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					                                                                                       MCHC                   222 South Riverside Plaza
                                                                                       Metropolitan Chicago   Chicago, Illinois 60606-6010
                                                                                       Healthcare Council     Telephone 312-906-6000
                                                                                                              Facsimile 312-993-0779

                                           April 18, 2011
Officers and Directors

Bruce C. Campbell                          Centers for Medicare &Medicaid Services
Senior Consultant
Advocate Health Care                       Department of Health and Human Services
Chairman-Elect                             Attention: CMS-1406-P
Dennis A. Reilly
President/Chief Executive Officer
                                           PO Box 8011
Little Company of Mary Hospital and
Health Care Centers
                                           Baltimore, MD 21244-1850
Past Chairman
James T. Frankenbach                       RE: Comments on CMS-1406-P, Medicare Program; Proposed
Treasurer                                  Changes to the Hospital Inpatient Prospective Payment System for
Barry C. Finn
President/Chief Executive Officer          Acute Care Hospitals and Fiscal Year 2010 Rates – Proposed Rule
Rush-Copley Medical Center                 (Vol. 74, No. 98), May 22, 2009
President/Chief Executive Officer
Kevin Scanlan

Alan H. Channing
President/Chief Executive Officer          Dear Sir or Madam:
Sinai Health System

James A. Cohick, Jr., MBA, FACHE
Hospital Administrator
                                           The Metropolitan Chicago Healthcare Council (MCHC) represents over 140
Shriners Hospitals for Children-Chicago    hospitals and health systems in metropolitan Chicago and surrounding counties and
David L. Crane                             appreciates the opportunity to comment on behalf of our membership to the recently
President/Chief Executive Officer
Adventist Midwest Health                   published Proposed Changes to the Hospital Inpatient Prospective Payment
John J. DeNardo, MPH, FACHE                Systems for Fiscal Year 2010.
Chief Executive Officer
University of Illinois Healthcare System

Phillip Kambic
                                           After reviewing this proposed rule we submit the following concerns:
President/Chief Executive Officer
Riverside Medical Center

Brian Lemon
                                                  documentation and coding adjustment and labor market revision
Chief Executive Officer                           proposed cuts and changes to the hospital wage index
MacNeal Hospital

Thomas J. McAfee
                                                  payment cuts related to the capital payments.
President/Chief Executive Officer
Lake Forest Hospital
                                           We also request CMS settle pending appeals as they relate to the MCHC member
Jesus M. Ong
President/Chief Executive Officer          hospitals.
South Shore Hospital

Paul Pawlak
President/Chief Executive Officer
                                           MS-DRG DOCUMENTATION AND CODING ADJUSTMENT
Silver Cross Hospital

Patricia Shehorn                           The proposed rule includes a 1.9 percent cut to both operating and capital
Executive Vice President and
Chief Executive Officer                    payments in FY 2010 and beyond – $23 billion over 10 years – to correct the base
Westlake Hospital
                                           rate for payments made in FY 2008 that CMS claims are the effect of
Joanne Smith, M.D.
President/Chief Executive Officer          documentation and coding changes that do not reflect real changes in case mix. In
Rehabilitation Institute of Chicago
                                           combination with other policy changes, this cut results in hospitals being
Sister Elizabeth Van Straten
President/Chief Executive Officer
                                           paid $1 billion less in FY 2010 than in FY 2009. In its analysis of
Saint Bernard Hospital and                 documentation and coding changes, CMS concludes that from FY 2007 to FY
Health Care Center
                                           2008, there was a decline in real case mix; in contrast, the AHA analysis
Thomas L. Wright
President/Chief Executive Officer          found there is a historical pattern of steady annual increases of 1.2 to 1.3
Delnor-Community Hospital
                                           percent in real case mix and we are concerned that CMS’ conclusion is

Further, because CMS’ conclusion that real case mix declined is an inference based on its analysis of
documentation and coding-related increases, we are concerned that the 1.9 percent proposed cut also is
inaccurate and overstated. We recognize that CMS could have taken action to reduce payments more
than proposed in this rule. We appreciate that CMS did not propose cuts for documentation and
coding changes in FY 2009 or cuts to recoup the estimated documentation and coding
overpayments in FY 2008. However, the documentation and coding adjustment CMS does
propose will have a detrimental effect on hospitals – it will cut $2 billion for FY 2010 and $23
billion over 10 years from inpatient prospective payment system (PPS) payments. This decrease in
payment, on top of a Medicare payment system that is already severely underfunded, a weak economy,
Illinois State budget cuts and more, simply cannot be sustained. Given the severity of these cuts, and in
light of the fact that the AHA analysis shows real increases in patient severity, we urge CMS to
significantly mitigate its proposed documentation and coding cuts to reflect our findings of real
increases in case mix.


