[Federal Register: August 29, 1997 (Volume 62, Number 168)] [Rules and Regulations] [Page 45965-46015] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr29au97-28] [[Page 45965]] _______________________________________________________________________ Part IV Department of Health and Human Services _______________________________________________________________________ Health Care Financing Administration _______________________________________________________________________ 42 CFR Parts 400, 409, et al. Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1998 Rates; Final Rule [[Page 45966]] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Health Care Financing Administration 42 CFR Parts 400, 409, 410, 411, 412, 413, 424, 440, 485, 488, 489, and 498 [BPD-878-FC] RIN 0938-AH55 Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1998 Rates AGENCY: Health Care Financing Administration (HCFA), HHS. ACTION: Final rule with comment period. ----------------------------------------------------------------------- SUMMARY: We are revising the Medicare hospital inpatient prospective payment systems for operating costs and capital-related costs to implement necessary changes resulting from the Balanced Budget Act of 1997, Pub. L. 105-33, and changes arising from our continuing experience with the systems. In the addendum to this final rule with comment period, we describe changes in the amounts and factors necessary to determine prospective payment rates for Medicare hospital inpatient services for operating costs and capital-related costs. Generally, these changes are applicable to discharges occurring on or after October 1, 1997. We also set forth rate-of-increase limits and changes for hospitals and hospital units excluded from the prospective payment systems. DATES: Effective Date: This rule is a major rule as defined in Title 5, United States Code, section 804(2). Section 4644 of Pub. L. 105-33 provides that, with respect to this final rule, the reference in Title 5, United States Code, section 801(a)(3)(A) to a 60-day delay in the effective date for major rules is deemed to be a reference to a 30-day delay. In accordance with these provisions, the provisions of this final rule with comment period are effective on October 1, 1997. Comment Period: Comments on the provisions resulting from the Balanced Budget Act of 1997 will be considered if received at the appropriate address, as provided below, no later than 5 p.m. on October 28, 1997. We will not consider comments concerning provisions that remain unchanged from the June 2, 1997 proposed rule or that were revised based on public comment. ADDRESSES: Mail written comments (one original and three copies) to the following address: Health Care Financing Administration, Department of Health and Human Services, Attention: BPD-878-FC, P.O. Box 7517, Baltimore, MD 21207-0517. If you prefer, you may deliver your written comments (one original and three copies) to one of the following addresses: Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201, or Room C5-09-26, Central Building, 7500 Security Boulevard, Baltimore, MD 21244-1850. Because of staffing and resource limitations, we cannot accept comments by facsimile (FAX) transmission. In commenting, please refer to file code BPD-878-FC. Comments received timely will be available for public inspection as they are received, generally beginning approximately three weeks after publication of a document, in Room 309- G of the Department's offices at 200 Independence Avenue, SW, Washington, DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. (phone: (202) 690-7890). For comments that relate to information collection requirements, mail a copy of comments to: Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503, Attn: Allison Herron Eydt, HCFA Desk Officer; and Health Care Financing Administration, Office of Information Services, Information Technology Investment Management Group, Division of HCFA Enterprise Standards, Room C2-26-17, 7500 Security Boulevard, Baltimore, MD 21244-1850 Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512- 2250. The cost for each copy is $8.00. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register. FOR FURTHER INFORMATION CONTACT: Nancy Edwards, (410) 786-4531, Operating Prospective Payment, DRG, and Wage Index Issues. Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, and Graduate Medical Education Issues. SUPPLEMENTARY INFORMATION: I. Background A. Summary Under section 1886(d) of the Social Security Act (the Act), a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively-set rates was established effective with hospital cost reporting periods beginning on or after October 1, 1983. Under this system, Medicare payment for hospital inpatient operating costs is made at a predetermined, specific rate for each hospital discharge. All discharges are classified according to a list of diagnosis-related groups (DRGs). The regulations governing the hospital inpatient prospective payment system are located in 42 CFR part 412. As required by section 1886(g) of the Act, effective with cost reporting periods beginning on or after October 1, 1991, we also have implemented a prospective payment methodology for hospital inpatient capital-related costs. Under the capital-related cost methodology, a predetermined payment amount per discharge is made for Medicare inpatient capital-related costs. B. Summary of the Provisions of the June 2, 1997 Proposed Rule On June 2, 1997, we published a proposed rule in the Federal Register (62 FR 29902) setting forth proposed changes to the Medicare hospital inpatient prospective payment systems for both operating costs and capital-related costs, which would be effective for discharges occurring on or after October 1, 1997. Subsequently, on August 5, 1997, the Balanced Budget Act of 1997, Public Law 105-33, was enacted. This Act made major changes to the Medicare hospital payment systems, rates, and policies effective beginning with FY 1998. These legislative changes are summarized under section I.D. of this preamble. More specific details on individual provisions that we are implementing in this final rule with comment period are included under the various sections of this preamble. Following is a summary of the major changes that we had proposed to make in the June 2, 1997 proposed rule: We proposed changes for FY 1998 DRG classifications and relative weights, as required by section 1886(d)(4)(c) of the Act. We proposed to update the hospital wage index for FY 1998. We also [[Page 45967]] proposed revisions to the wage index based on hospital redesignations and a revised process for wage data verification. We proposed to use a revised hospital market basket in developing the recommended FY 1998 update factor for the operating prospective payment rates and the excluded hospital rate-of-increase limits. We discussed several provisions of the regulations in 42 CFR Parts 412 and 413 and set forth certain proposed changes concerning the following: + Elimination of day outlier payments. + Rural referral centers. + Indirect medical education. + Direct graduate medical education programs. We discussed several provisions of the regulations in 42 CFR parts 412, 413, and 489 and set forth certain proposed changes and clarifications concerning the following: + Possible adjustments to capital minimum payment levels. + Special exceptions application process. We proposed changes to the application of the criteria for ``hospitals within hospitals'' seeking exclusion from the prospective payment system. We also proposed technical clarifications concerning exclusion of rehabilitation units. In the addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 1998 prospective payment rates for operating costs and capital-related costs. We also proposed update factors for determining the rate-of- increase limits for cost reporting periods beginning in FY 1998 for hospitals and hospital units excluded from the prospective payment system. In Appendix A of the proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected entities. In Appendix B of the proposed rule, we set forth our technical appendix on the proposed FY 1998 capital cost model. In Appendix C of the proposed rule, we set forth the data sources used to determine the market basket relative weights and choice of price proxies. In Appendix D of the proposed rule, we included our report to Congress on our initial estimate of an update factor for FY 1998 for both hospitals included in and hospitals excluded from the prospective payment systems, as required by section 1886(e)(3)(B) of the Act. As required by sections 1886(e)(4) and (e)(5) of the Act, in Appendix E, we provided our recommendation of the appropriate percentage change for FY 1998 for the following: + Large urban area and other area average standardized amounts (and hospital-specific rates applicable to sole community hospitals) for hospital inpatient services paid for under the prospective payment system for operating costs. + Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by hospitals and hospital units excluded from the prospective payment system. In the proposed rule, we discussed in detail the March 1, 1997 recommendations made by the Prospective Payment Assessment Commission (ProPAC). ProPAC is directed by section 1886(e)(2)(A) of the Act to make recommendations on the appropriate percentage change factor to be used in updating the average standardized amounts. In addition, section 1886(e)(2)(B) of the Act directs ProPAC to make recommendations regarding changes in each of the Medicare payment policies under which payments to an institution are prospectively determined. In particular, the recommendations relating to the hospital inpatient prospective payment systems are to include recommendations concerning the number of DRGs used to classify patients, adjustments to the DRGs to reflect severity of illness, and changes in the methods under which hospitals are paid for capital-related costs. Under section 1886(e)(3)(A) of the Act, the recommendations required of ProPAC under sections 1886(e)(2) (A) and (B) of the Act are to be reported to Congress not later than March 1 of each year. We printed ProPAC's March 1, 1997 report, which included its recommendations, as Appendix F to the proposed rule. The recommendations, and the actions we proposed to take with regard to them (when an action was recommended), were discussed in detail in the appropriate sections of the preamble, the addendum, or the appendices to the proposed rule. C. Public Comments Received in Response to the June 2 Proposed Rule A total of 341 items of correspondence containing comments on the proposed rule were received. The main areas of concern addressed by the commenters were the changes in the DRG classifications related to coronary stents and stereotactic radiosurgery, and the request for comments on future changes for burn cases. Among other areas of concern addressed by the commenters were implementation of the FY 1999 wage index and the policy change related to hospitals and hospital units excluded from the prospective payment system (specifically, hospital- within-hospital policy). Summaries of the public comments received and our responses to those comments appear in the individual related sections of the preamble. D. Relevant Provisions of the Balanced Budget Act of 1997 As noted above, on August 5, 1997, after we had issued the proposed rule for the FY 1998 prospective payment system changes, the Balanced Budget Act of 1997 was enacted. This Act made major changes that affect Medicare payments for hospital inpatient services under the prospective payment systems and the cost limits applicable to excluded hospitals, as well as the direct graduate medical education payments. Because most of these changes are effective October 1, 1997, we have had to make some revisions to the June 2 proposals as well as make additional changes. The provisions of Public Law 105-33 that we are implementing in this final rule with comment period are as follows: 1. Hospital Operating Payment Update. The applicable percentage change in the standardized amounts is 0 percent for FY 1998, the market basket percentage increase minus 1.9 percentage points for all hospitals in all areas for FY 1999, the market basket percentage increase minus 1.8 percentage points for hospitals in all areas for FY 2000, the market basket percentage increase minus 1.1 percentage points for hospitals for all areas for FYs 2001 and 2002, and the market basket percentage increase for hospitals in all areas for FY 2003 and subsequent fiscal years. (Section 4401(a)) Hospitals that do not receive disproportionate share (DSH) or indirect medical education (IME) payments and are (MDH) for FY 1998 or 1999 will receive a higher update for that year if-- The hospital is in a State in which the aggregate prospective payment system operating payments to these types of hospitals is less than the aggregate prospective payment system operating costs (an overall State negative operating margin) for FY 1995 cost reporting periods; and The hospital itself has a negative operating prospective payment system margin in the payment year. (Section 4401(b)) 2. Hospital Capital Rate Reduction. The Federal capital rate and the hospital-specific rate are reduced by applying the budget neutrality factor [[Page 45968]] that was in effect in FY 1995, which results in a 15.68 percent reduction in the rates. In addition, for FY 1998 through FY 2002, both rates will be reduced an additional 2.1 percent. These reductions together result in an overall reduction of 17.78 percent in the unadjusted rates for the next 5 years. (Section 4402) 3. Disproportionate Share Payments. The DSH payments to hospitals are reduced by 1 percent in FY 1998, 2 percent in FY 1999, 3 percent in FY 2000, 4 percent in FY 2001, and 5 percent in FY 2002. (Section 4403) 4. Outlier Payments. Beginning in FY 1998, IME and DSH payments will be made only on the base DRG payment rates and not on outlier payments. In determining outlier payments, the fixed loss cost outlier threshold will encompass payments for IME and DSH. (Section 4405) 5. Base Payment Rate to Puerto Rico Hospitals. The national share of the Puerto Rico payment rate is increased from 25 to 50 percent. Thus, these hospitals will be paid based on 50 percent of a national payment amount (based on a discharge-weighted average of the large urban and other urban national standardized amounts) and 50 percent of the Puerto Rico payment amount. (Section 4406) 6. Special Reclassification. The Secretary is given discretionary authority to deem Stanly County, North Carolina (a rural county) as a part of the Charlotte-Gastonia-Rock Hill, North Carolina-South Carolina MSA (a large urban area) for purposes of the prospective payment system. (Section 4408) 7. New Guidelines for Geographic Reclassification. Public Law 105- 33 includes several provisions concerning geographic reclassification under section 1886(d)(10) of the Act. For geographic reclassifications