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Medicare Program; Changes to the Hospital Outpatient Prospective Payment System and Calendar Year 2005 Payment Rates

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Start Preamble Start Printed Page 65682

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Final rule with comment period.

SUMMARY:

This final rule with comment period revises the Medicare hospital outpatient prospective payment system to implement applicable statutory requirements and changes arising from our continuing experience with this system and to implement certain related provisions of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003. In addition, the final rule with comment period describes final changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the prospective payment system. These changes are applicable to services furnished on or after January 1, 2005.

In this final rule with comment period, we are responding to public comments received on the January 6, 2004 interim final rule with comment period relating to MMA provisions that were effective January 1, 2004, and finalizing those policies. Further, we are responding to public comments received on the November 7, 2003 final rule with comment period pertaining to the ambulatory payment classification assignment of Healthcare Common Procedure Coding System (HCPCS) codes identified in Addendum B of that rule with the new interim (NI) comment indicators (formerly referred to as condition codes).

DATES:

Effective Date: This final rule with comment period is effective on January 1, 2005.

Comment Date: We will consider comments on the ambulatory payment classification assignments of HCPCS codes identified in Addendum B with new interim comment codes and other areas specified throughout this preamble, if we receive them at the appropriate address, as provided below no later than 5 p.m. on January 14, 2005.

ADDRESSES:

In commenting, please refer to file code CMS-1427-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of three ways (no duplicates, please):

1. Electronically

You may submit electronic comments to http://www.cms.hhs.gov/​regulations/​ecomments (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word).

2. By Mail

You may mail written comments (one original and two copies) to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1427-FC, P.O. Box 8010, Baltimore, MD 21244-8018.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3. By Hand or Courier

If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, or 7500 Security Boulevard, Baltimore, MD 21244-1850.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain proof of filing by stamping in and retaining an extra copy of the comments being filed.)

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. After the close of the comment period, CMS posts all electronic comments received before the close of the comment period on its public website. Written comments received timely will be available for public inspection as they are received, generally beginning approximately 4 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone (410) 786-7195.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Dana Burley, (410) 786-0378, Outpatient prospective payment issues and Suzanne Asplen, (410) 786-4558, Partial hospitalization and community mental health center issues.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

Availability of Copies and Electronic Access

Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, PO Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 (or toll-free at 1-888-293-6498) or by faxing to (202) 512-2250. The cost for each copy is $10. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register.

This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. The Web site address is: http://www.gpoaccess.gov/​fr/​index.html.

Alphabetical List of Acronyms Appearing in the Final Rule With Comment Period

ACEP—American College of Emergency Physicians

AHA—American Hospital Association

AHIMA—American Health Information Management Association

AMA—American Medical Association

APC—Ambulatory payment classification

AMP—Average manufacturer price

ASP—Average sales price

ASC—Ambulatory surgical center

AWP—Average wholesale price

BBA—Balanced Budget Act of 1997, Public Law 105-33

BIPA—Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, Public Law 106-554

BBRA—Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, Public Law 106-113

CAH—Critical access hospital

CCR—(Cost center specific) cost-to-charge ratio

CMHC—Community mental health center Start Printed Page 65683

CMS—Centers for Medicare & Medicaid Services (formerly known as the Health Care Financing Administration)

CORF—Comprehensive outpatient rehabilitation facility

CPT—[Physicians'] Current Procedural Terminology, Fourth Edition, 2004, copyrighted by the American Medical Association

CRNA—Certified registered nurse anesthetist

CY—Calendar year

DMEPOS—Durable medical equipment, prosthetics, orthotics, and supplies

DMERC—Durable medical equipment regional carrier

DRG—Diagnosis-related group

DSH—Disproportionate share hospital

EACH—Essential Access Community Hospital

E/M—Evaluation and management

EPO—Erythropoietin

ESRD—End-stage renal disease

FACA—Federal Advisory Committee Act, Public Law 92-463

FDA—Food and Drug Administration

FI—Fiscal intermediary

FSS—Federal Supply Schedule

FY—Federal fiscal year

HCPCS—Healthcare Common Procedure Coding System

HCRIS—Hospital Cost Report Information System

HHA—Home health agency

HIPAA—Health Insurance Portability and Accountability Act of 1996, Public Law 104-191

ICD-9-CM—International Classification of Diseases, Ninth Edition, Clinical Modification

IME—Indirect medical education

IPPS—(Hospital) inpatient prospective payment system

IVIG—Intravenous immune globulin

LTC—Long-term care

MedPAC—Medicare Payment Advisory Commission

MDH—Medicare-dependent hospital

MMA—Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173

MSA—Metropolitan Statistical Area

NCCI—National Correct Coding Initiative

NCD—National Coverage Determination

OCE—Outpatient code editor

OMB—Office of Management and Budget

OPD—(Hospital) outpatient department

OPPS—(Hospital) outpatient prospective payment system

PET—Positron Emission Tomography

PHP—Partial hospitalization program

PM—Program memorandum

PPI—Producer Price Index

PPS—Prospective payment system

PPV—Pneumococcal pneumonia (virus)

PRA—Paperwork Reduction Act

QIO—Quality Improvement Organization

RFA—Regulatory Flexibility Act

RRC—Rural referral center

SBA—Small Business Administration

SCH—Sole community hospital

SDP—Single drug pricer

SI—Status indicator

TEFRA—Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248

TOPS—Transitional outpatient payments

USPDI—United States Pharmacopoeia Drug Information

To assist readers in referencing sections contained in this document, we are providing the following outline of contents:

Outline of Contents

I. Background

A. Legislative and Regulatory Authority for the Outpatient Prospective Payment System

B. Excluded OPPS Services and Hospitals

C. Prior Rulemaking

D. APC Advisory Panel

1. Authority for the APC Panel

2. Establishment of the APC Panel

3. APC Panel Meetings and Organizational Structure

E. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003

F. Summary of the Provisions of the August 16, 2004 Proposed Rule

G. Public Comments Received on the August 16, 2004 Proposed Rule

H. Public Comments Received on the January 6, 2004 Interim Final Rule with Comment Period

I. Public Comments Received on the November 7, 2003 Final Rule with Comment Period

II. Changes Related to Ambulatory Payment Classifications (APCs)

A. APC Changes: General

B. APC Panel Review and Recommendations

1. February 2004 Panel Meeting.

2. September 2004 Panel Meeting

3. Contents of This Section of the Preamble

4. APC 0018: Biopsy of Skin/Puncture of Lesion

5. Level I and II Arthroscopy

6. Angiography and Venography Except Extremity

a. February 2004 Panel Meeting

b. Public Comments Received

c. Final Policy for CY 2005

7. Packaged Codes in APCs

C. Limits on Variations Within APCs: Application of the 2 Times Rule

1. Cardiac and Ambulatory Blood Pressure Monitoring

2. Electrocardiograms

3. Excision/Biopsy

4. Posterior Segment Eye Procedures

5. Laparoscopy

6. Anal/Rectal Procedures

7. Nerve Injections

8. Anterior Segment Eye Procedures

9. Pathology

10. Immunizations

11. Pulmonary Tests

12. Clinic Visits

13. Other APC Assignment Issues

a. Catheters for Brachytherapy Services

b. Peripherally Inserted Central Catheters (PICC)

c. External Fixation Devices

d. Apheresis

e. Imaging for Intravenous Cholangiogram (IVC) Filter Placement and Breast Biopsy

f. Hysteroscopic Endometrial Ablation Procedures

g. Hysteroscopic Female Sterilization

h. Urinary Bladder Residual Study

i. Intracranial Studies, Electrodiagnostic Testing, Autonomic Testing, and EEG

j. Therapeutic Radiation Treatment

k. Hyperthermia Procedures

l. Physician Blood Bank Services

m. Caloric Vestibular Test

n. APC 0365—Level II Audiometry

o. Noncoronary Intravascular Ultrasound (IVUS)

p. Electronic Analysis of Neurostimulator Pulse Generators

q. Endoscopic Ultrasound Services

r. External Counterpulsation

D. Exceptions to the 2 Times Rule

E. Coding for Stereostatic Radiosurgery Services

1. Background

2. Proposal for CY 2005

3. Public Comments Received and Departmental Responses

4. Final Policy for CY 2005

F. Movement of Procedures from New Technology APCs to Clinically Appropriate APCs

1. Background

2. APC Panel Review and Recommendation

3. Proposed and Final Policy for CY 2005

a. Computerized Reconstruction CT of Aorta

b. Left Ventricular Pacing, Lead and Connector

c. Positron Emission Tomography (PET) Scans

d. Bard Endoscopic Suturing System

e. Stretta System

f. Gastrointestinal Tract Capsule Endoscopy

g. Proton Beam Therapy

4. Public Comments Received Relating to Other New Technology APC Issues

a. Computerized Reconstruction CT of Aorta

b. Kyphoplasty

c. Laser Treatment of Benign Prostatic Hyperplasia (BPH)

d. Computerized Tomographic Angiography (CTA)

e. Acoustic Heart Sound Services

f. Laparoscopic Ablation Renal Mass

g. Intrabeam Intra-Operative Therapy

h. New Technology Process Issues

G. Changes to the Inpatient List

H. Assignment of “Unlisted” HCPCS Codes

1. Background

2. Proposed and Final Policies for CY 2005

I. Addition of New Procedure Codes

J. OPPS Changes Relating to Coverage of Initial Preventive Physical Examinations and Mammography under Public Law 108-173

1. Payment for Initial Preventive Physical Examinations (Section 611 of Pub. L. 108-173)

a. Background

b. Amendments to Regulations

c. Assignment of New HCPCS Codes for Payment of Initial Preventive Physical Examinations

d. APC Assignment of Initial Preventive Physical Examinations

2. Payment for Certain Mammography Services (Section 614 of Pub. L. 108-173)

III. Recalibration of APC Relative Weights for CY 2005

A. Database Construction Start Printed Page 65684

1. Treatment of Multiple Procedure Claims

2. Use of Single Procedure Claims

B. Calculation of Median Costs for CY 2005

C. Adjustment of Median Costs for CY 2005

1. Device-Dependent APCs

a. APC 0226: Implantation of Drug Infusion Reservoir

b. APC 0048: Arthroscopy with Prosthesis

c. APC 0385: Level I Prosthetic Urological Procedures

d. APC 0119: Implantation of Infusion Device and APC 0115: Cannula/Access Device Procedures

2. Treatment of Specified APCs

a. APC 0315: Level II Implantation of Neurostimulator

b. APC 0651: Complex Interstitial Radiation Application

c. APC 0659: Hyperbaric Oxygen Therapy

3. Other APC Median Cost Issues

a. APC 0312 Radioelement Applications

b. Percutaneous Radiofrequency Ablation of Liver Tumors

c. Heparin Coated Stents

d. Aqueous Drainage Assist Device

4. Required Use of C-Codes for Devices

5. Submission of External Data

D. Calculation of Scaled OPPS Payment Weights

IV. Payment Changes For Devices

A. Pass-Through Payments For Devices

1. Expiration of Transitional Pass-Through Payments for Certain Devices

2. Proposed and Final Policies for CY 2005

B. Provisions for Reducing Transitional Pass-Through Payments to Offset Costs Packaged Into APC Groups

1. Background

2. Proposed and Final Policies for CY 2005

C. Criteria for Establishing New Pass-Through Device Categories

V. Payment Changes for Drugs, Biologicals, and Radiopharmaceutical Agents, and Blood and Blood Products

A. Transitional Pass-Through Payment for Additional Costs of Drugs and Biologicals

1. Background

2. Expiration in CY 2004 of Pass-Through Status for Drugs and Biologicals

3. Drugs and Biologicals With Pass-Through Status in CY 2005

B. Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through Status

1. Background

2. Criteria for Packaging Payment for Drugs, Biologicals, and Radiopharmaceuticals

3. Payment for Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through Status That Are Not Packaged

a. Payment for Specified Covered Outpatient Drugs

b. Treatment of Three Sunsetting Pass-Through Drugs as Specified Covered Outpatient Drugs

c. CY 2005 Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals with HCPCS Codes But Without OPPS Hospital Claims Data

d. Payment for Separately Payable Nonpass-Through Drugs and Biologicals

e. CY 2005 Change in Payment Status for HCPCS Code J7308

4. Public Comments Received on the January 6, 2004 Interim Final rule With Comment Period and Departmental Responses

C. Coding and Billing for Specified Outpatient Drugs

D. Payment for New Drugs, Biologicals, and Radiopharmaceuticals Before HCPCS Codes Are Assigned

1. Background

2. Provisions of Public Law 108-173

E. Payment for Vaccines

F. Changes in Payment for Single Indication Orphan Drugs

G. Changes in Payment Policy for Radiopharmaceuticals

H. Coding and Payment for Drug Administration

I. Payment for Blood and Blood Products

VI. Estimated Transitional Pass-Through Spending in CY 2005 for Drugs, Biologicals, and Devices

A. Basis for Pro Rata Reduction

B. Estimate of Pass-Through Spending for CY 2005

VII. Other Policy Decisions and Policy Changes

A. Statewide Average Default Cost-to-Charge Ratios

B. Transitional Corridor Payments: Technical Change

C. Status Indicators and Comment Indicators Assigned in Outpatient Code Editor (OCE)

1. Payment Status Indicators

2. Comment Indicators

D. Observation Services

E. Procedures That Will be Paid Only as Inpatient Procedures

F. Hospital Coding for Evaluation and Management Services

1. Background

2. Proposal for Evaluation and Management Guidelines

G. Brachytherapy Payment Issues Related to Public Law 108-173

1. Payment for Brachytherapy Sources (Section 621(b) of Pub. L. 108-173)

2. HCPCS Codes and APC Assignments for Brachytherapy Sources

H. Payment for APC 0375, Ancillary Outpatient Services When Patient Expires

VIII. Conversion Factor Update for CY 2005

IX. Wage Index Changes for CY 2005

X. Determination of Payment Rates and Outlier Payments for CY 2005

A. Calculation of the National Unadjusted Medicare Payment

B. Hospital Outpatient Outlier Payments

C. Payment for Partial Hospitalization

1. Background

2. PHP APC Update for CY 2005

3. Separate Threshold for Outlier Payments to CMHCs

D. General Public Comments

XI. Beneficiary Copayments for CY 2005

A. Background

B. Copayment for CY 2005

XII. Addendum Files Available to the Public Via Internet

XIII. Collection of Information Requirements

XIV. Regulatory Impact Analysis

A. OPPS: General

B. Impact of Changes in this Final Rule with Comment Period

C. Alternatives Considered

D. Limitations of Our Analysis

E. Estimated Impacts of this Final Rule with Comment Period on Hospitals

F. Projected Distribution of Outlier Payment

G. Estimated Impacts of This Final Rule with Comment Period on Beneficiaries

XV. Regulation Text

Addenda

Addendum A—List of Ambulatory Payment Classification (APCs) with Status Indicators, Relative Weights, Payment Rates, and Copayment Amounts for CY 2005

Addendum B—Payment Status by HCPCS Code and Related Information—CY 2005

Addendum C—Healthcare Common Procedure Coding System (HCPCS) Codes by Ambulatory Payment Classification (APC) (Available only on CMS Web site via Internet. See section XIII. of the preamble of this final rule with comment period.)

Addendum D1—Payment Status Indicators for Hospital Outpatient Prospective Payment System

Addendum D2—Comment Indicators

Addendum E—CPT Codes That Are Paid Only as Inpatient Procedures

I. Background

A. Legislative and Regulatory Authority for the Outpatient Prospective Payment System

When the Medicare statute was originally enacted, Medicare payment for hospital outpatient services was based on hospital-specific costs. In an effort to ensure that Medicare and its beneficiaries pay appropriately for services and to encourage more efficient delivery of care, the Congress mandated replacement of the cost-based payment methodology with a prospective payment system (PPS). The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997, added section 1833(t) to the Social Security Act (the Act) authorizing implementation of a PPS for hospital outpatient services. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), enacted on November 29, 1999, made major changes that affected the hospital outpatient PPS (OPPS). The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554), enacted on December 21, 2000, made further changes in the OPPS. Section 1833(t) of the Act was also recently amended by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Public Law 108-173, enacted on December 8, 2003 (these amendments are discussed later under section I.E. of this final rule with comment period). The OPPS was first Start Printed Page 65685implemented for services furnished on or after August 1, 2000. Implementing regulations for the OPPS are located at 42 CFR Part 419.

Under the OPPS, we pay for hospital outpatient services on a rate-per-service basis that varies according to the ambulatory payment classification (APC) group to which the service is assigned. We use Healthcare Common Procedure Coding System (HCPCS) codes (which include certain Current Procedural Terminology (CPT) codes) and descriptors to identify and group the services within each APC group. The OPPS includes payment for most hospital outpatient services, except those identified in section I.B. of this final rule with comment period. Section 1833(t)(1)(B)(ii) of the Act provides for Medicare payment under the OPPS for certain services designated by the Secretary that are furnished to inpatients who have exhausted their Part A benefits or who are otherwise not in a covered Part A stay. In addition, the OPPS includes payment for partial hospitalization services furnished by community mental health centers (CMHCs).

The OPPS rate is an unadjusted national payment amount that includes the Medicare payment and the beneficiary copayment. This rate is divided into a labor-related amount and a nonlabor-related amount. The labor-related amount is adjusted for area wage differences using the inpatient hospital wage index value for the locality in which the hospital or CMHC is located.

All services and items within an APC group are comparable clinically and with respect to resource use (section 1833(t)(2)(B) of the Act). In accordance with section 1833(t)(2) of the Act, subject to certain exceptions, services and items within an APC group cannot be considered comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secretary) for an item or service in the APC group is more than 2 times greater than the lowest median cost for an item or service within the same APC group (referred to as the “2 times rule”). In implementing this provision, we use the median cost of the item or service assigned to an APC group.

Special payments under the OPPS may be made for new technology items and services in one of two ways. Section 1833(t)(6) of the Act provides for temporary additional payments or “transitional pass-through payments” for certain drugs, biological agents, brachytherapy devices used for the treatment of cancer, and categories of medical devices for at least 2 but not more than 3 years. For new technology services that are not eligible for pass-through payments and for which we lack sufficient data to appropriately assign them to a clinical APC group, we have established special APC groups based on costs, which we refer to as APC cost bands. These cost bands allow us to price these new procedures more appropriately and consistently. Similar to pass-through payments, these special payments for new technology services are also temporary; that is, we retain a service within a new technology APC group until we acquire adequate data to assign it to a clinically appropriate APC group.

