. of this proposed rule). In computing the
Federal per diem base rate, our analysis showed that routine operating
and capital represent approximately 88 percent of total costs and the
remaining 12 percent of total costs are for ancillary services.
[sbull] Adjust the Federal per diem base rate to reflect certain
patient and facility characteristics that were found in the regression
analysis to be associated with statistically significant cost
differences (see section III.B. of this proposed rule). The variance
explained by patient characteristics (19 percent) in the regression
analysis is limited by the nature of the administrative data used to
develop this system, which assigns average facility routine costs to
individual patients. We are conducting research to better understand
the relationship between individual patient characteristics and average
facility routine costs that could be incorporated into the payment
system in future updates. We note that ancillary costs are already
identifiable at the individual patient level.
[sbull] Implement an April 1, 2004 effective date and a 3-year
transition period. As explained in section IV of this proposed rule, it
ultimately may be necessary to delay implementation beyond April 2004
as well as to increase the length of the transition period. However,
the rate development, budget-neutrality adjustment, and impact analysis
assume an April 1, 2004 effective date and a 3-year transition period.
[sbull] Include research information for future refinement of the
proposed patient classification system. Part of this research could
result in a new patient assessment instrument that could identify
additional patient level characteristics.
In addition, we are proposing to make the following types of
adjustments to appropriately make payments on a per-diem basis:
[sbull] Patient-level adjustments for age, specified diagnosis-
related groups, and selected high cost comorbidity categories. These
patient-level characteristics explain approximately 19 percent of the
variance in the cost of psychiatric care in the administrative data,
which establishes the empirical basis for this methodology.
[sbull] Facility adjustments that include a wage index adjustment,
rural location adjustment, and an indirect teaching adjustment. These
facility characteristics explain approximately 13 percent of the
variance in the costs of psychiatric care in the administrative data.
[sbull] Variable per diem adjustments to recognize the higher costs
incurred in the early days of a psychiatric stay.
[sbull] Outlier adjustments to target greater payment to the high
cost cases.
We are also proposing the following policies:
[sbull] Interrupted stay policy for the purpose of applying the
variable per diem adjustment and the outlier policy.
[sbull] Coding policy (see section II. A.) that would--(1) require
IPFs to report patient diagnoses using the International Classification
of Diseases-9th Revision, Clinical Modification (ICD-9-CM) code set to
report the psychiatric diagnosis; and (2) select the diagnosis-related
groups (DRGs) that would be used for payment adjustments in this
proposed rule.
A. Use of Diagnostic Codes for Payment
The patient's principal diagnosis of his or her physical or mental
condition is essential because it typically acts as a guide for
treatment and validates payment. It is for these reasons that
diagnostic information is routinely reported on hospital claims and is
used in other prospective payment systems. In mental health treatment,
the principal tool recognized and utilized by the psychiatric community
for diagnostic assessment is the Diagnostic and Statistical Manual of
Mental Disorders (DSM). The DSM provides a broad and comprehensive
description of patients through behavioral domains, or ``axes.'' This
multiaxial system is routinely used by clinical staff to diagnose
patients and plan treatment. The DSM is currently in its fourth
revision text revision (DSM-IV-TR). Although, the DSM is used for
patient assessment by IPFs, the ICD-9-CM coding system is used
currently for reporting diagnostic information for payment purposes.
1. ICD
The ICD coding system was designed for the classification of
morbidity and mortality information for statistical purposes and for
the indexing of hospital records by disease. Chapter Five of the ICD-9-
CM includes the codes for mental disorders.
In addition, the following definitions (as described in the 1984
Revision of the Uniform Hospital Discharge Data Set) are requirements
of the ICD-9-CM coding system.
[sbull] Diagnoses include all diagnoses that affect the current
hospital stay.
[sbull] Principal diagnosis is defined as the condition
established, after study, to be chiefly responsible for occasioning the
admission of the patient to the hospital for care.
[sbull] Other diagnoses (also called secondary diagnoses or
additional diagnoses) are defined as all conditions that coexist at the
time of admission, that develop subsequently, or that affect the
treatment received or the length of stay or both. Diagnoses that relate
to an earlier episode of care and have no bearing on the current
hospital stay are excluded.
[[Page 66924]]
We are proposing to require IPFs to use the psychiatric diagnosis
codes in Chapter Five (``Mental Disorder'') of the ICD-9-CM to report
diagnostic information for the proposed IPF prospective payment system.
All changes to the ICD coding system that would affect the proposed IPF
prospective payment system would be addressed annually in the hospital
inpatient prospective payment system rules. The updated codes are
effective October 1 of each year and must be used to report diagnostic
or procedure information. (Additional information regarding updates to
the ICD-9-CM and DRGs is included in section V.B. of this proposed
rule). The official version of the ICD-9-CM is available on CD-ROM from
the U.S. Government Printing Office. The FY 2004 version can be ordered
by contacting the Superintendent of Documents, U.S. Government Printing
Office, Department 50, Washington, D.C. 20402-9329, telephone: (202)
512-1800. The stock number is 017-022-01544-7, and the price is $25.00.
In addition, private vendors publish the ICD-9-CM.
Questions and comments concerning the codes should be addressed to:
Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and
Maintenance Committee, CMS, Center for Medicare Management, Purchasing
Policy Group, Division of Acute Care, Mailstop C4-08-06, 7500 Security
Boulevard, Baltimore, Maryland 21244-1850. Comments may be sent via e-mail to: pbrooks@cms.hhs.gov.
2. DRGs
DRGs constitute the patient classification system used in the
hospital inpatient prospective payment system. DRGs provide a means of
relating the types of patients treated by a hospital to the costs
incurred by the hospital. While each patient is unique, groups of
patients have demographic, diagnostic, and therapeutic attributes in
common that determine their level of resource intensity.
Currently, IPF claims include ICD-9-CM diagnosis coding
information. The TEFRA payment methodology does not use the DRG
classification of IPF cases. Nonetheless, when IPF claims are submitted
to us, the DRG associated with the patient's principal ICD-9-CM
diagnosis code is assigned to the claim by the GROUPER software
program. As a result, our administrative data includes the DRG
assignments for all IPF cases.
We are proposing to require IPFs to use the psychiatric diagnosis
codes in Chapter Five (``Mental Disorders'') of the ICD-9-CM. This
decision is consistent with the Standards for Electronic Transaction
final rule published in the Federal Register on August 17, 2000 (65 FR
50312). The ICD-9-CM coding system is currently designated as the
standard medical data code set for capturing cause and manifestation of
injury, disease, impairments, or other health problems. These
guidelines are available through a number of sources, including the
following Web site: http://www.cdc.gov/nch/data/icdguide.pdf.
Current regulations at Sec. 412.27 require that a psychiatric unit
admit only those patients who have a principal diagnosis that is listed
in the DSM or classified in Chapter Five (``Mental Disorders'') of the
ICD-9-CM. The hospital must maintain records that substantiate the
psychiatric diagnoses of its patients. We specifically request public
comments on continuing to reference the DSM in light of the proposed
requirement that IPFs use the ICD-9-CM code set in the proposed IPF
prospective payment system.
B. Limitations of the DRG System for Psychiatric Patients
Adopting a patient classification system for IPFs based on
diagnosis alone may not explain the wide variation in resource use
among patients in IPFs for several reasons. For instance, the diagnosis
may not fully capture the reasons for hospitalization. A patient with a
chronic disorder, like schizophrenia, may be admitted for a variety of
acute problems (suicide attempt, catatonic withdrawal, or psychotic
episode) that require very different treatments (Goldman, H.H., Pincus,
H.A., Taube, C.A., and Reiger, D.A. (1984). Hospital and Community
Psychiatry, 35(5): 460-464).
Further, treatment patterns are more variable in psychiatry, with
multiple clinically accepted methods of care. As a result, resource use
varies substantially between acute care and chronic care patients, and
between the facilities that treat predominately one type of patient.
For example, public psychiatric hospitals tend to treat the chronically
mentally ill, with substantially longer lengths of stay, compared to
the patients generally treated in psychiatric units and private
psychiatric hospitals.
Predicated on the analysis of the administrative data and pending
refinements from the research, we believe the DRG is an appropriate
method to account for certain, although not all, clinical
characteristics and associated resources. Therefore, under this
prospective payment system, we are proposing to assign a DRG to each
case based on the principal diagnosis (ICD-9-CM code) reported by the
IPF as one adjustment to the Federal per diem base rate.
In making this decision, we analyzed past research as well as a
recent study supported by the American Psychiatric Association (APA).
In the study, APA partnered with the Health Economics and Outcomes
Research Institute (THEORI), a division of the Greater New York
Hospital Association, to assess whether our existing administrative
data could be used to develop a prospective payment system for IPFs.
This study found that a prospective payment system for IPFs could be
developed based on existing CMS administrative data, be clinically
relevant, and limit the administrative burden on providers. The system
they proposed included an adjustment for DRG assignment.
In summary, we acknowledge that the psychiatric community uses the
DSM as a tool to diagnose a patient's mental illness and to aid in
treatment planning. However, we are proposing to require IPFs to report
diagnoses in Chapter Five of the ICD-9-CM as required by the
Administrative Simplification Provisions found in 45 CFR subchapter C.
In addition, we are proposing to identify specific DRGs for payment
adjustment under the proposed IPF prospective payment system. The
rationale for the selection of the proposed DRGs for use in the
proposed IPF prospective payment system is described below.
C. Proposed DRG Adjustments Under the Proposed IPF Prospective Payment
System
As noted above, the principal diagnosis is defined as the
condition, after study (clinical evaluation), to be chiefly responsible
for admitting the patient to the hospital for care. Despite this
longstanding definition, our review of hospital claims data that were
used to develop the proposed IPF prospective payment system indicates
that a substantial number of claims have non-psychiatric diagnoses
identified as the principal diagnosis.