Labor-related Share. The MMA also requires CMS to revise the labor-related share every four years.
For FY 2010, CMS proposes to reduce the labor-related share from 69.7 percent to 67.1 percent due to
the use of more recent data, as well as removing a portion of professional fees from the labor-related
share. This proposed change, if adopted, would adversely affect hospitals with a wage index greater
than 1.0, thus the MCHC member hospitals.

We are concerned about the methodology CMS used to remove a portion of professional fees from the
labor-related share. To estimate the proportion of professional fees that are labor-related, CMS surveyed
hospitals regarding the proportion of those fees that go to companies that are located beyond their own
local labor market (and are therefore, not labor-related). However, CMS received only 108 responses to
its survey. It is statistically impossible for these 108 hospitals, which represent just 3 percent of PPS
hospitals, to constitute a representative sample. Further, the agency fails to share data on the
characteristics of the hospitals that responded, possible selection bias or survey methodology.

We ask CMS not to use the statistically dubious results of this survey to estimate the proportion of
professional fees that are labor-related. Rather, CMS should continue to consider these fees as it
has done historically and continue to investigate alternative methodologies for determining the proportion
that is labor-related.


Early on President Obama discussed accelerating governmental payments that will have to be disbursed
subsequently as a means to further stimulate the economy. The recommendations made herein discuss
such matters and disbursing such funds quickly (summer and fall of 2009) could result in a significant
hospital economic stimulus package that would assist the hospital industry to:

      Restart stalled capital expenditures

      Maintain hospital jobs; prevent further layoffs thereby providing for a more stable employment

      Begin to replenish hospital reserves and investments;

      Contribute to the economic turnaround needed so our country can lead the way out of the
       recession; and

      Focus the hospital industry professionals on prospective health reform rather than retroactive

       Therefore we ask that CMS:

        Recognize pension costs for wage indexes based on GAAP (regardless of funding) and settle
         pending appeals

        Settle the rural floor budget neutrality appeal and litigation by IPPS hospitals challenging a
         deflated standardized amount for fiscal years 1999-2009. Increase the standardized amount
         for FFY 2010 by an estimated $431 million.

        Settle outstanding DSH appeals and litigation involving the count of SSI days.

        Expand the Acumen report and MedPAC/BLS wage index study and search for additional
         acceptable alternatives.

       Recognize pension costs for wage indexes based on GAAP (regardless of funding).

Restore the policy originally published in the September 1, 1994 Federal Register (p. 45357) that
specified that hospitals should recognize pension and post retirement expense using Generally Accepted
Accounting Principles (GAAP) for inclusion in "wage related costs" for purposes of computing wage
indexes, regardless of funding status. Since 2005, CMS has required that defined benefit pension and
post retirement benefits must be "funded" before such costs are includable as a wage related cost.


The September 1, 1994 Federal Register clearly established the policy of using Generally Accepted
Accounting Principles (GAAP) regardless of funding status to recognize these costs and provided a
carefully considered justification for this methodology as follows:

       "[B]eginning on or after October 1, 1994, hospitals are required to follow GAAP in
       developing the wage-related costs contained in the Worksheet S-3 Part II, for purposes of
       the hospital wage index. Medicare principles, however, will continue to apply in
       determining the allowability of fringe benefit costs. The MTAG task force recommended
       application of GAAP for purposes of developing wage-related costs used to construct the
       hospital wage index. We believe it is appropriate to apply GAAP for these purposes
       because the function of the wage index is to measure relative hospital labor costs across
       areas. This function is distinct from that of cost reimbursement, in which applicable
       Medicare principles (which may differ from GAAP) measure the actual costs incurred by
       individual hospitals. We believe the application of GAAP for purposes of compiling data
       on wage-related costs used to construct the wage index will more accurately reflect labor
       costs, because certain wage-related costs (such as pension costs) as recorded under
       GAAP tend to be more static from year to year. Application of Medicare principles, on the
       other hand, could create large swings in these costs from year to year, particularly in
       years when there are large over- or under-funded pension estimates; such application
       might lead to a wage index that does not accurately reflect relative labor costs. Again, we
       emphasize that GAAP applies only for purposes of developing wage-related costs on
       Worksheet S-3 Part II. Our policy requiring the use of applicable Medicare principles for
       determining fringe benefits for all other purposes remains unchanged."