B. Excluded OPPS Services and Hospitals

Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to designate the hospital outpatient services that are paid under the OPPS. While most hospital outpatient services are payable under the OPPS, section 1833(t)(1)(B)(iv) of the Act excluded payment for ambulance, physical and occupational therapy, and speech-language pathology services, for which payment is made under a fee schedule. The Secretary exercised the broad authority granted under the statute to exclude from the OPPS those services that are paid under fee schedules or other payment systems. Such excluded services include, for example, the professional services of physicians and nonphysician practitioners paid under the Medicare Physician Fee Schedule; laboratory services paid under the clinical diagnostic laboratory fee schedule; services for beneficiaries with end-stage renal disease (ESRD) that are paid under the ESRD composite rate; and services and procedures that require an inpatient stay that are paid under the hospital inpatient prospective payment system (IPPS). We set forth the services that are excluded from payment under the OPPS in § 419.22 of the regulations.

Under § 419.20 of the regulations, we specify the types of hospitals and entities that are excluded from payment under the OPPS. These excluded entities include Maryland hospitals, but only for services that are paid under a cost containment waiver in accordance with section 1814(b)(3) of the Act; critical access hospitals (CAHs); hospitals located outside of the 50 States, the District of Columbia, and Puerto Rico; and Indian Health Service hospitals.

C. Prior Rulemaking

On April 7, 2000, we published in the Federal Register a final rule with comment period (65 FR 18434) to implement a prospective payment system for hospital outpatient services. The hospital OPPS was first implemented for services furnished on or after August 1, 2000. Section 1833(t)(9) of the Act requires the Secretary to review certain components of the OPPS not less often than annually and to revise the groups, relative payment weights, and other adjustments to take into account changes in medical practice, changes in technology, and the addition of new services, new cost data, and other relevant information and factors. Since implementing the OPPS, we have published final rules in the Federal Register annually to implement statutory requirements and changes arising from our experience with this system. For a full discussion of the changes to the OPPS, we refer readers to these Federal Register final rules.[1]

On November 7, 2003, we published a final rule with comment period in the Federal Register (68 FR 63398) that revised the OPPS to update the payment weights and conversion factor for services payable under the calendar year (CY) 2004 OPPS on the basis of claims data from April 1, 2002 through December 31, 2002. In this final rule with comment period, we are finalizing the APC assignments and addressing public comments received pertaining to the new interim HCPCS codes listed in Addendum B of the November 7, 2003 final rule with comment period identified by new interim (NI) comment indicators (formerly referred to as condition codes). Subsequent to publishing the November 7, 2003 final rule with comment period, we published a correction of the final rule with comment period on December 31, 2003 (68 FR 75442). That December 31, 2003 document corrected technical errors in the November 7, 2003 final rule with comment period and included responses to a number of public comments that were inadvertently omitted from the November 2003 final rule with comment period.

On January 6, 2004, we published in the Federal Register an interim final rule with comment period (69 FR 820) that implemented provisions of Public Law 108-173 that affected payments made under the OPPS, effective January 1, 2004. We are finalizing this interim Start Printed Page 65686final rule and addressing public comments associated with that rule in this final rule with comment period.

D. APC Advisory Panel

1. Authority of the APC Panel

Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of the BBRA of 1999, requires that we consult with an outside panel of experts to review the clinical integrity of the payment groups and weights under the OPPS. The Advisory Panel on APC Groups (the APC Panel), discussed under section I.D.2. of this preamble, fulfills this requirement. The Act further specifies that the Panel will act in an advisory capacity. This expert panel, which is to be composed of 15 representatives of providers subject to the OPPS (currently employed full-time, not consultants, in their respective areas of expertise), reviews and advises us about the clinical integrity of the APC groups and their weights. The APC Panel is not restricted to using our data and may use data collected or developed by organizations outside the Department in conducting its review.

2. Establishment of the APC Panel

On November 21, 2000, the Secretary signed the charter establishing the Advisory Panel on APC Groups. The APC Panel is technical in nature and is governed by the provisions of the Federal Advisory Committee Act (FACA), as amended (Public Law 92-463). On November 1, 2002, the Secretary renewed the charter. The renewed charter indicates that the APC Panel continues to be technical in nature, is governed by the provisions of the FACA, may convene up to three meetings per year, and is chaired by a Federal official.

Originally, in establishing the APC Panel, we solicited members in a notice published in the Federal Register on December 5, 2000 (65 FR 75943). We received applications from more than 115 individuals who nominated either colleagues or themselves. After carefully reviewing the applications, we chose 15 highly qualified individuals to serve on the APC Panel. Because of the loss of four APC Panel members due to the expiration of terms of office on March 31, 2004, we published a Federal Register notice on January 23, 2004 (69 FR 3370) that solicited nominations for APC Panel membership. From the 24 nominations that we received, we chose four new members. The entire APC Panel membership is identified on the CMS Web site at http://www.cms.hhs.gov/​faca/​apc/​apcmem.asp.

3. APC Panel Meetings and Organizational Structure

The APC Panel first met on February 27, February 28, and March 1, 2001. Since that initial meeting, the APC Panel has held five subsequent meetings, with the last meeting taking place on September 1, 2, and 3, 2004. Prior to each of these biennial meetings, we published a notice in the Federal Register to announce each meeting and, when necessary, to solicit nominations for APC Panel membership. For a more detailed discussion about these announcements, refer to the following Federal Register notices: December 5, 2000 (65 FR 75943), December 14, 2001 (66 FR 64838), December 27, 2002 (67 FR 79107), July 25, 2003 (68 FR 44089), and December 24, 2003 (68 FR 74621), and August 5, 2004 (69 FR 47446).

During these meetings, the APC Panel established its operational structure that, in part, includes the use of three subcommittees to facilitate its required APC review process. Currently, the three subcommittees are the Data Subcommittee, the Observation Subcommittee, and the Packaging Subcommittee. The Data Subcommittee is responsible for studying the data issues confronting the APC Panel and for recommending viable options for resolving them. This subcommittee was initially established on April 23, 2001, as the Research Subcommittee and reestablished as the Data Subcommittee on April 13, 2004. The Observation Subcommittee, which was established on June 24, 2003, and reestablished with new members on March 8, 2004, reviews and makes recommendations to the APC Panel on all issues pertaining to observation services paid under the OPPS, such as coding and operational issues. The Packaging Subcommittee, which was established on March 8, 2004, studies and makes recommendations on issues pertaining to services that are not separately payable under the OPPS but are bundled or packaged APC payments. Each of these subcommittees was established by a majority vote of the APC Panel during a scheduled APC Panel meeting. All subcommittee recommendations are discussed and voted upon by the full APC Panel.

For a detailed discussion of the APC Panel meetings, refer to the hospital OPPS final rules cited in section I.C. of this preamble. Full discussions of the APC Panel's February 2004 and September 2004 meetings and the resulting recommendations are included in sections II., III., IV., V., and VI. of this preamble under the appropriate subject headings.

E. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003

On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Public Law 108-173, was enacted. Public Law 108-173 made changes to the Act relating to the Medicare OPPS. In a January 6, 2004 interim final rule with comment period, we implemented provisions of Public Law 108-173 relating to the OPPS that were effective for CY 2004. In this final rule with comment period, we are responding to public comments received on the January 6, 2004 interim final rule and finalizing that rule. In addition, in this final rule with comment period, we are implementing the following sections of Public Law 108-173 that are effective for CY 2005:

  • Section 611, which provides for Medicare coverage of an initial preventive physical examination under Part B, subject to the applicable deductible and coinsurance, as an outpatient department (OPD) service payable under the OPPS. The provisions of section 611 apply to services furnished on or after January 1, 2005, but only for individuals whose coverage period under Medicare Part B begins on or after that date.
  • Section 614, which provides that screening mammography and diagnostic mammography services are excluded from payment under the OPPS. This amendment applies to screening mammography services furnished on or after the date of enactment of Public Law 108-173 (that is, December 8, 2003), and in the case of diagnostic mammography, to services furnished on or after January 1, 2005.
  • Section 621(a)(1), which requires special classification of certain separately paid radiopharmaceutical agents and drugs or biologicals, and specifies the pass-through payment percentages, effective for services furnished on or after January 1, 2005, for the three categories of “specified covered OPD drugs” defined in the statute: sole source drug; innovator multiple source drug; and noninnovator multiple source drug. In addition, payment for these drugs for CYs 2004 and 2005 does not have to be made in a budget neutral manner.
  • Section 621(a)(2), which specifies the reduced threshold for the establishment of separate APCs with respect to drugs or biologicals from $150 to $50 per administration for drugs and biologicals furnished in CYs 2005 and 2006. Start Printed Page 65687
  • Section 621(a)(3), which excludes separate drug APCs from outlier payments. Specifically, no additional payment will be made in the case of APC groups established separately for drugs and biologicals.
  • Section 621(b), which requires that all devices of brachytherapy consisting of a seed or seeds (or radioactive source) furnished on or after January 1, 2004, and before January 1, 2007, be paid based on the hospital's charges for each device, adjusted to cost. This provision also requires that these brachytherapy services be excluded from outlier payments.

F. Summary of the Provisions of the August 16, 2004 Proposed Rule

On August 16, 2004, we published a proposed rule in the Federal Register (69 FR 50447) that set forth proposed changes to the Medicare hospital OPPS and to implement provisions of Public Law 108-173 specified in section I.E. of this preamble that would be effective for services furnished on or after January 1, 2005. The following is a summary of the major changes that we proposed to make:

1. Changes to the APC Groups

As required by section 1833(t)(9)(A) of the Act, we proposed the annual update of the APC groups and the relative payment weights. This section also requires that we consult with an outside panel of experts, the Advisory Panel on APC Groups, to review the clinical integrity of the groups and weights under the OPPS. Based on analyses of Medicare claims data and recommendations of the APC Panel, we proposed to establish a number of new APCs and to make changes to the assignment of HCPCS codes under a number of existing APCs.

We also discussed the application of the 2 times rule and proposed exceptions to it; coding for stereotactic radiosurgery services; the proposed movement of procedures from the new technology APCs; the proposed changes to the list of procedures that will be paid as inpatient services; and the proposed addition of new procedure codes to the APCs.

2. Recalibrations of APC Relative Payment Weights

In the proposed rule, we discussed the methodology used to recalibrate the proposed APC relative payment weights and set forth the proposed recalibration of the relative weights for CY 2005.

3. Payment Changes for Devices

In the proposed rule, we discussed proposed changes to the pass-through payment for devices and the methodology used to reduce, if applicable, transitional pass-through payments to offset costs packaged into APC groups.

4. Payment Changes for Drugs, Biologicals, Radiopharmaceutical Agents, and Blood and Blood Products

In the proposed rule, we discussed our proposed payment changes for drugs, biologicals, radiopharmaceutical agents, and blood and blood products.

5. Estimated Transitional Pass-Through Spending in CY 2005 for Drugs, Biologicals, and Devices

In the proposed rule, we discussed the proposed methodology for measuring whether there should be an estimated pro rata reduction for transitional pass-through drugs, biologicals, and devices for CY 2005.

6. Other Policy Decisions and Proposed Policy Changes

In the proposed rule, we presented our proposals for CY 2005 regarding the following:

  • Update of statewide default cost-to-charge ratios (CCRs).
  • A conforming change to the regulation relating to the use of the first available cost reporting period ending after 1996 and before 2001 for determining a provider's payment-to-cost ratio to calculate transitional corridor payments for hospitals paid under the OPPS that did not have a 1996 cost report.
  • Changes in the status indicators and comment indicators assigned to APCs for CY 2005.
  • Elimination of the diagnostic tests criteria as a requirement for hospitals to qualify for separate payment of observation services under APC 0339 (Observation) and changes to the guidelines to hospitals for counting patients' time spent in observation care.
  • Payment under the OPPS for certain procedures currently assigned to the inpatient list.
  • Strategy for giving the public notice of new implementation guidelines for new evaluation and management codes.
  • Addition of three new HCPCS codes and descriptors for brachytherapy sources that would be paid separately, pursuant to Public Law 108-173.
  • Modification of the HCPCS code descriptors for brachytherapy source descriptors for which units of payment are not already delineated.
  • Payment for services furnished emergently to an outpatient who dies before admission to a hospital as an inpatient.

7. Conversion Factor Update for CY 2005

As required by section 1833(5)(3)(C)(ii) of the Act, in the proposed rule, we proposed to update the conversion factor used to determine payment rates under the OPPS for CY 2005.

8. Wage Index Changes for CY 2005

In the proposed rule, we discussed the proposed retention of our current policy to apply the IPPS wage indices to wage adjust the APC median costs in determining the OPPS payment rate and the copayment standardized amount. These indices reflect major changes for CY 2005 relating to hospital labor market areas as a result of OMB revised definitions of geographical statistical areas; hospital reclassifications and redesignations, including the one-time reclassifications under section 508 of Public Law 108-173; and the wage index adjustment based on commuting patterns of hospital employees under section 505 of Public Law 108-173.

9. Determination of Payment Rates and Outlier Payments for CY 2005

In the proposed rule, we discussed how APC payment rates are calculated and how the payment rates are adjusted to reflect geographic differences in labor-related costs. We also discussed proposed changes in the way we would calculate outlier payments for CY 2005.

10. Regulatory Impact Analysis

In the proposed rule, we set forth our analysis of the impact that the proposed changes would have on affected hospitals and CMHCs.

G. Public Comments Received on the August 16, 2004 Proposed Rule

We received over 550 timely pieces of correspondence containing multiple comments on the August 16, 2004 proposed rule. Summaries of the public comments and our responses to those comments are set forth in the various sections of this preamble under the appropriate heading.

We received a number of general public comments on our proposed changes to the OPPS for CY 2005.

Comment: Some commenters were concerned about the extent to which OPPS payment rates have fluctuated from year to year. Because Medicare payment is a very significant portion of income for most hospitals, they stated that the instability in the OPPS payment rates makes it difficult for hospitals to plan and budget. They indicated that there is a tremendous degree of variation across APCs in terms of payment to cost ratios and that they Start Printed Page 65688would expect that after three years of operating the OPPS, the payment to cost ratios would be much more stable. One commenter offered to share analysis of payment to cost ratios with CMS. Commenters stated that such variation in payments compared to costs puts full-service hospitals and their communities at risk because limited-service, or “niche” providers can easily identify and redirect patients with more lucrative APCs to their facilities, leaving full-service hospitals with a disproportionate share of patients who receive services that are assigned to the underpaid APCs.

Response: We recognize hospitals' need for stability in payments for hospital outpatient services. We would appreciate receiving studies of the extent to which there is variation across APCS in terms of payment to cost ratios across the multiple years of the OPPS to aid us in assessing factors that might contribute to instability in the payment rates.

Comment: One commenter indicated that the entire OPPS is underfunded, as it pays only 87 cents of every dollar of hospital outpatient care provided to Medicare beneficiaries. The commenter stated that it will continue to work with Congress to address inadequate payment rates and updates in order to ensure access to hospital-based outpatient services for Medicare beneficiaries.

Response: Our early analyses indicated that the OPPS was, in its inception, based on payment that was less than cost due to statutory reductions in payment for hospital outpatient costs prior to the enactment of the Balanced Budget Act of 1997, which authorized the current OPPS. We agree that the commenter will need to work with Congress to change certain fundamental features of the OPPS. For example, the base amounts upon which the OPPS was established, the rules concerning budget neutrality, and subsequent out-year adjustments such as annual reductions in coinsurance and adjustments to outlier and pass-through payment allocations are established in statute and, as such, would require legislation to amend.

Comment: One commenter objected to the use of the display date to start the 60-day comment period for the proposed rule. The commenter stated that the display copy did not contain all of the information included in the proposed rule, such as the comment due date, and did not satisfy the statute's requirement that the notice of proposed rulemaking be published in the Federal Register, with provision for a 60-day comment period. The commenter indicated that the use of the display date to start the comment period gives reviewers too short a period of time to comment properly and also, in this case, gives CMS an inadequate period of time to review the comments and prepare the final rule. The commenter urged CMS to publish a proposed rule no later than late July to provide more time for CMS to consider public comments.

Response: While the law requires that we provide a 60-day public comment period and that the notice of proposed rulemaking be published in the Federal Register, it does not require that the date of Federal Register publication be the first day of the comment period. The two requirements are independent. We post the proposed rule on the CMS Web site on the date of display of the proposed rule at the Federal Register, thereby making the proposed rule far more easily available to the public than was the case when the only public dissemination was publication in the Federal Register, and satisfying the requirement for a 60-day comment period. By making the proposed rule available on the CMS Web site (as well as at the Federal Register), we provided the public with access to not only the proposed rule but also to all of the supporting files and documents cited in the proposed rule in a manner that can be used for analysis. We note that the computer files posted on the Web site can be manipulated for independent analysis. Therefore, we believe that beginning the comment period for the proposed rule with the display date at the Federal Register, and posting the proposed rule and data files on the CMS Web site on the display date, fully complies with the statute and provides a far better opportunity for the public to have meaningful input than the past practice under which the comment period began with the publication date in the Federal Register a week or longer after the display date and no other data in any other form was furnished.

With respect to the publication date of the proposed rule, we publish the proposed rule as soon as it is practicable for us to do so. Our process for development of the proposed rule begins with a winter meeting of the APC Panel based on the earliest possible data analysis for the forthcoming year. We then pull claims for the period ending December of the data year and also pull cost report data for development of CCRs to apply to the claims data. This step cannot be started until approximately March 1 of the year and the development of the proposed rule data takes considerable time as there are many analyses to be performed and decisions to be made before each stage of data development can be undertaken. We have to balance the need to improve the process and to deal with each year's special issues with the need to issue a proposed rule in sufficient time to permit the public to comment and to permit us sufficient time to review the comments and develop the final rule. Each year we review the timeline and process to determine how we can best achieve that balance, while ensuring that we issue the best possible proposed rule for public comment.

H. Public Comments Received on the January 6, 2004 Interim Final Rule With Comment Period

We received approximately 40 timely pieces of correspondence containing multiple comments on the MMA provisions relating to payment for drugs and brachytherapy under the OPPS that were included in the January 6, 2004 interim final rule with comment period. Summaries of the public comments and our responses to those comments are set forth in sections V. and VII.G. of this preamble under the appropriate heading.

I. Public Comments Received on the November 7, 2003 Final Rule With Comment Period

We received 25 timely pieces of correspondence on the November 7, 2003 final rule with comment period, some of which contained multiple comments on the APC assignment of HCPCS codes identified with the new interim condition indicators (now referred to as condition codes) in Addendum B of that final rule with comment period. Summaries of the public comments and our responses to those comments are set forth in various sections of this preamble under the appropriate subject areas.