for FY 1998 and subsequent years, the Secretary must establish and publish alternative guidelines for a hospital that demonstrates that-- Its average hourly wage is at least 108 percent of the average hourly wage of all other hospitals in its Metropolitan Statistical Area (MSA) (or New England County Metropolitan Area (NECMA)); It pays at least 40 percent of the adjusted uninflated wages in the MSA; and It submitted an application and was approved for reclassification for the wage index for FYs 1992 through 1997. (Section 4409) For reclassifications for FYs 1999, 2000, and 2001, a hospital may seek reclassification to another area for purposes of DSH payment whether or not the standardized amount is the same. (Section 4203(a)) For any hospital that has ever been classified as a rural referral center (RRC), the Medicare Geographic Classification Review Board (MGCRB) may not reject an application for reclassification for purposes of the wage index on the basis of the 108 percent rule. (Section 4202) For any hospital that is owned by a municipality and was reclassified as an urban hospital for FY 1996, the Secretary must exclude the overhead wages and hours associated with a skilled nursing facility that is owned by the hospital and that is physically located apart from the hospital in determining the hospital's average hourly wage for purposes of qualifying for FY 1998 reclassification, if the hospital had previously applied for and been denied reclassification for FY 1998. (Section 4410(c)) 8. Floor on Area Wage Index. Beginning with FY 1998, the wage index for an urban hospital may not be lower than the Statewide area rural wage index. (Section 4410 (a) and (b)) 9. Indirect Medical Education. The IME formula is revised to reduce the IME adjustment factor from 7.7 percent to 7.0 percent in FY 1998, 6.5 percent in FY 1999, 6.0 percent in FY 2000, and 5.5 percent in FY 2001 and subsequent fiscal years. (Section 4621(a)) For cost reporting periods beginning on or after October 1, 1997, the total number of full-time equivalent residents in a hospital's approved medical residency training program in the fields of allopathic medicine and osteopathic medicine is limited to the hospital's full- time equivalent count for the most recent cost reporting period ending on or before December 31, 1996. For cost reporting periods beginning on or after October 1, 1997, a hospital's indirect medical education full- time equivalent count is based on the average full-time equivalent count for the cost reporting period and the preceding two cost reporting periods. For the first cost reporting period beginning on or after October 1, 1997, the average is based on residents in that period and the preceding period. The statute provides for adjustments for short periods and a transition rule for FY 1998. Furthermore, the ratio of residents-to- beds may not exceed the ratio calculated during the prior cost reporting period (after accounting for the cap on the number of resident FTEs). For portions of cost reporting periods occurring on or after January 1, 1998, the Secretary must make payments to teaching hospitals for the indirect costs of graduate medical education associated with Medicare managed care discharges. Payment is equal to the per discharge amount that would have been made for that discharge if the beneficiary were not enrolled in managed care, multiplied by an applicable percentage. The applicable percentage is 20 percent in 1998, 40 percent in 1999, 60 percent in 2000, 80 percent in 2001, and 100 percent in 2002 and subsequent years. 10. Rural Referral Centers. Any hospital classified as an RRC for FY 1991 will be classified as an RRC for FY 1998 and subsequent fiscal years. (Section 4202(b)) 11. Medicare-Dependent, Small Rural Hospitals. The special treatment of MDHs is reinstated for FYs 1998, 1999, and 2000. The payment methodology is identical to the methodology applicable in FY 1993; that is, if the hospital's hospital-specific rate based on 1982 or 1987 costs is higher than the Federal rate, the hospital receives 50 percent of the difference between the Federal rate and the hospital- specific rate. (Section 4204) 12. Reinstatement of the Add-On for Blood Clotting Factor. The add- on payment for blood clotting factor provided to inpatients with hemophilia is permanently reinstated beginning in FY 1998. (Section 4452) 13. Counting Residents for Direct Graduate Medical Education. For cost reporting periods beginning on or after October 1, 1997, the total number of unweighted full-time equivalent residents in a hospital's approved medical residency training program in the fields of allopathic medicine and osteopathic medicine is limited to the hospital's unweighted full-time equivalent count for the most recent cost reporting period ending on or before December 31, 1996. For cost reporting periods beginning on or after October 1, 1997, a hospital's direct medical education full-time equivalent count is based on the average full-time equivalent count for the cost reporting period and the preceding two cost reporting periods. For the first cost reporting period beginning on or after October 1, 1997 the average is based on residents in that period and the preceding period. The statute provides for adjustments for short periods and a transition rule for FY 1998. The Secretary is permitted to prescribe rules that allow institutions that are members of the same affiliated group (as defined by the Secretary) to elect to apply the FTE cap on an aggregate basis. The Secretary must prescribe rules for providing exceptions to the cap for [[Page 45969]] medical residency training programs beginning on or after January 1, 1995. The statute gives the Secretary authority to collect whatever data are necessary to implement these provisions. (Section 4623) 14. Payments to Managed Care Plans for Graduate Medical Education. For portions of cost reporting periods occurring on or after January 1, 1998, the Secretary must make payments to teaching hospitals for the direct costs of graduate medical education associated with Medicare managed care discharges. Payment is equal to the product of the per resident amount, the total number of FTE residents working all areas of the hospital, the fraction of the total number of inpatient bed days that are attributable to Medicare managed care enrollees, and an applicable percentage. The applicable percentage is 20 percent in 1998, 40 percent in 1999, 60 percent in 2000, 80 percent in 2001 and 100 percent in 2002 and subsequent years. (Section 4624) 15. Payment to Nonhospital Providers. For cost reporting periods beginning on or after October 1, 1997, the Secretary may establish rules for payment to qualified nonhospital providers for the direct costs of medical education incurred in the operation of an approved medical residency training program. Qualified nonhospital providers include federally qualified health centers, rural health clinics, Medicare Choice organizations, and any other nonhospital providers that the Secretary determines to be appropriate. The rules established by the Secretary must specify the amounts, form, and manner in which payments will be made and the portion of the payments that will be made from each of the Medicare Trust Funds. The Secretary must reduce the aggregate amount paid to hospitals to the extent payment is made to nonhospital providers for residents included in the hospital's full- time equivalent count. (Section 4625) 16. Payment for Combined Medical Residency Training Programs. The initial residency period for combined programs consisting only of primary care training is the longest of the composite programs plus one additional year. A resident enrolled in a combined medical residency training program that includes an obstetrics and gynecology program qualifies for this special rule if the other programs combined with the obstetrics and gynecology program are for training a resident in primary care. This provision is effective for residency training programs beginning July 1, 1997. (Section 4627) 17. Payment Update for Excluded Hospitals and Hospital Units. For FY 1998, the rate-of-increase limits for excluded hospitals and units will be updated by 0 percent. For FYs 1999 through 2002, the update factor is tied to the relationship between the hospital's target amount and its operating costs. For hospitals with costs exceeding the target amount by 10 percent or more, the update is the market basket percentage increase; if costs exceed the target but by less than 10 percent, the update factor equals the market basket percentage increase minus 0.25 percentage points for each percentage point by which costs are less than 10 percent over the target (but in no case less than 0); if costs are less than or equal to the target but not below \2/3\ of the target amount, the update is the greater of 0 percent or the market basket percentage increase minus 2.5 percentage points; and if costs do not exceed \2/3\ of the target amount, the update factor is 0 percent. (Section 4411) 18. Reductions to Capital Payments. Capital payment amounts for certain excluded hospitals and hospital units are reduced by 15 percent for FYs 1998 through 2002. (Section 4412) 19. Rebasing. A hospital that was excluded from the prospective payment system before 1991 may apply to rebase its target amount for its cost reporting period beginning in FY 1998. The rebased target amount is determined by using the five latest settled cost reporting periods as of August 5, 1997, updating for inflation, excluding the highest and the lowest cost per discharge, and calculating an average for the remaining three. Long-term care hospitals with costs exceeding 115 percent of their target amount and a 70- percent disproportionate patient percentage may elect to use the cost reporting period beginning during FY 1996 as their base year, updated for inflation. (Section 4413) 20. Cap on Target Amounts for Excluded Hospitals and Units. For FYs 1998 through 2002, the target amount will be capped at the 75th percentile of the target amounts for similar facilities for cost reporting periods ending during FY 1996, updated by inflation. This cap applies to psychiatric hospitals and units, rehabilitation hospitals and units, and long-term care hospitals. 21. Bonus and Relief Payments to Excluded Hospitals and Units. Bonus payments to excluded hospitals and units are the lesser of-- 15 percent of the amount by which the ceiling (target amount times Medicare discharges) exceeds the amount of operating costs; or 2 percent of the ceiling. A continuous improvement bonus payment system is established beginning FY 1998 for hospitals with at least 3 full cost reporting periods whose operating costs for the payment period are less than the least of its target amount, its trended costs (as defined by the statute), or its expected costs (as defined by the statute). The bonus under this system equals the lesser of-- 50 percent of the amount by which operating costs are less than expected costs; or 1 percent of the ceiling. Hospitals with costs over 110 percent of their ceiling receive relief payments equal to an additional 50 percent of the amount by which costs exceed 110 percent of the ceiling, not to exceed 10 percent of the ceiling. (Section 4415) 22. Change in Payment and Target Amount for New Providers. Effective October 1, 1997, the new provider exemptions for excluded hospitals are eliminated except for children's hospitals. The amount of payment for a new provider will be the lesser of operating costs for the period, or 110 percent of the national median of the target amount for hospitals in the same class for cost reporting periods ending in FY 1996, wage adjusted and updated by the market basket percentage increase to the fiscal year in which the hospital first received payments. (Section 4416 and 4419) 23. Treatment of Certain Long-Term Care Hospitals. Long-term care hospitals located in the same building or on the same campus as another hospital and that were in existence on September 30, 1995, are grandfathered in as hospitals excluded from the prospective payment system. This amendment applies to discharges occurring on or after October 1, 1995. (Section 4417(a)) A hospital that first received payment in 1986, has an average inpatient length of stay greater than 20 days, and in its 12-month cost reporting period ending in FY 1997, has 80 percent or more of its annual Medicare discharges that reflect a finding of neoplastic disease, is excluded from the prospective payment system as a long-term care hospital. This provision applies to cost reporting periods beginning on or after August 5, 1997. (Section 4417(b)) 24. Treatment of Certain Cancer Hospitals. A hospital recognized as a comprehensive cancer research center by the National Cancer Institute of the National Institutes of Health as of April 20, 1983; located in a State which, as of December 19, 1989, was not operating a demonstration project under section 1814(b); that applied for and was denied classification on or before December 31, 1990; is licensed for less than 50 acute [[Page 45970]] care beds; and demonstrates that at least 50 percent of its total discharge reflects a finding of neoplastic disease for the 4-year period ending December 31, 1996, is excluded from the hospital prospective payment system retroactively to 1991. The legislation includes an option to rebase payments. Retroactive payments must be made by August 5, 1998. (Section 4418) 25. Limited-Service Rural Hospital Program A ``Medicare Rural Hospital Flexibility Program'' is established. This program is a national limited-service hospital program that replaces the existing Essential Access Community Hospital/Rural Primary Care Hospital (EACH/RPCH) program which operates in seven States. The program allows States to designate rural facilities as ``critical access hospitals'' if they are located a sufficient distance from other hospitals, make available 24-hour emergency care, maintain no more than 15 inpatient beds, and keep inpatients no longer than 96 hours (except where weather or emergency conditions dictate, or a Peer Review Organization waives the limit). In addition, critical access hospitals do not have to meet all of the staffing requirements that apply to hospitals under Medicare. Payment for inpatient and outpatient services under this program is on the basis of reasonable cost. States may receive grants for program activities, and are authorized to provide for the creation of networks, which include at least one critical access hospital and at least one acute care hospital. Critical access hospitals with swing-bed agreements are allowed to have up to 25 inpatient beds and to furnish both acute (hospital-level) and SNF-level care, provided that no more than 15 of those beds are used at any one time for acute care. Existing RPCHs, otherwise eligible as CAHs, and existing medical assistance facilities (MAFs) participating under the MAF demonstration project in Montana, will be deemed as CAHs. Existing EACHs in rural areas will continue to be paid as sole community hospitals but no new EACHs will be designated. (Section 4201) 26. Change in Publication Dates. Beginning with the FY 1999 update, the DRG prospective payment rate methodology and the recommended hospital prospective payment updates must be published as a proposed rule by April 1 and as a final rule by August 1 of each year. (Section 4644 (a)(1) and (b)(1)) As a conforming change, the deadline for applications for geographic reclassification for years beginning with FY 2000 is moved from October 1 to September 1. Because the FY 1999 applications are due on October 1, 1997, the Secretary is directed to shorten the deadlines for MGCRB decision making, so that a final decision for all applications is made by June 15, 1998. (Section 4644(c)) Each of these provisions and the changes to the regulations necessary to implement these provisions are described in greater detail in sections III, IV, V, and VI of this preamble. II. Changes to DRG Classifications and Relative Weights A. Background Under the prospective payment system, we pay for inpatient hospital services on the basis of a rate per discharge that varies by the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case takes an individual hospital's payment rate per case and multiplies it by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG relative to the average resources used to treat cases in all DRGs. Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources. The changes to the DRG classification system and the recalibration of the DRG weights for discharges occurring on or after October 1, 1997 are discussed below. B. DRG Reclassification 1. General Cases are classified into DRGs for payment under the prospective payment system based on the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay, as well as age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the International Classification of Diseases, Ninth Edition, Clinical Modification (ICD-9-CM). The Medicare fiscal intermediary enters the information into its claims system and subjects it to a series of automated screens called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before classification into a DRG can be accomplished. After screening through the MCE and any further development of the claims, cases are classified by the GROUPER software program into the appropriate DRG. The GROUPER program was developed as a means of classifying each case into a DRG on the basis of the diagnosis and procedure codes and demographic information (that is, sex, age, and discharge status). It is used both to classify past cases in order to measure relative hospital resource consumption to establish the DRG weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file. The data in this file are used to evaluate possible DRG classification changes and to recalibrate the DRG weights. Currently, cases are assigned to one of 492 DRGs in 25 major diagnostic categories (MDCs). Most MDCs are based on a particular organ system of the body (for example, MDC 6, Diseases and Disorders of the Digestive System); however, some MDCs are not constructed on this basis since they involve multiple organ systems (for example, MDC 22, Burns). In general, principal diagnosis determines MDC assignment. However, there are five DRGs to which cases are assigned on the basis of procedure codes rather than first assigning them to an MDC based on the principal diagnosis. These are the DRGs for liver, bone marrow, and lung transplant (DRGs 480, 481, and 495, respectively) and the two DRGs for tracheostomies (DRGs 482 and 483). Cases are assigned to these DRGs before classification to an MDC. Within most MDCs, cases are then divided into surgical DRGs (based on a surgical hierarchy that orders individual procedures or groups of procedures by resource intensity) and medical DRGs. Medical DRGs generally are differentiated on the basis of diagnosis and age. Some surgical and medical DRGs are further differentiated based on the presence or absence of complications or comorbidities (hereafter CC). Generally, GROUPER does not consider other procedures; that is, nonsurgical procedures or minor surgical procedures generally not performed in an operating room are not listed as operating room (OR) procedures in the GROUPER decision tables. However, there are a few non-OR procedures that do affect DRG [[Page 45971]] assignment for certain principal diagnoses, such as extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones. We proposed several changes to the DRG classification system for FY 1998. The proposed changes, the comments we received concerning them, our responses to those comments, and the final DRG changes are set forth below. 2. MDC 1 (Diseases and Disorders of the Nervous System) a. Stereotactic Radiosurgery Effective October 1, 1995, procedure code 92.3 (stereotactic radiosurgery) was created and classified as a non-OR procedure. However, because this procedure had previously been coded to procedure codes that are classified as operating room procedures, we assigned procedure code 92.3 to the same surgical DRGs as the predecessor codes. Therefore, in the following DRGs, stereotactic radiosurgery is considered a non-OR procedure that affects DRG assignment: in MDC 1, DRG 1 (Craniotomy Age >17 Except for Trauma), DRG 2 (Craniotomy for Trauma Age >17), and DRG 3 (Craniotomy Age 0-17) and, in MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders), DRG 286 (Adrenal and Pituitary Procedures). In addition, in MDC 17 (Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms), procedure code 92.3 is considered a major OR procedure for purposes of assignment to DRG 400 (Lymphoma and Leukemia with Major OR Procedure) and DRGs 406 and 407 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Major OR Procedure).1 We stated in the June 2, 1995 proposed rule (60 FR 29207) that we would analyze the stereotactic radiosurgery cases as soon as the FY 1996 cases were available to ensure that these DRG assignments were appropriate. --------------------------------------------------------------------------- \1\ A single title combined with two DRG numbers is used to signify pairs. Generally, the first DRG is for cases with CC and the second DRG is for cases without CC. If a third number is included, it represents cases of patients who are age 0-17. Occasionally, a pair of DRGs is split on age >17 and age 0-17. --------------------------------------------------------------------------- In analyzing the FY 1996 MedPAR file, we found that there were stereotactic radiosurgery cases assigned to DRGs 1, 286, 400, and 407. In DRG 1, the average standardized charges for these cases are approximately $16,400 compared to approximately $27,800 for DRG 1 overall and the lengths of stay are about 3 days and 10 days, respectively. In DRG 286, the average charges for procedure code 92.3 are also much lower than all cases in that DRG, about $11,900 versus $19,400. Again the length of stay is also much lower for stereotactic radiosurgery, just over 1 day compared to almost 7 days for all DRG 286 cases. Because the cases associated with procedure code 92.3 clearly are much less resource-intensive than the other cases in the DRGs to which it is assigned, we proposed to reassign procedure code 92.3 to DRGs 7 and 8 (Peripheral and Cranial Nerve and Other Nervous System Procedures) in MDC 1 and DRGs 292 and 293 (Other Endocrine, Nutrition and Metabolic OR Procedures) in MDC 10. We also proposed to remove procedure code 92.3 from the list of major OR procedures in MDC 17. Therefore, these cases would be assigned to DRGs 401 and 402 (Lymphoma and Non-Acute Leukemia with Other OR Procedure) and DRG 408 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Other OR Procedure). We received over 130 comments regarding our proposal to move procedure code 92.3, including many from people who underwent radiosurgery. Three commenters supported the proposal. One commenter concurred that a revision of the DRG assignment and payment level for radiosurgery is appropriate, but suggested that any change be delayed until further analysis of industry data has been conducted. The remaining commenters opposed our proposal and strongly recommended that stereotactic radiosurgery cases continue to be assigned to DRG 1, or if a change must be made, these cases should be assigned to their own DRG with an appropriate relative weight. The specific comments we received are discussed below. Comment: Many commenters stated that stereotactic radiosurgery is cost effective and is less expensive (by approximately \1/3\) than open cranial surgery. The commenters were concerned that this proposal would result in a 40 percent reduction in payment for these cases. Response: Currently, stereotactic radiosurgery is being paid at the same level as open cranial surgery, as the commenter noted. We believe these comments support our decision to move the radiosurgery cases into a DRG with cases of comparable utilization of resources, rather than group them with open surgery procedures, which involve much greater resource use. Our intent is not to discourage the utilization of this advanced technology nor to reduce payment arbitrarily, but to make appropriate payment for the procedure by assigning it to a DRG with similar resource use. Comment: There are several different approaches being used in stereotactic radiosurgery. The two most prevalent are the gamma knife and the linear accelerator. Some commenters believe that we should be analyzing these cases separately and possibly making different DRG assignments for them. Other commenters urged us not to distinguish between approaches in radiosurgery, and one of these commenters submitted data to demonstrate that there is no difference in patient outcomes and that the different types of approach are clinically similar. Response: Effective October 1, 1995, a new ICD-9-CM procedure code was created to capture stereotactic radiosurgery. The new code 92.3 (Stereotactic radiosurgery) encompasses both gamma knife and linear accelerator procedures. This topic was addressed at a public meeting of the ICD-9-CM Coordination and Maintenance Committee in 1994 at which representatives from the radiosurgery industry were in attendance. Comments were accepted at the meeting and attendees were also invited to submit written comments. At that time, we did not receive any negative comments regarding the inclusion of all approaches to radiosurgery in one code. Therefore, with only one code, we are unable to distinguish the radiosurgery cases based on different approaches. We note that one difference between the approaches is the initial capital costs of the equipment. However, now that capital payments are made to hospitals under a prospective payment system, there is no way for us to specifically recognize these different costs. Comment: Several commenters stated that because most radiosurgery patients do not have complicating conditions, which are necessary to be assigned to DRG 7, most cases will be assigned to DRG 8 and receive the lower relative weight associated with less complicated cases. In any event, the commenters believe that the payment for DRGs 7 and 8 is less than the costs of providing the treatment. One commenter stated that the average payment for radiosurgery cases assigned to DRG 1 in FY 1996 was $11,876.28, while payment for DRGs 7 and 8 in the same year averaged $9,973.13 and $4,547.64, respectively. Therefore, this proposal could reduce hospital payment for the average Medicare radiosurgery cases in DRG 1 by as much as 62 percent. Response: We have performed an analysis of the full FY 1996 MedPAR file, updated through June 1997. Of the 1,275 cases coded with procedure 93.2, 966 cases would have been assigned to [[Page 45972]] DRGs 7 and 8 under our proposal. Of those 966 cases, 406 classify to DRG 7 and 560 cases classify to DRG 8. The average charges of these reassigned cases are approximately $16,300 for DRG 7 and $13,700 for DRG 8. The average standardized charges for DRG 7 and 8 overall are approximately $20,250 and $9,950, respectively. Thus, the average charges for radiosurgery cases assigned to DRG 7 (just over 40 percent of the total) are approximately $4,000 less than the overall cases assigned to that DRG and the average charges for the cases assigned to DRG 8 are approximately $4,000 more than the overall cases. Therefore, given a similar distribution at any hospital, the payments for the DRG 7 and 8 cases should come close to balancing out; that is, DRG 7 will result in payments in excess of costs and DRG 8 will result in approximately equal numbers of cases with costs in excess of payments. This is consistent with the design of the prospective payment system, which is intended to make an average, predetermined payment for each case that encourages hospitals to provide care efficiently and economically and treat a mix of patients so that cases incurring payments in excess of costs are balanced by cases incurring costs in excess of payments. The difference between assignment to DRG 7 and DRG 8 is the documentation of complications resulting from treatment or comorbidities that are present upon admission and may affect treatment. Examples of these secondary diagnoses that, in fact, many of the patients who commented reported having are postoperative nausea (which may prolong the patient's stay), diabetes, congestive heart failure, and emphysema. In fact, commenters stated that one of the advantages of radiosurgery over open surgery is that it can be performed on patients with comorbidities who could not otherwise tolerate surgery for their conditions. We also note that DRGs 1 and 2 are not split on the basis of CCs; rather, they are assigned based on whether the case is or is not a trauma case. Therefore, hospitals might not have coded secondary diagnoses for radiosurgery cases. Nonetheless, over 40 percent of the reassigned cases in our analysis have CCs included on the bill. We believe this will remain true in FY 1998 and the percentage may even increase now that properly coding CCs will affect the amount of payment. In response to the commenter concerned about the low payment for DRGs 7 and 8, we note that, based on the MedPAR file, the average payment for radiosurgery cases assigned to DRG 1 in FY 1996 was approximately $16,000. If those cases had been assigned to DRGs 7 and 8 in that year, we estimate that the average payment would have been approximately $14,000 and $8,000, respectively. Thus, on average, payment for radiosurgery cases will be reduced by approximately 30 percent. This is consistent with commenter's assertion that this procedure costs approximately one-third less than an open cranial procedure. Comment: Commenters suggested that instead of continuing to assign radiosurgery cases to DRG 1, it would be acceptable to assign these cases to their own DRG and assign a weight of approximately 3.0. Response: As we have stated in several previous documents, including the June 2 proposed rule (in