In the August 12, 2005 Federal Register (p. 47369), and at the urging of the Office of Inspector General,
CMS "clarified" this policy to require "funding" as another requirement (in addition to GAAP) to recognize
pension and post retirement benefit costs as a wage related cost as follows:
        "[A]s a result of an ongoing Office of Inspector General review, we are clarifying in this
        final rule that hospitals must comply with the requirements in 42 CFR 413.100, the PRM,
        Part I, sections 2140, 2141 and 2142, and related Medicare program instructions for
        developing pension and other deferred compensation plan costs as wage-related costs for
        the wage index. The Medicare instructions for pension costs and other deferred
        compensation costs combine GAAPs, Medicare payment principles, and Department of
        Labor and Internal Revenue Service requirements. We believe that the Medicare
        instructions allow for both consistent reporting among hospitals and for the development
        of reasonable deferred compensation plan costs for purposes of the wage index.

       With the FY 2007 wage index, hospitals and fiscal intermediaries must ensure that
       pension, post-retirement health benefits, and other deferred compensation plan costs for
       the wage index are developed according to the above terms."

The above provision did not directly state a requirement for "funding" deferred compensation plans, but in
PRM Sections 2140-2142, the requirement is clear. It must be noted that wage data reporting on
Worksheet S-3 and cost reporting on Worksheet A are subject to discrete sets of rules and guidance.
PRM Sections 2140-2142 govern Worksheet A cost reporting. Also clear is that this funding requirement
applies "for purposes of Medicare cost reimbursement," and contains no reference whatsoever to wage
data reporting. PRM-I, § 2142.3. That this change was retroactive cannot be debated. The pension and
post retirement data used in the construction of the Federal Fiscal Year 2007 data was derived from cost
reporting periods beginning as early as October 1, 2002, long before the August 12, 2005 "clarification".
Data used to construct the FFY 2008 and 2009 wage indexes came from fiscal years beginning as early
as October 1, 2003 and 2004 respectively, again before the August 15, 2005 "clarification" was issued.
CMS did insert a phrase in the S-3, Part II instructions in 2003 which the agency has since cited in an
attempt to justify retroactive rule making. This 2003 revision to Section 3605.2 of the PRM, Part II simply

stated "although hospitals must use GAAP in developing wage related costs, the amount reported for
wage index purposes must meet the reasonable cost provisions of Medicare." The use of GAAP to report
pension expense is consistent with the agency's previous guidance. The concept of a funding
requirement as applied to pension expense for purposes of the wage index is inconsistent with the 1994
guidance, is not at all clearly invoked by the 2003 phrase "reasonable cost provisions," and is not
mentioned anywhere in the instructions to Worksheet S-3 (i.e, PRM-II, Ch 36).

Nonetheless, CMS in the August 12, 2005 Federal Register, construed this 2003 change in instructions to
mean that the pension and post retirement benefits costs must be "funded" before the cost can be
recognized for wage related cost purposes, even through the 2003 one line PRM clarification included no
such requirement, it merely stated that such costs must be "reasonable", a longstanding and
noncontroversial doctrine of the Medicare program to recognize a cost as a reimbursable cost.

In March of 2008, CMS issued a new "clarification" of policy in transmittal 436 to the PRM which
"clarified" that GAAP, was not acceptable for Medicare pension cost reporting purposes (Section 2140.2
– 2140.3 and 2140.6 – 2142.6) as follows:

       "Since the PRM defines pension costs using ERISA terminology and the ERISA minimum
       and maximum cost limits, the GAAP terms have been replaced with the ERISA terms to
       prevent confusion with the pension costs determined for financial accounting purposes.
       Pension costs determined for financial accounting purposes are not appropriate for
       reporting pension costs for Medicare purposes because they are measured and assigned
       to periods on a different basis than used by ERISA and the GAAP amortization amounts
       may not fall within the range required under §2142.5A. These clarification changes are
       used to state the original intent of the manual on how to report pension costs."