II. Changes Related to Ambulatory Payment Classifications (APCs)

Section 1833(t)(2)(A) of the Act requires the Secretary to develop a classification system for covered hospital outpatient services. Section 1833(t)(2)(B) provides that this classification system may be composed of groups of services, so that services within each group are comparable clinically and with respect to the use of resources. In accordance with these provisions, we developed a grouping classification system, referred to as the Ambulatory Payment Classification Groups (or APCs), as set forth in § 419.31 of the regulations. We use Level I and Level II Healthcare Common Procedure Coding System (HCPCS) codes and descriptors to identify and group the services within each APC. The APCs are organized such that each Start Printed Page 65689group is homogeneous both clinically and in terms of resource use. (However, new technology APCs that are temporary groups for certain approved services are structured based on cost rather than clinical homogeneity.) Using this classification system, we have established distinct groups of surgical, diagnostic, and partial hospitalization services, and medical visits. Because of the transitional pass-through provisions, we also have developed separate APC groups for certain medical devices, drugs, biologicals, radiopharmaceuticals, and devices of brachytherapy.

We have packaged into each procedure or service within an APC group the cost associated with those items or services that are directly related and integral to performing a procedure or furnishing a service. Therefore, we would not make separate payment for packaged items or services. For example, packaged items and services include: Use of an operating, treatment, or procedure room; use of a recovery room; use of an observation bed; anesthesia; medical/surgical supplies; pharmaceuticals (other than those for which separate payment may be allowed under the provisions discussed in section V. of this preamble); and incidental services such as venipuncture. Our packaging methodology is discussed in section IV.B.3. of this final rule with comment period.

A. APC Changes: General

Under the OPPS, we pay for hospital outpatient services on a rate-per-service basis that varies according to the APC group to which the service is assigned. Each APC weight represents the median hospital cost of the services included in that APC relative to the median hospital cost of the services included in APC 0601, Mid-Level Clinic Visits. The APC weights are scaled to APC 0601 because a mid-level clinic visit is one of the most frequently performed services in the outpatient setting.

Section 1833(t)(9)(A) of the Act requires the Secretary to review the components of the OPPS not less than annually and to revise the groups and relative payment weights and make other adjustments to take into account changes in medical practice, changes in technology, and the addition of new services, new cost data, and other relevant information and factors. Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of the BBRA of 1999, also requires the Secretary, beginning in CY 2001, to consult with an outside panel of experts to review the APC groups and the relative payment weights.

Finally, section 1833(t)(2) of the Act provides that, subject to certain exceptions, the items and services within an APC group cannot be considered comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secretary) for an item or service in the group is more than 2 times greater than the lowest median cost for an item or service within the same group (referred to as the “2 times rule”). We use the median cost of the item or service in implementing this provision. The statute authorizes the Secretary to make exceptions to the 2 times rule in unusual cases, such as low volume items and services.

Section 419.31 of the regulations sets forth the requirements for the APC system and the determination of the payment weights. In this section, we discuss the changes that we proposed to the APC groups; the APC Panel's review and recommendations from the February 2004 meeting and our proposals in response to those recommendations; the application of the 2 times rule and proposed exceptions to it; coding for stereotactic radiosurgery services; the proposed movement of procedures from the new technology APCs; the proposed changes to the inpatient list; and the proposed additions of new procedures codes to the APCs. In addition, in this section under the appropriate subject heading, we present the APC Panel's review and recommendations of items discussed at the September 1, 2, and 3, 2004 meeting held after publication of the proposed rule and our final decisions on these recommendations. We then present our final policies that are effective for CY 2005.

B. APC Panel Review and Recommendations

1. February 2004 Panel Meeting

As stated above, the APC Panel held its first 2004 meeting on February 18, 19, and 20, 2004, to discuss the revised APCs for the CY 2005 OPPS. In preparation for that meeting, we published a notice in the Federal Register on December 24, 2003 (68 FR 74621), to announce the location, date, and time of the meeting; the agenda items; and the fact that the meeting was open to the public. In that notice, we solicited public comment specifically on the items included on the agenda for that meeting. We also provided information about the APC Panel meeting on the CMS Web site: http://www.cms.hhs.gov/​faca/​apc/​panel.

Oral presentations and written comments submitted for the February 2004 APC Panel meeting met, at a minimum, the adopted guidelines for presentations set forth in the Federal Register document (68 FR 74621). In conducting its APC review, the APC Panel heard testimony and received evidence in support of the testimonies from a number of interested parties. For the February 2004 deliberations, the APC Panel used hospital outpatient claims data for the period January 1, 2003, through September 30, 2003, that provided, at a minimum, median costs for the APC structure in place in CY 2004 and that was based on CCRs used for setting the CY 2004 payment rates. The data set presented to the APC Panel represented 9 months of the CY 2003 data that we proposed to use to recalibrate the APC relative weights and to calculate the proposed APC payment rates for CY 2005. In sections II.B.4. through 7. and sections II.C. through I. of this preamble, we summarize the APC issues discussed during the APC Panel's February 2004 meeting, the Panel's recommendations, the proposals that we included in the August 16, 2004 proposed rule, our proposals with respect to those recommendations, and the policies that we are finalizing for CY 2005 in this final rule with comment period.

2. September 2004 Panel Meeting

As stated earlier, the APC Panel held its second 2004 meeting on September 1-3, 2004. In preparation for that meeting, we published a notice in the Federal Register on August 5, 2004 (69 FR 47446) to announce the location, date, and time of the meeting, the agenda items, and the fact that the meeting was open to the public. In that notice, we solicited public comments specifically on the items included on the agenda for that meeting. During the September 2004 APC Panel meeting, the APC Panel heard testimony on a number of the proposed changes in APCs included in the August 16, 2004 proposed rule. We are summarizing the topics that were discussed at the September 2004 Panel meeting and the APC Panel's recommendations on each topic in the chart below. We have included references to the appropriate section of this preamble for the more detailed discussion of each recommendation.

For the September 2004 deliberations, the APC Panel used the hospital outpatient claims data that we used in developing the proposed rule; that is, data for the period of January 1, 2003, Start Printed Page 65690through December 31, 2003, including updated CCRs.

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3. Contents of This Section of the Preamble

The discussion in this section II.B. of this final rule with comment period is limited to APC changes regarding APCs other than those that violate the 2 times rule and those that represent drugs, biologicals, and transitional pass-through devices, or those that are new technology APCs. The specific APC Panel review and recommendations applicable to those APCs are discussed in sections II.C., IV., III., and II.F., respectively, of the preamble to this final rule with comment period.

4. APC 0018: Biopsy of Skin/Puncture of Lesion

During the February 2004 APC Panel meeting, one presenter recommended moving CPT tracking codes 0046T (Catheter lavage, mammary duct(s)) and 0047T (Each additional duct) from APC 0018 and placing them in an APC that more accurately reflects each of the procedures. The APC Panel recommended that we reassign CPT codes 0046T and 0047T to APC 0021, Level III Excision/Biopsy.

In the August 16, 2004 proposed rule, we proposed to accept the APC Panel's recommendation. We did not receive any public comments on our proposal. Therefore, we are adopting as final, without modification, our proposal to reassign CPT codes 0046T and 0047T to APC 0021.

5. Level I and II Arthroscopy

APC 0041: Level I Arthroscopy

APC 0042: Level II Arthroscopy

We testified before the APC Panel at its February 2004 meeting regarding a comment that we received in 2003 requesting that we reassign CPT code 29827 (Arthroscopy, shoulder with rotator cuff repair) from APC 0041 to APC 0042, based on its similarity to CPT 29826 (Arthroscopy, shoulder decompression of subacromial space with partial acromioplasty without coracoacromial release). Our clinical staff considered the request and determined that APCs 0041 and 0042 should be reconfigured to improve clinical homogeneity. An APC Panel presenter provided evidence to support moving CPT code 29827 to an APC that would more accurately recognize the complexity of that procedure. We requested the APC Panel's recommendation regarding a total revision of these two APCs.

The APC Panel recommended that we reevaluate the codes in APCs 0041 and 0042 and propose restructuring that would improve the clinical homogeneity in the two APCs.

In the August 16, 2004 proposed rule, we proposed to accept the APC Panel's recommendation and to revise APCs 0041 and 0042 as presented in Tables 1 and 2 of that proposed rule. We received one public comment on our proposed restructuring.

Comment: One commenter requested that we move code 0014T from APC 0041 to APC 0042. The commenter provided information in support of its belief that the procedure more accurately matches the clinical work and resource inputs of APC 0042 than of APC 0041.

Response: We agree with the commenter and are assigning the procedure to APC 0042. The tracking code 0014T is being retired and the successor code is CPT code 29868 (Arthroscopy, knee, surgical, osteochondral autograft(s) meniscal transplantation (including arthrotomy for meniscal insertion, medial or lateral). Placement of this code in APC 0042 is subject to comment in response to this final rule with comment period because the code is a new code for CY 2005.

Accordingly, restructured APCs 0041 and 0042 for CY 2005, as modified based on the public comment received, are shown in Tables 1 and 2 below.

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6. Angiography and Venography Except Extremity

APC 0279: Level II Angiography and Venography Except Extremity

APC 0280: Level III Angiography and Venography Except Extremity

APC 0668: Level I Angiography and Venography Except Extremity

a. February 2004 Panel Meeting

As requested by the APC Panel, at the February 2004 Panel meeting, we presented our proposal for reconfiguring APCs 0279, 0280, and 0668 that reflected changes based on prior input with outside clinical experts. The APC Panel had previously reviewed these APCs during its January 2003 meeting and had recommended that we not restructure these three APCs until we received input from clinical experts in the field. When we updated the APC groups in CY 2003, we accepted the APC Panel's recommendation and made no changes to APCs 0279, 0280, and 0668.

A review of these APCs was prompted by a commenter who requested that we move CPT code 75978 (Repair venous blockage) from APC 0668 to APC 0280 and that we move CPT code 75774 (Artery x-ray, each vessel) from APC 0668 to APC 0279. The commenter submitted evidence in support of these requests and testified before the APC Panel regarding the common use of CPT code 75978 for treating dialysis patients and the often required multiple intraoperative attempts to succeed with this procedure for such patients.

After receiving input from the clinical experts, we determined that these three APCs should be revised to improve their clinical homogeneity. At the February 2004 meeting, we presented our proposed restructuring of APCs 0279, 0280, and 0668 to the APC Panel. The APC Panel concurred with our proposal.

In addition, subsequent to the APC Panel meeting, we discovered several procedures in these APCs that were more appropriately placed in other APCs in order to remedy any 2 times rule violations. We included those modifications in our proposed restructured APCs published in Table 3 in the August 16, 2004 proposed rule.

b. Public Comments Received

Comment: Several commenters requested that CMS postpone or cancel the proposed plans for moving angiography codes 75960 (Transcatheter introduction of intravascular stent(s), (non-coronary vessel) percutaneous and/or open, radiological supervision and interpretation, each vessel), 75962 (Transluminal balloon angioplasty, peripheral artery, radiological supervision and interpretation), 75964 (Transluminal balloon angioplasty, each additional peripheral artery, radiological supervision and interpretation), 75966 (Transluminal balloon angioplasty, renal or other visceral artery, radiological supervision and interpretation), and 75968 (Transluminal balloon angioplasty, each additional visceral artery, radiological supervision and interpretation), which are integral to a number of angioplasty and stent placement procedures, from APC 0280 to APC 0668. One commenter indicated that the proposed decreases in payments for these services that would result from their APC reassignment were inconsistent with CMS' proposal to limit payment decreases for device-dependent APCs. Another commenter was particularly concerned that code 75962, which is used for angioplasty of arterial blockages, may have a wide range of associated procedure costs. The commenters stated that aggregate payment for all services billed for many high volume procedures such as peripheral transluminal angioplasty and single stent placement will decrease by 16 to 21 percent, in large part due to the reassignment of codes 75960, 75962, 75964, 75966, and 75968 to the lower level APC 0668 in the angiography and venography except extremity series and Start Printed Page 65694to their placement on the bypass list. Two commenters were concerned that supervision and interpretation services as part of peripheral atherectomy procedures were assigned to higher paying APC 0279, potentially providing hospitals with an incentive to perform atherectomy instead of angioplasty or stent procedures, or both. Further, the commenters suggested that the lower payment for the supervision and interpretation services moved to APC 0668 for CY 2005 provides an incentive for hospitals to treat patients on an inpatient basis or may limit beneficiaries' access to the outpatient procedures. One commenter indicated that the cost and complexity of performing angiographic procedures for angioplasty are similar, if not more complex, than those of performing angiographic procedures for atheretomy.

The commenters did not understand why CMS reassigned the supervision and interpretation codes from a Level III to a Level I APC and believed that CMS did not take into account the higher level of hospital resources and staffing required for certain therapeutic radiology supervision and interpretation services. Further, they questioned the assumptions CMS adopted in the creation of the bypass list to develop “pseudo”single claims. They suggested that there might be significant differences between the multiple procedure claims that CMS converts to “pseudo” single claims and those that CMS is unable to use. Thus, the commenters questioned the reliability of the claims data and encouraged CMS to use external data as the basis for the decisionmaking. One commenter noted that, of a large number of claims for APC 0668, 79 percent accounted for device costs and 81 percent accounted for room charges, but CMS' single claim methodology had only 4 percent of claims accounting for device costs or room charges.

Finally, one commenter, a group of providers, stated that they expected substantial payment decreases to result from the proposed restructuring of APCs 0279, 0280, and 0668. The commenter suggested that CMS should establish a mechanism (such as dampening) to offset large payment swings similar to those anticipated as a result of the CMS proposal.

Response: Our analyses of claims data used for the CY 2004 OPPS and several past comments led us to recognize the need to restructure APCs 0279, 0280, and 0668 for the CY 2005 OPPS. There were only two services in APC 0668 for CY 2004, APC 0279 was excepted from the 2 times rule in CY 2004, and the median costs for individual services in APCs 0668, 0279, and 0280 showed significant overlap. The APC Panel also acknowledged the need to reconfigure these APCs. In our proposed rule, we presented the restructured APCs in which the procedures within each APC demonstrated both clinical and resource homogeneity, and our final data confirmed the appropriate assignment of the services. For instance, the peripheral atherectomy supervision and interpretation codes (75992 through 75996) assigned to the Level II APC (0279) consistently had higher median costs than the supervision and interpretation codes for intravascular stent placement or peripheral or visceral artery balloon angioplasty, which are assigned to the Level I APC (0668). For CY 2005, the median costs for the supervision and interpretation codes for stent placement and angioplasty were much lower than the median cost of their prior APC 0280 ($1,181) and were within the range of median costs ($239-$444) for other procedures assigned to APC 0668. As APCs 0668, 0279, and 0280 are not device-dependent APCs because we expect the devices to be reported with the interventional procedures provided (that are in device-dependent APCs), it would be inappropriate to apply the device-dependent APC policy to APCs 0668, 0279, and 0280. In addition, there were no violations of the 2 times rule in the restructured APCs 0668, 0279, or 0280 based on full year 2003 hospital claims data.

The supervision and interpretation codes 75960, 75962, 75964, 75966, and 75968, along with peripheral atherectomy supervision and interpretation CPT codes, were proposed for the bypass list for CY 2005. As the commenters noted, we recognized that angiography and venography services generally involve multiple procedure claims, and less than 10 percent of bills for APCs 0668, 0279, and 0280 were available for ratesetting for CY 2004. We proposed to place a number of radiological supervision and interpretation codes on the bypass list for CY 2005 because we believed that these codes should have little packaging associated with them and we recognized that their addition to the bypass list might enable us to use significantly more data from multiple procedure claims for APCs 0668, 0279, 0280, and others. We did not expect that devices and room charges would generally be packaged with the supervision and interpretation services, but rather would be packaged with the interventional procedures they accompanied. This accounts for the low percentage of device and room costs on the single bills in APC 0668 used for the median calculation. None of the commenters provided any information about why it would be inappropriate to include these codes on the bypass list, other than to point out the decline in proposed payment rates for the services. If packaging appropriately attributable to the supervision and interpretation services through the bypass procedure had been assigned to the interventional procedures that the supervision and interpretation services accompanied (such as angioplasty or stent placement), there should have been increases in the median costs for the interventional procedures. We did not see any such significant increases, and believe that our data do not indicate any specific packaging allocation problems with respect to the supervision and interpretation services. We have no evidence of underreporting of costs used to calculate the median costs for APC 0668.

For CY 2005, we had a significantly greater number of single claims available for use in median calculation for APCs 0668, 0279, and 0280. For example, for CY 2005, the median costs for the two supervision and interpretation codes with the highest volume that were of concern to the commenters (codes 75960 and 75962) were based on 20 percent of claims in contrast to only 1 percent used last year. While it is possible, as suggested by the commenters, that there may be differences between the packaging in multiple procedure claims that we were able to convert to “pseudo” single claims and those that we were unable to use, we have no reason to believe that these issues are unique to these APCs or especially problematic for these supervision and interpretation services. Our goal continues to be to use as much of our historical hospital claims data to set payment rates as possible. As we have consistently stated, we are pursuing strategies to improve our ability to utilize multiple procedure claims for median calculation, including discussions with the APC Panel Data Subcommittee.

With regard to the commenter's suggestion that we establish a mechanism to offset payment changes from one year to the next, we understand the commenter's desire for a stable system. However, while we are not convinced that an overall dampening policy is required, we continue to work toward improving the hospital claims data through education, data management, and data analyses. We believe that we have achieved significant improvements so far. Start Printed Page 65695

c. Final Policy for CY 2005

After consideration of the APC Panel's recommendations and the public comments we received on the August 16, 2004 proposal, we are finalizing our proposal for the restructuring of APCs 0668, 0279, and 0280.

Tables 3, 4, and 5 reflect the final restructuring of APCs 0668, 0279, and 0280.

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7. Packaged Codes in APCs

As a result of requests from the public, the Packaging Subcommittee of the APC Panel was established to review all the CPT codes with a status indicator of “N.” Status indicator “N” indicates that payment for packaged codes is bundled into the payment that providers receive for separately payable codes for items or services provided on the same day. Providers have often suggested that many codes could be billed alone, without any separately payable service on the claim, and requested that these codes not be assigned status indicator “N.” The Packaging Subcommittee identified areas for change of some packaged CPT codes for items or services that could be provided as the sole service on a given date. During the September 2004 meeting, the APC Panel accepted the report of the Packaging Subcommittee and made the following recommendations:

  • The Panel recommended that the Packaging Subcommittee review packaged codes individually instead of making a global decision for all packaged codes.
  • The Panel recommended that CMS assign a modifier to CPT codes 36540 (Collect blood venous device), 36600 (Withdrawal of arterial blood), 51701 (Insert bladder catheter), and 97602 (Wound[s] care, non-selective) to be used when these codes are the only code on that particular claim for the same date of service. The APC Panel indicated that it would revise this subset of codes once data become available.
  • The Panel recommended that CMS educate providers and intermediaries on the correct billing procedures for the packaged CPT codes 36540, 36600, 51701, and 97602.
  • The Panel recommended that CMS not change the status indicator for CPT 76397 (Ultrasound guidance for vascular access). The Panel indicated that it would review the data on this code as they become available.
  • The Panel recommended that the Packaging Subcommittee continue to meet throughout the year to discuss other problematic packaged codes.

