Medicare Inpatient Hospital Payments
CMS Has Used External Data for New Technologies in Certain Instances and Medicare Remains Primary Data Source Gao ID: GAO-07-46 September 26, 2007Under Medicare, hospitals generally receive fixed payments for inpatient stays based on diagnosis-related groups (DRG), a system that classifies stays by patient diagnoses and procedures. The Centers for Medicare & Medicaid Services (CMS) annually uses its own data to reclassify DRGs. CMS also makes add-on payments for stays involving new technologies that meet three eligibility criteria. Stakeholders may submit data that are external to CMS as part of a DRG reclassification request or an add-on payment application. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 required GAO to examine whether CMS could improve its use of external data, including using data collected by other government agencies for DRG payments. As discussed with the committees of jurisdiction, GAO examined (1) to what extent CMS has used external data in determining payments for inpatient stays involving new technologies, and (2) to what extent can external data from other government agencies be used by CMS in determining DRG payments for inpatient stays involving new technologies. GAO interviewed officials from CMS and industry stakeholders. GAO interviewed officials from Bureau of Labor Statistics (BLS), Department of Veterans Affairs (VA), Department of Defense (DOD), and Agency for Healthcare Research and Quality (AHRQ) because these agencies may have data useful to CMS. GAO also reviewed regulations and other CMS materials.
CMS has used external data for two purposes: to inform DRG reclassification and to evaluate new technology add-on payment applications. To inform DRG reclassification, CMS accepts the submission of external data that are intended to demonstrate that inpatient stays involving a new technology are costlier on average than the other inpatient stays in the same DRG. CMS uses its data from the Medicare Provider Analysis and Review (MEDPAR) file to validate the external data submitted. Specifically, when external data are submitted for a proposed DRG reclassification for a procedure or new technology, CMS's policy is to find the same or similar evidence in the MEDPAR file. Generally, CMS will not make a reclassification decision for a DRG involving a new technology if the technology is so new that it does not appear in the MEDPAR file. To evaluate new technology add-on payment applications, CMS has generally used external data in conjunction with data from the MEDPAR file to evaluate whether a new technology meets one of the three eligibility criteria, specifically the criterion related to cost. Data from other government agencies have limitations for CMS's use in setting DRG payments for inpatient stays involving new technologies. This is because when setting DRG payments, CMS generally needs data that are representative of the Medicare population, timely, and complete in that the data include the total charge or other measure of costliness for all services provided during an inpatient stay, including new technologies. The data we identified from other government agencies were either not representative of the Medicare population, were not timelier than data from the MEDPAR file, or were not complete. Data from the MEDPAR file remain the primary data source for setting DRG payments because they include all charges from paid inpatient claims for inpatient services provided to all Medicare beneficiaries across all hospitals paid under the IPPS. In instances where data from the MEDPAR file have lacked charge information for certain stays involving new technologies, CMS has used external data to inform the DRG reclassification process and to evaluate new technology add-on payment applications. To set DRG payments, CMS needs data that meet criteria of being representative, timely, and complete. Although BLS, VA, DOD, and AHRQ collect data for their own purposes that could potentially be useful to CMS, these data are limited in their utility to set DRG payments because they do not always meet CMS's criteria. In commenting on a draft of this report, CMS stated that it agreed with GAO's findings.
GAO-07-46, Medicare Inpatient Hospital Payments: CMS Has Used External Data for New Technologies in Certain Instances and Medicare Remains Primary Data Source
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
September 2007:
Medicare Inpatient Hospital Payments:
CMS Has Used External Data for New Technologies in Certain Instances
and Medicare Remains Primary Data Source:
Use of External Data in Medicare IPPS:
GAO-07-46:
GAO Highlights:
Highlights of GAO-07-46, a report to congressional committees
Why GAO Did This Study:
Under Medicare, hospitals generally receive fixed payments for
inpatient stays based on diagnosis-related groups (DRG), a system that
classifies stays by patient diagnoses and procedures. The Centers for
Medicare & Medicaid Services (CMS) annually uses its own data to
reclassify DRGs. CMS also makes add-on payments for stays involving new
technologies that meet three eligibility criteria. Stakeholders may
submit data that are external to CMS as part of a DRG reclassification
request or an add-on payment application. The Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 required GAO to
examine whether CMS could improve its use of external data, including
using data collected by other government agencies for DRG payments. As
discussed with the committees of jurisdiction, GAO examined (1) to what
extent CMS has used external data in determining payments for inpatient
stays involving new technologies, and (2) to what extent can external
data from other government agencies be used by CMS in determining DRG
payments for inpatient stays involving new technologies. GAO
interviewed officials from CMS and industry stakeholders. GAO
interviewed officials from Bureau of Labor Statistics (BLS), Department
of Veterans Affairs (VA), Department of Defense (DOD), and Agency for
Healthcare Research and Quality (AHRQ) because these agencies may have
data useful to CMS. GAO also reviewed regulations and other CMS
materials.
What GAO Found:
CMS has used external data for two purposes: to inform DRG
reclassification and to evaluate new technology add-on payment
applications. To inform DRG reclassification, CMS accepts the
submission of external data that are intended to demonstrate that
inpatient stays involving a new technology are costlier on average than
the other inpatient stays in the same DRG. CMS uses its data from the
Medicare Provider Analysis and Review (MEDPAR) file to validate the
external data submitted. Specifically, when external data are submitted
for a proposed DRG reclassification for a procedure or new technology,
CMS‘s policy is to find the same or similar evidence in the MEDPAR
file. Generally, CMS will not make a reclassification decision for a
DRG involving a new technology if the technology is so new that it does
not appear in the MEDPAR file. To evaluate new technology add-on
payment applications, CMS has generally used external data in
conjunction with data from the MEDPAR file to evaluate whether a new
technology meets one of the three eligibility criteria, specifically
the criterion related to cost.
Data from other government agencies have limitations for CMS‘s use in
setting DRG payments for inpatient stays involving new technologies.
This is because when setting DRG payments, CMS generally needs data
that are representative of the Medicare population, timely, and
complete in that the data include the total charge or other measure of
costliness for all services provided during an inpatient stay,
including new technologies. The data we identified from other
government agencies were either not representative of the Medicare
population, were not timelier than data from the MEDPAR file, or were
not complete.
Data from the MEDPAR file remain the primary data source for setting
DRG payments because they include all charges from paid inpatient
claims for inpatient services provided to all Medicare beneficiaries
across all hospitals paid under the IPPS. In instances where data from
the MEDPAR file have lacked charge information for certain stays
involving new technologies, CMS has used external data to inform the
DRG reclassification process and to evaluate new technology add-on
payment applications. To set DRG payments, CMS needs data that meet
criteria of being representative, timely, and complete. Although BLS,
VA, DOD, and AHRQ collect data for their own purposes that could
potentially be useful to CMS, these data are limited in their utility
to set DRG payments because they do not always meet CMS‘s criteria.
In commenting on a draft of this report, CMS stated that it agreed with
GAO‘s findings.