Medicare regulations as specified in Sec. 412.27(a) require
psychiatric units of acute care hospitals to admit only those patients
with a principal diagnosis in the DSM or Chapter Five (``Mental
Disorders'') in the ICD-9-CM. Therefore, if a patient is admitted to a
general hospital for a medical condition such as pneumonia, and also
presents psychiatric symptoms, which necessitates an admission to the
psychiatric unit, the principal diagnosis for the admission to the
psychiatric unit should be the psychiatric symptoms
[[Page 66925]]
exhibited by the patient in accordance with Sec. 412.27(a). We note
that current regulations applicable to psychiatric hospitals (Sec.
412.23(a)) do not include these requirements, however, historically,
psychiatric hospitals have limited admissions to psychiatric patients.
Section 412.27(a) also requires that patients be admitted to the
psychiatric units for active treatment that is of an intensity that can
be furnished appropriately only in an inpatient hospital setting. For
this reason, in order to be paid under the proposed IPF prospective
payment system, patients must be capable of participating in an active
treatment program.
In selecting the proposed DRGs for payment adjustment, we analyzed
the DRG assignments for ICD-9-CM diagnosis codes in Chapter Five. In
addition, as noted previously, IPFs use the DSM-IV-TR to establish
diagnoses and current regulations at Sec. 412.27(a) refer to DSM
diagnoses. However, most, but not all, DSM codes crosswalk to the codes
in Chapter Five of the ICD-9-CM. Although, all the DSM codes are
psychiatric, some of the corresponding ICD-9-CM codes are located in
other chapters of the ICD-9-CM coding system and are linked to the body
system affected. For example, the DSM diagnosis, Male Erectile
Disorder, crosswalks to ICD-9-CM code 607.84, Impotence of Organic
Nature which is found in Chapter 10, Diseases of the Genitourinary
Systems. Accordingly, we also analyzed the DRG assignments for certain
ICD-9-CM codes that are based on DSM diagnoses but are not in Chapter
Five of the ICD-9-CM. These codes are discussed in the next section of
this proposed rule.
As a result of this analysis, we identified 25 DRGs with one or
more psychiatric diagnoses that are included in Chapter Five of the
ICD-9-CM as well as those diagnoses that are in other chapters of the
ICD-9-CM. We are proposing payment adjustments for 15 out of the 25
DRGs we analyzed. The remaining 10 DRGs include codes for a specific
range of diseases other than psychiatric, but have a few codes for DSM
diagnoses that are included in Chapter Five or other body system
chapters of the ICD-9-CM. The rationale for our decisions regarding
these 10 codes is provided in section II.D. below.
Table 1 below lists the DRGs that we are proposing to recognize
under the proposed IPF prospective payment system and the proposed
adjustment factors. This information also is presented in Addendum A.
Table 1.--Proposed IPF Prospective Payment System DRGs
------------------------------------------------------------------------
Adjustment
DRG Description Factor
------------------------------------------------------------------------
12.......................... Degenerative Nervous System 1.07
Disorders.
23.......................... Nontraumatic Stupor and Coma 1.10
424*........................ O.R. Procedure with 1.22
Principal Diagnosis of
Mental Illness.
425......................... Acute Adjustment Reaction 1.08
and Psychosocial
Dysfunction.
426......................... Depressive Neurosis......... 1.00
427......................... Neurosis Except Depressive.. 1.01
428......................... Disorders of Personality and 1.03
Impulse Control.
429.......................... Organic Disturbances and 1.02
Mental Retardation.
430.......................... Psychosis................... 1.00
431.......................... Childhood Mental Disorders.. 1.02
432......................... Other Mental Disorder 0.96
Diagnoses.
433**....................... Alcohol/Drug Abuse or 0.88
Dependence, Left Against
Medical Advice.
521......................... Alcohol/Drug Abuse or 1.02
Dependence with
Complication or Comorbidity.
522......................... Alcohol/Drug Abuse or 0.97
Dependence with
Rehabilitation Therapy
without Complication or
Comorbidity.
523......................... Alcohol/Drug Abuse or 0.88
Dependence without
Rehabilitation Therapy
without Complication or
Comorbidity.
------------------------------------------------------------------------
* DRG 424--is an O.R. procedure code that must be billed with a
principal diagnosis of mental disorder.
** DRG 433--is used when providers indicate a patient left against
medical advice (discharge status code 07).
D. DRGs Not Recognized in the Proposed IPF Prospective Payment System
We are proposing not to recognize the following 10 DRGs in the
proposed IPF prospective payment system. They were determined not to be
clinically significant because the principal diagnoses did not result
in enough admissions to IPFs in order to establish an adjustment to the
payment rate:
[sbull] DRGs 34 and 35 include a range of cases for disorders of
the nervous system. The diagnoses in these DRGs also include five ICD-
9-CM codes for DSM diagnoses: Codes 333.1 (Tremor not elsewhere
classified), code 333.82 (Orofacial Dyskinesia), code 333.92
(Neuroleptic Malignant Syndrome), code 347 (Cataplexy and Narcolepsy),
and code 307.23 (Gilles de La Tourette's Disorder). In the 1999 MedPAR
records for admissions to IPFs, only one patient was grouped in these
DRGs. In addition, patients with these diagnoses generally do not
require management in an IPF unless there is a concomitant psychiatric
disorder.
[sbull] DRGs 182, 183, and 184 include a range of gastrointestinal
conditions, including esophagitis, gastroenteritis, and other digestive
system diseases. The diagnoses in these DRGs include one that is listed
in Chapter Five of the ICD-9-CM, code 306.4 (Psychogenic GI Disease).
In the 1999 MedPAR records for admissions to IPFs, we found that only a
few patients with this ICD-9-CM diagnosis were grouped in these DRGs.
[sbull] DRG 352 includes a range of diagnoses affecting the testes,
prostate, and male external genitalia. This DRG includes DSM diagnoses
that are not in Chapter Five of the ICD-9-CM: code 607.84 (Impotence of
an Organic Origin), and code 608.89 (Male Genital Diseases, not
elsewhere classified). In the 1999 MedPAR records for admissions to
IPFs, we were able to identify only one patient grouped in DRG 352.
[sbull] DRGs 358, 359, and 369 include a range of cases in which
procedures have been performed on the uterus and fallopian tubes
(Adnexa). These DRGs include two diagnoses that are in Chapter Five of
the ICD-9-CM: code 306.51 (Psychogenic Vaginismus), and code 306.52
(Psychogenic Dysmenorrhea). In the 1999 MedPAR records for admissions
to IPFs, we were able to identify only 11 patients grouped into DRGs
358, 359, and 369, and there were no patients diagnosed with codes
306.51 or 306.52.
[[Page 66926]]
[sbull] DRG 467 includes a range of cases in which other factors
influence health status. This DRG contains only one diagnosis code
listed in Chapter Five of the ICD-9-CM, code 305.1 (tobacco use
disorder). Patients with this diagnosis do not require inpatient
treatment in an IPF unless there is a concomitant psychiatric disorder.
We are proposing not to recognize these 10 DRGs for payment
adjustments (34, 35, 182, 183, 184, 352, 358, 359, 369, and 467)
because they generally do not include a psychiatric diagnosis. We
believe that failure to recognize these DRGs will not affect the care
of Medicare beneficiaries because our analysis shows few, if any, of
the patients with these diagnoses are admitted or treated in an IPF.
In addition, we believe that these cases would be classified into
one of the selected DRGs and grouped with other beneficiaries with
similar symptoms and requiring similar care. This approach would avoid
creating case-mix groups based on small numbers of cases.
We believe there is value in selecting only those DRGs that contain
a large enough number of psychiatric cases to ensure that individual
variability can be averaged. We specifically invite public comments on
this issue.
E. Applicability of the Proposed IPF Prospective Payment System
The following psychiatric hospitals and psychiatric units,
currently paid under section 1886(b) of the Act, would be paid under
the proposed IPF prospective payment system for cost reporting periods
beginning on or after April 1, 2004. We are proposing that the IPF
prospective payment system would apply to inpatient hospital services
furnished by Medicare participating entities that are classified as
psychiatric hospitals or psychiatric units as specified in Sec.
412.22, Sec. 412.23, Sec. 412.25, and Sec. 412.27. We note that
psychiatric units that are currently paid under the hospital inpatient
prospective payment system and do not meet the requirements of Sec.
412.25 and Sec. 412.27 would not be paid under the proposed IPF
prospective payment system.
As specified in Sec. 400.200, the United States means the fifty
States, the District of Columbia, the Commonwealth of Puerto Rico, the
Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands.
Therefore, IPFs located within the United States would be subject to
the proposed IPF prospective payment system. However, the following
hospitals are paid under special payment provisions specified in Sec.
412.22(c) and, therefore, would not be paid under the proposed IPF
prospective payment system:
[sbull] Veterans Administration hospitals.
[sbull] Hospitals that are reimbursed under State cost control
systems approved under 42 CFR part 403.
[sbull] Hospitals that are reimbursed in accordance with
demonstration projects specified in section 402(a) of Pub. L. 90-248
(42 U.S.C. 1395b-1) or section 222(a) of Pub. L. 92-603 (42 U.S.C.
1395b-1(note)).
[sbull] Non-participating hospitals furnishing emergency services
to Medicare beneficiaries.
This proposed rule would not change the basic criteria for a
hospital or hospital unit to be classified as a psychiatric hospital or
psychiatric unit that is excluded from the hospital prospective payment
systems under sections 1886(d) and 1886(g) of the Act, nor would it
revise the survey and certification procedures applicable to entities
seeking this classification.