CMS is considering the recommendation that a modifier be used when certain codes are the only codes on a particular claim for the same date of service. We note that code 97602 is assigned a status indicator of “A” in this final rule with comment period, and is no longer payable under OPPS. Therefore, a modifier, if applicable, would not be assigned for this code.

Comment: One commenter asked CMS to review all the packaged codes to determine which codes should become separately payable. Several commenters also requested that codes 36540 (Collect blood venous device), 36600 (Withdrawal of arterial blood), and 97602 (Wound[s] care, nonselective) become separately payable because they are often the only procedure on a bill. In cases where there is no separately payable code on a claim, providers do not receive payment for these packaged services.

Response: We appreciate the commenters' suggestions. As stated above, the APC Panel Packaging Subcommittee recently reviewed all the packaged codes. We are currently Start Printed Page 65697considering whether to create a modifier to be used for CPT codes 36540, 36600, and 51701 when these codes appear on a claim without any separately payable code on the same date of service. As stated above, code 97602 will not be payable under OPPS for CY 2005 and, therefore, is excluded from this discussion. Additional detailed suggestions for the Packaging Subcommittee should be submitted to APCPanel@cms.hhs.gov with “Packaging Subcommittee” in the subject line.

Comment: Two commenters requested that code 76937 (Ultrasound guidance for vascular access) be assigned to APC 0268 (Ultrasound Guidance Procedures), with status indicator “S” instead of the proposed status indicator “N.”

Response: We are accepting the APC Panel's recommendations that code 76937 remain packaged for CY 2005. We are concerned that there will be unnecessary utilization of this procedure if it is separately payable. In addition, because code 76937 only became effective on January 1, 2004, there are currently no claims data for this code. When we review the CY 2004 claims data for the CY 2006 payment rates, we will reexamine the status of code 76937. We also note that the APC Panel Packaging Subcommittee remains active, and additional issues and new data concerning the packaging status of codes will be shared for their consideration as information becomes available.

Comment: Several commenters requested that the following CPT codes become unpackaged: 42550 (Injection for salivary x-ray) and other x-ray injection codes; 75998 (Fluoroscopic guidance for central venous access device placement); 74328 (Endoscopic catheterization of the biliary ductal system, S&I); 74329 (Endoscopic catheterization of the pancreatic ductal system, S&I); 74330 (Combined endoscopic catheterization of the biliary and pancreatic ductal systems, S&I); 36500 (Insert of catheter, vein); 75893 (venous sampling by catheter); 75989 (abscess drainage under x-ray); 76001 (Fluoroscope exam); 76003 (Needle localization by x-ray); 76005 (Fluoroguide for spine inject); 90471 and 90472 (Immunization administration); 94760, 94761, and 94762 (Pulse oximetry); and G0269 (Occlusive device in vein art). The commenters were concerned that the OPPS has denied hospitals reimbursement for these services.

Response: Hospitals include charges for packaged services on their claims, and the costs associated with these packaged services are then bundled into the costs for separately payable procedures on the claims. Hospitals may use CPT codes to report any packaged services that were performed, consistent with CPT coding guidelines. Because these imaging codes are packaged, their presence on a claim that includes a code for another separately payable service does not necessarily result in the claim being a multiprocedure claim. Payment for these imaging services is packaged in this way into payment for the separately payable services with which the imaging services are billed.

The Packaging Subcommittee reviewed every code that was packaged in CY 2004. The Committee narrowed the list of packaged codes to a list of potentially problematic codes and subsequently reviewed utilization and median cost data for these codes. One of the main criteria evaluated by the Packaging Subcommittee to determine whether a code should become unpackaged was how likely it was for the code to be billed without any other code for separately payable services on the claim. We encourage submission of clinical scenarios involving currently packaged codes to the Packaging Subcommittee for review at future meetings. Submissions should be sent to the APCPanel@cms.hhs.gov with “Packaging Subcommittee” in the subject line.

We will continue to package CPT codes 42550 and other x-ray injection codes, 75998, 73428, 74329, 74330, 36500, 75893, 75989, 76001, 76003, 76005, 90471, 94472, 94760, 94761, 94762, and G0269 for CY 2005 and will discuss these codes with the APC Panel Packaging Subcommittee.

Comment: One commenter requested that the status indicator for code G0102 (Prostate cancer screening; digital rectal examination) be changed from packaged to separately payable. The commenter indicated that the screening is administered as part of the initial preventive physical examination. The commenter stated, “The payment for G0102 will be zero because it is identified with status indicator ‘N' which means it is packaged and not paid for separately.”

Response: Currently, under the OPPS, we do not make separate payment for code G0102. Its costs are bundled into the costs of other separately payable services furnished by the hospital on the same day. For example, a digital rectal examination is usually furnished as part of an evaluation and management service, so its payment would generally be bundled into payment for the evaluation and management service when a covered evaluation and management service is furnished on the same day as the digital rectal examination. It is a relatively quick and simple procedure. Likewise, when the examination is performed during the same visit as the initial preventive examination, we would expect that costs associated with the examination would be bundled into the costs for the initial preventive examination. Accordingly, we are continuing to package code G0102.

Comment: One commenter requested that we map code G0168 (Wound closure by adhesive) to an APC instead of assigning status indicator “N” to the code. The commenter was concerned that access to wound adhesives would be reduced if this code is not separately payable.

Response: Wound adhesives are considered supplies used to repair lacerations and surgical incisions. These products are used instead of sutures to close wounds. We do not make separate payments for sutures under the OPPS. Providers are paid when they use wound adhesives in the same manner as they are paid for other “packaged” procedures. The charges for code G0168 should be packaged into whichever procedure(s) is billed on the same date of service. Payment to the provider reflects the cost of performing the procedure and the related supplies.

C. Limits on Variations Within APCs: Application of the 2 Times Rule

Section 1833(t)(2) of the Act provides that the items and services within an APC group cannot be considered comparable with respect to the use of resources if the median (or mean) of the highest cost item or service within an APC group is more than 2 times greater than the median of the lowest cost item or service within that same group. However, the statute authorizes the Secretary to make exceptions to this limit on the variation of costs within each APC group in unusual cases such as low volume items and services. No exception may be made in the case of a drug or biological that has been designated as an orphan drug under section 526 of the Federal Food, Drug, and Cosmetic Act. We implemented this statutory provision in § 419.31 of the regulations. Under this regulation, we elected to use the highest median cost and lowest median cost to determine comparability.

During the APC Panel's February 2004 meeting, we presented data and information concerning a number of APCs that violate the 2 times rule and asked the APC Panel for its recommendation. We discuss below the APC Panel's recommendations specific to each of these APCs, our proposals in Start Printed Page 65698response to the APC Panel's recommendations that were discussed in the August 2004 proposed rule, and our final policies.

1. Cardiac and Ambulatory Blood Pressure Monitoring

APC 0097: Cardiac and Ambulatory Blood Pressure Monitoring

We expressed concern to the APC Panel that APC 0097 appears to violate the 2 times rule. We sought the APC Panel's recommendation on revising the APC to address the violation. Based on clinical homogeneity considerations, the APC Panel recommended that we not restructure APC 0097 for CY 2005.

We proposed to accept the APC Panel's recommendation that we make no changes to APC 0097 for CY 2005. We did not receive any public comments on our proposal. Accordingly, in this final rule, we are not making any changes to APC 0097 for CY 2005.

2. Electrocardiograms

APC 0099: Electrocardiograms

We expressed concern to the APC Panel at its February 2004 meeting that APC 0099 appears to violate the 2 times rule. We asked the APC Panel to recommend options for resolving this violation. Based on clinical homogeneity considerations, the APC Panel recommended that we not alter the structure of APC 0099 for CY 2005.

We proposed to accept the APC Panel's recommendation that we make no changes to APC 0099 for CY 2005. We did not receive any public comments on our proposal. Accordingly, in this final rule with comment period, we are not making any changes to APC 0099 for CY 2005.

3. Excision/Biopsy

APC 0019: Level I Excision/Biopsy

APC 0020: Level II Excision/Biopsy

APC 0021: Level III Excision/Biopsy

We expressed concern to the APC Panel at its February 2004 meeting that APC 0019 appears to violate the 2 times rule. We advised the APC Panel that this violation was not evident in CY 2004 because the CY 2002 median cost data used in calculating the CY 2004 APC updates supported moving CPT codes 11404 (Removal of skin lesion) and 11623 (Removal of skin lesion) from APC 0020 and APC 0021. However, based on the CY 2003 data reviewed by the APC Panel, APC 0019 would violate the 2 times rule. Therefore, we asked the APC Panel to recommend an approach to resolve the violation. We asked the APC Panel if we should leave this APC as is; divide APC 0019 into two separate APCs; or move some codes in APC 0019 to higher level excision/biopsy APCs. In making its recommendation, the APC Panel noted that the 2 times violation in APC 0019 was minor, and recommended that we not modify APC 0019.

We proposed to accept the APC Panel's recommendation to not make any modifications to APC 0019 for CY 2005. We did not receive any public comments on our proposal. Accordingly, in this final rule with comment period, we are not making any changes to APC 0019 for CY 2005.

4. Posterior Segment Eye Procedures

APC 0235: Level I Posterior Segment Eye Procedures

We expressed concern to the APC Panel at its February 2004 meeting that APC 0235 appears to violate the 2 times rule. At the August 2003 APC Panel meeting, the APC Panel recommended that we monitor the data for APC 0235 for review at its February 2004 meeting. In order to address the apparent violation, we asked the APC Panel to consider moving a few CPT codes from APC 0235 into a higher level posterior segment eye procedure APC. The APC Panel noted that the 2 times violation in APC 0235 was minor, and recommended that we not change APC 0235.

We proposed to accept the APC Panel's recommendation that we make no changes to the structure of APC 0235 for CY 2005. We receive one public comment regarding this proposal.

Comment: One commenter urged CMS not to finalize the proposal to keep the CY 2004 structure of APC 0235 for CY 2005. The commenter asked CMS to consider moving codes 67220 (Treatment of choroids lesion), 67221 (Ocular photodynamic therapy), 67225 (Eye photodynamic therapy, add-on), 67101 (Repair detached retina), and 67141 (Treatment of retina) to a higher level Posterior Segment Eye Procedure APC.

Response: After further analysis, we continue to believe that the resources and clinical characteristics of these codes are most compatible and homogeneous with those services in Level I Posterior Segment Eye Procedures, APC 0235. We plan to discuss the possible restructuring of APCs 0235, 0236, and 0237 (Level I, Level II, and Level III Posterior Segment Eye Procedures, respectively) at the next APC Panel meeting. We invite comments on these APCs.

In this final rule with comment period, we are adopting as final the proposal not to make any changes to APC 0235 for CY 2005.

5. Laparoscopy

APC 0130: Level I Laparoscopy

APC 0131: Level II Laparoscopy

We expressed concern to the APC Panel at its February 2004 meeting that APC 0130 appears to violate the 2 times rule. We suggested moving CPT code 44970 (Laparoscopy, appendectomy) from APC 0130 to APC 0131. The APC Panel recommended that we make this change.

We proposed to accept the APC Panel's recommendation to move CPT code 44970 from APC 0130 to APC 0131. We did not receive any public comments on our proposal. Accordingly, in this final rule with comment period, we are adopting as final without modification our proposal to move CPT code 44970 from APC 0130 to APC 0131.

6. Anal/Rectal Procedures

APC 0148: Level I Anal/Rectal Procedure

APC 0155: Level II Anal/Rectal Procedure

APC 0149: Level III Anal/Rectal Procedure

APC 0150: Level IV Anal/Rectal Procedure

We expressed concern to the APC Panel at its February 2004 meeting that APC 0148 appears to violate the 2 times rule. We suggested moving CPT code 46020 (Placement of seton) from APC 0148 to a higher level anal/rectal procedure APC. The APC Panel reviewed the four anal/rectal APCs (APC 0148, 0149, 0150, and 0155) and recommended moving CPT codes 46020 and 46706 (Repair of anal fistula with glue) from APC 0148 to APC 0150. The APC Panel also recommended moving CPT codes 45005 (Drainage of rectal abscess) and 45020 (Drainage of rectal abscess) from APC 0148 to APC 0155.

We proposed to accept the APC Panel's recommendations specific to APC 0148. We received one favorable public comment on our proposal. Accordingly, in this final rule with comment period, we are adopting as final without modification our proposal and are moving CPT codes from APC 0148 to APCs 0150 and 0155 as shown in the Table 6 below.

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7. Nerve Injections

APC 0204: Level I Nerve Injections

APC 0206: Level II Nerve Injections

APC 0207: Level III Nerve Injections

APC 0203: Level IV Nerve Injections

We expressed concern to the APC Panel that APC 0203 and APC 0207 appear to violate the 2 times rule. After careful consideration of new data presented during the February 2004 meeting, the APC Panel recommended moving CPTs 64420 (Nerve block injection, intercostal nerve), 64630 (Injection treatment of nerve), 64640 (Injection treatment of nerve), and 62280 (Treatment of a spinal cord lesion) from APC 0207 to APC 0206. The APC Panel also recommended moving CPT code 62282 (Treatment of a spinal canal lesion) from APC 0207 to APC 0203.

After reviewing more recent, complete calendar year data that was not available in February 2004, we proposed to accept only the APC Panel's recommendation to move CPTs 64630 and 64640 from APC 0207 to APC 0206 and to make some other changes that we believed were appropriate to improve the nerve injection APCs' clinical and resource homogeneity, as shown in Tables 7, 8, and 9 of the proposed rule.

We received two comments regarding our proposed reassignment of four CPT codes from APC 0203 to APC 0207 to address an apparent violation of the 2 times rule.

Comment: Commenters urged CMS not to finalize the proposed changes to CPT codes 64620 (Injection treatment of nerve), 64680 (Injection treatment of nerve), 62263 (Lysis epidural adhesions) and 62264 (Epidural lysis on single day), which we proposed to move from APC 0203 to APC 0207. The commenters stated that the proposed payment for these services was well below the cost of the resources required to provide the services at an acceptable standard of care. The commenters requested that we not move these four codes from APC 0203.

Response: After further analysis, we agree with the commenters that CPT codes 64620, 62263, and 62264 should remain in APC 0203 based on clinical and resource homogeneity with the services in APC 0203. Therefore, in this final rule with comment period, we are not moving these three codes from APC 0203, as displayed in Table 9B below.

However, based on our final CY 2003 hospital data for CPT code 64680, utilizing over half of the several hundred total bills for this service for calculation of median hospital costs, we continue to believe that the resources and clinical characteristics of destruction of the celiac plexus by neurolytic nerve agent are most compatible and homogeneous with those services in Level III Nerve Injections, APC 0207. Therefore, in this final rule with comment period, we are adopting as final the proposed movement of CPT code 64680 from APC 0203 to APC 0207, as displayed in Table 9B below.

Accordingly, all of the final APC reassignments of nerve injections codes in this final rule with comment period are displayed below in Tables 7, 8, 9A, and 9B.

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8. Anterior Segment Eye Procedures

APC 0232: Level I Anterior Segment Eye Procedures

APC 0233: Level II Anterior Segment Eye Procedures

We expressed concern to the APC Panel at its February 2004 meeting that APC 0233 appears to violate the 2 times rule. We suggested moving CPT codes 65286 (Repair of eye wound), 66030 (Injection treatment of eye), and 66625 (Removal of iris) from APC 0233 to APC 0232. The APC Panel agreed and recommended that we move CPT codes 65286, 66030, and 66625 from APC 0233 to APC 0232.

We proposed to accept the APC Panel's recommendation and to reassign these three codes. We received one public comment on our proposal.

Comment: One commenter asserted that the costs for performing the procedures under CPT codes 65286 and 66625 are similar to the costs for performing procedures in APC 0233 and requested that these codes not be moved to APC 0232.

Response: After further analysis, we continue to believe that the resources and clinical characteristics of codes 62586 and 66625 are most compatible and homogeneous with those services in Level I Anterior Segment Eye Procedures, APC 0232.

Therefore, in this final rule with comment period, we are adopting as final without modification our proposal and are moving CPT codes 65286, 66030, and 66625 from APC 0233 to APC 0232 as shown in the Table 10 below.

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9. Pathology

APC 0343: Level II Pathology

APC 0344: Level III Pathology

We expressed concern to the APC Panel at its February 2004 meeting that APC 0343 appears to violate the 2 times rule. We suggested moving CPT code 88346 (Immunoflourescent study) from APC 0343 to APC 0344. The APC Panel concurred with our proposal.

We proposed to accept the APC Panel's recommendation and to move CPT code 88346 from APC 0343 to APC 0344. We received one public comment on our proposal.

Comment: One commenter requested that CMS split APC 0344 into two APCs to create another level for the pathology procedures. The commenter stated that creation of another level would lead to more economically homogenous APCs to provide payment that more closely covers the costs of the procedures. The commenter pointed out that APC 0344, as currently configured, violates the 2 times rule and recommended that CMS split APC 0344 into two APCs and that CMS should assign them to a newly created APC rather than finalize its proposal to assign the new computer-assisted image analysis procedures to APC 0344.

Response: We believe that our proposed reassignment of CPT code 88346 from APC 0343 to 0344, as recommended by the APC Panel, will improve the resource and clinical homogeneity of the APCs. We are reluctant to make further reassignments without hospital cost data to support changes. Several of the codes that the commenter is concerned about, including APC codes 88360 (Morphometric analysis, tumor immunohistochemistry, quantitative or semiquantitative, each antibody; manual), 88368 (Morphometric analysis, in situ hybridization, each probe; manual), and 88367 (Morphometric analysis, in situ hybridization, each probe; using computer assisted technology) were new in CY 2004 and CY 2005 and, as such, we do not have available claims data for analysis.

Given the new codes mentioned by the commenter and the 2 times rule violations in APC 0342 and 0344, we expect that we will want to solicit the advice of the APC Panel regarding the configuration of all the pathology APCs: 0342, 0343, 0344, and 0661, at their next meeting. We will reexamine the APCs for future updates to the OPPS, but will not make other changes to the APCs at this time.

In this final rule with comment period, we are adopting as final without modification our proposal and are moving CPT code 88346 from APC 0343 to APC 0344.