To view the full product, including the scope and methodology, click on
GAO-07-46.
For more information, contact A. Bruce Steinwald at (202) 512-7114 or
steinwalda@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
CMS Has Used External Data to Inform DRG Reclassification and to
Evaluate New Technology Add-on Payment Applications:
Data from Other Government Agencies Have Limitations for Setting DRG
Payments for Inpatient Stays Involving New Technologies:
Concluding Observations:
Agency and Other External Comments:
Appendix I: Comments from the Centers for Medicare & Medicaid Services:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Three Hypothetical Scenarios in Which CMS, during Fiscal Year
2007, Could Determine Eligibility under the Cost Criterion for Fiscal
Year 2008 Add-on Payments:
Figure:
Figure 1: Process by Which CMS Used the MEDPAR File to Propose and
Finalize DRGs for Fiscal Year 2007 DRG Payments:
Abbreviations:
AAMC: Association of American Medical Colleges:
AHA: American Hospital Association:
AHRQ: Agency for Healthcare Research and Quality:
BBA: Balanced Budget Act of 1997:
BIO: Biotechnology Industry Organization:
BIPA: Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000:
BLS: Bureau of Labor Statistics:
CMS: Centers for Medicare & Medicaid Services:
CPI: Consumer Price Index:
DOD: Department of Defense:
DOL: Department of Labor:
DRG: diagnosis-related groups:
FDA: Food and Drug Administration:
FSS: federal supply schedule:
HCUP: Healthcare Cost and Utilization Project:
HHS: Department of Health and Human Services:
IPPS: inpatient prospective payment system:
MEDPAR: Medicare Provider Analysis and Review:
MFC: Most- Favored Customer:
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of
2003:
MTF: Military Treatment Facility:
PPI: Producer Price Index:
TMA: TRICARE Management Activity:
VA: Department of Veterans Affairs:
X STOP: X STOP Interspinous Process Decompression System:
United States Government Accountability Office:
Washington, DC 20548:
September 26, 2007:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable Charles B. Rangel:
Chairman:
The Honorable Jim McCrery:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
At $119.4 billion, spending for hospital inpatient services accounted
for more than a third of total Medicare spending in fiscal year 2005.
Most of these dollars were spent on care provided to Medicare
beneficiaries by the approximately 4,000 acute care hospitals that bill
Medicare under its inpatient prospective payment system (IPPS). Under
the IPPS, a hospital generally receives a fixed, prospectively
determined payment amount for each inpatient stay.[Footnote 1] Paying
prospectively encourages hospitals to operate efficiently, as they
retain the difference if the payment for the inpatient stay exceeds the
hospital's cost of providing the stay.
Medicare law requires that IPPS payments account for variation in the
costs of providing different types of inpatient stays.[Footnote 2]
Consequently, the Centers for Medicare & Medicaid Services (CMS), the
agency within the Department of Health and Human Services (HHS) that
administers Medicare, classifies inpatient stays using a system of
diagnosis-related groups (DRG). The number of DRGs changes from year to
year. For fiscal year 2007, each inpatient stay billed to Medicare is
assigned to one of 538 DRGs based on patient diagnosis and procedures
performed. Inpatient stays assigned to the same DRG are expected to
have clinical and cost similarities. Hospitals are paid for an
inpatient stay based on the assigned DRG's weight, which reflects the
relative costliness of all inpatient stays assigned to that DRG
compared to inpatient stays assigned to all DRGs.[Footnote 3] DRG
classifications and weights are the basis for DRG payments to
hospitals. In addition to the DRG-based payment, hospitals may receive
a supplemental payment, known as an outlier payment, if the costs of
the inpatient stay substantially exceed the DRG-based payment for that
stay.
A major challenge for the IPPS is to maintain a system of DRGs that
accounts for the use of new technologies, which can substantially
change the costs hospitals incur in providing different types of
inpatient stays.[Footnote 4] For example, a new technology may be
clinically advantageous yet so expensive that a hospital's overall cost
increases substantially when it provides the technology as part of an
inpatient stay. In contrast, the use of an alternative new technology
may decrease the overall cost of an inpatient stay--even if the
technology is expensive--because it can reduce complications and the
length of time patients spend in the hospital. Hospitals consider a
range of factors--in addition to payment--before they adopt a new
technology, including the extent of its clinical benefit or the needs
of their patient populations.
To address changes in the cost of inpatient care, including the use of
new technologies, CMS annually revises the DRGs using data that are
"internal" to the Medicare program--that is, inpatient claims, which
are bills hospitals submit to CMS for inpatient services rendered to
Medicare beneficiaries.[Footnote 5] CMS compiles data from these
inpatient claims into an electronic file, known as the Medicare
Provider Analysis and Review (MEDPAR) file. The MEDPAR file includes
all charges from inpatient claims for inpatient services provided to
all Medicare beneficiaries across all hospitals paid under the IPPS. In
a process known as DRG reclassification, CMS uses the data from the
MEDPAR file to revise the assignment of diagnoses and procedures to
particular DRGs to ensure that each DRG continues to represent
inpatient stays with cost and clinical similarities. Once inpatient
stays assigned to various DRGs have been reclassified, CMS calculates
the payment weights for all the DRGs, so that each weight reflects the
average expected costliness of inpatient stays that will be assigned to
that DRG relative to inpatient stays that will be assigned to all DRGs.
Because CMS does not have a direct measure of the actual cost of
inpatient stays, it has relied on a proxy measure--the amount hospitals
charge Medicare on claims. Until October 1, 2006, CMS had used the
average charges of all inpatient stays assigned to each DRG to
represent the relative costliness of inpatient stays in that DRG
compared to the average charge for all inpatient stays. Effective
October 1, 2006, CMS uses the average estimated cost per inpatient stay
to measure the relative costliness of each DRG.
The DRG classifications and weights are based on data from inpatient
claims for inpatient services provided 2 fiscal years prior.[Footnote
6] As a result, certain DRG weights do not reflect the cost of the most
recent technologies, or those adopted by hospitals in the previous
fiscal year. Manufacturers of new technologies have raised concerns
that CMS's reliance on data from the MEDPAR file to annually revise the
DRG classifications and weights may result in inadequate payments to
hospitals for inpatient stays involving the new technologies.
Furthermore, they have raised concerns that inadequate payments could
jeopardize beneficiary access to these technologies.