We note that we are proposing a technical change to Sec.
412.27(a). We are proposing to replace the Third Edition with the
Fourth Edition, Text Revision, of the DSM so that our rules reflect the
most current edition of the DSM.
As noted previously, we are requesting public comments on
continuing to require a DSM diagnosis for patients admitted to a
psychiatric unit in light of the proposed requirement that IPFs use the
ICD-9-CM code set in the proposed IPF prospective payment system.
III. Development of the Proposed IPF Per Diem Payment Amount
The primary goal in developing the proposed IPF prospective payment
system is to pay each IPF an appropriate amount for the efficient
delivery of care to Medicare beneficiaries. The system must be able to
account adequately for each IPF's case-mix in order to ensure both fair
distribution of Medicare payments and access to adequate care for those
beneficiaries who require more costly care.
The proposed IPF prospective payment system would establish a
standard per diem payment amount for inpatient psychiatric services
provided to Medicare beneficiaries. The proposed per diem amount would
reflect the average daily cost of inpatient psychiatric care in an IPF,
including capital-related costs. This proposed per diem payment amount,
after adjustment for budget neutrality, is then modified by factors for
patient and facility characteristics that account for variation in
patient resource use. The proposed IPF prospective payment system would
also include an outlier policy and account for interrupted stays. This
section includes a discussion of how the proposed Federal per diem base
rate was created, the factors that we considered to adjust the proposed
Federal per diem base rate, and how the proposed per diem payment
amount is calculated.
A. Proposed Market Basket
We are proposing to use a 1997-based excluded hospital with capital
market basket. We periodically revise and rebase the market basket to
reflect more current cost data. Rebasing means moving the base year for
the structure of costs (in this case from 1992 to 1997), while revising
means changing data sources, cost categories, or price proxies used.
The proposed updated market basket would replace the 1992-based
excluded hospital with capital market basket. This rebased (1997-base
year) and revised market basket would be used to update FY 1999 IPF
costs to the proposed 15-month period beginning April 1, 2004, the
first year under the IPF prospective payment system.
The operating portion of the 1997-based excluded hospital with
capital market basket is derived from the 1997-based excluded hospital
market basket. The methodology used to develop the operating portion
was described in the hospital inpatient prospective payment system
final rule published in the Federal Register on August 1, 2002 (67 FR
50042 through 50044). In brief, the operating cost category weights in
the 1997-based excluded hospital market basket were determined from the
Medicare cost reports, the 1997 Business Expenditure Survey, and the
1997 Annual Input-Output data from the Bureau of the Census. As
explained in that August 1, 2002 final rule, we revised the market
basket by making two methodological revisions to the 1997-based
excluded hospital market basket: (1) Changing the wage and benefit
price proxies to use the Employment Cost Index (ECI) wage and benefit
data for hospital workers; and (2) adding a cost category for blood and
blood products.
When we add the weight for capital costs to the excluded hospital
market basket, the sum of the operating and capital weights must still
equal 100.0. Because capital costs account for 8.968 percent of total
costs for excluded hospitals in 1997, it holds that operating costs
must account for 91.032 percent. Each operating cost category weight in
the 1997-based excluded hospital market basket was multiplied by
0.91032 to determine its weight in the 1997-based excluded hospital
with capital market basket.
[[Page 66927]]
The aggregate capital component of the 1997-based excluded hospital
market basket (8.968 percent) was determined from the same set of
Medicare cost reports used to derive the operating component. The
detailed capital cost categories of depreciation, interest, and other
capital expenses were also determined using the Medicare cost reports.
Two sets of weights for the capital portion of the revised and rebased
market basket needed to be determined. The first set of weights
identifies the proportion of capital expenditures attributable to each
capital cost category, while the second set represents relative vintage
weights for depreciation and interest. The vintage weights identify the
proportion of capital expenditures that is attributable to each year
over the useful life of capital assets within a cost category (see the
hospital inpatient prospective payment final rule published in the
Federal Register on August 1, 2002 (67 FR 50045 through 50047), for a
discussion of how vintage weights are determined).
The cost categories, price proxies, and base-year FY 1992 and
proposed FY 1997 weights for the excluded hospital with capital market
basket are presented in Table 2 below. The vintage weights for the
proposed 1997-based excluded hospital with capital market basket is
presented in Table 2(A) below.
TABLE 2.--Proposed Excluded Hospital With Capital Input Price IndeX (FY 1992 and Proposed FY 1997) Structure and
Weights
----------------------------------------------------------------------------------------------------------------
Proposed
Cost category Price wage variable Weights (%) weights (%)
base-year 1992 base-year 1997
----------------------------------------------------------------------------------------------------------------
TOTAL.................................... ................................. 100.000 100.000
Compensation......................... ................................. 57.935 57.579
Wages and Salaries................... ECI--Wages and Salaries, Civilian 47.417 47.355
Hospital Workers.
Employee Benefits.................... ECI--Benefits, Civilian Hospital 10.519 10.244
Workers to capture total costs
(operating and capital), In
order to capture total costs
(operating and capital), HCFA
Occupational Benefit Proxy.
Professional fees: Non-Medical........... ECI--Compensation: Prof. & 1.908 4.423
Technical.
Utilities................................ ................................. 1.524 1.180
Electricity.......................... WPI--Commercial Electric Power... 0.916 0.726
Fuel Oil, Coal, etc.................. WPI--Commercial Natural Gas...... 0.365 0.248
Water and Sewerage................... CPI-U--Water & Sewage............ 0.243 0.206
Professional Liability Insurance......... HCFA--Professional Liability 0.983 0.733
Premiums.
All Other Products and Services.......... ................................. 28.571 27.117
All Other Products................... ................................. 22.027 17.914
Pharmaceuticals...................... WPI--Prescription Drugs.......... 2.791 6.318
Food: Direct Purchase................ WPI--Processed Foods............. 2.155 1.122
Food: Contract Service............... CPI-U--Food Away from Home....... 0.998 1.043
Chemicals............................ WPI--Industrial Chemicals........ 3.413 2.133
Blood and Blood Products............. WPI--Blood and Derivatives....... ................ 0.748
Medical Instruments.................. WPI--Med. Inst. & Equipment...... 2.868 1.795
Photographic Supplies................ WPI--Photo Supplies.............. 0.364 0.167
Rubber and Plastics.................. WPI--Rubber & Plastic Products... 4.423 1.366
Paper Products....................... WPI--Convert. Paper and 1.984 1.110
Paperboard.
Apparel.............................. WPI--Apparel..................... 0.809 0.478
Machinery and Equipment.............. WPI--Machinery & Equipment....... 0.193 0.852
Miscellaneous Products............... WPI--Finished Goods excluding 2.029 0.783
Food and Energy.
All Other Services....................... ................................. 6.544 9.203
Telephone............................ CPI-U--Telephone Services........ 0.574 0.348
Postage.............................. CPI-U--Postage................... 0.268 0.702
All Other: Labor..................... ECI--Compensation: Service 4.945 4.453
Workers.
All Other: Non-Labor Intensive....... CPI-U--All Items (Urban)......... 0.757 3.700
Capital-Related Costs.................... ................................. 9.080 8.968
Depreciation......................... ................................. 5.611 5.586
Fixed Assets......................... Boeckh-Institutional 3.570 3.503
Construction: 23 Year Useful
Life.
Life Y--y--YYF e.................
Movable Equipment.................... WPI--Machinery & Equipment: 11 2.041 2.083
Year Useful life.
Interest Costs....................... ................................. 3.212 2.682
Non-profit........................... Avg. Yield Municipal Bonds: 23 2.730 2.280
Year Useful Life.
For-profit........................... Avg. Yield AAA Bonds: 23 Year 0.482 0.402
Useful Life.
Other Capital Related Costs.......... CPI-U--Residential Rent.......... 0.257 0.699
----------------------------------------------------------------------------------------------------------------
Note: The operating cost category weights in the proposed excluded hospital market basket add to 100.0. When we
add an additional set of cost category weights (total capital weight = 8.968 percent) to this original group,
the sum of the weights in the new index must still add to 100.0. Because capital costs account for 8.968
percent of the market basket, then operating costs account for 91.032 percent. Each weight in the proposed
1997-based excluded hospital market basket was multiplied by 0.91032 to determine its weight in the proposed
1997-based excluded hospital with capital market basket.
Note: Weights may not sum to 100.0 due to rounding.
[[Page 66928]]
Table 2(A).--Proposed Excluded Hospital With Capital Input Price Index
(FY 1997) Vintage Weights
------------------------------------------------------------------------
Interest:
Fixed Movable capital-
Year from farthest to most recent assets assets related
(23-year (11-year (23-year
weights) weights) weights)
------------------------------------------------------------------------
1...................................... 0.018 0.063 0.007
2...................................... 0.021 0.068 0.009
3...................................... 0.023 0.074 0.011
4...................................... 0.025 0.080 0.012
5...................................... 0.026 0.085 0.014
6...................................... 0.028 0.091 0.016
7...................................... 0.030 0.096 0.019
8...................................... 0.032 0.101 0.022
9...................................... 0.035 0.108 0.026
10..................................... 0.039 0.114 0.030
11..................................... 0.042 0.119 0.035
12..................................... 0.044 ......... 0.039
13..................................... 0.047 ......... 0.045
14..................................... 0.049 ......... 0.049
15..................................... 0.051 ......... 0.053
16..................................... 0.053 ......... 0.059
17..................................... 0.057 ......... 0.065
18..................................... 0.060 ......... 0.072
19..................................... 0.062 ......... 0.077
20..................................... 0.063 ......... 0.081
21..................................... 0.065 ......... 0.085
22..................................... 0.064 ......... 0.087
23..................................... 0.065 ......... 0.090
------------
Total.............................. 1.0000 1.0000 1.0000
------------------------------------------------------------------------
Note: Weights may not sum to 1.000 due to rounding.