This "clarification" altogether forbids the use of GAAP for Medicare cost reporting on Worksheet A.
Transmittal 436 made no reference to the wage index, and cannot be read to apply to wage data
reporting in Worksheet S-3 Part II without directly contradicting the above-referenced 1994, 2003 and
2005 guidance. Nonetheless, in May 2008, CMS revised the S-3 instructions applicable to wage related
costs (Section 3605.2 of the PRM-II) as follows:

       "In general, the amount reported for wage-related costs must meet the "reasonable cost"
       provisions of Medicare. For example, in developing pension and deferred compensation
       costs, hospitals must comply with the requirement in 42 CFR 413.100 and the PRM. Part
       1, §§ 2140, 2141 and 2142 (see discussion in 70 FR 47369, August 12, 2005)."

There is extensive documentation from hospitals to demonstrate that both CMS and its contractors have
interpreted these two 2008 "clarifications" as both a funding requirement, and as a prohibition against the
use of GAAP is applicable to the FFY 2010 wage indexes based on data from hospital cost reports for
fiscal years beginning as early as October 1, 2005, yet another example of retroactive application of rules
by CMS.

For the FFY 2007 wage indexes, certain hospitals' wage related costs were adjusted from GAAP to
amounts funded either during the year or within twelve months of year end (the PRM cost reimbursement

rules). Interestingly, many fiscal intermediaries (FIs, or Medicare Administrative Contractor/MACs) did
not closely review pension and post retirement cost funding status during the desk review process for the
FFY 2007, or the desk review for FFY 2008 (and to a lesser extent) 2009 and 2010 desk reviews. There
is ample evidence that various FIs/MACs made adjustments to some hospitals based on the pension
funding status but failed to adjust similar unfunded costs on other hospitals. Within some non-profit
systems, a single FI/MAC made funding adjustments for certain hospitals but the same FI ignored
identical funding issues for other system hospitals. In several areas of the country the FIs/MACs
proposed no adjustments for GAAP versus funded status until the FFY 2010 wage index desk review
process. Even in the 2010 desk review process, there are large pockets throughout the US where
FIs/MACs have not proposed any pension adjustments.

In summary, to date, the FIs/MACs have not made these pension adjustments to wage data uniformly
throughout the country.

As a result of this partially implemented policy changes hospitals have filed appeals relating to wage data
reporting for pension and post retirement benefit cost before the Provider Reimbursement Review Board.
Major arguments being advanced include:

      The August 12, 2005 provision, applied to fiscal years beginning as early as October 2002,
       constituted retroactive rulemaking violating the Administrative Procedures Act.

      CMS ignored the APA requirement to obtain formal public comment on a substantive change in
       regulations in 2005, which CMS consistently treated as a sub-regulatory policy.

      Similarly, the March/May 2008 "clarifications" were applied to fiscal year data from hospital cost
       reporting years beginning as early as October 1, 2005, another example of retroactive rulemaking.

      The Medicare statute requires a uniform wage index. These pension and post retirement benefit
       adjustments have not been applied uniformly in violation of the Medicare Act. The lack of
       uniformity results from targeted review procedures of individual FIs as well as some FIs/MACs
       that apparently never enforced the funding provisions on any of their hospitals.

      Anecdotal evidence suggests the methodology utilized by CMS contractors in FFY 2007– 2010 is
       inconsistent from one hospital to another (and from one year to another).

      Expert hospital actuaries have challenged the CMS methodology as being inappropriate for
       computing pension costs for inclusion in wage related costs.

      In the FFY2010 desk review more adjustments for unfunded pensions were discovered by the
       MACs than previously but there are still wide stretches of the country where no adjustments were
       proposed raising doubts as to the uniformity of desk review procedures between the various

Impact of "requiring funding" for recognition in the wage index during the recession.

With the "meltdown" of stock values, virtually every defined benefit pension plan (hospital and non-
hospital) is currently substantially underfunded. The CMS policy of requiring funding to include pension
and post retirement benefits to be included as wage related cost used to compute future wage indexes
provides hospitals with a perverse incentive to invest all available cash in underfunded pension plans to
prevent future wage indexes from "cratering," and reducing the area wage index and therefore future
hospital Medicare payments.