To address concerns about the timeliness of data from the MEDPAR file
with respect to new technologies, the conference report for the
Balanced Budget Act of 1997 (BBA)[Footnote 7] directed CMS to consider
using data that are "external" to the Medicare program--for example,
claims data from other payers--when it reclassifies and weights the
DRGs,[Footnote 8] to the extent that doing so is "feasible" and the
data are "reliable" and "validated."[Footnote 9] In response to the BBA
conference report, CMS instituted a policy whereby manufacturers and
other stakeholders--for example, hospitals--could submit external data
to CMS to help demonstrate that inpatient stays involving a particular
new technology are costlier on average than other inpatient stays
assigned to the same DRG, and should be assigned to a DRG with a higher
payment weight. The Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000 (BIPA) required CMS to make additional
payments for inpatient stays that, because they involve new
technologies that may increase overall costs, would be inadequately
paid under DRG-based payments alone.[Footnote 10] In response to the
BIPA provision, CMS implemented "add-on payments" to hospitals for
certain expensive new technologies that meet three eligibility criteria
for being new, costly, and a substantial clinical improvement over
existing technologies. CMS stated that it could use data from external
sources to identify technologies that are appropriate for these add-on
payments, because those technologies would not be represented in
inpatient claims. CMS projected that it would spend approximately $32
million in fiscal year 2007--approximately 0.03 percent of total IPPS
spending--on add-on payments.[Footnote 11]
Manufacturers of new technologies have stated that CMS has not
sufficiently used external cost data they may provide on behalf of
their products when it reclassifies and weights DRGs or evaluates new
technologies for the add-on payments. The Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA), required us to
examine whether CMS could improve its use of external data under the
IPPS, including whether data collected by other government agencies
would be best suited for CMS to use in setting payments for inpatient
stays.[Footnote 12] As discussed with the committees of jurisdiction,
we examined (1) to what extent CMS has used external data in
determining payments for inpatient stays involving new technologies,
and (2) to what extent external data from other government agencies can
be used by CMS in determining DRG payments for inpatient stays
involving new technologies.
To examine to what extent CMS has used external data in determining
payments for inpatient stays involving new technologies, we reviewed
IPPS regulations and other CMS materials and interviewed officials from
CMS and HHS.[Footnote 13] We interviewed representatives from two
hospital associations--the American Hospital Association and the
Association of American Medical Colleges--and two associations of
technology manufacturers--the Advanced Medical Technology Association
and the Biotechnology Industry Organization. Additionally, we
interviewed officials from four individual drug and device
manufacturers and one hospital that we identified as having submitted
external data to CMS.
To examine to what extent external data from other government agencies
can be used by CMS in determining DRG payments for inpatient stays
involving new technologies, we reviewed IPPS regulations and other CMS
materials and interviewed officials from CMS and HHS. In addition, we
interviewed officials from the Bureau of Labor Statistics (BLS) in the
Department of Labor (DOL) because BLS collects price information for
new technologies. We also interviewed officials from the Department of
Veterans Affairs (VA), the Department of Defense (DOD), and the Agency
for Healthcare Research and Quality (AHRQ) in HHS because we identified
these agencies as having inpatient stay information, including cost or
charge data, that they collect for their own purposes that could be
useful to Medicare. We conducted our work from December 2004 through
January 2006 and from August 2006 through August 2007 in accordance
with generally accepted government auditing standards.
Results in Brief:
CMS has used external data for two purposes: to inform DRG
reclassification and to evaluate new technology add-on payment
applications. To inform DRG reclassification, CMS accepts the
submission of external data that are intended to demonstrate that
inpatient stays involving a new technology are costlier on average than
the other inpatient stays in the same DRG. CMS uses data from the
MEDPAR file to validate the external data submitted. Specifically, when
external data are submitted for a proposed DRG reclassification for a
procedure or new technology, CMS's policy is to find the same or
similar evidence in the MEDPAR file. Generally, CMS will not make a
reclassification decision for a DRG involving a new technology if the
technology is so new that it does not appear in the MEDPAR file. To
evaluate new technology add-on payment applications, CMS has generally
used external data in conjunction with data from the MEDPAR file to
evaluate whether a new technology meets one of the three eligibility
criteria, specifically the criterion related to cost.
Data from other government agencies have limitations for CMS's setting
DRG payments for inpatient stays involving new technologies. This is
because, when setting DRG payments, CMS generally needs data that are
representative of the Medicare population, timely, and complete in that
the data include the total charge or other measure of costliness for
all services provided during an inpatient stay, including new
technologies. The data we identified from BLS, VA, DOD, and AHRQ were
either not representative of the Medicare population, were no timelier
than data from the MEDPAR file, or were not complete.
Data from the MEDPAR file remain the primary data source for setting
DRG payments because they include all charges from inpatient claims for
inpatient services provided to all Medicare beneficiaries across all
hospitals paid under the IPPS. CMS needs these data to determine
payment for each DRG relative to other DRGs. In instances where data
from the MEDPAR file have lacked charge information for certain stays
involving new technologies, CMS has used external data to inform the
DRG reclassification process and to evaluate new technology add-on
payment applications. To set DRG payments, CMS needs data that meet
criteria of being representative, timely, and complete. Although BLS,
VA, DOD, and AHRQ collect data for their own purposes that could
potentially be useful to CMS, these data are limited in their utility
to set DRG payments because they do not always meet CMS's criteria.
In commenting on a draft of this report, CMS stated that it agreed with
our findings and reiterated its commitment to using external data when
appropriate. DOD offered no comments on the draft of this report. VA
agreed with the facts as they pertain to the department. We also sent a
draft to DOL. DOL did not provide comments. Industry association
reviewers agreed with our findings but said that we should have
discussed CMS's use of data from sources other than the federal
government. As we discussed in the draft report, CMS has used external
data from sources other than the federal government including
manufacturer data to inform DRG reclassification and evaluate new
technology add-on applications.
Background:
Under the IPPS, hospitals are not paid separately for each item or
service they provide. Rather, payment is based on the DRG to which the
entire inpatient stay is assigned. Each of the 538 DRGs has a
classification, that is, an assigned combination of any of the
approximately 17,000 diagnoses and procedures codes. When codes for
these diagnoses and/or procedures appear together on a claim,[Footnote
14] the inpatient stay is assigned to the appropriate DRG and paid
accordingly.[Footnote 15] In addition, CMS determines if the inpatient
stay is eligible for an outlier payment beyond the DRG
payment.[Footnote 16] Hospitals can receive outlier payments for
individual inpatient stays determined to be extremely costly if a
hospital can demonstrate that the estimated cost of an individual
inpatient stay exceeds a cost threshold established by CMS.
CMS Annually Revises DRG Classifications and Payment Weights:
Medicare law requires CMS to revise the DRG classifications and payment
weights at least annually to reflect changes in treatment patterns, new
medical services and technologies, and other factors that may change
the relative costliness of an inpatient stay.[Footnote 17] To
accomplish this, CMS assembles a MEDPAR file from inpatient claims for
a fiscal year, so that the file contains one record for each inpatient
stay provided during that year. A MEDPAR record includes the admission
and discharge dates, patient and hospital identifiers, and codes that
identify the diagnosis and the procedures delivered during the
inpatient stay. The record also contains the hospital's total charge
for the inpatient stay. The total charge represents the charges for all
services--including any new technology, drugs, or supplies--provided
during the inpatient stay. The total payment to the hospital is also
included in the MEDPAR record. MEDPAR records do not indicate the
hospital's actual cost for the inpatient stay or the cost of individual
procedures, which are not recorded on claims by hospitals.