Table 2(B) below compares the 1992-based excluded hospital with
capital market basket to the proposed 1997-based excluded hospital with
capital market basket. As shown below, the rebased and revised market
basket grows slightly faster over the 1999 through 2001 period than the
1992-based market basket. The main reason for this growth is the
switching of the wage and benefit proxy to the ECI for hospital workers
from the previous occupational blend. This revision had a similar
impact on the hospital inpatient prospective payment system and
excluded hospital market baskets, as described in the final rule
published in the Federal Register on August 1, 2002 (67 FR 50032
through 50041).
Table 2(B).--Percent Changes in the 1992-Based and Proposed 1997-Based
Excluded Hospital With Capital Market Baskets, FYs 1999 Through 2004
------------------------------------------------------------------------
Percent
Percent change,
change, proposed
Fiscal year 1992-based 1997-based
market market
basket basket
------------------------------------------------------------------------
1999...................................... 2.3 2.7
2000...................................... 3.4 3.1
2001...................................... 3.9 4.0
Average historical:....................... 3.2 3.3
2002...................................... 2.7 3.6
2003...................................... 3.0 3.5
2004...................................... 3.0 3.3
Average forecast:......................... 2.9 3.5
------------------------------------------------------------------------Source: Global Insights, Inc, 4th Qtr 2002,@USMARCO.MODTREND@CISSIM/@USMARCO.MODTREND@CISSIM/
TL1102.SIM. Historical data through 3rd Qtr 2002.
Based upon the analysis mentioned below, we believe the excluded
hospital with capital market basket provides a reasonable measure of
the price changes facing IPFs. However, we have also been researching
the feasibility of developing a market basket specific to IPF services.
This research includes analyzing data sources for cost category
weights, specifically the Medicare cost reports, and investigating
other data sources on cost, expenditure, and price information specific
to IPFs.
Our analysis of the Medicare cost reports indicates that the
distribution of costs among major cost report categories (wages,
pharmaceuticals, and capital) for IPFs is not substantially different
from the 1997-based excluded hospital with capital market basket we
propose to use. In addition, the only data available to us for these
cost categories (wages, pharmaceuticals, and capital) presented a
potential problem since no other major cost category weights would be
based on IPF data. Based on the research discussed below, at this time,
we are not proposing to develop a market basket specific to IPF
services.
We conducted an analysis of annual percent changes in the market
basket when the weights for wages, pharmaceuticals, and capital in IPFs
were substituted into the excluded hospital with capital market basket.
Other cost categories were recalibrated using ratios available from the
hospital inpatient prospective payment system hospital market basket.
On average, between 1995 and 2002, the excluded hospital with capital
market basket increased at nearly the same average annual rate (3.4
percent) as the market basket with IPF weights for wages,
pharmaceuticals, and capital (3.5 percent). This difference is less
than the 0.25 percentage point criterion that determines whether a
forecast error adjustment is warranted under the hospital inpatient
prospective payment system update framework.
Based upon this analysis, we believe that the excluded hospital
with capital market basket is doing an adequate job of reflecting the
price changes facing IPFs. We will continue to solicit comments about
issues particular to IPFs that should be considered in our development
of the proposed 1997-based excluded hospital with capital market
basket, as well as encourage suggestions for additional data sources
that may be available. Our hope is that the additional cost data being
collected under the proposed IPF prospective payment system will
eventually allow for the development of a market basket based primarily
on IPF data. We welcome comments on issues particular to IPFs that
should be considered in our use of the proposed 1997-based excluded
hospital with capital market basket, as well as on suggestions for
additional data sources that may be readily available on the cost
structure of IPFs.
As discussed more fully in section IV of this proposed rule, we are
proposing to implement the proposed IPF prospective payment system for
IPF cost reporting periods that begin on or after April 1, 2004. The
first update, however, would not be until July 1, 2005. This extends
the first year for 3 additional months in order to adjust the update
cycle for this proposed payment system. As a result, the effective
period for this proposed rule is April 1, 2004 through June 30, 2005.
To update payments between FY 2003 and the effective period, the update
must reflect the market basket increase over this period, which is
currently estimated at 5.3 percent. This would represent the proposed
increase in the excluded hospital with capital market basket for FY
2004 and the first 9 months of FY 2005.
B. Development of the Proposed Case-Mix Adjustment Regression
In order to ensure that the proposed IPF prospective payment system
would be able to account adequately for each IPF's case-mix, we
performed an extensive regression analysis of the relationship between
the per diem costs and both patient and facility characteristics to
determine those characteristics associated with statistically
significant cost differences. For characteristics with statistically
[[Page 66929]]
significant cost differences, we used the regression coefficients of
those variables to determine the size of the corresponding payment
adjustments. Based on the regression analysis, we are proposing to
adjust the per diem payment for differences in the patient's DRG, age,
comorbidities, and the day of the stay. Also, we are proposing
adjustments for area wage levels, rural IPFs, and teaching IPFs.
We computed a per diem cost for each Medicare inpatient psychiatric
stay, including routine operating, ancillary, and capital components
using information from the 1999 MedPAR file and data from the 1999
Medicare cost reports. The method described below that was used to
construct the proposed per diem cost for IPFs is a standard method that
has been used to construct a Medicare cost per discharge for inpatient
acute care (Newhouse, J.P., S. Cretin, and C. Witsberger. Predicting
Hospital Accounting Costs, Health Care Financing Review, V.11, No. 1.
Fall 1989). We believe that this method provides a full account of
IPF's per diem costs.
To calculate the cost per day for each inpatient psychiatric stay,
routine costs were estimated by multiplying the routine cost per day
from the IPF's 1999 Medicare cost report by the number of Medicare
covered days on the 1999 MedPAR stay record. Ancillary costs were
estimated by multiplying each departmental cost-to-charge ratio by the
corresponding ancillary charges on the MedPAR stay record. The total
cost per day was calculated by summing routine and ancillary costs for
the stay and dividing it by the number of Medicare covered days for
each day of the stay. We used the best available data and methods for
this proposed IPF prospective payment system. However, the data are
potentially limited for the purpose of determining the extent to which
differences in patient characteristics influence the per diem cost of
inpatient psychiatric care.
This potential limitation results from Medicare cost accounting
practices in which routine per diem costs are calculated as an average
and, therefore, do not vary among patients within a facility (that is,
a patient requiring intensive staff attention is assigned the same
routine cost as a patient requiring little staff attention). This
potential limitation assumes heightened importance for IPFs because
routine costs represent about 88 percent of total costs. As a result,
our cost measure may not capture the degree of variation in routine
cost attributable to differences in patient characteristics. Patient
differences are reflected in our measure of routine cost only to the
extent that facilities tend on average to treat different proportions
of patients with differing routine resource needs. For example, one IPF
may have higher routine per diem costs because it treats a higher
proportion of older patients (or patients who require continuous
monitoring) than another IPF. However, our cost variable will not
measure the extent to which older patients within the same IPF are more
costly than younger patients. We are currently conducting a research
study with the RTI International[reg] (trade name of
Research Triangle Institute) that will provide information as to the
effects of this data limitation. As a result, we expect to have more
information about the extent to which routine costs vary by certain
patient characteristics. We solicit suggestions on other data sets or
studies that could provide additional information on the relationship
between individual patients and average facility routine costs.
This routine cost limitation does not apply to ancillary costs
because they can be measured at the patient level using Medicare claims
as reported in the MedPAR file. However, there are differences in
charging practices between psychiatric hospitals and psychiatric units
that affect our measurement of ancillary costs. For example, there are
approximately 100 hospitals in our MedPAR data file that do not bill
ancillary charges; the majority of these providers are State
psychiatric hospitals who bill a single average per diem rate that
includes routine, ancillary, and other costs.
The proposed payment adjustors were derived from regression
analysis of 100 percent of the 1999 MedPAR data file. The MedPAR data
file used for the final regression contains 467,372 cases although the
complete file contains 476,541 cases. We deleted 5,822 cases (1.24
percent) from this file because routine cost data for certain IPFs was
not available. In order to include as many IPFs as possible in the
regression, we substituted the 1998 Medicare cost report data for
routine cost and ancillary cost to charge ratios (using the 1998
Medicare cost report data).
For the remaining 470,719 cases, we used the following method to
trim extraordinarily high or low cost values that most likely contained
data errors, in order to improve the accuracy of our results. The means
and standard deviations of the logged per diem total cost were computed
separately for cases from psychiatric hospitals and psychiatric units.
Separate statistics were computed for the groups of IPFs, because we
did not want to systematically exclude a larger proportion of cases
from the higher cost psychiatric units. Before calculating the means of
the logged per diem total cost, we trimmed cases from the file when
covered days were zero, or routine costs were less than $100 or greater
than $3,000, (because we believe this range captured the grossly
aberrant cases), so that the means would not be distorted. We trimmed
cases when the logged per diem cost was outside the standard and
generally used statistical trim points of plus or minus 3 standard
deviations from the respective means for hospitals and psychiatric
units. These criteria eliminated another 3,347 cases, leaving 467,372
cases that were used in the final regression.
The log of per diem cost, like most health care cost measures,
appears to be normally distributed. Therefore, the natural logarithm of
the per diem cost was the dependent variable in the regression
analysis. To control for psychiatric hospitals that do not bill
ancillary costs, we included a categorical variable that identified
them.
The proposed per diem cost was adjusted for differences in labor
cost across geographic areas using the FY 1999 hospital wage index
unadjusted for geographic reclassifications, in order to be consistent
with our use of the market basket labor share in applying the wage
index adjustment.