The funding policy creates an incentive to fund these plans rather than use the funds to invest in
technology, plant or other needed improvements.

CMS should immediately return to the 1994 policy of recognizing pension and post retirement benefits
under GAAP, regardless of funding status for FFY 2011 and future wage indexes. Careful consideration
should also be give to implementing this change for FFY 2010 even if it results in a delay in the
publication of final wage indexes. Lastly, CMS should consider settling the appeal issues from FFY 2007
– FFY 2009 for the areas of the country that have wage indexes that have been decreased as a result of
these funding provisions, the Chicago area being one of them. This settlement process could be used to
increase short term Medicare payments in the summer/fall of 2009 which would be consistent with the
Administration's policy of speeding up payments as an economic stimulus initiative. It would also allow
both governmental and hospital professionals and advocates to focus away from retroactive disputes and
turn their attention to the future of health care.

We note that GAAP has been modified by the Financial Accounting Standards Board (FASB) that issued
Statement of Financial Accounting Standards No. 158 in September 2006 which further improves
financial reporting of these costs under GAAP for future years wage indexes. This refinement is effective
for nonprofit, private and publically traded companies.

If CMS adopts these changes for FFY 2010, a process to allow hospitals to amend reclassification
decisions within a reasonable time period should also be established.

       Settle the rural floor budget neutrality appeals and litigation by thousands of IPPS hospitals
       challenging a deflated standardized amount for fiscal years 1999-2009. Increase the
       standardized amount for FFY 2010 by an estimated $431 million.

CMS should settle the Rural Floor Budget Neutrality Adjustment (RFBNA) appeal and litigation by making
a onetime payment in the summer/fall of 2009 to account for historical understatement of the
standardized amount caused by the erroneous treatment of the RFBNA beginning in 1999. CMS can
recalculate the FFY 2010 standardized amount to eliminate the historical understatement.

Baker Healthcare Consulting (BHC) has estimated the nationwide dollar impact on this issue, and the
understatement as a percentage of total IPPS operating payments for each year. The estimated IPPS
total dollar impact is $3 billion.

BHC estimated the impact of the understated rural floor by hospital by year using the appropriate Public
Use File that would have been used by CMS. Similarly, BHC estimated the impact of Medicare
geographic reclassifications on a hospital-by-hospital basis for each year for FFY 1998 to FFY 2007, then
applied the published BNA for geographic reclassifications (which reverses each year since 1998) to the
computed total IPPS operating payments.

Per the various Federal Registers, the Wage Index and DRG reclassification and recalibration BNA
(which includes the Rural Floor BNA) does not reverse the following year. There is inadequate detail
published to reasonably recompute the BNA for wage index, DRGs and rural floor. Thus, BHC relied on
an indirect method for estimating the dollar impact. The computation of the cumulative understatement of
$430,674,751 for FFY 2007-2010 is believed to be a conservative estimate of the dollar impact on this

In the August 22, 2007 Federal Register CMS backhandedly admitted the errors as follows:

       "Regarding the cumulative nature of the budget neutrality adjustment, the rural floor
       budget neutrality adjustment previously was a cumulative adjustment, similar to the
       adjustments we currently make for updates to the wage index and DRG reclassification
       and recalibration. Beginning in FY 2008, the rural floor budget neutrality adjustment will
       be noncumulative. However, we do not believe that our prior policy of cumulatively
       adjusting for rural floor budget neutrality was improper. The commenter’s are correct that
       the one-time 1.002214 adjustment is meant to address a single year transition to a
       noncumulative system of budget neutrality adjustment.

       With regard to alleged errors in FYs 1999 through 2007, our calculation of budget
       neutrality in past fiscal years is not within the scope of this rulemaking. Even if errors
       were made in prior fiscal years, we would not make an adjustment to make up for those
       errors when setting rates for FY 2008. It is our longstanding policy that finality is critical to
       a prospective payment system. Although errors in rate setting are inevitable, we believe
       the need to establish final prospective rates outweigh the greater accuracy we might gain
       if we retroactively recomputed rates whenever an error is discovered."