CMS uses data from the MEDPAR file to revise the DRGs for the coming
fiscal year. It revises the DRGs in a two-step process:
reclassification of DRGs and calculation of DRG payment weights. First,
CMS incorporates new codes into the IPPS that represent new diagnoses
or procedures by assigning them to the same DRGs as existing codes for
clinically similar diagnoses or procedures.[Footnote 18] Using data
from the MEDPAR file, CMS may reclassify the DRG assignment of
inpatient stays with a particular procedure or diagnosis code if it
determines the inpatient stays are more similar in their clinical
characteristics and costliness to a DRG other than the DRG to which
those stays were previously assigned.[Footnote 19] CMS will create a
new DRG if it determines that the inpatient stays involving newly
identified diagnoses and procedures cannot be described by any of the
existing DRGs.[Footnote 20] The classification of most DRGs does not
change from year to year.[Footnote 21]
The second step in revising the DRGs involves calculating weights
across all DRGs, so that the DRGs reflect the expected relative
differences in costliness of inpatient stays for the upcoming fiscal
year. Prior to fiscal year 2007, CMS annually derived each DRG's weight
by dividing the average charge per inpatient stay for that DRG by the
average charge per inpatient stay across all DRGs for a fiscal year.
Effective fiscal year 2007, CMS uses charge data from the MEDPAR file
and hospitals' cost-to-charge ratios from Medicare cost reports to
estimate the costs per inpatient stay. CMS then uses these average
estimated costs to measure the relative costliness of inpatient stays
that will be assigned to each DRG.
In reclassifying and weighting DRGs, CMS generally requires that the
data meet three criteria: (1) the data must be representative of the
Medicare population; (2) the data must be timely--that is, they should
be the most recent data available; and (3) the data must be complete--
meaning that CMS needs total charges or other measure of costliness for
all services provided during an inpatient stay. Charge data collected
at the inpatient-stay level allow CMS to appropriately measure relative
costliness across the DRGs.
DRG Classifications and Payment Weights for Any Given Fiscal Year Are
Based on Inpatient Claims Data That Do Not Reflect the Cost of the Most
Recent Technologies:
The DRG classifications and payment weights for any given fiscal year
are based on data from the MEDPAR file for inpatient services provided
2 fiscal years prior, and therefore, do not reflect the cost of the
most recently used technologies. For example, during the summer of
2006, when CMS was finalizing the DRGs for fiscal year 2007, the most
recent data pertained to inpatient services provided through the end of
fiscal year 2005, and did not reflect the cost of technologies first
adopted by hospitals in fiscal year 2006.
The time lag in the data that are used to set DRG classifications and
weights is primarily due to two factors in combination: the time it
takes to annually finalize the DRGs, and the time it takes for CMS to
process each inpatient claim into a MEDPAR record. First, Medicare law
requires that DRG classifications and weights be revised annually and
published in the Federal Register on or before the August 1 before each
fiscal year.[Footnote 22] Fiscal years begin October 1 and end the
following September 30. In order to obtain public input, CMS generally
publishes its proposed DRGs for the coming fiscal year in the Federal
Register each April and accepts comments for 60 days before publishing
the final DRGs by August.
The second factor that affects the incorporation of the cost of new
technologies into the MEDPAR file involves the time it takes for CMS to
process each inpatient claim into a MEDPAR record. Before a record for
an inpatient stay can be added to the MEDPAR file, the hospital must
submit the claim, a private contractor must process and pay the claim,
and CMS must create a MEDPAR record using information on the claim. It
takes about 6 months from the time of the inpatient stay to the time
the MEDPAR record for that inpatient stay is created. In addition, the
MEDPAR record may not be added to the MEDPAR file until as much as 3
months later, since the MEDPAR file is updated quarterly--in December,
March, June, and September. This means that MEDPAR records are not
available to CMS until 6 to 9 months after the inpatient stay has
occurred. (See fig. 1.)
Figure 1: Process by Which CMS Used the MEDPAR File to Propose and
Finalize DRGs for Fiscal Year 2007 DRG Payments:
[See PDF for image]
Source: GAO analysis of CMS's fiscal year 2007 proposed and final
rules.
[End of figure]
Add-on Payments for New Technologies Can Supplement DRG Payments:
Because DRG payments for a given fiscal year are based on claims for
inpatient services provided 2 fiscal years prior, Medicare can provide
hospitals with add-on payments, in addition to the DRG-based payments,
for inpatient stays involving certain new technologies. CMS designates
technologies for add-on payments if they meet specified criteria for
being new, costly, and a substantial clinical improvement over existing
technologies. CMS considers a technology new if no more than 2 to 3
years have passed between the date when the technology was first
introduced on the market, as identified by CMS, and the payment
year.[Footnote 23] At the end of this period, CMS assumes the costs for
the technology to be fully reflected in the most recent MEDPAR file and
supplemental add-on payments are no longer necessary. CMS considers a
new technology costly if the average amount charged by hospitals for
all inpatient stays involving the technology exceeds a charge threshold
or a predetermined amount.[Footnote 24] CMS considers a new technology
a substantial clinical improvement over existing technologies if the
technology has one or more unique clinical advantages--for example, the
technology diagnoses a medical condition in a patient population where
that condition was previously undetectable.
Every year, CMS accepts applications from technology manufacturers,
hospitals, and other stakeholders, in which they present evidence that
certain technologies meet the criteria for add-on payments in the
coming fiscal year. When CMS publishes its final DRG classifications
and weights, it summarizes each application, and explains why the
particular technology was approved or rejected for add-on payments. For
fiscal year 2007, CMS approved one new application and continued add-on
payments for two technologies approved for fiscal year 2006.[Footnote
25] As a result, hospitals receive an add-on payment, in addition to a
DRG payment, when they submit a claim to Medicare that includes the
code for a procedure involving one of those three technologies. The
amount of the add-on payment is determined on a claim-by-claim basis;
the hospital receives up to half the estimated cost of the technology,
depending on the amount by which the total cost of the inpatient stay
is estimated by CMS to exceed the DRG-based payment.[Footnote 26]
CMS Has Used External Data to Inform DRG Reclassification and to
Evaluate New Technology Add-on Payment Applications:
CMS has used external data for two purposes: to inform DRG
reclassification and to evaluate new technology add-on payment
applications. To inform DRG reclassification, CMS accepts the
submission of external data that are intended to demonstrate that
inpatient stays involving a new technology are costlier on average than
the other inpatient stays in the same DRG. CMS uses data from the
MEDPAR file to validate the external data submitted. Generally, CMS
will not make a reclassification decision for a DRG involving a new
technology if the technology is so new that it does not appear in the
MEDPAR file. To evaluate new technology add-on payment applications,
CMS has generally used external data in conjunction with data from the
MEDPAR file to evaluate whether a new technology meets one of three
eligibility criteria, specifically, the criterion related to cost.