We computed a proposed wage adjustment factor for each case by
multiplying the Medicare hospital wage index for each facility by the
proposed labor-related share (.72828) and adding the proposed non-labor
share (.27172). We used the proposed excluded hospital with capital
market basket to determine the labor-related share (see section III.A.
of this proposed rule). The per diem cost for each case was divided by
this factor before taking the natural logarithm (that is, a standard
mathematical practice accepted by the scientific community). The
payment adjustment for the wage index was computed consistently with
the wage adjustment factor, which is equivalent to separating the per
diem cost into a labor portion and a non-labor portion and adjusting
the labor portion by the wage index.
With the exception of the proposed payment adjustment for teaching
facilities, the independent variables were specified as one or more
categorical variables. Once the regression model was finalized based on
the log normal variables, the regression coefficients for these
variables were converted to payment adjustment factors by treating each
coefficient as an exponent of the base e for natural
[[Page 66930]]
logarithms, which is approximately equal to 2.718. The proposed payment
adjustment factors represent the proportional effect of each variable
relative to a reference variable.
1. Proposed Patient-Level Characteristics
Subject to the limitations of the proposed cost variable described
above and the availability of patient characteristic information
contained in the administrative data, we attempted to use patient
characteristics to explain the cost variation amongst IPFs. By
adjusting for DRGs, comorbidities, age, and day of the stay, we were
able to explain approximately 19 percent of the variation in the per
diem cost. This result is comparable to that obtained by THEORI in the
analysis they conducted for the APA. The study is described in section
II.B. of this proposed rule.
a. DRGs
The principal diagnosis ICD code listed on the claim is used to
assign each case to one of the 15 DRGs that we are proposing to
recognize in this IPF prospective payment system (see section II.C of
this proposed rule). The coefficients of these DRGs from the cost
regression analysis were used to determine the magnitude of the payment
adjustment for each of the proposed 15 DRGs. The payment adjustments
are expressed relative to the most frequently assigned DRG (DRG 430,
Psychoses). That is, the proposed adjustment factor for DRG 430 would
be 1.00, and the proposed adjustment factors for the other 14 DRGs
would vary above and below 1.00. For 8 DRGs, the proposed adjustments
would be relatively small (between .96 and 1.04, that is, between 4
percent lower to 4 percent higher). The following 4 DRGs would receive
relatively large payment adjustments:
[sbull] DRG 424 (Surgical procedure with Principal Diagnosis of
Mental Illness) would have the largest payment adjustment of
approximately 1.22.
[sbull] DRG 023 (Non-traumatic stupor and coma) would receive an
adjustment of approximately 1.10.
[sbull] DRG 425 (Acute Adjustment Reaction and Psychosocial
Dysfunction) would receive an adjustment of approximately 1.08.
[sbull] DRG 12 (Degenerative Nervous System Disorders) would
receive an adjustment of approximately 1.07.
Both of the following two DRGs would be paid substantially less
than DRG 430 with payment adjustments of approximately 0.88:
[sbull] DRG 433 (Alcohol/Drug Abuse or Dependence, left against
medical advice).
[sbull] DRG 523 (Alcohol/Drug Abuse or Dependence, without
Complications and/or Comorbidity and without Rehabilitation Therapy).
Cases in our MedPAR data file whose principal diagnosis classified
them in DRGs other than one of the 15 DRGs that we are proposing to
recognize in this proposed IPF prospective payment system were grouped
into a single ``other'' category.
b. Comorbidities
Our analysis of the data indicates that patients who have certain
comorbid conditions in addition to their psychiatric condition
generally require more expensive care while they are hospitalized.
After a thorough review of the ICD-9-CM codes, some comorbid conditions
were identified as being more costly on a per diem basis. Groups of
similar diagnosis codes were created to describe these conditions,
which tend to be chronic illnesses that require additional medications,
supplies, laboratory, or diagnostic testing in addition to the care
provided for their psychiatric condition. Conditions in which the
patient is acutely ill requiring care in a general hospital, for
example, myocardial infarction, were not included in our analysis.
Based upon this analysis, we are proposing payment adjustments for
17 comorbidity categories that we would recognize for payment
adjustments under the proposed IPF prospective payment system. Table 3
below provides a listing of the proposed comorbidity categories, the
ICD-9-CM diagnostic codes comprising each category, and the payment
adjustment factors. The adjustment factors are also in Addendum A.
As in the case of the DRGs, the cost regression analysis was used
to determine the magnitude of the proposed payment adjustments for the
comorbidity groups. Of the 17 comorbidity categories, the following 4
groups would have proposed payment adjustment factors ranging from 1.11
to 1.17 more than a case that did not have any of the 17 comorbid
conditions: (1) Coagulation factor deficits; (2) renal failure,
chronic; (3) chronic cardiac conditions; and (4) atherosclerosis of
extremity with gangrene. Seven categories would be paid payment
adjustments from 1.08 to 1.14: (1) Tracheotomy; (2) renal failure,
acute; (3) malignant neoplasms; (4) severe protein calorie
malnutrition; (5) chronic obstructive pulmonary disease; (6) poisoning;
and (7) severe musculoskeletal and connective tissue diseases. The
remaining 6 comorbidity categories would receive payment adjustments
ranging from 1.03 to 1.10: (1) HIV; (2) infectious diseases; (3)
uncontrolled type I diabetes mellitus; (4) artificial openings
digestive and urinary; (5) drug and/or alcohol induced mental
disorders; and (6) eating and conduct disorders.
Other potential conditions were considered as potentially more
expensive, but the small number of cases in the MedPAR data file made
it impossible to propose an appropriate adjustment for those
conditions. We solicit comments suggesting other conditions that may be
expected to increase the per diem cost of care in IPFs. In addition, we
expect that as facilities become aware of the importance of providing
accurate information on the diagnoses of patients, we will have more
data to use as a basis for refinements to the list of proposed comorbid
conditions affecting the per diem cost of care.
Table 3.--Diagnosis Codes for Proposed Comorbidity Categories
------------------------------------------------------------------------
Proposed
Description of proposed ICD-9-CM code adjustment
comorbidity factor
------------------------------------------------------------------------
HIV............................ 042.................... 1.06
Coagulation Factor Deficits.... 2860 through 2864...... 1.11
Tracheotomy.................... 51900 and V440......... 1.14
Renal Failure, Acute........... 5846 through 5849; 1.08
7885; 9585; V451;
V560, V561; and V562.
Renal Failure, Chronic......... 40301; 40311; 40391; 1.14
40402; 40412; 40492,
585; and 586.
Malignant Neoplasms............ 1400 through 1720; 1740 1.10
through 1840; and 1850
through 2080.
[[Page 66931]]
Uncontrolled Type I Diabetes- 25003; 25083; 25013; 1.10
Mellitus, with or without 25023; 25033; 25093;
complications. 25043; 25053; 25063;
and 25073.
Severe Protein Calorie 260 through 262........ 1.12
Malnutrition.
Eating and Conduct Disorders... 3071; 30750; 31203; 1.03
31233; and 31234.
Infectious Diseases............ 01000 through 04110; 1.08
04500 through 05319,
05440 through 05449;
0550 through 0770;
0782 through 0789; and
07950 through 07595.
Drug and/or Alcohol Induced 2920; 2922; 2910; 1.03
Mental Disorders. 29212; 30300; and
30400.
Cardiac Conditions............. 3910; 3911; 3912; 1.13
40201; 41403; 4160;
and 4210.
Atherosclerosis of Extremity 44024.................. 1.17
with Gangrene.
Chronic Obstructive Pulmonary 5100; 51883; 51884; 1.12
Disease. 4920; 494; 49120
through 49122, and
V461.
Artificial Openings-Digestive 56960; V441 through 1.09
and Urinary. V443; and V4450.
Severe Musculoskeletal and 6960; 7100; 73000 1.12
Connective Tissue Diseases. through73009; 73010
through 73019; 73020
through 73029; and
7854.
Poisoning...................... 96500 through 96509; 1.14
and 9654; 9670 through
9700; 9800 through
9809; 9830 through
9839; 986; 9890
through 9897.
------------------------------------------------------------------------
c. Patient Age and Gender
The cost regressions explored several alternative configurations of
age and gender variables. The results indicate that the per diem cost
rises as a patient's age increases, and the per diem cost are higher
for female patients.
We examined the variation in the per diem cost for 5-year age
intervals ranging from age 40 to 80 with open-ended categories ranging
above age 80 and below 40 and determined that the effect of age was
statistically significant. We initially ran the regression for three
age groups consistent with the natural breaks in the distribution of
age (under 55, 55 to 64, and 65 and over). The distribution showed that
most Medicare psychiatric patients are under age 55 and over age 65. In
addition, the distribution showed that the age group between 55 and 65
years of age increased the predictive power of the model only by a
factor of .002 percent because there were few patients in that age
category. For this reason, we are not proposing adjustments reflecting
the three age groups. Rather, we are proposing to make a single
adjustment of 13 percent for patients 65 years and over. We are
proposing two age groups (under 65 and over 65) to correspond with the
major populations within Medicare: the disabled and the elderly, which
we believe are largely responsible for the age-related cost differences
that we observed. In addition, preliminary results from the RTI
International[reg] research that used estimates of patient-
specific routine cost per day (from a sample of 40 IPFs) found that
splitting age into two groups (under 65 and over 65) has greater
explanatory power than alternative age group configurations. The
research study is described in more detail in section V.C.1. of this
proposed rule.
The cost regression implies that female patients are approximately
3 percent more costly than male patients. However, the explanatory
power of the equation increases by less than .002 percentage points.