10. Immunizations

APC 0355: Level III Immunizations (for CY 2005: Level I Immunizations)

APC 0356: Level IV Immunizations (for CY 2005: Level II Immunizations)

We expressed concern to the APC Panel at its February meeting that APCs 0355 and 0356 appear to violate the 2 times rule. In order to eliminate this violation, we suggested moving CPT 90636 (Hepatitis A/Hepatitis B vaccine, adult dose, intramuscular use) from APC 0355 to APC 0356. We also suggested moving CPT codes 90375 (Rabies immune globulin, intramuscular or subcutaneous), 90740 (Hepatitis B vaccine, dialysis or immunosuppressed patient, intramuscular), 90723 (Diphtheria-pertussis-tetanus, Hepatitis B, Polio vaccine, intramuscular), and 90693 (Typhoid vaccine, AKD, subcutaneous) from APC 0356 to APC 0355.

The APC Panel recommended moving CPT 90636 from APC 0355 to APC 0356 and CPT codes 90740, 90723, and 90693 from APC 0356 to APC 0355. The APC Panel delayed making a recommendation on CPT 90375 and requested that we collect additional cost data on this procedure for discussion at the next scheduled APC Panel meeting.

In the August 16, 2004 proposed rule, we proposed to accept the APC Panel's recommended changes to move CPT code 90740 from APC 0356 to 0355, and to move CPT code 90636 from 0355 to 0356. Based on our review of more recent claims data than were available to the APC Panel, we also determined that the medians for CPT codes 90693 and 90375 are below the $50 drug packaging threshold. Therefore, we also proposed to package both CPT codes 90693 and 90375 and to change the status indicator for CPT code 90723 to “E” because it is not payable by Medicare.

We received one public comment relating to CPT code 90740.

Comment: One commenter requested that CMS not reassign CPT code 90740 Recombivax 40mcg/mL (a brand name for Hepatitis B vaccine), from APC 0356 (Level II Immunizations) to APC 0355 (Level I Immunizations), as proposed. The commenter stated that the CMS median cost of $5.55 is erroneous and that the lowest published price for Recombivax 40mcg/mL in the Federal Supply Schedule is $79.33. Therefore, the commenter believed that code 90740 does not violate the 2 times rule when assigned to APC 0356.

Response: We are using the CY 2003 hospital claims as the basis for payment and we believe we have adequate claims on which to base payment for CPT code 90740 for CY 2005. We were able to use 99 percent of the claims for CPT code 90740 for median calculation and believe that our assignment of CPT code 90740 for CY 2005 is appropriate.

In this final rule with comment period, we are adopting as final without modification our proposal and are moving CPT code 90740 from APC 0356 to APC 0355 and CPT code 90636 from APC 0355 to APC 0356, as shown in Table 11, and packaging both CPT codes 90693 and 90375.

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11. Pulmonary Tests

APC 0367: Level I Pulmonary Tests

APC 0368: Level II Pulmonary Tests

APC 0369: Level III Pulmonary Tests

We expressed concern to the APC Panel at its February 2004 meeting that APC 0369 appears to violate the 2 times rule. We suggested moving CPT code 94015 (Patient recorded spirometry) from APC 0369 to APC 0367. The APC Panel concurred with our proposal.

In the August 16, 2004 proposed rule, we proposed to accept the APC Panel's recommendation and to move CPT code 94015 from APC 0369 to APC 0367. In addition, during our analysis of more recent claims data following the APC Panel meeting, we noted that APC 0367 violated the 2 times rule. Therefore, we proposed to reassign CPT codes 94375, 94750, 94450, 94014, 94690, and 93740 to APC 0368.

We did not receive any public comments on our proposal. Accordingly, in this final rule with comment period, we are adopting as final without modification our proposal and are moving CPT code 94015 from APC 0369 to APC 0367 and reassigning CPT codes 93740, 94014, 94375, 94450, 94690, and 94750 to APC 0368, as shown in Table 12A.

12. Clinic Visits

APC 0600: Low Level Clinic Visits

We expressed concern to the APC Panel at its February 2004 meeting that APC 0600 appears to violate the 2 times rule. We suggested moving HCPS code G0264 (Assessment other than CHF, chest pain, asthma) to a higher level clinic visit. The APC Panel recommended that we not make any changes to APC 0600.

We proposed to accept this recommendation and not make any changes to APC 0600 for CY 2005. We received one public comment on our proposal from a provider group.

Comment: One comment recommended that CMS investigate further the apparent two times violation in APC 0600. The commenter believed that, although the APC Panel did not recommend reassignment of HCPCS code G0264 (Initial nursing assessment of patient directly admitted to observation with diagnosis other than CHF, chest pain or asthma or patient directly admitted to observation with diagnosis of CHF, chest pain or asthma when the observation stay does not qualify for G0244), in order to remedy the apparent violation, CMS should make the reassignment of G0264 to a much higher level clinic visit (APC 0602, High Level Clinic Visit) due to the resources involved in directly admitting a patient to observation. The commenter provided examples of services that the commenter believed are part of the initial observation nursing assessment provided by a hospital, including patient registration, comprehensive nursing clinical admission assessment, initiation of physician orders, coordination and scheduling of ancillary services, administration of medications, and assessment of discharge planning needs.

Response: We do not agree with the commenter's assertion that the services coded using G0264 are necessarily more resource intensive than a low-level clinic visit. The beneficiary whose observation stay would be coded using G0264 presents to the hospital following a physician visit. The beneficiary has already been assessed by the physician who, as a result of the assessment, has decided that observation care is warranted. We are concerned that hospitals may be attributing costs to the initial nursing assessment that are more appropriately attributable to observation services themselves, such as administration of medications, scheduling of tests to be conducted during the period of observation, and discharge planning. It is not apparent why the services provided in the hospital associated with admission to observation care (including some of those listed by the commenter) should require the resources of a High Level Clinic Visit (APC 0602) as the commenter suggested. Thus, we agree with the APC Panel's recommendation to leave G0264 in APC 0600.

Accordingly, in this final rule with comment period, we are adopting as final our proposal not to make any changes to APC 0600 for CY 2005.

13. Other APC Assignment Issues

We received a number of comments about specific APC assignments and payment amounts that were generated by our proposed rates or proposed changes to HCPCS code APC assignments resulting from our revisions to address violations of the 2 times rule. Those changes were not all specifically discussed in the proposed rule, but were open to comment. We respond to these comments in this section of the final rule.

a. Catheters for Brachytherapy Services

Comment: One commenter asked that CMS consider carefully in which APCs to place new CPT codes 19296, 19297, and 19298 (for placement of catheters into the breast for brachytherapy) because the services have, heretofore, been coded under unlisted code 19499, which is assigned to APC 0028 (Level I Breast Surgery) and with a proposed payment amount of $1,081 for CY 2005. The commenter believed that this Start Printed Page 65704proposed amount is too low to appropriately reflect the costs of these services.

Response: We have assigned new CPT codes 19296 and 19298 in New Technology APC 1524 (New Technology-Level XIV ($3,000-$3,500)) with a payment amount of $3,250 and CPT code 19297 in APC 1523 (New Technology-Level XXIII ($2,500-$3,000)) with a payment amount of $2,750 for CY 2005 OPPS. These are new codes and the APC assignments were not included in the proposed rule. Therefore, the APC assignments are subject to comment.

b. Peripherally Inserted Central Catheters (PICC)

We received one comment regarding our proposed APC reassignment of CPT codes 36568 (Insertion of peripherally inserted central venous catheter (PICC), without subcutaneous port or pump; under 5 years of age) and 36569 (Insertion of peripherally inserted central venous catheter (PICC), without subcutaneous port or pump; age 5 years or older to APC 0187 (Miscellaneous placement/repositioning). We made the proposal based on a recommendation by the APC Panel during its February 2004 meeting.

Comment: One commenter requested that we not reassign CPT codes 36568 and 36569 from APC 0032 to APC 0187 as proposed.

Response: We proposed to reassign the PICC lines to APC 0187 based on our agreement with the APC Panel that there are significant differences in the clinical complexity and resource use associated with the procedures assigned to APC 0032 compared to PICC line insertion. We will reevaluate the APC assignment of the PICC line insertion once we have sufficient data to evaluate the assignment.

c. External Fixation Devices

Comment: One commenter indicated that APC 0046 (Open/Percutaneous Treatment Fracture) contains violations of the two times rules and should be broken into multiple APCs so that CPT codes 20690 (Apply bone fixation device) and 20692 (Apply bone fixation device), which are for application of external fixation devices, could be paid appropriate amounts. Other commenters asked that CMS require that claims for these codes must contain codes for the devices and asked that we revise the definition of C1713 (Anchor/screw for opposing bone to bone or soft tissue to bone (implantable)) to also apply to external fixation devices and to remove the requirement that the device be implantable. One commenter also asked that we instruct providers to bill code 20690 or 20692 when external fixation is provided with the reduction of a fracture and asked that we create a new APC to contain CPT codes 20690 and 20692.

Response: CPT codes 20690 and 20692 are currently in APC 0050 and no changes were proposed for 2005 OPPS. There are no 2 times violations in the APC in which they are located and each of these codes represents approximately one percent of the volume in the APC. Therefore we see no reason to create a new APC for these codes. The CPT codes for treatment of a fracture often include with or without fixation in the definition of the code. Where fixation is included in the definition of the code, it would be miscoding to also report 20690 or 20692; these codes should be reported if, and only if, fixation is not included in the definition of the CPT code for treatment of the fracture. Providers should review the CPT instructions and look to the AMA's guidance on coding if they have questions about when these codes should be reported.

d. Apheresis

Comment: Two commenters disagreed with our proposed reassignment of CPT code 36515 (Apheresis, adsorp/reinfuse) to APC 0111 (Blood Product Exchange) and recommended that the code be reassigned to APC 0112 (Apheresis, Photopheresis and Plasmapheresis). One of the commenters, a medical specialty society, indicated that the procedure involves an expensive disposable supply item that costs more than the proposed payment rate for APC 0111. In addition, this commenter stated that the proposed payment rate would be significantly less than the physician's office payment, which the commenter concluded indicated that the charge data used to establish the median cost of the procedure may be incorrect.

Response: APC assignments are based on clinical homogeneity and comparable resource utilization for all CPT and HCPCS codes within an APC. After careful review, we disagree with the commenters that CPT code 36515 should be reassigned to APC 0112. We believe that the resources required for CPT code 36515 are more similar to the other CPT codes in APC 0111. Thus, for CY 2005, we are adopting as final our proposal to assign CPT code 36515 to APC 0111, effective January 1, 2005.

e. Imaging for Intravenous Cholangiogram (IVC) Filter Placement and Breast Biopsy

Comment: One commenter requested that we move CPT code 75940 (Percutaneous placement of IVC filter, radiological supervision and interpretation) from APC 0187 (Miscellaneous Placement/Repositioning) to APC 0280 (Level III Angiography and Venography Except Extremity) and CPT code 76095 (Stereotactic localization guidance for breast biopsy or needle placement, each lesion, radiological supervision and interpretation) from APC 0187 (Miscellaneous Placement/Repositioning) to APC 0289 (Needle Localization for Breast Biopsy). The commenter believed that imaging for IVC filter placement and breast biopsy are entirely unrelated services to the central venous access surgical procedures comprising the majority of the codes in APC 0187.

Response: We understand the commenter's concern regarding the clinical inconsistency between the services described by CPT codes 75940 and 76095, which are assigned to APC 0187, and the central venous access (CVA) procedures that are also assigned to APC 0187. However, we disagree with the commenter's recommendation that CPT codes 75940 and 76095 be reassigned. First, if we were to accept the commenter's recommendation to reassign CPT code 75940 to APC 0280 and CPT code 76095 to APC 0289, the resource homogeneity of those two APCs would be compromised, and we would be significantly overpaying CPT code 75940 and underpaying CPT code 76095 based on the median costs of those two codes relative to the median costs of the procedures currently assigned to APCs 0280 and 0289, respectively. Further, we lack data for a number of the CVA codes in APC 0187 because they are new codes that were established in CY 2004. We believe that these new CVA codes are clinically similar to the codes that comprise APC 0187, and we estimate that they are also similar in terms of resource costs, which is why we assigned them to APC 0187. Once we have accumulated data for these new codes, we will review the configuration of APC 0187, and make whatever changes are appropriate in future updates. Therefore, we are maintaining CPT codes 75940 and 76095 in APC 0187 for CY 2005.

f. Hysteroscopic Endometrial Ablation Procedures

Comment: Some commenters opposed the APC Panel recommendation that both CPT codes 0009T (Endometrial cryoablation) and 58563 (Hysteroscopic endometrial ablation) be assigned to APC 0387 (Level II Hysteroscopy) in CY 2005. The commenters were concerned that adding endometrial cryoablation Start Printed Page 65705(CPT 0009T) to APC 0387 would seriously weaken the clinical homogeneity of APC 0387 because CPT 0009T (Endometrial ablation with ultrasonic guidance) does not use hysteroscopy, and it requires an ultrasound machine and a separate capital unit, or compressor console, to provide cryotherapeutic energy. Instead, the commenters urged CMS not to keep CPT code 58563 in APC 0387, but rather, to assign it to APC 0202, in addition to assigning code 0009T to APC 0202, as we had proposed. One commenter argued that the clinical homogeneity of APC 0202 would be enhanced by grouping the two endometrial ablation procedures that use visualization to monitor and confirm the destruction of the endometrium in the same APC. Moreover, moving both CPT codes 58563 and 0009T to APC 0202 would highlight APC 0202's clinical homogeneity as a more device-intensive family of new technology procedures while better organizing APC 0387 as the group of non-device hysteroscopic procedures involving surgical removal or resection of intrauterine tissue for reasons other than abnormal uterine bleeding (AUB). The same commenter also believed that assigning both codes to APC 0202 would negate any inappropriate incentives to use either treatment because of payment. Other commenters asked that CMS create a new APC for endometrial cryoablation and place that APC on the device-dependent list as it did for cryoablation of the prostate because they have found that the device is 70 percent of the total cost of endometrial cryoablation. The commenters asked that the new APC be paid at least $3,448 to appropriately reflect the hospital's cost of the service.

Response: After careful consideration of the comments, we have decided to make final for CY 2005 our proposal to retain hysteroscopic endometrial ablation (CPT code 58563) in APC 0387. In addition, we are making final for CY 2005 our proposal to assign endometrial cryoablation with ultrasonic guidance to APC 0202. (We note that CPT code 0009T for endometrial cryoablation with ultrasonic guidance is replaced by new CPT code 58356 for CY 2005.). We believe that the need for a hysteroscope to perform hysteroscopic endometrial ablation makes it similar to the other services in APC 0387. On the other hand, Endometrial cryoablation uses a device but not a hysteroscope and, therefore, is more clinically compatible with APC 0202, which contains other resource intensive gynecologic services that also use a device but not a hysteroscope. Moreover, APC 0202 is a device-dependent APC and, therefore, a more appropriate placement for a procedure that uses a device.

g. Hysteroscopic Female Sterilization

Comment: One commenter indicated that the AMA intended create a new CPT level III tracking code for hysteroscopic female sterilization for CY 2005 and urged CMS to assign it to APC 0202. The commenter indicated that this new service places implants through a hysteroscope to occlude the fallopian tubes and that, therefore, it should be assigned to APC 0202, which would provide appropriate payment for this new service for which the implants cost $1,000 to $1,500.

Response: This service is represented by new CPT code 58565 (Hysteroscopic fallopian tube cannulation and micro insert placement), which was created after the issuance of the proposed rule. We are placing this new code to APC 0202 for CY 2005 for the OPPS. The placements of new codes in APCs, such as this code, are subject to comment during the comment period of this final rule with comment period.

h. Urinary Bladder Residual Study

Comment: One commenter asked us to keep CPT code 78730 (Urinary bladder residual study) in APC 0404 (Renal and Genitourinary Studies Level I) instead of moving it to APC 0340 (Minor Ancillary Procedures). The commenter noted that this code is being misused to report other than urinary bladder residual imaging.

Response: CPT code 78730 was created and originally valued for the Medicare Physician Fee Schedule as a procedure that required the services of a nuclear medicine technician. Subsequently, the use of the code has changed so that it is now used primarily by urologists. We do not believe that urologists perform services requiring nuclear medicine technicians and so, as the commenter pointed out, it appears that the code may now be utilized for coding a service that is different from that for which it was created.

However, we are not reassigning the code at this time, as requested by the commenter, pending further review. To that end, we would appreciate submission of resource data from other physician specialties that use CPT code 78730 for us to review in the context of our hospital data so that we can examine this issue further.

i. Intracranial Studies, Electrodiagnostic Testing, Autonomic Testing, and EEG

We received one comment relating to the APC assignments for several electrodiagnostic testing, autonomic testing, and EEG codes.

Comment: One commenter requested that CPT code 93888 (Intracranial study) be moved from APC 0266 (Level II Diagnostic Ultrasound Except Vascular) and assigned to APC 0267 (Level III Diagnostic Ultrasound Except Vascular) as it was in CY 2002; that CPT codes 95870 (Muscle test, nonparaspinal), 95900 (Motor nerve conduction test), and 95904 (Sensory NCV) be assigned to APC 0218 (Level II Nerve Muscle Tests); that CPT codes 95921, 95922, and 95923 (Autonomic nerve function tests) be assigned to APC 216 (Level III Nerve and Muscle Tests); and that CPT codes 95953 and 95956 (EEG monitoring) be assigned to APC 209 (Extended EEG Studies and Sleep Studies, Level II).

Response: Based on our final CY 2003 hospital data for CPT codes 93888, 95870, 95900, 95904, 95921, and 95922, we continue to believe that the resources and clinical characteristics of those codes are most compatible with other services in the APCs to which they are assigned. We made no proposal to change any of those APC assignments. Therefore, in this final rule with comment period, we are finalizing our continued placement of CPT code 93888 in APC 0266; CPT codes 95870, 95900, and 95904 in APC 0215; and CPT codes 95921 and 95922 in APC 0218. We are moving CPT code 95923 from APC 0215 to APC 0218 because the resources for this code are most compatible and homogenous with those services in Level II Nerve and Muscle Tests.

Based on our further review of CPT codes 95953 and 95956, we are moving these two CPT codes, as well as code 95950, to APC 0209 (Extended EEG Studies and Sleep Studies, Level II). Based on our review of clinical and resource use characteristics of these CPT codes, we discovered that 95953, 95956 and 95950 all are more homogenous with procedures assigned to APC 0209 than in their current APCs. Although we did not propose to make these reassignments in the proposed rule, based in part on the comment received and our further review, we are making these reassignments in this final rule with comment period in the interest of clinical and resource use homogeneity.

Accordingly, we are reassigning the CPT codes relating to intracranial studies, electrodiagnostics testing, autonomic testing, and EEG to APCs, as displayed below in Table 12B.