On March 13, 2009, Counsel for HHS filed a Cross-Motion for Summary Judgment with the District Court
for the District of Columbia. This case is one of several on file in either U.S. District Court or the PRRB
on the issue of requiring the Secretary to adjust Medicare rates to include the cumulative understatement
of the standardized amount for FFYs 2007 and 2008 caused by the treatment of the RFBNA from
FFY1999 through FFY2006.

Nowhere in the governments' Cape Cod forty-five page brief and the May 20, 2009 Reply Memorandum
does the agency deny the understatement of the standardized amount. Instead, they argue "the
Secretary did make all necessary data publically available to those who wished to try to replicate the
calculations involved." (see page 2). The brief goes on to argue that an industry submission informing
CMS of the error in June 2006 was not properly addressed to the right person at CMS, even through a
copy of the three hand-delivered comment letters was given to an appropriate CMS employee during the

public comment period for the FFY 2007 final IPPS rule, and the letter copied Marc Hartstein, the CMS
employee designated in the Federal Register as the contact person for further information on these topics
(see page 24680 of the May 3, 2007 Federal Register). Interestingly, Ted Giovanis, who hand delivered
the comments, received a signed and dated acknowledgement of receipt from a CMS employee who
reported directly to Hartstein. Giovanis subsequently signed an affidavit that he delivered these
comments. The CMS brief goes on to raise procedural issues and deny the responsibility of the Medicare
program to fix prior year errors even if they impact current year payment.

CMS implemented for FFY 2008 and FFY 2009 a partial prospective fix of this issue by reversing the prior
year impact of the RFBNA and prospectively adjusting wage indexes. This effectively ended the ever-
increasing understatement of the standardized amount thus "freezing the understatement" at the
estimated $431 million for FFY 2008, 2009 and in the proposed rule for FFY 2010.

In the spirit of economic stimulus, we request CMS consider correcting the historical underpayment of the
standardized amounts for fiscal years 1999 through 2009. Additionally, CMS should increase the federal
fiscal year 2010 standardized amount by the cumulative effect of the understatement on the 2010 year.
Thus, CMS could correct the RFBNA errors made by previous administrations and effectively provide an
economic stimulus. We also ask that CMS increase transparency by publishing the detailed methodology
used to compute the rural floor budget neutrality adjustment factor in accordance with Presidential
Memorandum of January 21, 2009, regarding the Freedom of Information Act, and Transparency and
Open Government (published in the January 26, 2009 Federal Register).

       Settle outstanding DSH appeals involving counting SSI days.

We request CMS settle all appeals and litigation involving Disproportionate Share Hospitals (DSH) and
hospitals that would have qualified for DSH status challenging the accuracy of supplemental security
income-eligible Medicare recipients' (SSI) patient days used to compute DSH eligibility and payments.

It appears CMS may have improved the calculation of SSI days in the past two years, but there is a lack
of transparency on behalf of CMS in disclosing the nature of the adjustments that CMS made in recent
years in counting SSI days. We believe it appropriate for CMS to fully account for the changes made in
determining SSI days, and publish the procedures utilized to allow the industry the opportunity to respond
to the procedures utilized by CMS. This is in accordance with the Presidential Memorandum of January
21, 2009, regarding the Freedom of Information Act, and Transparency and Open Government.

Once the industry understands the nature of the changes made by CMS, a reasoned discussion between
parties appealing these issues, their representatives, and CMS could take place to correct the SSI ratios
for hospitals involved in appeals and litigation, and to ensure that the prospective approach truly was the
best available data for all hospitals. Since the industry does not have any information on the accuracy of
the SSI days, it is impossible to offer an accurate estimate of the amount in controversy on these issues
which ranges back to 1993 (or perhaps even as early as 1989). However, BHC believes that the
aggregate amount of a retroactive correction of disproportionate share payments by correcting SSI days
could be $1 billion to $1.5 billion.

       Expand the Acumen report and MedPAC/BLS wage index study and search for additional
       acceptable alternatives.

We request CMS investigate how the current wage data survey through the Medicare cost report could
continue to be used to calculate the wage index before jettisoning the existing system for a Bureau of
Labor Statistics (BLS) wage index study. On May 4, 2009, Acumen LLC released its Final Report – Part I
on the Revision of Medicare Wage Index. On page xii of the Executive Summary Acumen states:

       "The use of a two year rolling average of index values would be a reasonable approach to
       reducing the volatility of the Medicare wage index."