There is also a small reduction in the age effect for the 65 and over
age group (less than one percentage point). We also examined the
alternative of including gender along with the three age groups (under
55, 55 to 64, and 65 and over) and compared the results to the
regression without gender and with two age groups (under 65 and 65 and
over). The fuller specification of age and gender only increased the
explanatory power by .003 points and had little effect on the size of
the age effects.
We know that the elderly and women are more frequently treated in
psychiatric units than in freestanding psychiatric hospitals. When an
indicator variable for psychiatric units is included in the cost
regression, the age and gender effects decrease (the 65 and over age
effect declines from approximately 13 percent to approximately 9
percent, and the gender effect decreases from approximately 3 percent
to 2 percent). We are unable to determine the extent to which this
interaction of psychiatric unit status with age and gender indicates
higher direct costs of treating the elderly and women, as opposed to
other reasons for the higher costs of psychiatric units. However, RTI
International's[reg] preliminary results, which used a
better patient-specific cost variable for a sample of 40 hospitals
found a much stronger effect for age than for gender. This is because
the evidence currently available to us is limited and we believe we
cannot identify a direct link between the costs of psychiatric care in
psychiatric units and treatment of female IPF patients. We are not
proposing to adjust the per diem payment rate to account for gender. We
invite comments on the appropriateness of including a gender variable
as a payment adjustment as well as comments on the age categories used
to identify variations in costs. We will continue to assess the effects
of gender and age as we analyze more current data in the development of
the final rule.
d. Length of Stay
Cost regressions indicate that the per diem cost declines as the
length of stay increases. We are proposing adjustments to account for
ancillary and certain administrative costs that occur
disproportionately in the first days after being admitted to an IPF
(the variable per diem adjustments). We examined the per diem cost over
a range of 1 to 14 days. According to the 1999 MedPAR data file, the
per diem costs were highest on day 1 and declined for days 2 through 8
as indicated below. Per diem costs for days 9 and thereafter remained
relatively consistent with the median length of stay in an IPF for
Medicare beneficiaries. The cost regression analysis was used to
determine the following proposed payment adjustments. Relative to a
stay of 9 or more days, the resulting adjustments for the first 8 days
of a stay that we are proposing to use in this IPF prospective payment
system are as follows:
[sbull] The variable per diem adjustment for day 1 would be an
increase of approximately 26 percent.
[[Page 66932]]
[sbull] The variable per diem adjustment for days 2 to 4 would be
an increase of approximately 12 percent.
[sbull] The variable per diem adjustment for days 5 to 8 would be
an increase of approximately 5 percent.
[sbull] No variable per diem adjustment would be paid after the 8th
day.
The higher payments for earlier days are offset through the budget
neutrality adjustment, which has the effect of lowering the average
payment to account for the increased payments.
2. Proposed Facility-Level Characteristics
As noted earlier, we were able to explain 19 percent of the
variation in wage-adjusted per diem cost using patient characteristics.
We explored a variety of ways to incorporate facility characteristics
into the cost regressions in order to raise the explanatory power and
refine the proposed payment system to better align payments with cost
differences across facility types.
Per diem costs are strongly related to facility occupancy, because
occupancy (as measured by the ratio of actual days to available days)
measures the extent to which the facility is efficiently utilizing its
capacity. When occupancy is low, fixed costs must be spread across
relatively few days of care and the per diem costs are high. Because we
do not want to pay for inefficiency, we are not proposing that
occupancy be used as a payment adjuster. However, this variable is
included in the cost regression to improve the estimates of the effects
of other factors that may more appropriately be used to adjust
payments.
An analysis of the facility-level characteristics we considered
follows. To summarize the analysis, we are proposing that payments be
adjusted based on the IPF's wage index, rural location, and teaching
status. We considered, and explain below, the reasons why we are
proposing not to provide adjustments for psychiatric units,
disproportionate share intensity, or IPFs in Alaska or Hawaii.
a. Rural Location
We found that, controlling for the patient characteristics and
other facility variables included in our cost regression, facilities
located in non-metropolitan area counties had per diem costs about 16
percent higher than facilities located in metropolitan area counties.
Most of the higher cost of rural IPFs is related to the fact that the
vast majority are psychiatric units within small general acute care
hospitals. Small-scale facilities are more costly on a per diem basis
because there are minimum levels of fixed costs that cannot be avoided.
Based on this analysis, we are proposing to make an adjustment of 16
percent for IPFs located in rural areas.
b. Teaching Status
One option for paying psychiatric teaching facilities for their
higher costs relies on past experience with the teaching adjustment for
other Medicare prospective payment systems. As in other inpatient
prospective payment systems, we measured teaching status as one plus
the ratio of the number of interns and residents assigned to the
facility divided by the IPF's average daily census (ADC). Similarly for
psychiatric units, we used the number of interns and residents assigned
to the psychiatric unit.
The advantages of using the ADC rather than the number of beds for
the denominator of the ratio noted above was discussed in the final
rule we published in the Federal Register on August 30, 1991 (56 FR
43380) for putting inpatient hospital capital payments under a
prospective payment. As described in that rule, the two key advantages
of the ADC are that it is--(1) easier to define more precisely than
number of beds; and (2) less subject to understatement in an effort to
increase the size of the teaching variable. We believe that these
advantages apply equally to IPFs.
The teaching variable in our cost regressions, that is, the
logarithm of one plus the ratio of interns and residents to ADC, has a
coefficient value of .5215. This cost effect is converted to a payment
adjustment by treating the regression coefficient as an exponent and
raising the teaching variable to the .5215 power. Applying this method
for a facility with a teaching variable of 1.10 would yield a 5.1
percent increase in the per diem payment; for a facility with a
teaching variable of 1.25, there would be a 12.3 percent higher
payment.
Our impact tables are based on the assumption that we would pay a
proposed IPF teaching adjustment in this manner and our proposed
regulatory text is also based on this approach. However, we are
considering alternatives because we are concerned that this method
creates incentives for teaching hospitals to add residents and to
increase their payments under an open-ended formula that pays higher
teaching payments as teaching intensity, as measured by resident to ADC
ratios, increases.
The BBA, sections 4621 and 4623, limited the incentives to add
residents in hospitals paid under the hospital inpatient prospective
payment system by adopting caps for both direct and indirect teaching
payments. The number of residents was capped for the purpose of
computing both the direct and indirect teaching adjustments and the
resident to ADC was capped for purposes of computing the indirect
teaching adjustment. Because IPFs would now be paid on a prospective
basis similar to acute care hospitals, we are considering extending the
indirect teaching caps to IPF teaching hospitals. Regulations, as
specified at Sec. 413.86, already apply the BBA caps to direct medical
education payments for all teaching hospitals.
We are also exploring whether there are other alternatives for
paying IPF teaching hospitals their higher teaching costs. We are
interested in developing methodologies for estimating these higher
costs and then, based on the newly available estimates and current
data, distributing those costs fairly to individual teaching hospitals.
We invite comments on obtaining the estimates and current data and on
other approaches to paying psychiatric teaching hospitals for their
higher medical-education costs based on that data.
c. Disproportionate Share Hospital Status
We measured the extent to which a facility provides care to low
income patients using the disproportionate share hospital (DSH)
variable used in other Medicare prospective payment systems (that is,
the sum of the proportion of Medicare days of care provided to
recipients of Supplemental Security Income and the proportion of the
total days of care provided to Medicaid beneficiaries). For psychiatric
units, both proportions are specific to the unit and not the entire
hospital. A limitation of the Medicaid proportion as applied to
psychiatric hospitals is that Medicaid does not pay for services
provided to individuals under the age of 65 in an institution for
mental diseases (IMD), as specified in section 1905(h) of the Act. As a
result, low-income beneficiaries in IMDs cannot be identified as
Medicaid beneficiaries, and the Medicaid proportion will be biased
downwards.
The DSH variable was highly significant in our cost regressions;
however, we found that facilities with higher DSH had lower per diem
costs. We note that the previously cited study for the APA also found
the same results. The relationship of high DSH with lower costs cannot
be attributed to downward bias in the Medicaid proportion due to the
IMD exclusion. This is because public psychiatric
[[Page 66933]]
hospitals already have lower costs on average than other types of IPFs.
Therefore, if we propose a DSH adjustment based on the regression
analysis, IPFs with high DSH shares would be paid lower per diem rates.
We tried a variety of supplemental analyses in an attempt to better
understand the observed relationship, but did not find a positive
relationship between the per diem cost and the DSH ratio. Therefore, we
are not proposing a payment adjustment for DSH intensity but will
monitor the effect of DSH for possible future adjustments.
d. Psychiatric Units in General Acute Care Hospitals
On average, psychiatric units have higher per diem costs than
psychiatric hospitals. According to the 1999 MedPAR file, the average
per diem cost for psychiatric units was $615, compared to $444 for
psychiatric hospitals.
Some of the patient characteristics and facility variables that we
included in our cost regressions explain part, but not all, of the cost
difference between hospitals and psychiatric units. Controlling for
facility size, occupancy, and selected comorbidities reduces the
magnitude of the estimated cost difference from approximately 37
percent to 19 percent. Several factors may account for the remaining 19
percent difference: (1) A large proportion of psychiatric admissions to
these units enter the hospital through the emergency room (ER), and ER
charges are included on the inpatient claims used in our analysis (this
issue will not be relevant to IPF payment in the future because ER
services have been paid under the outpatient hospital prospective
payment system since August 2000); (2) some of these admissions have
medical conditions in addition to psychiatric symptoms and require more
treatments resulting in higher costs due to more services and
equipment; (3) psychiatric hospitals and psychiatric units may utilize
different patterns of care and staffing; and (4) accounting differences
may account for some of the cost difference.
We have decided not to propose a specific adjustment for
psychiatric units. We are concerned about applying such an adjustment
to all psychiatric units regardless of an individual unit's costs,
efficiency, or case mix.