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j. Therapeutic Radiation Treatment

Comment: Some commenters objected to the proposed movement of CPT code 77370 (Radiation physics consult) from APC 0305 (Level II Therapeutic Radiation Treatment Preparation) to APC 0304 (Level I Therapeutic Radiation Treatment Preparation), with a proposed reduction in the payment rate by 51 percent from the CY 2004 payment rate of $200.60. The commenters indicated that the current CY 2004 payment rate is already inadequate. The commenters expressed concern that the proposed payment of $98.27 would not compensate for the costs incurred to deliver this service and urged that CPT code 77370 remain in APC 0305.

Response: The median of $134.22 for CPT code 77370 was based on 95 percent of the total CY 2003 claims (33,070 single procedure claims out of 34,792 total claims). Based on these claims data, we believe that the movement of CPT code 77370 from APC 0305 (with a proposed median of $229.92) to APC 0304 (with a proposed median of $99.92) is appropriate. Therefore, we are finalizing our movement of CPT code 77370 from APC 0305 to APC 0304 for CY 2005.

k. Hyperthermia Procedures

Comment: One commenter expressed concern about the 9-percent decrease in the proposed payment rate for hyperthermia procedures (CPT codes 77600 through 77605) assigned to APC 0314 (Hyperthermic Therapies). The commenter asserted that the hospital charges do not reflect the tremendous capital costs associated with hyperthermia procedures. The commenter suspected that the questionably high utilization for these procedures may be a result of miscoding. The commenter requested that CMS consider the hyperthermia practice expense data submitted through the Practice Expense Advisory Council (PEAC) and Medicare Physician Fee Schedule (MPFS) processes. The commenter urged CMS to maintain the CY 2004 payment rates for hyperthermia through CY 2005 to allow additional time for the commenter to educate providers on the proper coding and cost reporting for hyperthermia.

Response: We believe the data do not support the commenter's concern that a high utilization for these codes is indicative of miscoding, as we do not consider 552 total claims to reflect a high utilization that gives rise to question. The payment rate for APC 0314 for CY 2005 noted in the proposed rule was set using 86 percent of the total claims (that is, 452 single procedure claims out of 522 total claims), which we consider to be sufficiently robust for ratesetting purposes. Therefore, we will not consider practice expense data submitted through the PEAC or MPFS processes.

l. Physician Blood Bank Services

Comment: One commenter asked that CMS place CPT codes 86077, 86078 and 86079 (Physician blood bank services) into an APC and make payment for them under the OPPS. The commenter indicated that the current assignment of status indicator “A” is assigned to HCPCS codes that are paid under another fee schedule but that these services are not paid under any other fee schedule or payment system and, therefore, the hospital is not being paid for these services. The commenter noted that the services had status indicator “X” for minor services and had APC assignments in the CY 2003 OPPS.

Response: We agree and have assigned these CPT codes to APC 343 with status indicator “X.” These services consist mainly of physician professional services, which are paid through the Medicare Physician Fee Schedule, but we expect there may also be some hospital resources utilized. We have given these codes a condition code of “NI” (new interim) in this interim final rule with comment because they were not paid under the OPPS in CY 2004 and because we were not able to use the data for these codes in the calculation of the median cost for APC 343.

m. Caloric Vestibular Test

Comment: One commenter requested an explanation for the proposed movement of CPT code 92543 (Caloric vestibular test) from APC 0363 (Level I Otorhinolaryngologic Function Tests) to APC 0660 (Level 2 Otohinplaryngologic Function Tests), and CPT codes 92553 (Audiometry, air and bone) and 92575 (Sensorineural acuity test) from APC 0365 (Level II Audiometry) to APC 0364 ((Level I Audiometry).

Response: We regularly review CPT codes to ensure that they are in appropriate clinical APCs, based on resource use and clinical homogeneity. Upon review, we have found that code 92543 fits more appropriately in a higher-paying APC in the same family of otorhinolaryngologic function test APCs, while codes 92553 and 92575 fit in a lower-paying APC in the same family of audiometry APCs.

n. APC 0365—Level II Audiometry

Comment: One commenter stated that the services in APC 0365 (Level II Audiometry) are not clinically homogeneous and also violate the 2 times rule, sometimes by a spread of 300 percent. The commenter asked that CMS split the APC into two APCs: one containing CPT codes 92604, 92602, 92603, 92601 and 92561 and a second new APC containing CPT codes 92577, 92579, 92582, 92557.

Response: We agree that revision of this APC would result in improved clinical homogeneity and better grouping of services with similar resources. Therefore, we are establishing a new APC 0366 (Level III Audiometry), and are placing in the new APC those Start Printed Page 65707services that are specific to aural rehabilitation after cochlear implantation: CPT codes 92601, 92602, 92603, and 92604.

o. Noncoronary Intravascular Ultrasound (IVUS)

Comment: One commenter requested that CMS keep CPT code 37250 (Intravascular ultrasound (non-coronary vessel) during diagnostic evaluation and/or therapeutic intervention; initial vessel) in APC 0670 (Level II Intravascular and Intracardiac Ultrasound and Flow Reserve) and to use only those claims that capture intravascular ultrasound (IVUS) device-related costs to calculate the median cost for this procedure.

Response: We assigned CPT 37250 to APC 0416 (Level I Intravascular and Intracardiac Ultrasound and Flow Reserve) in the proposed rule. We created two levels for IVUS by creating APC 0416 in order to recognize both the clinical and resource use differences between the coronary and noncoronary vessel procedures, as well as the initial vessel and each additional vessel procedures. Prior to creation of APC 0416, all IVUS procedures, coronary and noncoronary, as well as initial vessel and each additional vessel, were assigned to APC 0670. Based on analysis of our CY 2003 hospital claims data, we concluded that the services in APC 0670 had widely varying median costs, with lower median costs for both the each additional vessel (noncoronary and coronary) and initial noncoronary vessel services in APC 0670, as compared with the initial coronary vessel IVUS. We recognized that the additional vessel services would not require a second costly device in most cases. We also noted that the initial vessel coronary IVUS code, CPT 92978, includes imaging supervision and the interpretation and report, while the initial vessel noncoronary IVUS code, CPT 37250, does not include the radiological supervision and interpretation, which is billed using another CPT code. Thus, we believe that the hospital resources utilized to perform initial vessel noncoronary and coronary IVUS are likely to be different because the service elements in the CPT codes vary. Based on this review, we believe CPT 37250, a noncoronary vessel procedure with a median cost of $361, is appropriately assigned to APC 0416 and would be significantly overpaid if assigned to APC 0670.

For CY 2005, we did not have the “C” coded claims to use to identify device-related costs with the level of specificity that was possible for CY 2004. However, we had significantly more claims available for CPT 37250 for ratesetting this year than for CY 2004. We believe that the data on which the assignment to APC 0416 was based were reflective of hospital claims data regarding the resources utilized for the service. As we note elsewhere in this preamble, we will be requiring the use of device codes to report all devices utilized, beginning January 1, 2005.

Accordingly, in this final rule we are finalizing the assignment of CPT 37250 to APC 0416 for CY 2005.

p. Electronic Analysis of Neurostimulator Pulse Generators

Comment: One commenter stated that the services in APC 0692 (Electronic Analysis of Neurostimulator Pulse Generators) are not clinically homogeneous and also violate the 2 times rule. The commenter asked that CMS split the APC into two APCs: one containing CPT codes 95972 and 95975, and a second new APC containing CPT codes 95970, 95971, and 95974.

Response: We recognize that there is a violation of the two times rule in APC 0692. Therefore, we are moving CPT code 95970 to APC 0218 (Level II Nerve and Muscle Tests), which places it in a clinical APC that is suitable in terms of resource use for the service and results in APC 0692 conforming to the 2 times rule.

q. Endoscopic Ultrasound Services

Comment: One commenter asked that CMS create a separate APC for endoscopic ultrasound services because the commenter believed that there are unique costs associated with them. The commenter also believed that ultrasound costs were not packaged into the median for endoscopic ultrasound services because of correct coding edits that define endoscopic ultrasound services as including ultrasound.

Response: We have no reason to believe that the costs for endoscopic ultrasound services do not contain the costs for the ultrasound component of the service. Ultrasound services are included in the definition of the endoscopy CPT codes, and the hospital would include charges for the ultrasound in the charge for endoscopy that uses ultrasound services. We believe that the current APC placement of the codes for endoscopic ultrasound services in APC 0141 (Level I Upper GI Procedures) is valid, both with regard to clinical homogeneity and resource use.

r. External Counterpulsation (ECP)

Comment: Several commenters requested that G0166 (External Counterpulsation) in APC 0678 (External Counterpulsation) be assigned status indicator “S” rather than “T” and that CMS maintain the payment rate for external counterpulsation at the CY 2004 level. The commenters asserted that external counterpulsation is a stand-alone procedure and that assigning it a status indicator “T” has contributed to declining and inadequate payment rates for the services. The commenters argued that the proposed payment rate for CY 2005 is not reflective of the costs of the service and that the rate should be consistent with other cardiovascular equipment trends such as echocardiography. They contended that the claims data CMS used are erroneous and pointed out that the payment rate has decreased every year since CY 2000, from $112.72 in CY 2004 to a proposed rate of $105.38 for CY 2005. The commenter also speculated that “batching” or “misreporting” of claims also may be contributing to the rate decline trend for external counterpulsation.

Response: We do not believe that the rate decrease for these procedures has anything to do with the “T” status indicator. The rate for external counterpulsation proposed in the August 16, 2004 proposed rule was based on virtually all (35,764) of the 37,565 hospital claims submitted and the APC is comprised of only this one procedure. We are confident that the claims data are representative of actual costs and as such, that the proposed decreased rate is appropriate.

The status indicator only affects the payment rate when external counterpulsation is billed with another procedure that has a status indicator “T.” There are few multiple procedure claims for this procedure in the CY 2003 claims data and, thus, only a very small effect of multiple procedure discounting was possible.

In the absence of supporting information from the commenters, it is not clear what the commenters mean by considering the batching of claims as contributing to the payment decrease. It is also not clear whether or not the commenters' belief that misreporting may be contributing to the rate decline trend for external counterpulsation is justified. However, we encourage hospitals to code accurately.

D. Exceptions to the 2 Times Rule

As discussed earlier, the Secretary is authorized to make exceptions to the 2 times limit on the variation of costs within each APC group in unusual cases such as low volume items and services.

Taking into account the APC changes that we proposed for CY 2005 based on the APC Panel recommendations discussed in section II.C. of this Start Printed Page 65708preamble and the use of CY 2003 claims data to calculate the median cost of procedures classified in the APCs in the August 16, 2004 proposed rule, we discussed our review of all the APCs to determine which APCs would not meet the 2 times limit. We used the following criteria to decide whether to propose exceptions to the 2 times rule for affected APCs:

  • Resource homogeneity.
  • Clinical homogeneity.
  • Hospital concentration.
  • Frequency of service (volume).
  • Opportunity for upcoding and code fragments.

For a detailed discussion of these criteria, refer to the April 7, 2000 OPPS final rule with comment period (65 FR 18457).

In the August 16, 2004 proposed rule, we proposed to exempt 54 APCs from the 2 times rule based on the criteria cited above. In cases in which a recommendation of the APC Panel appeared to result in or allow a violation of the 2 times rule, we generally accepted the APC Panel's recommendation because these recommendations were based on explicit consideration of resource use, clinical homogeneity, hospital specialization, and the quality of the data used to determine the APC payment rates that we proposed for CY 2005. The median cost for hospital outpatient services for these and all other APCs can be found at Web site: http//www.cms.hhs.gov.

We received one public comment on our proposal.

Comment: One commenter recommended that we use statistical methods to determine variations in the medians of services mapped to an APC. Specifically, the commenter suggested the cost data for an APC should include the standard deviation and the coefficient of variation using the geometric mean as the basis for the measure of dispersion. The commenter recommended that very few APCs be allowed to violate the 2 times rule.

Response: We appreciate the commenter's recommendations. We will consider these recommendations for future recalibrations. We do currently review the range of standard descriptive statistics for all APCs, including, but not limited to, the standard deviation and coefficient of variation. As we stated in the proposed rule, we used multiple criteria to assess whether to propose exceptions to the 2 times rule for affected APCs, including resource and clinical homogeneity, hospital concentration, frequency of services, and opportunities for upcoding and code fragments. Despite an increase in the number of clinical APCs in the OPPS over the last several years, the number of APCs excepted from the 2 times rule has remained relatively stable.

The proposed rule listed exceptions from the 2 times rule based on data from January 1, 2004 through September 30, 2004. For this final rule with comment period, we used data from January 1, 2003 through December 31, 2003. As a result of the additional data, the list of APCs that we are excepting from the 2 times rule has been updated. In this final rule with comment period, we are adopting 57 APCs as excepted from the 2 times rule, as shown in Table 13 below.

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E. Coding for Stereotactic Radiosurgery Services

1. Background

In the November 7, 2003 final rule with comment period (68 FR 63403), we discussed the APC Panel's consideration of HCPCS codes G0242 (Cobalt 60-based stereotactic radiosurgery plan) and G0243 (Cobalt 60-based stereotactic radiosurgery delivery). At its August 22, 2003 meeting, the APC Panel discussed combining the coding for these procedures under one code, with the payment for the new code derived by adding together the payments for HCPCS codes G0242 and G0243. The APC Panel recommended that we solicit additional input from professional societies representing neurosurgeons, radiation oncologists, and other experts in the field before recommending changes to the coding configuration for Cobalt 60-based stereotactic radiosurgery planning and delivery.

In a correction to the November 7, 2003 final rule with comment period, issued on December 31, 2003 (68 FR 75442), we considered a commenter's request to combine HCPCS codes G0242 and G0243 into a single procedure code in order to capture the costs of this treatment in a single procedure claim because the majority of patients receive the planning and delivery of this treatment on the same day. We responded to the commenter's request by explaining that several other commenters stated that HCPCS code G0242 was being misused to code for the planning phase of linear accelerator-based stereotactic radiosurgery planning. Because the claims data for HCPCS code G0242 represent costs for linear accelerator-based stereotactic radiosurgery planning (due to misuse of the code), in addition to Cobalt 60-based stereotactic radiosurgery planning, we were uncertain of how to combine these data with HCPCS code G0243 to determine an accurate payment rate for a combined code for planning and delivery of Cobalt 60-based stereotactic radiosurgery.

In consideration of the misuse of HCPCS code G0242 and the potential for causing greater confusion by combining HCPCS codes G0242 and G0243, we created a planning code for linear accelerator-based stereotactic radiosurgery (HCPCS code G0338) to distinguish this procedure from Cobalt 60-based stereotactic radiosurgery planning. We maintained both HCPCS codes G0242 and G0243 for the planning and delivery of Cobalt 60-based stereotactic radiosurgery treatment, consistent with the use of two G-codes for planning (HCPCS code G0338) and delivery (HCPCS codes G0173, G0251, G0339, G0340, as applicable) of each type of linear accelerator-based treatment. We indicated that we intend to maintain these new codes in their current new technology APCs until the payment rates could be set using medians from this expanded set of codes. We also stated that we would solicit input from the APC Panel at its February 2004 meeting.

During the February 2004 APC Panel meeting, several presenters discussed with the APC Panel their rationale for requesting that HCPCS codes G0242 and G0243 be combined into a single procedure code. One presenter explained that the request to combine the codes was made because certain fiscal intermediaries were rejecting claims in which HCPCS codes G0242 and G0243 were reported with a surgery revenue code. Although we have not issued any national instructions to fiscal intermediaries to deny claims for these services if they are billed with a surgery revenue code, the presenter stated that we may have indirectly led some fiscal intermediaries to believe that Cobalt 60-based stereotactic radiosurgery should be reported with a radiation therapy revenue code because the procedure is separated into a planning code and a delivery code, which reflect the coding pattern of a radiation therapy procedure rather than a single code for a surgical procedure. The presenter stated that because of the way that CMS has coded this procedure, some fiscal intermediaries have established local edits to deny claims in which HCPCS codes G0242 and G0243 are reported on a claim with a surgery revenue code.

The APC Panel recommended that CMS work with the presenters to determine if any fiscal intermediaries have established local edits to reject claims in which HCPCS codes G0242 and G0243 are reported on a claim, and to determine specific reasons for any such local edits. The APC Panel also recommended that CMS take necessary action to ensure that any such claims are not being denied payment due to local edits. The APC Panel did not agree that the solution to ensuring payment was to combine HCPCS codes G0242 and G0243 into a single code, but rather recommended that CMS educate fiscal intermediaries as to the appropriate procedures for submission of these claims for Medicare payment.

2. Proposal for CY 2005

In the August 16, 2004 proposed rule, for CY 2005, we proposed to accept the APC Panel's recommendation to work with the presenters to ensure that claims in which HCPCS codes G0242 and G0243 are reported are not being inappropriately denied payment due to local edits established by fiscal intermediaries. In the meantime, for CY 2005, we proposed to maintain HCPCS code G0242 in New Technology APC 1516 (New Technology, Level XVI) at a payment rate of $1,450, and HCPCS code G0243 in New Technology APC 1528 (New Technology, Level XXVIII) at a payment rate of $5,250. These payment rates are the same as those established for CY 2004.

3. Public Comments Received and Departmental Responses

Comment: Numerous comments urged CMS to replace HCPCS codes G0242 (Cobalt 60-based multisource photon SRS, planning) and G0243 (Cobalt 60-based multisource photon SRS, delivery) with one surgical code (that is, CPT code 61793, Stereotactic radiosurgery, one or more lesions) for billing Cobalt 60-based multisource photon stereotactic radiosurgery. These commenters explained that Cobalt 60-based multisource photon SRS is considered to be a one session, neurosurgical procedure and is not separated into planning and delivery sessions. One commenter contended that this procedure is managed and performed exclusively by neurosurgeons.

In response to the OPPS final rule with comment period published on November 7, 2003, one commenter suggested that a combined surgical code representing Cobalt 60-based stereotactic radiosurgery could be appropriately assigned to APC 0222 (Implantation of Neurological Device), APC 0226 (Implantation of Drug Infusion Reservoir), or APC 0227 (Implantation of Drug Infusion Device) to reflect the device costs, the neurosurgical nature of the procedure, and the clinical homogeneity of the other CPT codes that currently reside in these APCs.