CMS Has Used External Data to Inform the DRG Reclassification Process
on Inpatient Stays Involving New Technologies:
CMS officials told us they have used external data to inform the DRG
reclassification process. External data are submitted by stakeholders
as part of a request to reclassify--from one DRG to another--certain
procedure codes involving particular new technologies. Although CMS
will accept the submission of external data, it has used data from the
MEDPAR file to validate the external data submitted.[Footnote 27]
Specifically, when external data are submitted for a proposed DRG
reclassification for a procedure or new technology, CMS's policy is to
find the same or similar evidence in the MEDPAR file. CMS encourages
stakeholders to submit their external data for DRG reclassification
purposes by the December before the issuance of the proposed rule the
following April.
Although there is no formal application process to request a DRG
reclassification, CMS explained its policy for accepting external data
submissions in its July 30, 1999, notice of final rulemaking.[Footnote
28],[Footnote 29] It stated that external data submissions must be
sufficiently detailed--include applicable hospital and beneficiary
identifiers, procedure and diagnosis codes, admission and discharge
dates, and total charges for each inpatient stay involving the codes--
so that CMS can validate whether the same, or similar, inpatient stays
appear in the MEDPAR file. CMS also requires that the external data
submitted comprise a complete set, or representative sample, of cases
involving the technology. CMS will not reclassify a procedure code from
one DRG to another based on the external data submission alone. As a
result, CMS generally will not make a DRG reclassification involving a
technology that is so new it does not yet appear in the MEDPAR
file.[Footnote 30]
CMS Has Used External Data to Evaluate Applications for New Technology
Add-on Payments:
CMS has used external data to evaluate applications for new technology
add-on payments to better recognize the cost of technologies that are
clinically beneficial yet would not be fully reflected in the MEDPAR
file. CMS designates technologies for add-on payments if they meet
specified criteria for being new, costly, and a substantial clinical
improvement over existing technologies. CMS's use of external data is
limited to its evaluation of the cost criterion. CMS has generally used
external data and data from the MEDPAR file to evaluate whether a new
technology that is being considered for an add-on payment meets the
criterion for being considered costly.[Footnote 31]
As of fiscal year 2007, according to our review of CMS regulations and
our interviews with CMS officials, CMS has received few applications
for add-on payments--a total of 25, which is an average of about 5 per
year since fiscal year 2002. All but two applications were submitted by
device and drug manufacturers. When CMS receives an application for a
new technology add-on payment, it first evaluates whether the
technology meets the criterion of being new before it evaluates the
technology under the cost and clinical improvement criteria. The
majority of new technology add-on payment applications have been
rejected because the technology failed to meet the newness criterion.
For these applications, CMS did not have to review any information
related to the cost and clinical improvement criteria, including
external data related to the cost criterion. Of the 25 applications
received, CMS evaluated 14 under the cost criterion. Of these 14
technologies, CMS approved 7 for new technology add-on payments.
When CMS evaluates new technologies under the cost criterion, it uses
external data in conjunction with data from the MEDPAR file to
determine whether the technology meets the cost criterion.[Footnote 32]
Table 1 illustrates three hypothetical scenarios in which CMS, during
fiscal year 2007, could use external data in conjunction with data from
the fiscal year 2006 MEDPAR file in determining if a new technology is
eligible for add-on payments for fiscal year 2008 under the cost
criterion.
Table 1: Three Hypothetical Scenarios in Which CMS, during Fiscal Year
2007, Could Determine Eligibility under the Cost Criterion for Fiscal
Year 2008 Add-on Payments:
Scenario: The new technology became available on the U.S. market in
2006, was adopted by a few hospitals by the end of that year, and was
provided by those hospitals to Medicare beneficiaries;
Does the fiscal year 2006 MEDPAR file contain data on stays involving
the new technology?: Yes;
Is the charge for the new technology included in the total charge in
the fiscal year 2006 MEDPAR file for each stay involving the
technology?: Yes;
What data does the applicant[A] submit to CMS to demonstrate that the
new technology meets the charge threshold[B] established by CMS for the
cost criterion?: The applicant submits an analysis comparing the
average charge of the stays involving the new technology based on data
from the fiscal year 2006 MEDPAR file to the charge threshold;
How does CMS use data from the fiscal year 2006 MEDPAR file to verify
that the new technology meets the charge threshold established by CMS
for the cost criterion?: CMS conducts its own analysis using data from
the fiscal year 2006 MEDPAR file to validate the accuracy of the
applicant's analysis.
Scenario: The new technology was not available on the U.S. market until
2007. However, in 2006 it was provided to Medicare beneficiaries by a
few U.S. hospitals that received the technology at no charge for use in
clinical trials;
Does the fiscal year 2006 MEDPAR file contain data on stays involving
the new technology?: Yes;
Is the charge for the new technology included in the total charge in
the fiscal year 2006 MEDPAR file for each stay involving the
technology?: No[C];
What data does the applicant[A] submit to CMS to demonstrate that the
new technology meets the charge threshold[B] established by CMS for the
cost criterion?: Using external data, the applicant estimates what U.S.
hospitals would have charged for the technology on average in 2006. The
applicant then submits an analysis comparing the average charge of
inpatient stays involving the new technology in 2006 based on data from
the fiscal year 2006 MEDPAR file to the charge threshold;
How does CMS use data from the fiscal year 2006 MEDPAR file to verify
that the new technology meets the charge threshold established by CMS
for the cost criterion?: CMS evaluates the reasonableness of the
applicant's estimated hospital charges for the technology. If CMS
determines the estimates are reasonable, it verifies the accuracy of
the applicant's analysis of data using the fiscal year 2006 MEDPAR
file.
Scenario: The technology was not available on the U.S. market until
2007. Although it was provided to patients in 2006 in clinical trials,
the trials were conducted in Europe and the patients were not Medicare
beneficiaries;
Does the fiscal year 2006 MEDPAR file contain data on stays involving
the new technology?: No;
Is the charge for the new technology included in the total charge in
the fiscal year 2006 MEDPAR file for each stay involving the
technology?: Not applicable;
What data does the applicant[A] submit to CMS to demonstrate that the
new technology meets the charge threshold[B] established by CMS for the
cost criterion?: The applicant submits external data from U.S.
hospitals from 2007--for example, copies of bills from hospitals that
provided the technology to Medicare beneficiaries during inpatient
stays. The applicant compares the average charge calculated for these
stays, which includes charges for the new technology, to the charge
threshold;
How does CMS use data from the fiscal year 2006 MEDPAR file to verify
that the new technology meets the charge threshold established by CMS
for the cost criterion?: CMS verifies the accuracy of the applicant's
external data analysis using data from the fiscal year 2006 MEDPAR
file. For example, CMS could locate stays in the fiscal year 2006
MEDPAR file that likely would have involved the technology had it been
available to U.S. hospitals. CMS would calculate an average charge for
those stays, add the estimated charge for the new technology, and
subtract the estimated charge for the technology it may be replacing to
arrive at a total estimated charge for those stays had they involved
the new technology.
Source: GAO based on CMS regulations and interviews with CMS officials.
[A] "Applicant" refers to a manufacturer, hospital, or other
stakeholder. Although hospitals receive the add-on payment, almost all
applicants for new technology add-on payments have been technology
manufacturers.