We hope that with further research, we will be able to gain a
better understanding of the cost differences that would enable us to
propose even more refined payment adjustments to directly measure the
differences in patient care needs in psychiatric units.
e. Adjustment for Alaska and Hawaii IPFs
Some of the prospective payment systems that have been developed
include a cost-of-living adjustment for the unique circumstances of
Medicare providers located in Alaska and Hawaii. Therefore, we analyzed
our data to determine the existence of IPFs located in Alaska and
Hawaii. Currently, in Alaska, there are only two psychiatric hospitals
and no psychiatric units. In Hawaii, there is one psychiatric hospital
and one psychiatric unit. In the absence of a cost-of-living
adjustment, our analyses indicates that some facilities in Alaska and
Hawaii would ``profit'' and other facilities would experience a
``loss.'' Due to the limited number of cases, the results of our
analysis are inconclusive regarding whether a cost-of-living adjustment
would improve payment equity for these facilities. Therefore, we are
not proposing an adjustment for IPFs located in Alaska and Hawaii. We
will continue to assess the impact of the proposed IPF prospective
payment system on IPFs located in Alaska and Hawaii as we obtain more
current data.
3. Proposed Payment Adjustments
a. Proposed Outlier Adjustment
While we are not statutorily required to provide outlier payments,
we believe that it is appropriate to propose an outlier payment policy
in connection with this prospective payment system in order to both
ensure that IPFs treating unusually costly cases do not incur
substantial ``losses'' and promote access to IPFs for patients
requiring expensive care. Providing additional payments for costs that
are beyond the IPF's control can strongly improve the accuracy of the
proposed IPF prospective payment system in determining resource costs
at the patient and facility level.
Notwithstanding the factors that we are proposing to recognize in
the IPF prospective payment system as proposed adjustments to the per
diem payment rate, the cost of care for some psychiatric patients may
still substantially exceed the otherwise applicable payments during the
course of a stay. This may occur because of multiple comorbid
conditions and complications that require a high utilization of
ancillary services. Since this is a per diem payment system, the extent
to which length of stay is a factor would be mitigated because payment
is made for each day of the stay.
We have determined that it is important to provide some protection
from financial risk caused by treating patients who require more costly
care and to reduce the incentives to under serve these patients.
Therefore, in order to protect IPFs from significant ``losses'' on
very costly cases, we are proposing to provide outlier payments and set
outlier numerical criteria prospectively so that outlier payments are
projected to equal 2 percent of total payments under the proposed IPF
prospective payment system. Based on the regression analysis and
payment simulations, we believe that using a 2 percent threshold
optimizes our ability to protect vulnerable IPFs while providing
adequate payment for all other cases that are not outlier cases.
We are proposing, in Sec. 412.424(c), to make an outlier payment
for any case in which the estimated total cost exceeds an outlier
threshold amount equal to the total IPF prospective payment system
payment amount plus a fixed dollar loss amount. The fixed dollar loss
amount is the amount used to limit the loss that an IPF would incur
under the proposed outlier policy (see section III.C.3. of this
proposed rule for an explanation of how the fixed dollar loss amount is
calculated). Once the cost of a case exceeds the outlier threshold
amount, an outlier payment would be made. A basic principle of an
outlier policy is that outlier payments should cover less than the full
amount of the additional costs above the outlier threshold in order to
preserve the incentive to contain costs once a case qualifies for
outlier payments (see Emmett B. Keeler, Grace M. Carter, and Sally
Trude, ``Insurance Aspects of DRG Outlier Payments,'' The Rand
Corporation, N-2762-HHS, October 1988). This results in Medicare and
the IPF sharing financial risk in the treatment of extraordinarily
costly cases.
b. Methodology for Proposed Outlier Payments
We are proposing to make outlier payments on a per case basis
rather than on a per diem basis. Outlier payments would be made for IPF
cases when the estimated cost of the entire stay exceeds the outlier
threshold amount. We believe it is appropriate to determine outlier
status on a per case basis in order to accurately assess the ``losses''
associated with the care of a patient for the entire stay. If we
propose to establish a per diem fixed dollar loss threshold, outlier
payments could occur for part of an inpatient stay when no ``losses''
actually occur. If we review the stay in terms of the resources
expended each day, the facility may incur a ``loss'' on some days of
the stay and may experience ``gains'' on other days of the stay. Thus,
assessing the resources
[[Page 66934]]
expanded over the course of the entire stay provides a fuller picture
of the actual resources needed to provide care for the complete episode
of care. After assessing the entire stay, one can determine if a
``loss'' was actually incurred by the IPF.
Therefore, we are proposing to define the outlier threshold amount
as the total IPF prospective payment for an IPF stay, plus a fixed
dollar loss amount. As explained below, the fixed dollar amount is
determined to be the dollar amount per stay that achieves a total
outlier percentage of 2 percent of the proposed prospective payments.
The proposed outlier payment would be defined as a proportion of the
estimated cost beyond the outlier threshold. The proportion of
additional costs paid as outlier payments is referred to as the loss-
sharing ratio. We chose to propose the fixed dollar loss amount and the
loss-sharing ratios to allow the estimated total outlier payments to be
2 percent of the total estimated proposed IPF prospective payments.
In order to determine the most appropriate outlier policy, our goal
was to analyze the extent to which the various outlier percentages
reduce financial risk, reduce incentives to under serve costly
beneficiaries, and improve the overall fairness of the payment system.
Our analysis showed that the higher the outlier percentage, the more
cases qualified for outlier payments, and the less payment was made per
case. Conversely, a low outlier percentage resulted in a higher fixed
dollar loss threshold and although fewer cases exceeded the threshold,
the amount paid was more substantial.
We began our analysis by determining that if approximately 10
percent of IPF cases received an outlier payment, we would be
maintaining the basic premise behind establishing an outlier policy,
that is, to compensate IPFs for their truly high cost cases. Also, this
percentage of cases, that is 10 percent, is not inconsistent with the
percentage of total outlier cases paid in other prospective payment
systems.
Initially, we believed that a 5 percent outlier policy would result
in outlier payments for approximately 10 percent of total IPF cases.
However, our analysis showed that a 5 percent outlier policy resulted
in outlier payments for approximately 20 percent of IPF cases, paying
an average of $1,975 per case. Since 20 percent of IPF cases would
receive an outlier payment, we do not believe that a 5 percent outlier
policy limits outlier payments to only the truly high cost cases. We
then reduced the outlier policy to 3 percent and found that 12 percent
of IPF cases received outlier payments, with an average payment of
$2,125 per case. Although a 3 percent outlier policy reduced the number
of cases that would qualify for outlier payments, 12 percent of cases
still exceeded our target of 10 percent of total IPF cases.
However, we have determined that an outlier policy of 2 percent of
the total proposed IPF payments would allow us to achieve a balance of
the above stated goals. A 2 percent outlier policy would appropriately
compensate for the truly high cost cases with a much more appropriate
level of payment and reduced financial risk without causing a
significant reduction in the per diem base rate. Under a 2 percent
outlier policy, approximately 7 percent of IPF cases qualify for
outlier payments with an average payment of $2,350 per case. Providing
outlier payments to 7 percent of cases meets the 10 percent target and
would provide outlier payment for only the high cost IPF cases.
Accordingly, we are proposing the outlier policy to be 2 percent of the
total proposed IPF payments. The amount of outlier payments would be
funded by prospectively reducing the non-outlier payment rates in a
budget-neutral manner.
Under our proposed outlier policy, we would make outlier payments
for discharges in which estimated costs exceed an adjusted threshold
amount ($4,200 multiplied by the IPF's facility adjustments, that is
wages, rural location, and teaching status) plus the total IPF
prospective payment system adjusted payment amount for the discharge.
The estimated cost for a case would be calculated by multiplying the
overall facility-specific cost-to-charge ratio by the total charges for
the inpatient stay.
In establishing the loss-sharing ratio, we considered establishing
a single ratio consistent with the hospital inpatient prospective
payment system, which is set at a marginal cost of 80 percent of the
difference between the cost for the discharge and the adjusted
threshold amount. However, the proposed IPF prospective payment system
unlike the hospital inpatient prospective payment system is a per diem
payment system, we are concerned that a single loss-sharing ratio at 80
percent might provide an incentive to increase length of stay in order
to receive additional outlier payments. Therefore, we are proposing to
reduce the loss-sharing ratio when the length of the stay increases
beyond the median length of stay. We believe that a reduction to the
outlier loss-sharing ratio should occur in a similar manner to the
declining per diem payment. The per diem payment amount under the
proposed IPF prospective payment system is highest on days 1 through 4,
declines on days 5 through 8, and declines further for all days beyond
8. Similarly, we are proposing to establish an 80-percent loss-sharing
ratio for days 1 through 8 in order to reflect higher costs early in an
IPF stay and reduce the ratio by 20 percent for days 9 and thereafter.
This is consistent with the median length of stay for IPFs. Reducing
the amount Medicare would share in the loss of high cost cases would
provide an incentive for an IPF to contain costs once a case qualifies
for outlier payments. We solicit comments on this approach.
c. Proposed Implementation of the Outlier Policy
The intent of proposing an outlier policy is to adequately pay for
truly high-cost cases. However, we have become aware that under the
hospital inpatient prospective payment system, some hospitals have
taken advantage of two system features in the outlier policy to
maximize their outlier payments. The first is the time lag between the
current charges on a submitted claim and the cost-to-charge ratio taken
from the most recent settled cost report. Second, statewide average
cost-to-charge ratios are used in those instances in which an acute
care hospital's operating or capital cost-to-charge ratios fall outside
reasonable parameters. We set forth these parameters and the statewide
cost-to-charge ratios for acute care hospitals in the annual
publication of prospective payment rates that are published by August 1
of each year in accordance with Sec. 412.8(b)(2). Currently, these
parameters represent 3.0 standard deviations (plus or minus) from the
geometric mean of cost-to-charge ratios for all hospitals. Hospitals
could arbitrarily increase their charges so far above costs that their
cost-to-charge ratios would fall below 3 standard deviations from the
geometric mean of the cost-to-charge ratio. Thus, a higher statewide
average cost-to-charge ratio would be applied to determine if the
hospital should receive an outlier payment. This disparity results in
their cost-to-charge ratios being set too high, which in turn results
in an overestimation of their current costs per case.