In response to the OPPS final rule with comment period published on November 7, 2003, and the OPPS proposed rule published on August 16, 2004, several commenters indicated that the current coding structure has resulted in a low volume of single procedure claims for these codes, reflecting the fact that single procedure claims are billed in error for this procedure due to the necessity of billing both HCPCS codes G0242 and G0243 to capture the planning and delivery costs of this procedure. These commenters explained that the concept of planning and delivery is representative of radiation Start Printed Page 65711therapy and, therefore, does not accurately describe Cobalt 60-based multisource photon SRS. The commenters believed that the creation of HCPCS codes G0242 and G0243 has created an unnecessary burden on hospitals because commercial payors do not recognize these codes. One commenter described the burden of reporting the same service using two different coding systems as the costs associated with hiring and training additional staff, preparing individual negotiations with insurers, and addressing the rejection of claims and the delay of treatments.

In contrast, three commenters objected to the use of the term “radiosurgery” to describe Cobalt 60-based multisource photon SRS planning and delivery. One of these commenters indicated that Cobalt 60-based multisource photon SRS is a radiation therapy procedure. This commenter contended that the indirect costs of operating a radiation therapy department are considerably higher than that of a surgery department, when factoring in the cost of a radiation physicist and therapist. The commenter further indicated that the cost-to-charge ratio (CCR) for the radiation therapy cost center more accurately reflects the costs of providing this service relative to a surgical designation. Another commenter objected to our use of the term “radiosurgery” and asserted that this term is a misleading nomenclature because surgery is not involved, except for the placement of an externally attached coordinate reference frame. The commenter explained that this treatment usually consists of one or more high dose radiation treatments delivered by either a linear accelerator or a cobalt 60-based unit and, therefore, should be referred to as “stereotactic radiation therapy.”

In response to the OPPS final rule with comment period published on November 7, 2003, one commenter urged that CMS not attempt to label stereotactic radiosurgery as either neurosurgery or external beam radiotherapy, and explained that stereotactic radiosurgery is a unique procedure that combines elements of both neurosurgery and external beam radiotherapy. This commenter recommended that we recognize CPT codes specifically designed for stereotactic radiosurgery.

Response: Considering the wide range of conflicting recommendations we received from commenters, we believe that appropriate coding for Cobalt 60-based multisource photon SRS remains a highly contentious and unsettled area of interest among hospitals, neurosurgeons, radiation oncologists, and non-Medicare payors. Based upon our reading of the comments and the observations of CMS staff, we do not believe that Cobalt 60-based multisource photon SRS can be easily classified as either a neurosurgical or radiation therapy procedure specifically. Rather, for the safe and effective delivery of Cobalt 60-based multisource photon SRS to typical patients with brain lesions, the contributions of hospital physician and nonphysician staff with expertise in neurosurgery and radiation therapy are essential for both the planning of the treatment and its delivery.

In the OPPS November 30, 2001 final rule in which we first established payment rates for stereotactic radiosurgery planning and treatment using G-codes in lieu of CPT codes, we noted that, for historical hospital claims for CPT code 61793 (Stereotactic radiosurgery), other combinations of codes from the radiation oncology CPT code section were billed most of the time as well. This confirmed our recognition of the multidisciplinary nature of the service. However, we note that the classification of stereotactic radiosurgery as either neurosurgery or radiation therapy is not relevant to payment for the service under the OPPS. Therefore, for purposes of the OPPS, we have not attributed the service to one specialty or the other.

While we consider the adoption of CPT codes that describe this service, we will continue to maintain HCPCS codes G0242 and G0243 as separate codes in their respective new technology APCs 1516 and 1528 for CY 2005. Although we recognize that the single claims data we collect from these codes may include aberrant claims due to the necessity of billing both HCPCS codes G0242 and G0243 on the same date of service for a correctly coded claim, the adoption of CPT code 61793 to replace HCPCS codes G0242 and G0243, as recommended by some commenters, would not resolve the multiple procedure claims dilemma due to the fact that typically hospitals would need to bill additional CPT codes along with CPT code 61793 to report the full range of services that are currently bundled into HCPCS codes G0242 and G0243. For example, in our November 30, 2001 final rule in which we described our determination of the total cost for stereotactic radiosurgery, to model costs for planning, we added the median costs of CPT codes 77295 (the most typical simulation code billed with CPT code 61793), 77300, 77370 (the most common physics consult billed with CPT code 61793), and 77315 (the most common dose plan billed with CPT code 61793). Furthermore, the descriptor for CPT code 61793 describes multiple forms of stereotactic radiosurgery (that is, stereotactic radiosurgery, one or more lesions; particle beam, gamma ray or linear accelerator), rather than Cobalt 60-based multisource photon SRS alone. The adoption of CPT code 61793 under the OPPS would have the effect of nullifying all of the stereotactic radiosurgery G-codes, which we are unwilling to do without cost data supporting an equal payment for all forms of stereotactic radiosurgery. In light of all the above-mentioned reasons, we believe that any stereotactic radiosurgery code changes for CY 2005 would be premature without cost data to support a code restructuring. In the meantime, we will continue to pay HCPCS codes G0242 and G0243 under their current respective new technology APCs 1516 and 1528 for CY 2005, as we continue to analyze new methods for resolving the issue of multiple procedure claims.

Comment: In response to the OPPS final rule with comment period published on November 7, 2003, and the OPPS proposed rule published on August 16, 2004, several commenters urged CMS to recognize the surgical nature of Cobalt 60-based multisource photon SRS by mapping the procedure to a surgical revenue code. The commenters claimed that some Medicare fiscal intermediaries continue to reject claims in which HCPCS codes G0242 and G0243 are reported with a surgery revenue code, and encouraged CMS to issue national instructions on the correct billing for stereotactic radiosurgery procedures. The commenters believed that revenue codes are established by the general APC in which the procedure resides. Another commenter stated that the placement of HCPCS codes G0242 and G0243 in new technology APCs labeled as radiation therapy has misled Medicare fiscal intermediaries to assume that a radiation revenue code must be reported with these claims. This commenter indicated that, as a result of providers reporting a radiation revenue code when billing HCPCS codes G0242 and G0243 and Medicare applying a radiation CCR ratio to these codes, the median costs for HCPCS codes G0242 and G0243 were understated, as the CCR for radiation is around 33 percent compared to a 45-percent to 55-percent CCR for surgery cost centers.

In response to the OPPS final rule with comment period published on November 7, 2003, and the OPPS proposed rule published on August 16, 2004, two commenters objected to the Start Printed Page 65712assignment of HCPCS codes G0243 and G0173 to the same new technology APC 1528. The commenters argued that these two procedures should not be grouped into the same APC because they are clinically dissimilar and do not share the same level of resource intensity. The commenter believed that an APC grouping should be determined by the clinical nature of the procedure, its resource cost, the type of physician necessary to perform the procedure, the clinical setting in which the procedure is performed, and the clinical outcomes of the procedure. Another commenter indicated that the cost of Cobalt 60-based SRS multisource photon SRS delivery is 2.45 times the cost of linear accelerator-based SRS delivery, which the commenter believed to be an unacceptable violation of the 2 times rule. In contrast, one commenter reported that its facility has experienced no delays or claims rejections as a result of the current coding structure for stereotactic radiosurgery. The commenter urged CMS to maintain the current coding structure for Cobalt 60-based multi-source photon SRS planning and delivery, asserting that providers who carefully review the code descriptors should experience no delays or claims rejections.

Response: We believe the commenter's concerns regarding the clinical similarity and the application of the 2 times rule to a new technology APC reflect a misunderstanding of the purpose of the new technology APCS. We assign procedures to a new technology APC when we do not have adequate claims data upon which to determine the relative median cost of performing a procedure, and must rely on other sources of information (that is, external data that have been made publicly available) to determine its appropriate payment. New technology APCs do not carry clinical descriptors, such as radiation therapy; rather, the descriptor for each new technology APC represents a particular cost band (for example, $1,400 to $1,500). Payment for items assigned to a new technology APC is the mid-point of the band (for example, $1,450). As we stated in our proposed rule, we have worked together with some of the commenters to identify specific fiscal intermediaries who may be rejecting claims in which HCPCS codes G0242 and G0243 are reported. However, to date, we have been unable to identify any such local edits. Nor have we received examples of rejected claims from providers to enable us to determine why payment was not made for the claims. CMS will continue to work with providers and contractors to clarify coding and billing for all stereotactic radiosurgery procedures through program instructions, Medlearn Matters articles, and other outreach activities.

Comment: One commenter understood that the Advisory Panel on APC Groups is invested with the responsibility of providing correct coding for hospitals, and contended that the Panel should address in more detail the coding issues for stereotactic radiosurgery procedures. This commenter further indicated that the Panel is composed almost entirely of physicians rather than hospital financial personnel or hospital coders, to which the commenter objected as creating a direct conflict with hospital interests.

Response: We do not agree with the commenter's concerns regarding the Advisory Panel on APC Groups. The Panel is governed by the provisions of Pub. L. 92-463, which set forth standards for the formation and use of advisory panels (42 U.S.C. 13951 (t); section 1833(t) of the Act). According to the Charter, the function of the Panel is to review the APC groups and their associated weights and advise the Secretary of Health and Human Services and the Administrator of CMS concerning the clinical integrity of the APC groups and their weights. The subject-matter of the Panel includes to the following issues and related topics: addressing whether procedures are similar both clinically and in terms of resource use; assigning new CPT codes to APCs; reassigning codes to different APCs; and reconfiguring the APCs into new APCs. Responsibility for providing correct coding for hospitals does not fall within the purview of the Panel. Furthermore, we wish to reassure the commenter about the makeup of the Panel. The commenter's understanding that the Panel is almost entirely composed of physicians and lacks representation from hospital financial personnel or hospital coders is not accurate. As required by the Charter, all of the Panel members are currently employed in a full-time status by a hospital and serve as representatives of their hospital employer. Furthermore, only approximately half of the Panel members hold a medical degree, while the other half of the Panel members hold a hospital coding certification or nursing, pharmacy, or business degree(s), or both, or serve as hospital reimbursement officers, or both.

Comment: We received numerous comments suggesting various simplifications of the coding structure for SRS planning and delivery. Some commenters urged that CMS develop one uniform series of treatment codes for the various types of stereotactic radiation therapy, based on the process of care rather than a vendor-specific technology. One commenter suggested that CMS eliminate HCPCS codes G0338 (Linear accelerator-based SRS planning) and G0242 (Multi-source Cobalt 60-based photon SRS planning) and recognize existing CPT codes 77295 or 77301 to describe stereotactic radiation therapy planning, which the commenter believed would more accurately describe the process of care and reduce duplication in codes. Another commenter recommended that CMS eliminate HCPCS code G0242, and recognize HCPCS code G0338 for describing all forms of stereotactic radiosurgery planning by deleting the phrase that restricts the code to linear accelerator-based stereotactic radiosurgery planning.

In contrast, a commenter responding to the OPPS final rule with comment period published on November 7, 2003, suggested that CMS eliminate HCPCS code G0338, and recognize HCPCS code G0242 for all stereotactic radiosurgery planning by deleting the phrase that restricts the code to multisource Cobalt 60-based photon SRS planning. Other commenters recommended that CMS simplify the stereotactic radiosurgery delivery codes as well by eliminating HCPCS codes G0173 (SRS delivery, complete session) and G0251 (Linear accelerator-based SRS delivery, fractionated sessions), and recognizing HCPCS codes G0339 (Image guided, robotic linear accelerator-based SRS, complete or first session) and G0340 (Image guided, robotic linear accelerator-based SRS, second through fifth sessions) for all forms of stereotactic radiosurgery delivery by removing the word “robotic” from their descriptors. Another commenter suggested an alternative option for simplifying the stereotactic radiosurgery delivery codes by eliminating HCPCS codes G0339 and G0340, and recognizing HCPCS codes G0173 and G0251. This commenter recommended that CMS modify the descriptors for HCPCS codes G0173 and G0251 by deleting the linear accelerator specification so the codes apply to all forms of stereotactic radiosurgery delivery and deleting the maximum number of five sessions per course of treatment from the descriptor of HCPCS code G0251. One commenter suggested that CMS eliminate HCPCS codes G0173, G0251, G0339, and G0340 and recognize HCPCS code G0243 as including all stereostactic radiosurgery delivery procedures by deleting the phrase that restricts its use to Start Printed Page 65713multisource Cobalt 60-based photon stereotactic radiosurgery delivery.

In response to the OPPS final rule with comment period published on November 7, 2003, one commenter indicated that HCPCS code G0340 (Image guided, robotic linear accelerator-based SRS, second through fifth sessions) should not be described by radiosurgery, contending that radiosurgery is defined by a single session treatment. The commenter recommended that the descriptor for HCPCS code G0340 be changed to “image-guided, robotic, linear accelerator-based radiation therapy-hypofractionated delivery.” One commenter responded to the OPPS proposed rule by applauding CMS for placing the first fraction of a multiple session treatment delivery of image-guided robotic linear accelerator-based stereotactic radiosurgery (described by HCPCS code G0339) in the same APC as a complete single session treatment delivery of image-guided robotic linear accelerator-based stereotactic radiosurgery, and stated that the resources consumed are identical, regardless of whether additional treatment sessions are delivered. This commenter agreed with CMS' placement of subsequent fractionated sessions in a lower paying APC to reflect the fewer resources consumed during the delivery of subsequent sessions.

In response to the OPPS final rule with comment period published November 7, 2003, several commenters supported CMS' decision to assign HCPCS codes G0338 (Linear accelerator-based stereotactic radiosurgery planning) and G0242 (Cobalt 60-based, multi-source photon stereotactic radiosurgery planning) to the same APC, and stated that the resource costs of both types of stereotactic radiosurgery planning are comparable. Another commenter applauded CMS' creation of HCPCS code G0338 to differentiate linear accelerator stereotactic radiosurgery planning from multisource photon stereotactic radiosurgery planning (HCPCS code G0242), due to the differences in their clinical uses and cost resources.

In response to the OPPS final rule with comment period published on November 7, 2003, one commenter supported the creation of HCPCS codes G0339 and G0340, as long as these codes are used exclusively for extracranial stereotactic radiosurgery treatments, such as those of the spine, lung, and pancreas. Due to limited cost data and clinical efficacy published on image-guided, robotic stereotactic radiosurgery used to treat extracranial indications, the commenter believed that the costs for this new and emerging technology would be more accurately captured by limiting the use of HCPCS codes G0339 and G0340 to extracranial stereotactic radiosurgery treatments.

Several commenters requested that CMS present their recommendations to the Advisory Panel on APC Groups during its next meeting in the event that the stereotactic radiosurgery code descriptors cannot be modified in time for the CY 2005 final rule.

Response: For reasons stated in a previous response, we believe that any stereotactic radiosurgery code changes for CY 2005 would be premature without cost data to support a code restructuring. For instance, in preparation of the CY 2006 OPPS Update, we intend to conduct data analysis for the first time for HCPCS codes G0338, G0339, and G0340, which were newly created G-codes for CY 2004. Therefore, until we have completed any such analysis, we will continue to maintain HCPCS codes G0173, G0251, G0338, G0339, G0242, and G0243 in their respective new technology APCs for CY 2005 as we consider the adoption of CPT codes to describe all stereotactic radiosurgery procedures for CY 2006, including the new CPT tracking codes 0082T (Stereotactic body radiation therapy, treatment delivery, one or more treatment areas, per day) and 0083T (Stereotactic body radiation therapy, treatment management, per day) that the AMA intends to make effective January 1, 2005. For CY 2005, we will assign a status indicator of “E” for CPT code 0082T to reflect the fact that the current G-codes for stereotactic radiosurgery treatment delivery include this service, and a status indicator of “N” for CPT code 0083T because we consider the treatment management per session bundled into the current stereotactic radiosurgery treatment delivery G-codes.

In reference to commenters' request that CMS present their recommendations for stereotactic radiosurgery code restructuring to the Advisory Panel on APC Groups, we refer the readers to the discussion above in an earlier response concerning the purview of the Panel's responsibilities. To the extent that the APC assignments for stereotactic radiosurgery codes are an issue, we may bring those to the attention of the Panel.

Comment: In response to the OPPS final rule with comment period published on November 7, 2003, several commenters expressed concern that the placement of HCPCS code G0340 (Image-guided robotic linear accelerator-based SRS delivery, fractionated treatment) in a higher paying new technology APC than G0251 (Non-robotic linear accelerator-based SRS delivery, fractionated treatment) creates a financial incentive to use robotic SRS technology over non-robotic stereotactic radiosurgery technology. The commenters urged that HCPCS codes G0251 and G0340 be placed in the same APC until clinical evidence supports an improved clinical outcome using robotic stereotactic radiosrugery as compared to non-robotic stereotactic radiosurgery and sound financial data supports payment differentiation. In addition to placing G0251 and G0340 in the same APC, one commenter urged that CMS remove the language “or first session of fractionated treatment” from the descriptor for G0339 and remove the language “second through fifth sessions” from the descriptor for G0340, so that placement of HCPCS codes G0251 and G0340 in the same APC will result in equal payments for the first session of fractionated therapy, regardless of the type of technology used to deliver fractionated stereotactic radiosurgery.

In response to the OPPS final rule with comment published on November 7, 2003, and the OPPS proposed rule published on August 16, 2004, several commenters asserted that the creation of HCPCS codes G0339 and G0340 was unnecessary, on the premise that all stereotactic radiosurgery and radiotherapy equipment is image guided and robotic. One commenter expressed concern that the creation of HCPCS codes G0339 and G0340, the limitation of HCPCS code G0340 to five fractionated sessions, and the placement of HCPCS code G0340 in a higher paying APC than other SRS modalities inadvertently amount to an endorsement by CMS of the CyberKnife technology. The commenter believed that the current payment rate for CyberKnife therapy results in excessive copayments for beneficiaries and unfairly advantages a technology that has provided insufficient clinical evidence of an improved outcome above existing stereotactic radiosurgery and radiotherapy modalities, and has provided CMS with no convincing cost data to support such an excessive return on investment. The commenter believed that if CMS had consulted the Medicare Coverage Advisory Committee (MCAC) or the Medical Technology Council (MTC), which advise CMS on whether specific medical treatments and technology should receive coverage, neither the MCAC nor the MTC would have recommended coverage for the CyberKnife technology. Other Start Printed Page 65714commenters urged that CMS eliminate what they believe to be an unfair advantage given to HCPCS code G0339 by modifying the descriptor for HCPCS code G0173 (SRS delivery, complete session) to describe a complete session or first session of linear accelerator-based stereotactic radiosurgery delivery, and modifying the descriptor for HCPCS code G0251 to describe second through fifth sessions of linear accelerator-based stereotactic radiosurgery delivery, so that the first session of a multiple session treatment will be paid equal to that of a complete session, regardless of the type of stereotactic radiosurgery technology used.