CMS and Acumen have not thoroughly studied and reported on alternatives to the BLS study (or
variations thereon) that would:

      Continue to use the existing Worksheet S-3 hospital data for wage indexes to be computed using
       the two year rolling average.

      Modestly expand the number of professions in the next three year Occupational Mix Adjustment
       (OMA) survey to more accurately reflect an OMA adjustment.

      Implement an annual wage index stop loss (perhaps 1.5%)for each IPPS hospital eliminating the
       excessive negative volatility in wage indexes that causes hospital executives to seek legislative
       and/or administrative changes to the existing system to protect Medicare revenues from
       unexpected major reductions.

      Preserve the existing reclassification system which has been of great assistance to hospitals in
       competitive labor markets with nearby areas with higher wage indexes. Such reclassification
       systems, in use since 1992 are supported by many major hospital associations.

Such a refined wage index system based on the existing system appears to meet many of the objectives
of Congress, MedPAC and CMS and would start with a system that already exists, has very consistent
data, and is extremely transparent. Moreover, this alternative would likely receive broad industry support.
Also, other than an expanded OMA survey, no additional data is needed. This system could be
implemented for FFY 2011.

As noted in the Acumen Final Report Part I, the BLS data is considered confidential by the BLS and thus,
details cannot even be disclosed to CMS. In MedPAC's data released in June, 2007, it was indicated the
BLS can secretly impute data for non-responsive employers. Current wage index data from Worksheet
S-3 is transparent and CMS publishes the details of the data at least three times per year as a part of
the annual scrubbing process.

CMS and/or Acumen should address the issue of the use of confidential data and imputed data for wage
index non-responders. It is unclear that the use of non-public data to determine wage indexes is
consistent with appropriate public policy for use in allocating billions of dollars in IPPS payments.

Additionally, certain areas of the country use a 7.5 hour workday, other areas use an 8.0 hour workday,
and CMS has followed the policy of excluding "bonus hours" including the "buyback" of paid time off.
These adjustments can make a material difference in wage indexes in areas of the country where such
practices are more prevalent than other areas. The implications of the shorter work day might explain the
reason why CMS wage indexes are higher in areas such as the Northeast United States. Unless such
differences are considered by the BLS, some of the highest wage indexes in the country could be
reduced, perhaps inappropriately.

In addition to the above issues, the use of inconsistent databases, and the exclusion of both physician
Part A data and contract employee costs are also problematic. These inherent deficiencies of using BLS
data will make it nearly impossible to obtain the needed support of the hospital industry in implementing
the sweeping changes entailed by using BLS data to determine wage indexes.


Medicare is required to pay for the capital-related costs of inpatient hospital services. These costs
include depreciation, interest, taxes, insurance and similar expenses for new facilities, renovations,
expensive clinical information systems and high-tech equipment (e.g., MRIs and CAT scanners). This is
done through a separate capital PPS. Under the capital inpatient PPS, capital payments are adjusted by
the same MS-DRGs for each case, as are used in the operating PPS. Capital PPS payments also are
adjusted for indirect medical education (IME), disproportionate share hospital and outlier payments.

In the FY 2008 final rule, CMS made two changes to the structure of payments under the capital PPS.
First, the agency eliminated the 3.0 percent additional payment provided to hospitals located in large
urban areas. Second, the agency adopted a policy to eliminate the IME adjustment to teaching hospitals.
In FY 2009, teaching hospitals were to receive half their capital IME adjustment, and in FY 2010 and
beyond, the adjustment was to be eliminated. Subsequently, the ARRA prevented the FY 2009 cut;
however, in this rule, CMS announced that it will continue with its plans to eliminate the adjustment in FY

CMS’ elimination of the add-on payment for hospitals in large urban areas reduced payments to hospitals
by $600 million from FY 2008 through FY 2012. Elimination of the IME adjustment will reduce
payments to teaching hospitals by an additional $350 million in FY 2010 and $1.8 billion over five
years. These cuts are based solely on the discretion of the administration with no congressional
direction and are unprecedented.