connection with the discussion of automatic implantable cardioverter defibrillators (62 FR 29906)), we are reluctant to create device-specific DRGs where the cost of the device dominates the charges. Creating a separate DRG for radiosurgery, where the costs of the device used to perform the procedure dominates the charges, would be a similar issue. With such a procedure-specific DRG, it would be relatively easy for hospitals and manufacturers of the equipment to raise the charges for the cases until they create a relative weight that consistently pays them more than their costs. We believe that the resource consumption associated with cases in DRGs 7 and 8 is similar to that required by radiosurgery cases. However, we will continue to monitor this technology to ensure that these DRGs remain appropriate assignments. Comment: Several commenters believe that the relatively low charges of the radiosurgery cases result, in part, from incorrect use of procedure code 92.3. These commenters requested that we either wait until these issues are resolved to make a DRG change or that we adjust the cases in the MedPAR file based on industry data. Response: It is often the case with a new code, whether diagnosis or procedure, that there is a period of time necessary to gain experience and correctly use the code. We did notice some coding discrepancies when we reviewed the radiosurgery cases. However, these discrepancies are not in the cases that are assigned to DRGs 7 and 8, but rather the cases that remain assigned to DRG 1. We note that coders appear to be including improperly the approach to the radiosurgery procedure, such as coding thalamotomy and pallidotomy separately in addition to the stereotactic radiosurgery code. In addition, the coding of some cases has included codes that represent the result of the radiosurgery, that is, the destruction of the lesion of the brain. Again this is an improper coding practice. Both of these coding practices result in radiosurgery cases being assigned to DRG 1. We will continue to monitor these cases to ensure that our decision to reassign radiosurgery to DRGs 7 and 8 remains appropriate. We will also work with the industry concerning the possibility of assigning separate ICD-9-CM codes to the different types of radiosurgery. b. Sleep Apnea In our August 30, 1996 final rule (61 FR 46168), we discussed our review of the DRG assignment of cases in which surgery is performed to correct obstructive sleep apnea (diagnosis code 780.57). When coded as the principal diagnosis, sleep apnea is assigned to DRGs 34 and 35 (Other Disorders of the Nervous System) in MDC 1. The result of our review was to assign several surgical procedures used to correct sleep apnea to DRGs 7 and 8 (Peripheral and Cranial Nerve and Other Nervous System Procedures). These procedures involved repair of the palate or pharynx (procedure codes 27.69, 29.4, and 29.59). Previously, since none of these surgical procedures had been assigned to MDC 1, cases of sleep apnea treated with one of these procedures had been assigned to DRG 468 (Extensive OR Procedure Unrelated to Principal Diagnosis) or DRG 477 (Nonextensive OR Procedure Unrelated to Principal Diagnosis). An associated procedure that is also used to treat sleep apnea is correction of cleft palate (procedure code 27.62). Currently, correction of cleft palate is assigned only to DRG 52 (Cleft Lip and Palate Repair) in MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat). Thus, when this procedure is performed for sleep apnea cases, the cases would be assigned to DRG 468. We proposed to add this surgical procedure to MDC 1. Like the palate and pharynx repair procedures that were addressed last year, these cases are not clinically similar to the other surgical DRGs in MDC 1; thus, we proposed to include them in DRGs 7 and 8. Comment: We received three comments on this proposal. One commenter supported the change; another registered no objection but pointed out that the proposed rule stated procedure code 27.62 is currently assigned to DRG 477 (Nonextensive OR Procedure Unrelated to Principal Diagnosis) when the principal diagnosis [[Page 45973]] is sleep apnea. The commenter noted that under the current DRG groupings, such a case would actually be assigned to DRG 468. The final commenter stated that if a patient is admitted for cleft palate repair, the principal diagnosis likely would be cleft palate (diagnosis code 749.xx) even if sleep apnea is also present, presumably resulting in assignment to DRG 52. This commenter suggested that if cleft palate repair is performed infrequently in conjunction with a principal diagnosis of obstructive sleep apnea, it would be unnecessary to reassign these cases to DRGs 7 and 8. Response: In the proposed rule, we inadvertently stated that sleep apnea cases involving the correction of cleft palate currently would be assigned to DRG 477. The commenter is correct that such cases are currently assigned to DRG 468. Although a patient admitted for cleft palate repair would more likely have a principal diagnosis of cleft palate than of sleep apnea, cases do occur in which obstructive sleep apnea is the documented reason for the surgery. Our rationale for the proposed change is based not on the frequency of the cases but on whether or not these cases are appropriately assigned to DRG 468, which by definition should encompass only cases involving unrelated operating room procedures. Because we believe that cleft palate repair is related to obstructive sleep apnea, it would be inappropriate to continue to assign these cases to DRG 468; the better policy is to assign the procedure to DRGs 7 and 8 in MDC 1. Therefore, we are adopting this change in this final rule. c. Geniculate Herpes Zoster Geniculate herpes zoster (diagnosis code 053.11) is an acute viral disease characterized by inflammation of spinal ganglia and by a vesicular eruption along the area of distribution of a sensory nerve. In the August 30, 1996 final rule (61 FR 27447), we moved diagnosis codes 053.10 and 053.19 (herpes zoster with unspecified nervous system complication and other herpes zoster, respectively) from DRG 20 (Nervous System Infection Except Viral Meningitis) to DRGs 18 and 19 (Cranial and Peripheral Nerve Disorders). We considered moving diagnosis code 053.11 at that time, however, the higher average charges associated with geniculate herpes zoster and slightly higher length of stay led us to decide instead to leave 053.11 in DRG 20 and to reassess this decision in upcoming years. For the proposed rule, we conducted an analysis of the cases assigned to DRG 20 using the FY 1996 MedPAR file. The average standardized charges for these cases were approximately $8,430, significantly lower than the average charges for the DRG of approximately $21,180. The average length of stay for the geniculate herpes zoster cases, approximately 6 days, was also less than the average length of stay for DRG 20 of approximately 10 days. Based on these data, we proposed to reassign diagnosis code 053.11 to DRGs 18 and 19, which have average charges of approximately $8,460 and $5,460, respectively. The average length of stay for DRGs 18 and 19 was approximately 6 days and 4 days, respectively. We received two comments supporting this change and we are including it in the final DRG changes. 3. MDC 5 (Diseases and Disorders of the Circulatory System) a. Heart Assist Devices In November 1995, we amended our general noncoverage decision concerning artificial hearts and related devices. Section 65-15 of the Medicare Coverage Issues manual was revised to allow coverage of the HeartMate Implantable Pneumatic Left Ventricular Assist System (HeartMate IP LVAS) in accordance with its Food and Drug Administration (FDA)- approved use as a temporary mechanical circulation support in nonreversible left ventricular failure as a bridge to cardiac transplant. In order to receive Medicare coverage, all of the following conditions must be met: The patient is listed as an approved heart transplant candidate by a Medicare-approved heart transplant center. The implantation of the system is done in a Medicare- approved heart transplant center. Written permission from the listing center is needed if the patient has the implantation done at another Medicare-approved center. The patient is on inotropes. The patient is on an intra-aortic balloon pump (if possible). The patient has left atrial pressure or pulmonary capillary wedge pressure 20mm Hg with either-- --Systolic blood pressure 80 mm Hg; or --Cardiac index of 2.0 1/min/m\2\. A procedure code for implant of an implantable, pulsatile heart assist system (37.66), which includes the HeartMate IP LVAS, was created effective October 1, 1995. At that time, the procedure code was assigned to DRGs 110 and 111 (Major Cardiovascular Procedures). In the proposed rule, we presented our analysis of a full year of cases coded with this procedure (FY 1996 MedPAR file, December update) to determine if this DRG assignment remained appropriate. In the full (100 percent) FY 1996 MedPAR file, there were 51 cases of implant of an internal heart assist system (procedure code 37.66) in MDC 5. Of these 51 cases, 18 were assigned to DRG 110 and none to DRG 111. The other 33 cases were assigned to DRG 103 (Heart Transplant), DRG 104 (Cardiac Valve Procedures with Cardiac Cath), DRGs 106 and 107 (Coronary Bypass), and DRG 108 (Other Cardiothoracic Procedures). Of the 18 cases assigned to DRG 110, the average charge was about $96,000 and the average length of stay was 22.5 days. The average charges for all cases assigned to DRG 110 was about $36,500 and the average length of stay was 10.1 days. Thus, the cases coded with procedure code 37.66 are much more resource-intensive than the other cases assigned to DRG 110. In reviewing the other surgical DRGs in MDC 5 for possible reassignment of this procedure, we identified two DRGs that contained cases clinically similar to implant of heart assist device cases: DRG 103 and DRG 108. For FY 1996, the average charge of cases in DRG 103 was approximately $164,000 and the length of stay was 46 days. For DRG 108, these statistics were about $54,000 and 12.1 days. Thus, the average charge for DRG 103 was approximately $68,000 higher than the average charge of the heart assist device cases and the average charge for DRG 108 was approximately $42,000 lower. Because our general policy is to assign a procedure code to a DRG with clinically similar cases that is the best match in terms of resource use, we proposed to assign procedure code 37.66 to DRG 108. Comment: We received two comments supporting this proposal. However, several other commenters believe that the only solution that would be appropriate is to assign procedure code 37.66 either to DRG 103 or to its own DRG. In support of this comment, they cite the very high resource utilization associated with the procedure. In addition, one commenter believed that failure to revise our proposal could limit Medicare beneficiaries' access to this procedure. Response: As noted in the proposed rule, although reassignment of these cases to DRG 108 does not place them in a DRG with identical resource use, it is the best alternative we have at this time. As we discuss above in section II.B.2.a. of this preamble concerning radiosurgery, it has not been our [[Page 45974]] practice to create device-specific DRGs. Assignment of these cases to DRG 103 would be no more appropriate in terms of resource use than reassignment to DRG 108. In addition, we believe that only transplant cases should be assigned to that DRG. We will continue to monitor these cases in future years. We are also contemplating the feasibility of conducting a comprehensive review of the current surgical DRGs in MDC 5. We last did this effective for FY 1991. Because there have been so many changes in approach to heart surgery in the past few years as well as the development of new devices and techniques, we believe such a review could help realign these cases in terms of both clinical and resource use homogeneity. With regard to the statement that failure to revise our proposal could result in denial of heart assist devices to Medicare beneficiaries, we note, as we have in many previous documents, that it is a violation of a hospitals Medicare provider agreement to place restrictions on the number of Medicare beneficiaries it accepts for treatment unless it places the same restrictions on all other patients. We also note that, effective May 5, 1997, the coverage instructions concerning heart assist devices were revised to delete the specific product names and the hemodynamic criteria (Transmittal No. 94; April 1997). As revised, section 65-15 of the Medicare Coverage Issues Manual allows coverage of a ventricular assist device used for support of blood circulation postcardiotomy if the device has received approval from the FDA for that purpose and the device is used according to FDA- approved labeling instructions or as a bridge to heart transplant if all of the following conditions are met: The device is used as a temporary mechanical circulatory support as a bridge to cardiac transplant. The patient is listed as an approved heart transplant candidate by a Medicare-approved heart transplant center. The implantation of the system is done in a Medicare- approved heart transplant center. If the patient is listed with another center, written permission is needed from that center. b. Automatic Implantable Cardioverter Defibrillators (AICD) For several years, we have received correspondence concerning the appropriate DRG assignment of procedures involving automatic implantable cardioverter defibrillators (AICDs). These cases are currently assigned to DRG 116 (Other Permanent Cardiac Pacemaker Implant or AICD Generator or Lead Procedure), and are represented by the following procedure codes: 37.95 Implantation of automatic cardioverter/defibrillator lead(s) only 37.96 Implantation of automatic cardioverter/defibrillator pulse generator only 37.97 Replacement of automatic cardioverter/defibrillator lead(s) only 37.98 Replacement of automatic cardioverter/defibrillator pulse generator only As explained in detail in the September 1, 1992 final rule (57 FR 39749), the clinical composition and relative weights of the surgical DRGs in MDC 5 do not offer a perfect match with the AICD cases. However, review of those DRGs in terms of clinical coherence and similar resource consumption led to the determination that DRG 116 was the best possible fit. In that document, we stated that we would continue to monitor these cases. We last discussed this issue in the September 1, 1995 final rule (60 FR 45780). At that time, we concluded that, although the average charge for AICD cases was much higher than the average charge for DRG 116 overall, the AICD cases were clinically similar to the DRG 116 cases and should not be moved. In addition, a slight decrease in the average charge for the cases between the FY 1993 and FY 1994 MedPAR files led us to believe further reductions might be