[B] Specifically, the charge for the inpatient stay involving the new
technology must exceed the lower of two thresholds: (1) 75 percent of
the base payment amount adjusted to reflect charges, or (2) 75 percent
of a standard deviation beyond the average charge of all stays that
fall within the DRG to which the new technology is assigned. 42 U.S.C.
§ 1395ww(d)(5)(K)(ii)(I) (2000 & Supp. III 2003).
[C] Data from the MEDPAR file may not include charges for a new
technology if patients were in a clinical trial and the technology was
provided to hospitals at no charge.
[End of table]
Data from Other Government Agencies Have Limitations for Setting DRG
Payments for Inpatient Stays Involving New Technologies:
Data collected and used by other government agencies have limitations
for CMS's use in setting DRG payments for inpatient stays involving new
technologies. This is because, when setting DRG payments, CMS generally
needs data that are representative of the Medicare population, timely,
and complete in that the data include the total charge or other measure
of costliness for all services provided during an inpatient stay,
including new technologies. The data we identified from BLS, VA, DOD,
and AHRQ were either not representative of the Medicare population,
were no timelier than data from the MEDPAR file, or were not complete.
BLS collects monthly selling prices for samples of products from three
industries that may have data relevant to CMS because these data
include price information for new technologies: medical instruments,
pharmaceuticals, and biological products.[Footnote 33] These data,
collected from manufacturers, are used to publish the Producer Price
Index (PPI), which tracks the inflation of prices by producers of goods
and services at the national level.[Footnote 34] Because BLS cannot
obtain pricing for every medical instrument and pharmaceutical and
biological product sold, it employs a sampling methodology to track
prices. Using probability statistics, BLS selects a sample of products
whose price changes over time will be representative of the price
changes characteristic of the medical instrument and pharmaceutical and
biological product industries. Generally, BLS selects a new sample of
products per industry every 7-8 years.[Footnote 35] The monthly selling
prices collected include prices for transactions between manufacturers
and hospitals, wholesalers, group purchasing organizations, or other
customers.
BLS data have a number of limitations that would affect CMS's use in
setting DRG payments. Because the selling prices reflect transactions
between manufacturers and a variety of purchasers such as group
purchasing organizations as well as hospitals, not all of these prices
are directly relevant for setting DRG payments. To set payments, CMS
needs data that reflect hospitals serving Medicare beneficiaries. In
addition, since BLS relies on a sample of products from each industry,
and the sample is generally updated on average every 7-8 years, it is
unlikely that BLS will have price data for a new technology that CMS
does not already have, or cannot obtain from a manufacturer. Finally,
the BLS data lack information needed by CMS on the costliness of
inpatient stays involving the technology relative to other inpatient
stays; instead, they only include price data for the technology alone.
Two types of VA data, price data from the federal supply schedule (FSS)
and data on inpatient stays at VA hospitals, also have limitations that
would affect CMS's use in setting DRG payments. VA collects data from
drug and device manufacturers on the prices manufacturers charge their
Most-Favored Customers (MFC).[Footnote 36] These data are used to
negotiate prices on the FSS, which is a schedule of prices for products
used by federal agencies. Prices on the FSS are awarded at equal to or
better than the prices manufacturers charge their MFCs. Because all
federal agencies and programs may access FSS price information on the
Internet, CMS already has access to these prices. Similar to BLS data,
FSS data are not complete for CMS's purposes because they lack
information on the costliness of inpatient stays involving the
technology relative to other inpatient stays.
VA also collects data on inpatient stays at its medical
centers.[Footnote 37] These data are complete for CMS's purposes in
that they include all services provided during inpatient stays and
their associated costs, including the cost of any new technologies.
However, there are still limitations for CMS's use of these data in
setting DRG payments. First, the costs of providing care at VA medical
centers may not be representative of the costs of providing care at
hospitals that provide care to Medicare beneficiaries. VA is a provider
of services and, as such, VA has the authority to purchase new
technologies at discounted rates through various federal purchasing
options, such as the FSS. Medicare, on the other hand, is a payer--not
a provider--of services and does not purchase drugs and devices for
hospitals. Therefore, Medicare does not negotiate discounts on behalf
of hospitals providing services to Medicare beneficiaries. Furthermore,
VA inpatient stay data are no timelier than MEDPAR data for determining
payments to hospitals. For example, VA's allocation of funding to its
medical centers for fiscal year 2007 is based on data spanning fiscal
years 2003 through 2005.[Footnote 38] Medicare used fiscal year 2005
data to develop fiscal year 2007 DRG payments.
DOD data also have limitations for CMS's use in setting DRG payments.
DOD health care delivery consists of two integrated systems: the direct
care system delivered by DOD hospitals, known as Military Treatment
Facilities (MTF), and the civilian system. The latter is coordinated by
the TRICARE Management Activity (TMA), which contracts with managed
care organizations to deliver care, including inpatient services. Data
from the DOD direct care system would not meet CMS's criterion for
completeness for two reasons. First, DOD collects overall cost data at
the facility level rather than the inpatient-stay level. CMS needs
charge or cost data at the inpatient stay level to set DRG payments.
Second, while DOD uses cost and pricing data from a variety of sources
when purchasing medical products, such as drugs and devices for its
MTFs, these data alone are not appropriate for CMS's use in setting DRG
payments because CMS needs information on the costliness of inpatient
stays involving the technology relative to other inpatient stays.
Data from the DOD civilian system also have limitations for CMS's use
in setting DRG payments. TMA pays for inpatient stays using a DRG-based
payment system that is modeled on the Medicare IPPS.[Footnote 39]
Although TMA's data would be complete for CMS's purposes in that the
data include total charges for all services provided during an
inpatient stay, they would not meet CMS's criterion for
representativeness. According to DOD, its population tends to be
younger and healthier and, therefore, not comparable to the Medicare
population.[Footnote 40]
AHRQ collects claims data from nearly all nongovernmental acute care
hospitals in 38 states and these data represent approximately 90
percent of inpatient stays in the United States. AHRQ partners with
state organizations, which collect claims data directly from hospitals;
these data are then submitted to AHRQ. According to AHRQ, these data,
which are available to researchers through the Healthcare Cost and
Utilization Project (HCUP) claims database, are representative of the
Medicare population overall.[Footnote 41] The data from the HCUP
database are also complete in that they include charge, diagnosis, and
procedure information from Medicare as well as private payers. Although
data from the HCUP database would meet CMS's criteria for being
representative of the Medicare population and are complete, these data
are less timely than data from the MEDPAR file. AHRQ data lag between
15-18 months, so, for example, if CMS were to use data from the HCUP
database to set payments for fiscal year 2007, the latest available
data from AHRQ would include inpatient services for calendar year 2004,
while the latest available data from the MEDPAR file would include
inpatient services from fiscal year 2005.