The intention of the outlier policy under both the hospital
inpatient prospective payment system and the proposed IPF prospective
payment system is to make payments only when the cost of care is
extraordinarily high in relation to the average cost of treating
comparable conditions or illnesses. We
[[Page 66935]]
believe that if hospitals' charges are not sufficiently comparable in
magnitude to their costs, the legislative purpose underlying payment
for outliers is thwarted. Thus, on June 9, 2003, we published a final
rule in the Federal Register (68 FR 34494) to ensure that outlier
payments are paid for truly high-cost cases under the hospital
inpatient prospective payment system.
We believe the use of parameters is appropriate for determining
cost-to-charge ratios to ensure these values are reasonable and that
outlier payments can be made in the most equitable manner possible.
Further, we believe the proposed methodology of computing IPF outlier
payments is susceptible to the same payment enhancement practices
identified under the hospital inpatient prospective payment system
because it depends on the cost-to-charge ratio to determine the IPF's
cost. Accordingly, as discussed below, we are proposing provisions for
implementing the outlier policy to ensure the statistical accuracy of
cost-to-charge ratios and appropriate adjustment of IPF outlier
payments.
1. Statistical Accuracy of Cost-to-Charge Ratios
We believe that there is a need to ensure that the cost-to-charge
ratio used to compute an IPF's estimated costs should be subject to a
statistical measure of accuracy. Removing aberrant data from the
calculation of outlier payments will allow us to enhance the extent to
which outlier payments are equitably distributed and continue to reduce
incentives for IPFs to under serve patients who require more costly
care. Further, using a statistical measure of accuracy to address
aberrant cost-to-charge ratios would also allow us to be consistent
with the outlier policy under the hospital inpatient prospective
payment system. Therefore, we are making the following two proposals:
[sbull] We will calculate two national ceilings, one for IPFs
located in rural areas and one for facilities located in urban areas.
We propose to compute this ceiling by first calculating the national
average and the standard deviation of the cost-to-charge ratios for
both urban and rural IPFs.
To determine the rural and urban ceilings, we propose to multiply
each of the standard deviations by 3 and add the result to the
appropriate national cost-to-charge ratio average (either rural or
urban). We believe that the method explained above results in
statistically valid ceilings. If an IPF's cost-to-charge ratio is above
the applicable ceiling, the ratio is considered to be statistically
inaccurate. Therefore, we are proposing to assign the national (either
rural or urban) median cost-to-charge ratio to the IPF. Due to the
small number of IPFs compared to the number of acute care hospitals, we
believe that statewide averages used in the hospital inpatient
prospective payment system, would not be statistically valid in the IPF
context.
In addition, the distribution of cost-to-charge ratios for IPFs is
not normally distributed and there is no limit to the upper ceiling of
the ratio. For these reasons, the average value tends to be overstated
due to the higher values on the upper tail of the distribution of cost-
to-charge ratios. Therefore, we are proposing to use the national
median by urban and rural type as the substitution value when the
facility's actual cost-to-charge ratio is outside the trim values.
Cost-to-charge ratios above this ceiling are probably due to faulty
data reporting or entry, and, therefore, should not be used to identify
and make payments for outlier cases because these data are clearly
erroneous and should not be relied upon. In addition, we propose to
update and announce the ceiling and averages using this methodology
every year.
[sbull] We will not apply the applicable national median cost-to-
charge ratio when an IPF's cost-to-charge ratio falls below a floor. We
are proposing this policy because we believe IPFs could arbitrarily
increase their charges in order to maximize outlier payments.
Even though this arbitrary increase in charges should result in a
lower cost-to-charge ratio in the future (due to the lag time in cost
report settlement), if we propose a floor on cost-to-charge ratios, we
would apply the applicable national median for the IPFs actual cost-to-
charge ratio. Using the national median cost-to-charge ratio in place
of the provider's actual cost-to-charge ratio would estimate the IPF's
costs higher than they actually are and may allow the IPF to
inappropriately qualify for outlier payments.
Accordingly, we are proposing to apply the IPF's actual cost-to-
charge ratio to determine the cost of the case rather than creating and
applying a floor. In such cases as described above, applying an IPF's
actual cost-to-charge ratio to charges in the future to determine the
cost of the case will result in more appropriate outlier payments.
Consistent with the policy change under the hospital inpatient
prospective payment system, we are proposing that IPFs would receive
their actual cost-to-charge ratios no matter how low their ratios fall.
We are still assessing the procedural changes that would be necessary
to implement this change.
2. Adjustment of IPF Outlier Payments
As discussed in the hospital inpatient prospective payment system
final rule for outliers, we have implemented changes to the outlier
policy used to determine cost-to-charge ratios for acute care
hospitals, because we became aware that payment vulnerabilities exist
in the current outlier policy. Because we believe the IPF outlier
payment methodology is likewise susceptible to the same payment
vulnerabilities, we are proposing the following:
[sbull] Include in proposed Sec. 412.424(c)(2)(v) a cross-
reference to Sec. 412.84(i) that was included in the final rule
published in the Federal Register on June 9, 2003 (68 FR 34515).
Through this cross-reference, we are proposing that fiscal
intermediaries would use more recent data when determining an IPF's
cost-to-charge ratio. Specifically, as provided in Sec. 412.84(i), we
are proposing that fiscal intermediaries would use either the most
recent settled IPF cost report or the most recent tentatively settled
IPF cost report, whichever is later to obtain the applicable IPF cost-
to-charge ratio. In addition, as provided under Sec. 412.84(i), any
reconciliation of outlier payments will be based on a ratio of costs to
charges computed from the relevant cost report and charge data
determined at the time the cost report coinciding with the discharge is
settled.
[sbull] Include in proposed Sec. 412.424(c)(2)(v) a cross
reference to Sec. 412.84(m) (that was included in the final rule
published in the Federal Register on June 9, 2003 (68 FR 34415) to
revise the outlier policy under the hospital inpatient prospective
payment system). Through this cross-reference, we are proposing that
IPF outlier payments may be adjusted to account for the time value of
money during the time period it was inappropriately held by the IPF as
an ``overpayment.'' We also may adjust outlier payments for the time
value of money for cases that are ``underpaid'' to the IPF. In these
cases, the adjustment will result in additional payments to the IPF. We
are proposing that any adjustment will be based upon a widely available
index to be established in advance by the Secretary, and will be
applied from the midpoint of the cost reporting period to the date of
reconciliation. We are still assessing the procedural changes that
would be necessary to implement this change.
d. Computation of Proposed Outlier Payments
In order to illustrate the proposed outlier payment mechanism, we
present
[[Page 66936]]
the following example of how we would calculate the outlier payment.
Example: John Smith was hospitalized at a non-teaching IPF
facility in Richmond, Virginia for 14 days. His total allowable
billed charges for the 14 days was $20,000. The prospective payment
amount (per diem payments plus adjustments) was $8,000.
To determine whether this case qualifies for outlier payments, it
would be necessary to compute the cost of the case by multiplying the
facility's overall cost-to-charge ratio of .72 by the allowable charge
of $20,000. In this case, the total allowable costs for Mr. Smith's
case is $14,400 ($20,000 x .72). Because the IPF is a non-teaching
urban facility, the fixed dollar threshold is adjusted by the wage
index 0.9477.
Table 4.--Computation Example of the Proposed Outlier Payment
------------------------------------------------------------------------
------------------------------------------------------------------------
Steps to Calculate the Proposed Outlier Payment
------------------------------------------------------------------------
Calculate the Fixed Dollar Loss
Threshold:
Fixed Dollar Threshold............. .............. $4,200
Wage adjusted labor share $2,899 ..............
(.72828x4,200)*0.9477..............
Non Labor Share (0.27172 x $4.200).. 1,141 ..............
Adjusted Fixed Dollar Threshold 4.040 ..............
($2,899+$1,141)....................
Calculate Eligible Outlier Costs:
Hospital Costs...................... 14,400 ..............
Adjusted Fixed Dollar Threshold..... 4,040
Prospective Payment System Adjusted 8,000 ..............
Payment............................
Eligible for Outlier Costs ($14,400- 2,360
$4,040-$8,000).....................
Calculate the Loss Sharing Ratio
Amount:
Per Diem Outlier Costs ($2,360/14 .............. 169
days)..............................
Loss-sharing Ratio Days 1 through 8 1,079 ..............
($169x.80x8 days)..................
Loss-sharing Ratio Days 9 through 14 607 ..............
$169x.60 x6 days)..................
The Total Outlier Payment Amount 1,686 ..............
$1,079+$607)...........................
------------------------------------------------------------------------
e. Interrupted Stays
Since per diem payments under the proposed IPF prospective payment
system would be higher for the first 8 days of a stay (the variable per
diem adjustment discussed earlier in this section), we are proposing to
adopt an interrupted stay policy. The policy is intended to reduce
incentives to move patients among Medicare-covered sites of care in
order to maximize Medicare payment. We are concerned that IPFs could
maximize payment by prematurely discharging patients after the 8 days
during which they receive higher payments (the variable per diem
adjustments), and then readmitting the same patient. In |