forthcoming since there were new AICD devices entering the market that might lead to increased price competition. For the proposed rule, we reviewed the most current AICD cases as contained in the FY 1996 MedPAR file and found that the average standardized charge for AICD cases assigned to DRG 116 was $28,777 compared to an average charge of $21,330 for all cases in DRG 116. Because the average charge for AICD cases continued to be much higher than the average charge for all other DRG 116 cases, we proposed to move them to DRG 115 (Permanent Cardiac Pacemaker Implantation with AMI, Heart Failure or Shock). We also proposed to revise the title of DRG 115 to ``Permanent Cardiac Pacemaker Implant with AMI, Heart Failure or Shock or AICD Lead or Generator Procedure.'' We received several comments commending us on this decision and we are adopting it as final. c. Coronary Artery Stent Effective October 1, 1995, procedure code 36.06 (Insertion of coronary artery stent(s)) was introduced. As dictated by our longstanding practice, we assigned this code to the same DRG category as its predecessor codes. Therefore, procedure code 36.06 was assigned to DRG 112 (Percutaneous Cardiovascular Procedures), as insertion of a stent is usually performed in conjunction with percutaneous transluminal coronary angioplasty (PTCA). We discussed this assignment and public comments we received in both the September 1, 1995 final rule (60 FR 45785) and the August 30, 1996 final rule (61 FR 46171). We stated that we would review the stent cases as soon as the FY 1996 MedPAR file was available, as these would be the first Medicare data available for these cases. As discussed in the proposed rule, our analysis of the FY 1996 MedPAR data on coronary stent implantation in Medicare beneficiaries revealed the following: The difference between the average length of stay for the stent cases and the nonstent cases was 0.19 days (4.39 days versus 4.20 days). Charges for patients receiving a stent were approximately $23,650, while charges for patients without stent implant were approximately $17,480, for a difference of $6,170. Of those beneficiaries who had a PTCA procedure in FY 1996, approximately 34 percent received a stent. Based on the significant variation in hospital charges between stent and nonstent cases in DRG 112, we proposed to move these cases out of that DRG. Although the coronary artery stent cases are not clinically similar to the pacemaker cases in DRG 116, the resource consumption of those cases is very similar. Therefore, absent any other appropriate DRG, we proposed to add to DRG 116 those cases including procedure codes for PTCA in combination with insertion of coronary stent. Specifically, we proposed to move into DRG 116 the following procedure codes when performed in conjunction with procedure code 36.06: 35.96 Percutaneous valvuloplasty 36.01 Single vessel percutaneous transluminal coronary angioplasty [PTCA] or coronary atherectomy without mention of thrombolytic agent 36.02 Single vessel percutaneous transluminal coronary angioplasty [PTCA] or coronary atherectomy with mention of thrombolytic agent 36.05 Multiple vessel percutaneous transluminal coronary angioplasty [PTCA] or coronary atherectomy performed during the same operation, with or without mention of thrombolytic agent [[Page 45975]] 36.09 Other removal of coronary artery obstruction 37.34 Catheter ablation of lesion or tissues of the heart We also proposed to change the title of DRG 116 to ``Other Permanent Cardiac Pacemaker Implant or PTCA with Coronary Artery Stent Implant.'' Comment: We received many comments in support of this move. Commenters cited increased payment for use of coronary stenting in appropriate patients as a rational response to an economic dilemma. One commenter requested that consideration be given to increased payment for the cost of the stents themselves within DRG 116 for those cases in which multiple stents are implanted in the same operative episode. Response: We appreciate the positive responses generated by this proposal. With regard to the request for modification of DRG 116 to take into account the use of more than one stent per patient, we would remind the commenter that one of the parameters of the prospective payment system is predetermined, identical payments for each discharge in a DRG. To arbitrarily begin to increase payment based on the number of stents used in a procedure would undermine the system. We will continue to monitor the stent cases and the assignment to DRG 116. If PTCA cases with stent become a higher percentage of the PTCA cases or the average charge for stent cases falls, we may reconsider this assignment. Comment: There were several commenters who, while supporting the proposal to increase increasing stent payment, also chided us for our lack of foresight in neglecting to consider new drug therapies in conjunction with PTCA. The pharmaceutical referenced in these comments is a category of drugs called glycoprotein (GP) IIb/IIIa inhibitors, which act to reduce platelet aggregation, thereby reducing death rate, recurrent heart attack, and further surgery. Commenters suggested that HCFA take immediate steps to establish a procedure code describing infusion of GPIIb/IIIa therapy. They further suggested that if the agency's required lead time for revising an existing ICD-9-CM code, or creating a new code for platelet inhibitor therapy, precluded a new code from being effective this October 1, then HCFA should create a temporary code that hospitals could use until a new ICD-9-CM code could become effective. It was suggested that such a temporary code would allow the reclassification of angioplasty with GPIIb/IIIa usage into DRG 116 to be effective October 1, 1997. Response: We appreciate the suggestion that the category of GPIIb/ IIIa platelet inhibitor drugs be uniquely identified in the ICD-9-CM coding system, but would also note that a write-in campaign during a proposed rule comment period does not permit us to respond to this request in a responsible manner. To quickly produce a temporary code would be the equivalent of producing a permanent code, but would not include due process in order to make it a meaningful addition to the ICD-9-CM coding system. We would point out that, effective October 1, 1986, code 36.04 (intracoronary artery thrombolytic infusion) was added to the procedure coding system based on a proposal made by a major pharmaceutical company. As we rely heavily on information from the public to make the ICD-9-CM coding system responsive to the coding needs of the hospital industry, we anticipated that the guidance, language, and suggestions received from this pharmaceutical company were current and timely. In the interim, there has been no public protest or demand for an ICD-9-CM platelet inhibitor therapy code that would better meet the needs of the industry. In retrospect, we regret that we integrated this code as it does not appear to have been an appropriate addition to the coding system. We will work with the drug and hospital industry representatives to provide us with more insight and better language as we bring the topic of platelet inhibitors before the ICD-9-CM Coordination and Maintenance Committee on December 4, 1997. We would anticipate, therefore, having an appropriate code describing GPIIb/IIIa drug therapy early next year. This code would be effective for discharges on or after October 1, 1998. d. Circulatory Disorders (DRGs 121 and 122) In response to a comment on the May 31, 1996 proposed rule, we stated in the August 30, 1996 final rule (61 FR 46172) that we would conduct a comprehensive review of cases currently assigned to DRG 121 (Circulatory Disorders with Acute Myocardial Infarction (AMI) and Cardiovascular Complications, Discharged Alive) and DRG 122 (Circulatory Disorders with AMI without Cardiovascular Complications, Discharged Alive) to determine whether changes were needed to the list of complicating conditions that can result in assignment to DRG 121. Accordingly, for the FY 1998 proposed rule, we analyzed the cases in the FY 1996 MedPAR file that were assigned to either DRG 121 or 122. Through a variety of statistical analyses of length of stay and standardized charge data, we assessed the impact on resource use of all coded secondary diagnoses. Our analysis of these secondary diagnosis codes revealed many cases now assigned to DRG 122 in which certain secondary diagnoses are associated with resource use comparable to cases assigned to DRG 121. Although many of these cases involve secondary diagnoses that are not strictly cardiovascular in nature, such as diagnosis code category 482 (other bacterial pneumonia), we now believe that it is appropriate to expand DRG 121 to include such major complications when they are represented in significant volume among the cases in the DRG. Continuing to limit DRG 121 only to cases involving the existing list of cardiovascular complications would contribute to large variations in the charges and lengths of stay for cases in DRG 122. Therefore, we proposed to change the title of DRG 121 to ``Circulatory Disorders with AMI and Major Complications, Discharged Alive,'' and to add the following diagnosis codes to the list of complications that would produce assignment to DRG 121 when present in conjunction with the existing list of AMI diagnoses: 398.91 Rheumatic heart failure 416.0 Primary pulmonary hypertension 430 Subarachnoid hemorrhage 431 Intracerebral hemorrhage 432.0 Nontraumatic extradural hemorrhage 432.1 Subdural hemorrhage 432.9 Unspecified intracranial hemorrhage 433.01 Occluded basilar artery with cerebral infarction 433.11 Occluded carotid artery with cerebral infarction 433.21 Occluded vertebral artery with cerebral infarction 433.31 Occluded multiple and bilateral artery with cerebral infarction 433.81 Occluded specified precerebral artery with cerebral infarction 433.91 Occluded precerebral artery NOS with cerebral infarction 434.00 Cerebral thrombosis 434.01 Cerebral thrombosis with cerebral infarction 434.10 Cerebral embolism 434.11 Cerebral embolism with cerebral infarction 434.90 Cerebral artery occlusion 434.91 Cerebral artery occlusion with cerebral infarction 436 Acute, but ill-defined, cerebrovascular disease [[Page 45976]] 481 Pneumococcal pneumonia 482.xx Other bacterial pneumonia (all 4th and 5th digits) 483.x Pneumonia due to other specified organism (all 4th digits) 484.x Pneumonia in infectious diseases classified elsewhere (all 4th digits) 485 Bronchopneumonia, organism unspecified 486 Pneumonia, organism unspecified 487.0 Influenza with pneumonia 507.x Pneumonitis due to solids and liquids (all 4th digits) 518.0 Pulmonary collapse 518.5 Pulmonary insufficiency following trauma and surgery 518.81 Respiratory failure 707.0 Decubitus ulcer 996.62 Infection and inflammatory reaction due to other vascular device, implant, and graft 996.72 Other complications due to other cardiac device, implant, and graft We note that, in conjunction with the proposed changes, we also proposed to revise the title of DRG 122 to read ``Circulatory Disorders with AMI without Major Complications, Discharged Alive.'' We received four comments fully supporting these proposed changes and are including them in the final DRG changes. 4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue) a. Introduction As discussed in detail below, we proposed to create several new DRGs in MDC 8 effective for discharges on or after October 1, 1997. Specifically, we proposed to replace current DRGs 214 and 215 (Back and Neck Procedures) with the following new DRGs: DRG 496 Combined Anterior/Posterior Spinal Fusion DRG 497 Spinal Fusion with CC DRG 498 Spinal Fusion without CC DRG 499 Back and Neck Procedures Except Spinal Fusion with CC DRG 500 Back and Neck Procedures Except Spinal Fusion without CC In addition, we proposed to replace existing DRGs 221 and 222 (Knee Procedures) with new DRGs 501 and 502 (Knee Procedures with Principal Diagnosis of Infection) and DRG 503 (Knee Procedures without Principal Diagnosis of Infection). b. Back and Neck Procedures Currently, hospital inpatient cases involving back and neck procedures generally are assigned to DRGs 214 and 215 (assuming a principal diagnosis that groups the case to MDC 8). We have received correspondence indicating that within these DRGs, cases involving spinal fusion procedures represent a distinctly more complex and resource-intensive subset, and that payment under DRGs 214 and 215 is inadequate to cover the costs of treating patients that require spinal fusion. Therefore, for the proposed rule we conducted an analysis of the cases assigned to DRGs 214 and 215 using the FY 1996 MedPAR file. Within our sample, cases involving fusion procedures (procedure codes 81.00-81.09) constituted approximately 35 percent of cases in DRG 214 (Back and Neck Procedures with CC) and 23 percent of those in DRG 215 (Back and Neck Procedures without CC). In DRG 214, the average standardized charges for the fusion cases were nearly double the charges of the nonfusion cases (approximately $25,300 versus $12,900). There were also significant differences in charges in DRG 215--$14,400 for fusion cases and $8,500 for nonfusion cases. Lengths of stay for fusion cases were also longer, although not dramatically so--7.1 days for fusion cases versus 5.4 days for other cases in DRG 214, and 3.8 days versus 3.1 days in DRG 215. In view of the volume of cases involved and the clear differences in resource use, we concluded that it would be appropriate to create additional DRGs to separate spinal fusion cases from the other back and neck procedures. Next, we expanded our analysis to determine whether it would be appropriate to subdivide the spinal fusion cases according to whether both anterior and posterior spinal fusion were performed. This combination of procedures, which involves fusing both the front and rear of the vertebrae, typically is performed on patients who have had previous fusions that have not bonded effectively or who have several vertebrae that need extensive fusion on both sides of the spine. As the table below illustrates, the average charges and lengths of stay for the cases involving both anterior and posterior spinal fusion were markedly greater than for the other spinal fusion cases in either DRG 214 or 215. ------------------------------------------------------------------------ Average length Type of case Avg. of stay charges (in days) ------------------------------------------------------------------------ Anterior and posterior spinal fusion................ $51,200 12.3 DRG 214--Other spinal fusion........................ 24,300 6.9 DRG 215--Other spinal fusion........................ 