Concluding Observations:
Data from the MEDPAR file remain the primary data source for setting
DRG payments because they include all charges from inpatient claims for
inpatient services provided to all Medicare beneficiaries across all
hospitals paid under the IPPS. CMS needs these data to determine
payment for each DRG relative to other DRGs. In instances where data
from the MEDPAR file have lacked charge information for certain stays
involving new technologies, CMS has used external data to inform the
DRG reclassification process and to evaluate new technology add-on
payment applications. To set DRG payments, CMS needs data that meet
criteria of being representative, timely, and complete. Although BLS,
VA, DOD, and AHRQ collect data for their own purposes that could
potentially be useful to CMS, these data are limited in their utility
to set DRG payments because they do not always meet CMS's criteria.
Agency and Other External Comments:
In commenting on a draft of this report, CMS stated that it agreed with
our findings and reiterated its commitment to using external data when
appropriate. (See app. I.) DOD said it had no comments on the draft of
this report. (See app. II.) We received comments from VA via email. The
department agreed with the facts as they pertain to VA. We also sent a
draft of this report to DOL. DOL did not provide comments.
Representatives from American Hospital Association (AHA), Association
of American Medical Colleges (AAMC), and the Biotechnology Industry
Organization (BIO) provided oral comments on a draft of this report.
They said they agreed with our findings related to the use of external
data by CMS.
With regard to our finding that data from other government agencies
have limitations for CMS's use in setting DRG payments, both AAMC and
BIO said we should have discussed CMS's use of data from sources other
than the federal government. As we discussed in the draft report, CMS
has used external data from sources other than the federal government
including manufacturer data to inform DRG reclassification and evaluate
new technology add-on applications.
AAMC said it was concerned that we only examined how CMS used the
external data and did not conduct an evaluation of CMS's policy for
using external data. However, as discussed in the draft report, an
examination of CMS's policy for accepting external data was not within
the scope of the report.
In addition, CMS, AAMC and AHA offered technical comments on the draft
of this report, which we incorporated as appropriate.
We are sending a copy of this report to the Administrator of CMS and
interested congressional committees. We will also provide copies to
others on request. The report is available online at no charge on GAO's
Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions, please contact me at (202) 512-
7114 or steinwalda@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this
report are listed in appendix III.
Signed by:
A. Bruce Steinwald:
Director, Health Care:
[End of section]
Appendix I: Comments from the Centers for Medicare & Medicaid Services:
Department Of Health & Human Services:
Centers for Medicare & Medicaid Services:
Deputy Administrator:
Baltimore, MD 21244-1850:
July 27, 2007:
To: A. Bruce Steinwald:
Director, Health Care:
Government Accountability Office:
From: Herb B. Kuhn:
Acting Deputy Administrator:
Centers for Medicare & Medicaid Services:
Subject: Government Accountability Office's Draft Report: "Medicare
Inpatient Hospital Payments: CMS Has Used External Data for New
Technologies in Certain Instances and Medicare Remains Primary Data
Source" (GAO-07-46)
Thank you for the opportunity to review and comment on the Government
Accountability Office's (GAO) draft report entitled, "Medicare
Inpatient Hospital Payments: CMS Has Used External Data for New
Technologies in Certain Instances and Medicare Remains Primary Data
Source." We appreciate GAO's efforts to examine whether the Centers for
Medicare & Medicaid Services (CMS) could improve our use of external
data with respect to new technologies in informing diagnosis-related
group (DRG) reclassification and evaluating new technology add-on
applications for technologies used in hospitals paid under the
inpatient prospective payment system (IPPS). CMS agrees with GAO's
findings which suggest that we utilize external data, "to inform DRG
reclassification and to evaluate new technology add-on payment
applications" to the extent possible considering limitations of
external data (including other government agencies' data). We are
pleased that GAO's report acknowledges that data CMS uses for purposes
of DRG reclassification and new technology add-on payment application
evaluation needs to be "representative of the Medicare population,
timely, and complete" and we agree with that assessment.
The Medicare Prescription Drug, Improvement, and Modernization Act of
2003 required GAO to examine whether CMS could improve its use of
external data, including using data collected by other government
agencies for DRG payments. The GAO report acknowledges the limitations
in using such data and generally reinforces our approach for using
external data for DRG reclassification and new technology add-on
application evaluation. The GAO report did not suggest any alternatives
for our use of external data. We agree that there are currently no good
alternatives for us to use external data to a greater extent than we
presently do. However, we remain committed to using external data when
appropriate in the new technology add-on payment application evaluation
process. By using the best data available, we are better able to ensure
that Medicare beneficiaries will continue to have access to innovative
new technologies that might otherwise be too expensive to be used in
the inpatient hospital setting
Once again, thank you for your analysis of this issue and the
opportunity to review and comment on your report.
[End of section]
Appendix II: Comments from the Department of Defense:
Office Of The Assistant Secretary Of Defense:
Washington, DC 20301.1200:
Health Affairs:
July 23, 21107:
Mr. A. Bruce Steinwald:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, DC 20548:
Dear Mr. Steinwald:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO- 07-46, "Medicare Inpatient Hospital Payments: CMS Has Used
External Data for New Technologies in Certain Instances and Medicare
Remains Primary Data Source."
Thank you for the opportunity to review and provide comments on the GAO
Draft Report. I have no comments to offer.
My points of contact are Lt Col Jeanne Yoder (Functional) at (703) 681-
3492 ext. 4068 and Mr. Gunther Zimmerman (Audit Liaison) at (703) 681-
3492 ext. 4065.
Sincerely,
Signed by:
Stephen L. Jones:
DHA Principal Deputy Assistant Secretary:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
A. Bruce Steinwald, (202) 512-7114 or steinwalda@gao.gov:
Acknowledgments:
In addition to the contact above, Maria Martino, Assistant Director;
Melanie Anne Egorin; Yorick F. Uzes; and Craig Winslow made key
contributions to this report.
[End of section]
Footnotes:
[1] Throughout this report, we use "stay" to represent a patient's
hospitalization.
[2] 42 U.S.C. § 1395ww(d)(4)(C) (2000).
[3] Under the IPPS, payment also includes adjustments for geographic
variation in hospital wages, indirect expenses related to medical
education, a hospital's caseload of low-income patients, and other
factors.
[4] For purposes of this report, "new technology" is defined as a new
medical device, drug, or procedure.
[5] CMS also uses hospital cost reports, which are submitted annually
to CMS. Cost reports contain each hospital's aggregate information on
charges for services and the actual costs of providing those services
to all patients, as well as information on total charges and estimates
of costs for services provided to Medicare beneficiaries.
[6] For example, payments for fiscal year 2007 are based on data from
claims for services provided in fiscal year 2005.
[7] Pub. L. No. 105-33, 111 Stat. 251.
[8] External data can also include, but are not limited to,
manufacturer invoices and data from hospital data vendors.
[9] H. R. Rep. No. 105-217, at 734 (1997) (Conf. Rep.) External data
are not defined in statute. We define external data as data that are
not collected from hospitals by CMS.
[10] Pub. L. No. 106-554, app. F, sec. 533(b), §
1886(d)(5)(K)(ii)(III), 114 Stat. 2763, 2763A-548 (codified at 42
U.S.C. § 1395ww(d)(5)(K)(ii)(III) (2000)).