We are particularly concerned about these cuts given the level of payment CMS has proposed for FY
2010. Specifically, not only will there not be an increase in Medicare’s capital payments to hospitals for
FY 2010, but these payments are projected to decrease by 4.8 percent – or almost $400 million – in FY
2010 compared to FY 2009. However, if CMS would reverse this cut to the capital IME adjustment, this
decrease in payment would be substantially mitigated. According to MedPAC, overall Medicare margins
for teaching hospitals were 1.1 percent in FY 2007, and the commission projects that overall Medicare
hospital margins will continue to decline in FYs 2008 and 2009. Teaching hospital margins will likely be
negative or barely positive in FY 2009. Given these margin projections, as well as these challenging
economic times, mitigating these cuts would provide much needed relief and allow hospitals to better

serve their communities. Accordingly, we ask CMS to reverse its elimination of the capital IME
adjustment and restore these payments that are vital to hospital investments in the latest medical
technology, ongoing maintenance and improvement of hospitals’ facilities and medical education.


The rule proposes to “clarify” the definition of new medical residency training programs for the purposes
of determining Medicare payments. With limited exceptions, the Balanced Budget Act of 1997 capped
the number of residents that Medicare will recognize for direct graduate medical education (DGME) and
IME at a teaching hospital’s 1996 level. An adjustment to this cap is allowed for hospitals that establish
new medical residency training programs.

Current regulations define a new program as “a medical residency that receives initial accreditation by the
appropriate accrediting body or begins training residents on or after January 1, 1995.” In this proposed
rule, however, CMS states that even though an accrediting body (such as the Accreditation Council on
Graduate Medical Education) grants an “initial” accreditation, or reaccredits a program as “new,” it is not
necessarily sufficient for CMS to consider the program new and thus increase the hospital’s resident cap.
CMS states that the residency program must be accredited “for the first time,” and not be a program that
existed previously at the same or another hospital. The agency indicates that a hospital must now itself
evaluate whether its program is “new” for Medicare purposes, and not rely on a determination made by
an accrediting body. Further, CMS now will evaluate whether a program is truly new by looking beyond
an accreditation decision to other “supporting factors,” which include, but are not limited to, whether the
new program has a new program director, new teaching staff and new residents.

CMS’ proposed change is not a “clarification,” but a major change to long-standing agency
policy. The agency is specifying new criteria that hospitals will need to meet in order for a residency
program to qualify as “new.” While CMS is not changing the regulatory language, the agency is changing
the meaning of that language. Medical residency training programs will no longer be able to qualify as
new by meeting the literal wording of the regulation (initial accreditation by the appropriate accrediting
body); instead, they will have to meet new and ambiguous criteria in the form of “supporting factors.”

The new policy will result in less clarity, given that determination of a new program will be based on a
variety of characteristics rather than a clear and concise determination by an accrediting body. What if a
new program has new teaching staff and new residents but the same program director? Will CMS
consider the program to be new or existing? These “supporting factors” will lead to subjective
determinations, making it difficult for hospitals to know up front whether their programs will be eligible for
Medicare funding. This approach offers hospitals little reassurance that a program established and
approved by CMS one year will continue to qualify as a new program by CMS in future years.

This policy change may be applied retroactively. By indicating that this is a “clarification” in policy, we
are concerned that CMS is retroactively imposing its new interpretation of “supporting factors” to deny
current hospitals – who in good faith complied with the existing regulations and who have been

appropriately receiving Medicare DGME and IME payments – from establishing a residency cap by
initiating programs that meet the definition of “new.”

We agree with AHA’s recommendation that CMS establish a definitive, prospective process whereby
hospitals will know up front whether a new residency program qualifies as “new” and, thus, is eligible for
Medicare DGME and IME funding. Congress established the inpatient prospective payment system so
that hospitals would be paid a predetermined, specific rate, and so that hospitals could determine up front
what payments they would receive for Medicare patients. We strongly urge CMS to withdraw this
confusing, arbitrary, retrospective “clarification” as to what constitutes a new medical residency

We appreciate the opportunity to present these concerns and comments to the Centers for Medicare and
Medicaid Services. If MCHC can be of any further assistance, please contact me at 312-906-6003.


Dan Yunker

Cc: Gina, Dibella, Director, Business Performance Programs and Services, MCHC
    Kevin Scanlan, President, MCHC
    Scott Ziomek, Vice President, MCHC

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