14,300 3.8 ------------------------------------------------------------------------ Even though the cases in which both anterior and posterior spinal fusions were performed represented only about 3 percent of all spinal fusion cases in our sample, we concluded that the magnitude of the differences in both average charges and lengths of stay warranted a further subdivision of the spinal fusion cases. Based on this analysis, we proposed to replace the two existing DRGs for back and neck procedures with five new DRGs. For ease of reference and classification, current DRGs 214 and 215 would be made invalid and we would establish new DRGs 496 through 500 to contain all the cases that are currently grouped in DRGs 214 and 215. We believe that the division of these cases into the new DRGs would improve clinical coherence and provide for more appropriate payment for both spinal fusion cases and cases involving other back and neck procedures. Discharges would be assigned to each of the five proposed DRGs as follows: DRG 496 Combined Anterior/Posterior Spinal Fusion DRG 496 would include any combination of procedure codes as follows: One or more of the following procedure codes-- 81.02 Other cervical fusion anterior 81.04 Dorsal/dorsulum fusion anterior 81.06 Lumbar/lumbosac fusion anterior and One or more of the following procedure codes-- 81.03 Other cervical fusion posterior 81.05 Dorsal/dorsulum fusion posterior 81.08 Lumbar/lumbosac fusion posterior DRGs 497 and 498 Spinal Fusion with and without CC DRGs 497 and 498 would include any of the following procedure codes, as long as any combination of procedure codes would not otherwise result in assignment to proposed DRG 496-- 81.00 Spinal fusion NOS 81.01 Atlas-axis fusion 81.02 Other cervical fusion anterior 81.03 Other cervical fusion posterior 81.04 Dorsal/dorsulum fusion anterior 81.05 Dorsal/dorsulum fusion posterior 81.06 Lumbar/lumbosac fusion anterior [[Page 45977]] 81.07 Lumbar/lumbosac fusion lateral 81.08 Lumbar/lumbosac fusion posterior 81.09 Refusion of spine DRGs 499 and 500 Back and Neck Procedures Except Spinal Fusion with and without CC. All procedure codes in current DRGs 214 and 215 other than procedure codes 81.00 through 81.09 would be assigned to DRGs 499 and 500. We received five comments in support of this proposal. We are adopting the proposed changes as final. c. Knee Procedures On several occasions, most recently in our September 1, 1993 final rule (58 FR 46286), we have examined cases in DRG 209 (Major Joint and Limb Reattachment of the Lower Extremity) to see whether hip replacement cases that involve infections or other complications should be classified separately from the less complicated cases in DRG 209. We have found that the average charges and lengths of stay for cases with principal diagnoses of infection or complications were only slightly higher than for all cases in DRG 209. When we limited our analysis to cases with a principal diagnosis of infection, we found that the cases had significantly higher charges than for DRG 209 overall, but in view of the small volume of cases (less than 0.5 percent of the total DRG 209 cases), we decided that changes in the classification of cases in DRG 209 were not warranted. In the proposed rule, at the request of several correspondents, we revisited the issue of whether DRG refinements are needed to address differences in resource use associated with orthopedic procedures where deep infections are present. To evaluate this issue, we analyzed various classifications of cases in MDC 8. We began by identifying all cases with a principal diagnosis indicating deep orthopedic infection of the lower extremities or spine. The diagnosis codes used were as follows: 711.05 Pyogenic arthritis pelvic region and thigh 711.06 Pyogenic arthritis lower leg 711.07 Pyogenic arthritis ankle and foot 711.08 Pyogenic arthritis other specified sites 730.05 Acute osteomyelitis pelvic region and thigh 730.06 Acute osteomyelitis lower leg 730.07 Acute osteomyelitis ankle and foot 730.08 Acute osteomyelitis other specified sites 730.15 Chronic osteomyelitis pelvic region and thigh 730.16 Chronic osteomyelitis lower leg 730.17 Chronic osteomyelitis ankle and foot 730.18 Chronic osteomyelitis other specified sites 730.25 Unspecified osteomyelitis pelvic region and thigh 730.26 Unspecified osteomyelitis lower leg 730.27 Unspecified osteomyelitis ankle and foot 730.28 Unspecified osteomyelitis other specified sites 996.66 Infection and inflammatory reaction due to internal joint prosthesis 996.67 Infection and inflammatory reaction due to other internal orthopedic device For each of the DRGs into which these cases are grouped, we then compared the average standardized charges and average length of stay for cases with any of the infection diagnoses listed above with other cases in the DRGs. Unlike in the past, we did not limit our analysis to DRG 209 but examined all DRGs within MDC 8 that focus on surgical procedures of the lower extremities or spine, including DRGs 209; 210, 211, and 212 (Hip and Femur Procedures Except Major Joint); 214 and 215 (Back and Neck Procedures); and 221 and 222 (Knee Procedures). For the most part, we again found that these cases represented only a very small proportion of the total cases in the DRGs in question. In DRG 209, for example, cases with one of the above diagnosis codes as the principal diagnosis continued to constitute less than 1 percent of all cases in the DRG. Moreover, although the average standardized charges for the deep infection cases ($24,834) were approximately 21 percent higher than the charges for the remaining cases in the DRG ($19,297), the differences are well within one standard deviation of the average charge. Given the small volume of cases, we again conclude that changes in DRG 209 are not justified. The only DRGs that we examined in which cases with a principal diagnosis of deep infection represented more than 1 percent of total cases in our sample were DRGs 221 and 222. As illustrated in the chart below, there are significant differences in both average charges and average length of stay between infection cases in these DRGs and other cases in the DRGs. ------------------------------------------------------------------------ Average Number Average length Type of case of cases charges of stay \1\ (in (in dollars) days) ------------------------------------------------------------------------ DRG 221 (all cases)....................... 451 16,529 7.2 DRG 221 with infection.................... 152 23,174 11.4 DRG 221 w/out infection................... 299 13,151 5.1 DRG 222 (all cases)....................... 340 9,149 3.9 DRG 222 with infection.................... 37 14,452 7.0 DRG 222 w/out infection................... 303 8,502 3.5 ------------------------------------------------------------------------ \1\ Based on the 10-percent random sample of the FY 1996 MedPAR file. Thus, more than one-third of cases in DRG 221 had a principal diagnosis of deep infection, the average length of stay for these cases was more than twice as long as for the remaining cases, and average charges were approximately 76 percent higher. Similarly, for the 12 percent of total DRG 222 cases with infection as the principal diagnosis, the average length of stay was double that for other cases, with average charges approximately 70 percent higher. Given the proportional volume of cases involved, and the significant differences in both average charges and length of stay for infection cases in these DRGs, we concluded that DRG refinements are appropriate. Based on this analysis, we proposed to replace the two existing DRGs for knee procedures with three new DRGs. Again, for ease of reference and classification, current DRGs 221 and 222 would be made invalid and we would establish new DRGs 501 through 503 to contain all the cases that are currently grouped in DRGs 221 and 222. Discharges would be assigned to each of the three proposed DRGs as follows: DRG 501 Knee Procedures with Principal Diagnosis of Infection with CC [[Page 45978]] DRG 502 Knee Procedures with Principal Diagnosis of Infection without CC DRG 501 and 502 would include any of the operating room procedures now assigned to DRGs 221 and 222, when the principal diagnosis is any of the following: 711.06 Pyogenic arthritis lower leg 730.06 Acute osteomyelitis lower leg 730.16 Chronic osteomyelitis lower leg 730.26 Unspecified osteomyelitis lower leg 996.66 Infection and inflammatory reaction due to internal joint prosthesis 996.67 Infection and inflammatory reaction due to other internal orthopedic device DRG 503 Knee Procedures without Principal Diagnosis of Infection DRG 503 would include any of the operating room procedures now assigned to DRGs 221 and 222 when the principal diagnosis is not listed above under DRGs 501 and 502. Comment: We received four comments in support of this proposed change. One of the commenters suggested that we also consider splitting proposed DRG 503 into two DRGs to distinguish between cases with and without CCs. Response: As shown in the table above, based on the FY 1996 MedPAR 10 percent sample, the average charges associated with cases in new DRG 503 are $13,151 for cases with CC and $8,502 for cases without CC. The average lengths of stay for DRG 503 cases with and without CC are 5.1 and 3.5 days, respectively. We note that the mean standardized charges for this DRG are approximately $10,100. Given the similar lengths of stay for these two sets of cases and the relatively small magnitude of difference in average charges (much less than one standard deviation), we do not believe that further division of the new DRG is warranted. Thus, we are adopting the new proposed DRGs for Knee Procedures as final. 5. MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract) Among the ICD-9-CM coding changes that took effect October 1, 1995 was the addition of new procedure code 59.72 (injection of implant into urethra or bladder neck). Although this procedure is not routinely performed in an operating room, the code was previously included within codes classified as operating room procedures. Thus, as is our practice, we assigned this procedure code to the surgical DRGs to which the procedure had formerly been assigned as a non-OR procedure that affects DRG assignment. Therefore, procedure code 59.72 was assigned to DRGs 308 and 309 (Minor Bladder Procedures) and DRG 356 (Female Reproductive System Reconstructive Procedures). In the June 2, 1995 proposed rule (60 FR 29209), we stated that we would reevaluate the DRG classification of this code when data on its use became available for analysis in 2 years, that is, in preparation for the FY 1998 rulemaking process. We indicated that possible changes would include moving the procedure code to a different surgical DRG or classifying the code as a non-OR procedure that did not affect DRG assignment. In the FY 1996 MedPAR file, there were several cases with procedure code 59.72 assigned to DRGs 308 and 309. The chart below compares average charges and length of stay for cases in these DRGs with and without the injection procedure. ------------------------------------------------------------------------ Average Average length Type of case Number charge of stay of cases (in (in dollars) days) ------------------------------------------------------------------------ DRG 308 with procedure 59.72.............. 5 6,978 4.2 DRG 308 w/out procedure 59.72............. 910 13,254 6.5 DRG 309 with procedure 59.72.............. 7 5,879 1.4 DRG 309 w/out procedure 59.72............. 311 7,888 2.7 ------------------------------------------------------------------------ As the table illustrates, cases in which injection of implant into the urethra or bladder neck is the only relevant procedure for DRG assignment purposes constitute a very small minority of the cases in DRGs 308 and 309. However, these cases have lower average charges and length of stay than other cases in the DRGs. Thus, we proposed to reclassify the procedure code as a non-OR procedure that does not affect DRG assignment. Under this proposal, cases currently assigned to DRGs 308 and 309 because of the performance of an implant injection would be reassigned to medical DRGs in MDC 11, primarily either DRGs 320, 321, and 322 (Kidney and Urinary Tract Infections) or DRGs 331 and 332 (Other Kidney and Urinary Tract Diagnoses). Both of these sets of DRGs have average charges closely in line with the charges for cases in which procedure 59.72 now determines DRG assignment. This change would also affect DRG 356 in MDC 13 (Diseases and Disorders of the Female Reproductive System). Within the 10 percent sample used for this analysis, only 2 of the 2,689 cases in DRG 356 were assigned based on the presence of procedure code 59.72, and as in DRGS 308 and 309, both the average charges and length of stay were lower than for other cases. We received two comments in support of this proposal and are including it in the final DRG changes. 6. Surgical Hierarchies Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different DRG within the MDC to which the principal diagnosis is assigned. It is, therefore, necessary to have a decision rule by which these cases are assigned to a single DRG. The surgical hierarchy, an ordering of surgical classes from most to least resource intensive, performs that function. Its application ensures that cases involving multiple surgical procedures are assigned to the DRG associated with the most resource-intensive surgical class. Because the relative resource intensity of surgical classes can shift as a function of DRG reclassification and recalibration, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications, to determine if the ordering of classes coincided with the intensity of resource utilization, as measured by the same billing data used to compute the DRG relative weights. A surgical class can be composed of one or more DRGs. For example, in MDC 5, the surgical class ``heart transplant'' consists of a single DRG (DRG 103) and the class ``coronary bypass'' consists of two DRGs (DRGs 106 and 107). Consequently, in many cases, the surgical hierarchy has an impact on more than one DRG. The methodology for determining the most resource-intensive surgical class, therefore, involves weighting each DRG for frequency to determine the average resources for each surgical class. For example, assume surgical class A includes DRGs 1 and 2 and surgical class B includes DRGs 3, 4, and 5, and that the average charge of DRG 1 is higher than that of DRG 3, but the average charges of DRGs 4 and 5 are higher than the average charge of DRG 2. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weight the average charge of each DRG by frequency (that is, by the number of cases in the DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered [[Page 45979]] from the class with the highest average resource utilization to that with the lowest, with the exception of ``other OR procedures'' as discussed below. This methodology may occasionally result in a case involving multiple procedures being assigned to the lower- weighted DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER searches for the procedure in the most resource-intensive surgical class, this result is unavoidable. We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average relative weight is ordered above a surgical class with a higher average relative weight. For example, the ``other OR procedures'' surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the relative weight for the DRG or DRGs in that surgical class may be higher than that for other surgical classes in the MDC. The ``other OR procedures'' class is a group of procedures that are least likely to be related to the diagnoses in the MDC but are occasionally performed on patients with these diagnoses. Therefore, these procedures should only be considered if no other procedure more closely related to the diagnoses in the MDC has been performed. A second example occurs when the difference between the average weights for two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy since, by virtue of the hierarchy change, the relative weights are likely to shift such that the higher-ordered surgical class has a lower average weight than the class ordered below it. Based on the preliminary recalibration of the DRGs, we proposed to modify the surgical hierarchy as set forth below. As we stated in the September 1, 1989 final rule (54 FR 36457), we are unable to test the effects of the proposed revisions to the surgical hierarchy and to reflect these changes in the proposed relative weights due to the unavailability of revised GROUPER software at the time this proposed rule is prepared. Rather, we simulate most major classification changes to approximate the placement of cases under the proposed reclassification and then determine the average charge for each DRG. These average charges then serve as our best estimate of relative resource use for each surgical class. We test the proposed surgical hierarchy changes after the revised GROUPER is received and reflect the final changes in the DRG relative weights in the final rule. We proposed to revise the surgical hierarchy for the Pre-MDC DRGs, MDC 9 (Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast), MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders), and MDC 12 (Diseases and Disorders of the Male Reproductive System) as follows: In the Pre-MDC DRGs, we would reorder Bone Marrow Transplant (DRG 481) above Liver Transplant (DRG 480). In MDC 9, we would reorder Perianal and Pilonidal Procedures (DRG 267) above Breast Procedures (DRGs 257-262). In MDC 10, we would reorder OR Procedures for Obesity (DRG 288) above Skin Graft and Wound Debridement (DRG 287). In MDC 12, we would reorder Circumcision (DRGs 342 and 343) above Transurethral Prostatectomy (DRGs 336 and 337). Based on a test of the proposed changes using the most recent MedPAR file and the revised GROUPER software, we found that the proposed change to the Pre-MDC DRGs, Bone Marrow Transplant (DRG 481) above Liver Transplant (DRG 480) is not supported and this change will not be incorporated in this final rule. The Pre-MDC DRGs hierarchy will remain the same as in FY 1997. We received one comment in support of our surgical hierarchy proposals. We also received one comment that disagreed, as discussed below. Comment: One commenter was opposed to reordering Circumcision (DRGs 342 and 343) above Transurethral Prostatectomy (DRGs 336 and 337). The commenter stated that circumcision (procedure code 64.0) is the only procedure in DRGs 342 and 343, and the commenter believes that this procedure is not as resource intensive or complex as the procedures assigned to DRGs 336 and 337. The commenter suggested the more appropriate assignment for a case involving both a transurethral prostatectomy and a circumcision would be DRGs 336 and 337. Response: Based on the Medicare cases, the average standardized charges for cases assigned to DRGs 342 and 343 is almost $7,000, which is higher than the average standardized charges of cases assigned to DRGs 336 and 337, approximately $6,500. Thus, if a case involves both a circumcision and a prostatectomy, we believe it should be assigned to the higher-weighted DRG category. Although circumcision can be a relatively simple surgery for infants, when it is performed for Medicare beneficiaries, it appears to be a more complicated procedure and might involve the use of significant resources. The other proposed changes to the surgical hierarchy are still supported by the data and no additional changes are indicated. Therefore, we are incorporating these changes in this final rule. 7. Refinement of Complications and Comorbidities List There is a standard list of diagnoses that are considered complications or comorbidities (CCs). We developed this list using physician panels to include those diagnoses that, when present as a secondary condition, would be considered a substantial complication or comorbidity. In previous years, we have made changes to the standard list of CCs, either by adding new CCs or deleting CCs already on the list. In the September 1, 1987 final notice concerning changes to the DRG classification system (52 FR 33143), we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered a valid CC in combination with a particular principal diagnosis. Thus, we created the CC Exclusions List. We made these changes to preclude coding of CCs for closely related conditions, to preclude duplicative coding or inconsistent coding from being treated as CCs, and to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. In the May 19, 1987 proposed notice concerning changes to the DRG classification system (52 FR 18877), we explained that the excluded secondary diagnoses were established using the following five principles: Chronic and acute manifestations of the same condition should not be considered CCs for one another (as subsequently corrected in the September 1, 1987 final notice (52 FR 33154)). Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for a condition should not be considered CCs for one another. Conditions that may not co-exist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another. The same condition in anatomically proximal sites should not be considered CCs for one another. Closely related conditions should not be considered CCs for one another. The creation of the CC Exclusions List was a major project involving hundreds [[Page 45980]] of codes. The FY 1988 revisions were intended to be only a first step toward refinement of the CC list in that the criteria used for eliminating certain diagnoses from consideration as CCs were intended to identify only the most obvious diagnoses that should not be considered complications or comorbidities of another diagnosis. For that reason, and in light of comments and questions on the CC list, we have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC. (See the September 30, 1988 final rule for the revision made for the discharges occurring in FY 1989 (53 FR 38485); the September 1, 1989 final rule for the FY 1990 revision (54 FR 36552); the September 4, 1990 final rule for the FY 1991 revision (55 FR 36126); the August 30, 1991 final rule for the FY 1992 revision (56 FR 43209); the September 1, 1992 final rule for the FY 1993 revision (57 FR 39753); the September 1, 1993 final rule for the FY 1994 revisions (58 FR 46278); the September 1, 1994 final rule for the FY 1995 revisions (59 FR 45334); the September 1, 1995 final rule for the FY 1996 revisions (60 FR 45782); and the August 30, 1996 final rule for the FY 1997 revisions (61 FR 46171)). We proposed a limited revision of the CC Exclusions List to take into account the changes that will be made in the ICD-9-CM diagnosis coding system effective October 1, 1997, as well as the proposed CC changes described above. (See section II.B.9, below, for a discussion of ICD-9-CM changes.) These changes were proposed in accordance with the principles established when we created the CC Exclusions List in 1987. We received one comment, which supported our changes to the CC lists. The changes discussed above have been added to Table 6E, Additions to the CC Exclusions List, in section V of the Addendum to this final rule. Tables 6E and 6F in section V of the Addendum to this final rule contain the revisions to the CC Exclusions List that will be effective for discharges occurring on or after October 1, 1997. Each table shows the principal diagnoses with final changes to the excluded CCs. Each of these principal diagnoses is shown with an asterisk and the additions or deletions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis. CCs that are added to the list are in Table 6E--Additions to the CC Exclusions List. Beginning with discharges on or after October 1, 1997, the indented diagnoses will not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis. CCs that are deleted from the list are in Table 6F--Deletions from the CC Exclusions List. Beginning with discharges on or after October 1, 1997 the indented diagnoses will be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis. Copies of the original CC Exclusions List applicable to FY 1988 can be obtained from the National Technical Information Service (NTIS) of the Department of Commerce. It is available in hard copy for $92.00 plus $6.00 shipping and handling and on microfiche for $20.50, plus $4.00 for shipping and handling. A request for the FY 1988 CC Exclusions List (which should include the identification accession number, (PB) 88-133970) should be made to the following address: National Technical Information Service; United States Department of Commerce; 5285 Port Royal Road; Springfield, Virginia 22161; or by calling (703) 487-4650. Users should be aware of the fact that all revisions to the CC Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, and 1997) and those in Tables 6E and 6F of this document must be incorporated into the list purchased from NTIS in order to obtain the CC Exclusions List applicable for discharges occurring on or after October 1, 1997. Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with HCFA, is responsible for updating and maintaining the GROUPER program. The current DRG Definitions Manual, Version 14.0, is available for $195.00, which includes $15.00 for shipping and handling. Version 15.0 of this manual, which will include the final FY 1998 DRG changes, will be available in October 1997 for $195.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road; Wallingford, Connecticut 06492; or by calling (203) 949-0303. Please specify the revision or revisions requested. 8. Review of Procedure Codes in DRGs 468, 476, and 477 Each year, we review cases assigned to DRG 468 (Extensive OR Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic OR Procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive OR Procedure Unrelated to Principal Diagnosis) in order to determine whether it would be appropriate to change the procedures assigned among these DRGs. DRGs 468, 476, and 477 are reserved for those cases in which none of the OR procedures performed is related to the principal diagnosis. These DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. DRG 476 is assigned to those discharges in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis: 60.0 Incision of prostate 60.12 Open biopsy of prostate 60.15 Biopsy of periprostatic tissue 60.18 Other diagnostic procedures on prostate and periprostatic tissue 60.21 Transurethral prostatectomy 60.29 Other transurethral prostatectomy 60.61 Local excision of lesion of prostate 60.69 Prostatectomy NEC 60.81 Incision of periprostatic tissue 60.82 Excision of periprostatic tissue 60.93 Repair of prostate 60.94 Control of (postoperative) hemorrhage of prostate 60.95 Transurethral balloon dilation of the prostatic urethra 60.99 Other operations on prostate All remaining OR procedures are assigned to DRGs 468 and 477, with DRG 477 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis. The original list of the ICD-9-CM procedure codes for the procedures we consider nonextensive procedures if performed with an unrelated principal diagnosis was published in Table 6C in section IV of the Addendum to the September 30, 1988 final rule (53 FR 38591). As part of the final rules published on September 4, 1990, August 30, 1991, September 1, 1992, September 1, 1993, September 1, 1994, September 1, 1995, and August 30, 1996, we moved several other procedures from DRG 468 to 477. (See 55 FR 36135, 56 FR 43212, 57 FR 23625, 58 FR 46279, 59 FR 45336, 60 FR 45783, and 61 FR 46173, respectively.) a. Adding Procedure Codes to MDCs We annually conduct a review of procedures producing DRG 468 or 477 assignments on the basis of volume of cases in these DRGs with each procedure. Our medical consultants then identify those procedures occurring in conjunction with certain [[Page 45981]] principal diagnoses with sufficient frequency to justify adding them to one of the surgical DRGs for the MDC in which the diagnosis falls. Based on this year's review, we proposed to move procedure code 54.92 (Removal of foreign body from peritoneal cavity) to MDC 11 and assign it to DRG 315 (Other Kidney and Urinary Tract OR Procedures). We note that, under the current DRGs, when procedure code 54.92 is coded in addition to a principal diagnosis code of 868.14 (injury with open wound into retroperitoneum), the case is assigned to DRG 468. Comment: We received two comments on this proposed change. One commenter fully supported the proposal. The other commenter noted that moving procedure code 54.92 from DRG 468 to DRG 315 in MDC 11 would result in a 43 percent reduction in the DRG relative weight associated with the case. Although the change makes sense clinically, the commenter questioned the financial impact involved. Response: The purpose of DRG 468 is to accommodate cases in which an OR procedure that is unrelated to the principal diagnosis is performed. As the commenter acknowledges, the clinical relationship between procedure code 54.92 (Removal of foreign body from peritoneal cavity) and a principal diagnosis code of 868.14 (injury with open wound into retroperitoneum) is clear. We note that this change would have resulted in the reassignment of only one case in FY 1996; therefore, the financial impact involved is minimal. We are adopting this change as proposed. b. Reassignment of Procedures Among DRGs 468, 476, and 477 We also reviewed the list of procedures that produce assignments to DRGs 468, 476, and 477 to ascertain if any of those procedures should be moved from one of these DRGs to another based on average charges and length of stay. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data. In reviewing the list of OR procedures that produce DRG 468 assignments, we analyzed the average charge and length of stay data for cases assigned to that DRG to identify those procedures that are more similar to the discharges that currently group to either DRG 476 or 477. We identified two procedures--other surgical occlusion of abdominal arteries (procedure code 38.86) and other arthrotomy of knee (procedure code 80.16)--that are significantly less resource intensive than the other procedures assigned to DRG 468. Therefore, we proposed to move procedure codes 38.86 and 80.16 to the list of procedures that result in assignment to DRG 477. In reviewing the list of procedures assigned to DRG 477, we did not identify any procedures that should be assigned to either DRG 468 or 476. Comment: We received two comments on this proposal. Both commenters supported moving procedure code 80.16, but one of the commenters believes that procedure code 38.86 represents cases that are very complicated and require a high level of resources. Response: Our review of the average resource use associated with DRG 468 cases with procedure code 38.86 support this change. The average charge associated with this case is approximately $13,150. The average charges for cases in DRG 468 and 477 are approximately $30,000 and $14,300, respectively. Thus, moving procedure code 38.86 to DRG 477 appears appropriate in terms of resource use. We will review the cases in the FY 1997 MedPAR file when it becomes available to ensure that this remains true for those cases. 9. Changes to the ICD-9-CM Coding System As discussed above in section II.B.1 of this preamble, the ICD-9-CM is a coding system that is used for the reporting of diagnoses and procedures performed on a patient. In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee charged with the mission of maintaining and updating the ICD-9-CM. That mission includes approving coding changes, and developing errata, addenda, and other modifications to the ICD-9-CM to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system. The Committee is co-chaired by the National Center for Health Statistics (NCHS) and HCFA. The NCHS has lead responsibility for the ICD-9-CM diagnosis codes included in Volume 1--Diseases: Tabular List and Volume 2--Diseases: Alphabetic Index, while HCFA has lead responsibility for the ICD-9-CM procedure codes included in Volume 3-- Procedures: Tabular List and Alphabetic Index. The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding fields, such as the American Health Information Management Association (AHIMA) (formerly American Medical Record Association (AMRA)), the American Hospital Association (AHA), and various physician specialty groups as well as physicians, medical record administrators, health information management professionals, and other members of the public to contribute ideas on coding matters. After considering the opinions expressed at the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies. The Committee presented proposals for coding changes at public meetings held on June 6 and December 5 and 6, 1996, and finalized the coding changes after consideration of comments received at the meetings and in writing within 60 days following the December 1996 meeting. The initial meeting for consideration of coding issues for implementation in FY 1999 was held on June 6, 1997. The minutes of the meeting can be obtained from the HCFA Home Page @ http://www.hcfa.gov.pubaffr.htm. Paper copies of these minutes will no longer be available and the mailing list will be discontinued. We encourage commenters to address suggestions on coding issues involving diagnosis codes to: Donna Pickett, Co-Chairperson; ICD-9-CM Coordination and Maintenance Committee; NCHS; Room 1100; 6525 Belcrest Road; Hyattsville, Maryland 20782. Comments may be sent by E-mail to: dfp4@nch11a.em.cdc.gov. Questions and comments concerning the procedure codes should be addressed to: Patricia E. Brooks, Co-Chairperson; ICD-9-CM Coordination and Maintenance Committee; HCFA, Office of Hospital Policy; Division of Prospective Payment System; C5-06-27; 7500 Security Boulevard; Baltimore, Maryland 21244-1850. Comments may be sent by E-mail to: pbrooks@hcfa.gov. The ICD-9-CM code changes that have been approved will become effective October 1, 1997. The new ICD-9-CM codes are listed, along with their DRG classifications, in Tables 6A and 6B (New Diagnosis Codes and New Procedure Codes, respectively) in section V of the Addendum to this final rule. As we stated above, the code [[Page 45982]] numbers and their titles were presented for public comment in the ICD- 9-CM Coordination and Maintenance Committee meetings. Both oral and written comments were considered before the codes were approved. Further, the Committee has approved the expansion of certain ICD-9- CM codes to require an additional digit for valid code assignment. Diagnosis codes that have been replaced by expanded codes, other codes, or have been deleted are in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 1997. The corresponding new or expanded diagnosis codes are included in Table 6A. Revisions to diagnosis code titles are in Table 6D (Revised Diagnosis Code Titles), which also includes the DRG assignments for these revised codes. For FY 1998, there are no procedure codes that have been replaced or deleted nor are there any revisions to procedure code titles. We received three comments concerning our assignment of new ICD-9-CM codes. Comment: One commenter wrote in support of the creation of a new diagnosis code for pyoderma gangrenosum (code 686.01) in order to distinguish this condition from infectious pyoderma. The commenter stated that pyoderma gangrenosum is not infectious, but instead is a manifestation of other disease such as ulcerative colitis or Crohn's disease. Pyoderma gangrenosum is characterized by ulcers with extensive necrosis around the edges and are generally found on the lower extremities. Therefore, the commenter believes that this code should be assigned to DRG 271 (Skin Ulcers) rather than DRGs 277, 278, and 279 (Cellulitis). Response: When a new code is introduced, our longstanding practice is to assign it to the same DRG category as its predecessor code or codes. Therefore, we proposed to assign diagnosis code 686.01 to DRGs 277, 278, and 279, the DRGs to which its predecessor code, 686.0 (pyoderma), had been assigned. The resource use and other data associated with this diagnosis code will be available in the FY 1998 MedPAR file, which will be used for analysis as part of the FY 2000 DRG changes. We will evaluate the DRG assignment of code 686.01 at that time. Comment: In the proposed rule, we announced a new diagnosis code (031.2) for disease due to disseminated mycobacterium avium- intracellulare complex (DMAC). We proposed that this code be classified to DRG 423 (Other Infectious and Parasitic Disease Diagnoses) in MDC 18 (Infectious and Parasitic Diseases, Systemic or Unspecified Sites) as well as be designated as an HIV major related condition in DRG 489 (HIV with Major Related Condition). A commenter disagreed with our decision to classify this code as a non-CC; that is, diagnosis code 031.2 would not be included on the CC list. The commenter believes that when DMAC is present as a secondary diagnosis, it would be considered a substantial complication or comorbidity. Response: DMAC is the most common disseminated bacterial infection in patients with advanced acquired immunodeficiency syndrome (AIDS). As such, cases coded with 031.2 will also be coded with a principal or secondary diagnosis of 042, Human immunodeficiency virus (HIV) disease and will be assigned to DRG 489. DRG 489 is not divided based on the presence or absence of CCs. We believe that the vast majority of patients with DMAC, if not all, will be assigned to this DRG, thus negating the need to add this disease to the CC list. As noted above, it is our practice to assign new codes to the same category as their predecessor code was assigned. We note that cases coded 031.2 would have been coded to 031.8 (other specified mycobacterial diseases), which is not a CC. We will review the assignment of cases in which DMAC is coded as a secondary condition when the FY 1998 MedPAR file becomes available and re-evaluate our decision. Comment: Commenters noted what they believed to be a typographical error concerning new code V42.83 (organ or tissue replaced by transplant, pancreas). In Table 6A, New Diagnosis Codes, this code was recorded as being assigned to MDC 7, DRG 467 (Other Factors Influencing Health Status). Since DRG 467 is assigned to MDC 23, the commenters assumed this was a typographical error. Response: The commenters are correct; diagnosis code V42.83 is assigned to DRG 204 (Disorders of Pancreas Except Malignancy) in MDC 7. 10. Other Issues a. MDC 22 (Burns) Under the current DRG system, burn cases generally are assigned to one of six DRGs in MDC 22 (Burns). These DRGs-- DRGs 456 through 460 and 472--have been in place without change since 1986. Recently, we have received several letters from representatives of facilities that specialize in treating burn cases asserting that the existing DRGs do not adequately capture the variation in resource use associated with different types of burn cases. In the proposed rule (62 FR 29912), we discussed the concerns of these correspondents and solicited public comments on whether changes in these DRGs can increase their ability to explain the variation in resource use among burn cases. We received approximately 15 public comments on this issue, all of which supported our efforts to identify DRG groupings that would reflect more homogeneous resource use. These comments included a proposal for restructuring the DRG classifications in MDC 22 that has been endorsed by the American Burn Association. Several commenters also suggested the need for a special facility category to make possible payment differences for designated burn care facilities. As noted in the proposed rule, however, any suggestions involving payment adjustments for hospitals designated as burn centers would require legislative action. We intend to conduct a full review of the comments and proposals we have received as part of the FY 1999 DRG analysis agenda. We will discuss our findings and, if appropriate, propose modifications to MDC 22 in the FY 1999 proposed rule. b. Marfan Syndrome (DRG 390) We are making a minor DRG classification change for FY 1998 that we inadvertently did not include in the June 2 proposed rule. Based on correspondence we have received, we reviewed the assignment of diagnosis code 759.82 (Marfan syndrome) to DRG 390 (Neonate with Other Significant Problems) in MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period). While Marfan syndrome is a congenital disorder, cardiovascular abnormalities associated with the disorder are most likely to manifest in adults. Because the current classification system often results in adult patients being classified to the MDC for newborns, we agree that, from a clinical coherence standpoint, it is appropriate that these cases be reclassified. Therefore, we are reassigning code 759.82 from DRG 390 into MDC 5, DRGs 135, 136, and 137 (Cardiac Congenital & Valvular Disorders). There were no cases with a principal diagnosis code of 759.82 in the FY 1996 MedPAR file. C. Recalibration of DRG Weights We proposed to use the same basic methodology for the FY 1998 recalibration as we did for FY 1997. (See the August 30, 1996 final rule (61 FR 46176).) That is, we would recalibrate the weights based on charge data for [[Page 45983]] Medicare discharges. However, we would use the most current charge information available, the FY 1996 MedPAR file, rather than the FY 1995 MedPAR file. The MedPAR file is based on fully-coded diagnostic and surgical procedure data for all Medicare inpatient hospital bills. The final recalibrated DRG relative weights are constructed from FY 1996 MedPAR data, based on bills received by HCFA through June 1997, from all hospitals subject to the prospective payment system and short- term acute care hospitals in waiver States. The FY 1996 MedPAR file includes data for approximately 11.2 million Medicare discharges. The methodology used to calculate the DRG relative weights from the FY 1996 MedPAR file is as follows: All the claims were regrouped using the DRG classification revisions discussed above in section II.B of this preamble. Charges were standardized to remove the effects of differences in area wage levels, indirect medical education costs, disproportionate share payments, and, for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment. The average standardized charge per DRG was calculated by summing the standardized charges for all cases in the DRG and dividing that amount by the number of cases classified in the DRG. We then eliminated statistical outliers, using the same criteria as was used in computing the current weights. That is, all cases that are outside of 3.0 standard deviations from the mean of the log distribution of both the charges per case and the charges per day for each DRG. The average charge for each DRG was then recomputed (excluding the statistical outliers) and divided by the national average standardized charge per case to determine the relative weight. A transfer case is counted as a fraction of a case based on the ratio of its length of stay to the geometric mean length of stay of the cases assigned to the DRG. That is, a 5-day length of stay transfer case assigned to a DRG with a geometric mean length of stay of 10 days is counted as 0.5 of a total case. We established the relative weight for heart and heart- lung, liver, and lung transplants (DRGs 103, 480, and 495) in a manner consistent with the methodology for all other DRGs except that the transplant cases that were used to establish the weights were limited to those Medicare-approved heart, heart-lung, liver, and lung transplant centers that have cases in the FY 1995 MedPAR file. (Medicare coverage for heart, heart-lung, liver, and lung transplants is limited to those facilities that have received approval from HCFA as transplant centers.) Acquisition costs for kidney, heart, heart-lung, liver, and lung transplants continue to be paid on a reasonable cost basis. Unlike other excluded costs, the acquisition costs are concentrated in specific DRGs (DRG 302 (Kidney Transplant); DRG 103 (Heart Transplant for heart and heart-lung transplants); DRG 480 (Liver Transplant); and DRG 495 (Lung Transplant)). Because these costs are paid separately from the prospective payment rate, it is necessary to make an adjustment to prevent the relative weights for these DRGs from including the effect of the acquisition costs. Therefore, we subtracted the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average charge for the DRG and before eliminating statistical outliers. When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We proposed to use that same case threshold in recalibrating the DRG weights for FY 1998. For this final rule, using the FY 1996 MedPAR data set, there are 34 DRGs that contain fewer than 10 cases. We computed the weights for the 34 low-volume DRGs by adjusting the FY 1997 weights of these DRGs by the percentage change in the average weight of the cases in the other DRGs. The weights developed according to the methodology described above, using the proposed DRG classification changes, result in an average case weight that is different from the average case weight before recalibration. Therefore, the new weights are normalized by an adjustment factor, so that the average case weight after recalibration is equal to the average c