[11] 71 Fed. Reg. 47,870, 48,344 (Aug. 18, 2006).
[12] Pub. L. No. 108-173, § 942(c), 117 Stat. 2066, 2422.
[13] We did not examine or evaluate the add-on payment application
process, CMS's policy for accepting external data, or the adequacy of
the add-on and outlier payments made to hospitals.
[14] Hospitals bill procedures and diagnoses with codes provided by The
International Classification of Diseases, 9th Revision, Clinical
Modification Hyattsville, Md.: Centers for Disease Control and
Prevention, National Center for Health Statistics (Jan. 11, 2007).
[15] For example, a claim with a diagnosis code for heart failure and a
procedure code for the implantation of a pacemaker would be assigned to
DRG 115, "Permanent Cardiac Pacemaker Implant with Acute Myocardial
Infarction, Heart Failure, or Shock." CMS would then multiply the
weight for DRG 115 by a base payment amount, or the amount that
Medicare would pay for an average unit of service if no other payment
adjustments applied, to determine the hospital's base payment amount
for the stay. The higher the DRG weight the more costly the stays
assigned to that DRG are estimated to be and the higher the payment.
[16] For example, in fiscal year 2007, a hospital receives an outlier
payment if its estimated cost for a stay is at least $24,485 more than
its DRG payment for that stay. The actual amount of the outlier payment
will equal 80 percent of the difference between the two amounts.
[17] 42 U.S.C. § 1395ww(d)(4)(C) (2000).
[18] Codes for new procedures and diagnoses are assigned by CMS and the
National Center for Health Care Statistics, respectively, in a process
that is separate from the DRG reclassification process. New codes are
assigned for procedures and diagnoses that are deemed so different from
existing procedures and diagnoses that they warrant their own unique
identifiers.
[19] CMS makes a clinical determination to reclassify a DRG based on
input from the public as well as its own clinical staff. CMS evaluates
costliness by comparing the average charge for inpatient stays with the
particular code--as calculated using data from the MEDPAR file--to the
average charges for all stays assigned to the current and proposed
DRGs, respectively.
[20] For fiscal year 2008, CMS has proposed to refine the
classification of and expand the number of DRGs from 538 to 745 to
better reflect severity of illness and the cost of treating Medicare
beneficiaries. 72 Fed. Reg. 24,680, 24,687 (May 3, 2007).
[21] For fiscal year 2007, for example, CMS added 20 new DRGs, made
changes to the classifications of approximately 32 existing DRGs, and
deleted 8 DRGs. See 71 Fed. Reg. 47,870, 47,879 (Aug. 18, 2006).
[22] 42 U.S.C. § 1395ww(d)(6) (2000).
[23] BIPA required that CMS collect cost data on a new technology for a
2 to 3 year period and that a new technology be eligible for add-on
payments during that period. Pub. L. No. 106-554, app. F, sec. 533(b),
§ 1886(d)(5)(K)(ii)(III),114 Stat. 2763, 2763A-548 (codified at 42
U.S.C. § 1395ww(d)(5)(K)(ii)(III) (2000)). CMS established that the
beginning of the 2 to 3 years would be the date it determines that the
technology became available on the market. 69 Fed. Reg. 28,196, 28,237
(May 18, 2004).
[24] Specifically, the charge for the inpatient stay involving the new
technology must exceed the lower of two thresholds: (1) 75 percent of
the base payment amount adjusted to reflect charges, or (2) 75 percent
of a standard deviation beyond the average charge of all stays that
fall within the DRGs to which the new technology is assigned. 42 U.S.C.
§ 1395ww(d)(5)(K)(ii)(I) (2000 & Supp. III 2003).
[25] Specifically, CMS approved the new technology application for the
X-STOP Interspinous Process Decompression System and continued add-on
payments for the Endovascular Graft Repair of the Thoracic Aorta and
Restore ® Rechargeable Implantable Neurostimulator.
[26] To calculate the amount of the add-on payment, CMS converts the
charges billed for the inpatient stay to an estimated cost using the
hospital's cost-to-charge ratio. If the total estimated cost for the
inpatient stay is higher than the DRG-based payment, then the add-on
payment is 50 percent of the difference, up to half of the estimated
cost of the new technology.
[27] CMS was directed by the conference report accompanying the BBA to
only use external data it can validate. H.R. Rep. No. 105-217, at 734
(1997) (Conf. Rep.)
[28] CMS maintains a list of DRG issues raised throughout the year by
manufacturers, providers, and the general public. It reviews these
requests with its staff and analyzes external data if those data were
submitted. CMS does not address each and every DRG reclassification
request it receives throughout the year in its proposed or final rules
for the upcoming year, nor does it track how many times external data
were submitted with those reclassification requests.
[29] 64 Fed. Reg. 41,490, 41,499-504.
[30] CMS has made one reclassification decision for a medical
technology--drug-eluting stents--that had not yet received Food and
Drug Administration (FDA) approval, and therefore, did not appear in
the MEDPAR file. CMS explained that it took this action because of the
potential for drug-eluting stents to significantly impact the treatment
of coronary blockages, and the expectation that hospitals would rapidly
adopt the technology upon FDA approval. 67 Fed. Reg. 49,983, 50,004
(Aug. 1, 2002).
[31] CMS outlined the new technology add-on application process in its
September 7, 2001, final rule. 66 Fed. Reg. 46,902, 46,916.
[32] For example, in explaining the fiscal year 2007 final rule, CMS
summarized the application for the X STOP Interspinous Process
Decompression System (X STOP). The device manufacturer provided CMS
with data from clinical trials demonstrating that the total costs of
inpatient stays involving X STOP met the cost criterion. CMS verified
the standardized charge for the stays in the MEDPAR file. 71 Fed. Reg.
47,870, 48,003 (Aug. 18, 2006).
[33] BLS collects data on approximately 800 industries.
[34] BLS collects data for other purposes, including the Consumer Price
Index (CPI), which tracks the price of goods purchased by consumers.
BLS also collects data on the total reimbursement to hospitals and
other medical facilities for providing a sample of medical procedures.
[35] For pharmaceuticals, BLS augments its sample continuously to
reflect new products.
[36] MFC is generally the customer that receives the best discount or
has the best price arrangement on a given item.
[37] Although medical care to eligible veterans is provided by the VA,
some care is provided through arrangements with affiliated academic
medical centers and other contractors.
[38] VA's fiscal year 2007 budget for its medical centers and other
medical services was based on actuarial projections of expected
enrollees and patients for fiscal year 2007.
[39] 71 Fed. Reg. 60,112 (Oct. 12, 2006). DOD noted that the vast
majority of DOD's DRGs are the same as CMS's DRGs; however, DOD has
additional DRGs for neonatal cases and age-defined mental health and
substance abuse diagnoses.
[40] 52 Fed. Reg. 32,992, 32,998 (Sept. 1, 1987).
[41] Researchers must sign a data use agreement with AHRQ to access
HCUP data.
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