Response: We disagree with commenters who believe that the creation of HCPCS codes G0339 and G0340, the limitation of HCPCS code G0340 to five fractionated sessions, and the placement of HCPCS code G0340 in a higher paying APC than other stereotactic radiosurgery modalities amount to an endorsement by CMS of a particular technology. We also note that the code descriptors for HCPCS codes G0339 and G0340 do not limit themselves to the CyberKnife technology. As other commenters indicated, the term “image-guided robotic” applies to other types of stereotactic radiosurgery besides CyberKnife. The OPPS payment system establishes payment rates for services based on relative resources utilized by hospitals to provide such services, based primarily on historical claims data if data are available. If hospital claims data are unavailable, we may consider external data to assist us. From 2000 through 2002, the manufacturer of one type of image-guided robotic stereotactic radiosurgery technology (that is, CyberKnife), along with several hospitals, provided CMS with cost data indicating the level of resources utilized in the provision of this form of stereotactic radiosurgery. We believe these data support the current placement of HCPCS codes G0339 and G0340 in their respective new technology APCs 1528 and 1525 for CY 2005.

To date, we have not received such cost data on non-robotic linear accelerator-based stereotactic radoisurgery (that is, on HCPCS codes G0173 and G0251) to aid us in determining if the current payment differentiation is appropriate. Therefore, we will maintain HCPCS codes G0339 and G0340 in APCs 1528 and 1525, respectively, and make no changes to their descriptors for CY 2005. In reference to CMS consulting a medical technology council for advice on new technology coverage, we refer the readers to section II.F.4.,”Public Comments Received Relating to Other New Technology APC Issues,” of this final rule with comment period for a discussion of the recently established Council on Technology and Innovation.

Comment: A number of commenters, mostly providers of radiation oncology centers or departments, pointed out that stereoscopic kV x-ray guidance using infrared and/or camera technology is a new and important technology that allows for improved precision in radiation therapy targeting. These commenters indicated that kV x-ray guidance is not described by any current HCPCS or CPT code and requested that CMS create a new HCPCS G-code for payment under the OPPS. In addition, one commenter requested that CMS establish a new HCPCS code necessary for target localization in conjunction with intensity modulated radiation therapy, stereotactic radiotherapy, and stereotactic radiosurgery.

Response: The kV x-ray guidance using infrared technology came to our attention by means of an application to be considered for assignment to a new technology APC. We have recently concluded that the kV x-ray guidance should receive a temporary “C” code for OPPS payment under certain circumstances described below, and that it should be placed into a new technology APC. Therefore, we are creating the following HCPCS code to describe kV x-ray guidance using infrared technology:

HCPCS code C9722 (Stereoscopic kV x-ray imaging with infrared tracking for localization of target volume)

We are assigning the new HCPCS code C9722 to New Technology APC 1502 at a payment of $75, effective on January 1, 2005.

While we are assigning a C-code and payment for hospital costs, we are not assigning a G-code because we believe that the interested party should seek a CPT code from the AMA. We believe that the CPT Editorial Panel needs to assess the need for a code for the service, and, if a code is granted, evaluate the resources necessary to provide this service. This technology has been available for more than 2 years. We consider this time period to be sufficient for the interested party to request a CPT code from the AMA.

In addition, in our definition and payment instructions for this service, we are limiting additional payment for this service to occasions when kV x-ray is not billed with stereotactic radiosurgery delivery G-codes. As all stereotactic radiosurgery delivery services require guidance, the current payments for the stereotactic radiosurgery delivery G-codes (HCPCS codes G0173, G0243, G0251, G0339, and G0340) bundle payment for guidance services with stereotactic radiosurgery delivery.

4. Final Policy for CY 2005

We are adopting our proposal to maintain HCPCS codes G0173, G0242, G0243, G0251, G0338, and G0339 in their respective new technology APCs for CY 2005. We will consider the adoption of CPT codes to describe all stereotactic radiosurgery procedures in the future.

F. Movement of Procedures From New Technology APCs to Clinically Appropriate APCs

1. Background

In the November 30, 2001 final rule (66 FR 59903), we made final our proposal to change the period of time during which a service may be paid under a new technology APC. Beginning in CY 2002, we retained services within new technology APC groups until we acquired adequate data to enable us to assign the service to a clinically appropriate APC. This policy allows us to move a service from a new technology APC in less than 2 years if sufficient data are available. It also allows us to retain a service in a new technology APC for more than 3 years if sufficient data upon which to base a decision for reassignment have not been collected.

In the November 7, 2003 final rule with comment period, we implemented a comprehensive restructuring of the new technology APCs to make the payment levels more consistent (68 FR 63416). We established payment levels in $50, $100, and $500 intervals and expanded the number of new technology payment levels.

2. APC Panel Review and Recommendation

During the APC Panel's February 2004 meeting, the APC Panel heard testimony from several interested parties who requested specific modifications to the APCs for the radiation oncology APC. They asked the APC Panel to make several recommendations: (1) That we move CPT code 77418 (Radiation treatment delivery, Intensity-modulated radiation therapy (IMRT)) from APC 0412 (IMR Treatment Delivery) back into a new technology APC; (2) that we dampen, or limit, any possible payment reductions to APC 0301 (Level II Radiation Therapy); (3) that we accept more external data to evaluate costs; and (4) that we identify more claims that are useful for ratesetting. Start Printed Page 65715

In response to the testimony presented, the APC Panel recommended that we reassign CPT code 77418 to the new technology APC 1510 for CY 2005 and that we explain to providers any steps we take to limit payment reductions to APC 0301 so that they can better plan for future years during which we may decide not to apply a dampening, or payment reduction limitation, to the rates for APC 0301.

In the August 16, 2004 proposed rule, we did not propose to accept the APC Panel's recommendations because we believe that we have ample claims data for use in determining an appropriate APC payment rate for CPT code 77418. Moreover, we believe that the development of median cost for CPT code 77418 based on those data is representative of hospital bills.

We have over 255,000 claims for this service, and over 95 percent were single claims that we could use for ratesetting. Moreover, the APC medians have been stable for the last 2 years of data. As indicated by our claims data, returning code 77418 to new technology APC 1510 would result in a payment for the service that is significantly higher than the resources utilized to provide it.

We refer the readers to section II.F.4., “Public Comments Received Relating to Other New Technology APC Issues,” of this final rule with comment period for a discussion of the public comments and our final policy regarding the APC placement of CPT code 77418 for CY 2005.

Comment: Several commenters objected to the proposed assignment of CPT code 77418 to APC 0412 at a payment rate of $307.78. These commenters disagreed with CMS' conclusion that the significant volume of single claims used to set the payment rate accurately reflects the costs hospitals incur to provide this service, and argued that hospitals are inaccurately coding this service and submitting insufficient charges for delivering this therapy. One commenter raised concerns that some providers are incorrectly billing procedures other than IMRT under CPT code 77418. Commenters urged CMS to accept the recommendation of the Advisory Panel on APC Groups to return CPT code 77418 to a new technology APC with a payment rate comparable to the CY 2003 payment rate of $400.

Response: As we noted previously, we do not accept the Panel's recommendation to move CPT code 77418 back to a new technology APC. We believe the 2 years (that is, CYs 2002 and 2003) that CPT code 77418 was in new technology APC 0710 allowed ample opportunity for providers to receive proper instruction on correctly coding and billing for this service. The proposed payment rate of $307.78 for CY 2005 was set using 96 percent of the total claims (that is, 246,045 single procedure claims out of 255,020 total claims) for CPT code 77418, which deeply supports its current placement in clinical APC 0412. Therefore, we will maintain CPT code 77418 in APC 0412 for CY 2005.

Comment: Several commenters objected to the proposed movement of CPT code 77301 (Radiotherapy dose plan, IMRT) from new technology APC 1510 (New Technology, Level X) with a payment rate of $850 to clinical APC 0310 (Radiation treatment preparation, Level III) with a payment rate of $811.91. The commenters indicated that this procedure is relatively new and that hospitals appear to be inaccurately reporting the costs of providing this service. The commenters recommended that, until more data can be collected and analyzed, CMS retain CPT code 77301 in new technology APC 1510 at a payment rate of $850.

Response: We move a procedure from a new technology APC to a clinical APC when we have adequate claims data for ratesetting. We believe that the proposed movement of CPT code 77301 from new technology APC 1510 to clinical APC 0310 is appropriate, considering that 88 percent of the total claims (66,076 single procedure claims out of 74,911 total claims) were used to set the payment rate of $811.91 for APC 0301. Furthermore, CPT code 77301 has been placed in a new technology APC for the past 3 years (that is, CY 2002 through CY 2004), which we believe to be ample time for providers to receive proper instruction on correctly coding and billing for CPT code 77301. Therefore, as proposed, we are moving CPT code 77301 from new technology APC 1510 to clinical APC 0310 for CY 2005.

Comment: One commenter requested that new CPT 0073T (Compensator-based beam modulation treatment delivery of inverse planned treatment using three or more high resolution (milled or cast) compensator convergent beam modulated fields, per treatment session) be assigned to APC 0412 with an “S” status indicator. The commenter believed that the assignment of 0073T should be the same as that for CPT 77418.

Response: We agree with the commenter and are assigning CPT 0073T to APC 0412 with status indicator “S” for CY 2005.

3. Proposed and Final Policy for CY 2005

There are 24 procedures currently assigned to new technology APCs for which we have data adequate to support assignment into clinical APCs. Therefore, in the August 16, 2004 proposed rule, we proposed to reassign these procedures to clinically appropriate APCs. We proposed to assign 24 of the procedures that were listed in Table 14 of the proposed rule to clinically appropriate APCs using CY 2003 claims data to set medians on which payments would be based.

As we did in the proposed rule, we present below a further explanation to provide a fuller understanding of the payment rates for several of the procedures that we proposed to move out of new technology APCs and into clinical APCs.

a. Photodynamic Therapy of the Skin

For CPT code 96567 (Photodynamic therapy of the skin), the impact of the payment decrease between CY 2004 and CY 2005 is actually low, as the CY 2004 payment included the topically applied drug required to perform this procedure and the CY 2005 payment does not. We will now pay separately for the drug billed under HCPCS code J7308 in CY 2005. We have adequate claims data on which to base payment for that procedure in a clinically appropriate APC. Payment based on those data in addition to removal of the drug for separate payment resulted in a lower median cost for the APC.

Comment: Several commenters objected to the proposed movement of CPT code 96567 (Photodynamic therapy of the skin) from New Technology APC 1540 (New Technology, Level III) with a payment rate of $150 to clinical APC 0013 (Level II Debridement and Destruction) with a proposed payment rate of $66.15. The commenters recognized that the drug (that is, HCPCS code J7308) used with this procedure is no longer bundled into the payment for CPT code 96567, and agreed that some payment reduction is appropriate. However, the commenters indicated that the proposed payment rate for APC 0013 would not cover the costs of providing this service even after excluding the costs of the drug.

Response: We believe that the resources and the clinical nature of CPT code 96567 are consistent with other codes that are placed in APC 0013. Therefore, in this final rule with comment period, we are finalizing our proposal to move CPT code 96567 from New Technology APC 1540 to clinical APC 0013 for CY 2005. Start Printed Page 65716

Comment: One commenter brought to our attention that CPT code 96571 (Photodynamic therapy, additional 15 minutes) may have been moved mistakenly from New Technology APC 1541 to clinical APC 0012 (Level I Debridement and Destruction). The commenter suggested that CPT code 96571 be placed in the same clinical APC 0013 (Level II Debridement and Destruction) as CPT code 96570 (Photodynamic therapy, 30 minutes).

Response: We agree with the commenter that CPT code 96571 was mistakenly moved to APC 0012 in the proposed rule. Because CPT code 96571 is an add-on code for an additional 15 minutes of photodynamic therapy, reported in addition to CPT code 96570, which describes the first 30 minutes of therapy, we believe that both codes, with status indicator “T,” should be placed in APC 0015 (Level III Debridement and Destruction). Therefore, in this final rule with comment period, we are moving CPT code 96571 from New Technology APC 1541 to clinical APC 0015 for CY 2005.

b. Left Ventricular Pacing, Lead and Connection

Based on a comparison of payment rates for CY 2004 and CY 2005, it appears that there is a large increase in payment that results from reassigning CPT code 33224 (Insertion of left ventricular pacing, lead and connection) from its new technology APC to a clinical APC. The difference is due to the fact that the CY 2005 APC payment includes the cost of the left ventricular lead that was not included in the CY 2004 new technology APC payment. The left ventricular lead was paid as a pass-through device under HCPCS code C1900 in CY 2004, but is not eligible for pass-through payments in CY 2005, and, as such, is now included in the APC for the procedure.

Similarly, the CY 2005 payment rate for CPT code 33225 (Left ventricular pacing lead add-on) includes the cost of the ventricular lead. However, for code 33225, the data are still somewhat unstable. Therefore, in the proposed rule, we maintained CPT code 33225 in a new technology APC, but at a higher payment level, to reflect the additional cost of the lead.

We received no comments and, therefore, we are reassigning CPT code 33224 to a clinical APC for CY 2005.

c. Positron Emission Tomography (PET) Scans

PET-FDG (Nonmyocardial)

In the proposed rule, we noted that a number of positron emission tomography (PET) scans currently are classified into APC 1516. We recognized that PET is an important technology in many instances and want to ensure that the technology remains available to Medicare beneficiaries when medically necessary. We believe that we have sufficient data to assign PET scans to a clinically appropriate APC. However, we have been told that if the effect of doing so is to reduce payment significantly for the procedure, it may hinder access to this technology. Therefore, as indicated in the August 16, 2004 proposed rule, we considered three options as the proposed payment for these procedures in CY 2005, based on our review of the 2003 claims data for the PET procedures. We specifically invited comments on each of these options.

Option 1: Continue in CY 2005 the current assignment of the scans to New Technology APC 1516 prior to assigning to a clinical APC.

Option 2: Assign the PET scans to a clinically appropriate APC priced according to the median cost of the scans based on CY 2003 claims data. Under this option, we would assign PET scans to APC 0420 (PET Imaging).

Option 3: Transition assignment to a clinical APC in CY 2006 by setting payment in CY 2005 based on a transition payment of a 50-50 blend of the median cost and a New Technology APC payment for CY 2004. We would assign the scans to New Technology APC 1513 for the blended transition payment.

We included the proposed rates for these options in Addendum B of the proposed rule.

Comment: Many commenters supported maintaining a number of PET scans in New Technology APC 1516 for CY 2005, as presented under option 1 of the proposed rule. These commenters expressed concern that options 2 and 3 set forth in the proposed rule would greatly impede patient access to PET technology. They stated that options 2 and 3 fail to account for the significant degree of variation in hospital mark-up practices and capital depreciation methods associated with PET procedures and, therefore, underestimate hospitals' costs for performing PET scans. These commenters further explained that the majority of hospitals report PET procedures under an overall diagnostic radiology revenue code rather than distinguishing PET procedures under a diagnostic nuclear medicine revenue code. The commenters expressed concern that PET claims data, when adjusted using a cost to charge ratio not specific to PET, underestimate the relative costs associated with PET imaging procedures.

Another commenter commissioned a time-and-motion study at nine PET facilities in geographically diverse regions of the United States to estimate hospitals' actual costs for providing PET scans. According to the commenter, this cost study concluded that many hospitals could not afford to provide PET scans at a payment rate below $1,450. In addition, the commenter indicated that the cost study suggested that hospitals need to perform three or more scans per day in order to break even at the current payment rate of $1,450 per scan. The commenter pointed out that using a marketing share-weighted average, the cost study found that PET facilities across the United States are performing an average of 2.63 PET scans per day, translating into a loss of $165.18 per scan for most PET providers at the current payment rate of $1,450 per scan. However, the commenter did not clarify whether this national average of performing 2.63 PET scans per day reflects utilization by both hospitals and freestanding PET centers. The commenter urged that PET remain in new technology APC 1516 for CY 2005, and noted that any reductions in payment, including the proposed blended payment rate of $1,150, would significantly impede patient access to this technology, especially in rural settings where the volume of PET scans tends to be lower. Another commenter that provides FDG to 300 PET imaging centers in geographically diverse regions of the United States reviewed their May, June, and July 2004 data for these PET centers and reported an average number of 1.88 PET scans provided per day and a median of 1.3 PET scans provided per day across the 300 PET centers. Again, the commenter did not clarify whether this national average of performing 1.88 PET scans per day reflects utilization by both hospitals and freestanding PET centers. This commenter expressed concern that any reduction in payment for PET scans, with or without a reduction in payment for FDG, may drive many PET centers into an operating deficit and reduce the availability of PET scans for Medicare beneficiaries.

Response: We appreciate the many comments we received on this topic and the efforts undertaken by several of the commenters to provide us with additional data concerning the costs of providing the scans. We acknowledge variations in hospital markup practices, capital depreciation and other cost allocation methods, although we note that the CCRs in the various reported cost centers (that is, Nuclear Medicine, Start Printed Page 65717Imaging Department, Radiology) for PET procedures are fairly consistent. The median hospital CCR for these cost centers ranges from 0.3118 to 0.3172, and does not vary greatly from the median overall hospital CCR of 0.33. We believe that the robust number of claims (that is, 55,838 single procedure claims out of 61,492 total claims, representing 91 percent of the total claims) provides sufficient data to assign PET scans to a clinically appropriate APC. However, we received numerous comments indicating that any reduction in payment for PET scans would hinder access by Medicare beneficiaries to this technology. Based on our review of the comments, we are setting the CY 2005 payment for PET scans based on a 50-50 blend of the median cost and the CY 2004 new technology APC payment rate, as presented under option 3 in the proposed rule. PET scans will be assigned to new technology APC 1513 for a blended payment rate of $1,150 for CY 2005.

Comment: One commenter pointed out that the CY 2003 hospital claims data may not account for the current shift to PET/CT technology, which the commenter stated has virtually doubled the cost of launching a viable PET operation, from an average cost of $1,200,000 for a dedicated PET scanner to an average cost of $2,400,000 for a PET/CT scanner. The commenter estimated that approximately 90 percent of the PET systems currently being sold are PET/CT scanners and predicted that the current installed base of approximately 35 percent PET/CT and 65 percent dedicated PET will shift to an overwhelming majority of PET/CT scanners within the next 5 years. The commenter argued that investment in a PET/CT scanner is important to be competitive in the marketplace, due to better capability for detecting malignancies. The commenter stated that the higher capital costs of a PET/CT operation require a patient volume of between four and five patients per day to break even compared to a patient volume of between two and three patients for a dedicated PET operation. According to the commenter, the number of claims for PET remains relatively low compared to MRI and CT scans, comprising less than 1 percent of all imaging procedures performed in the United States. Therefore, the commenter argued that providers would be unlikely to recover significant losses through increased patient volume.

Several commenters indicated that the American Medical Association will be creating three new CPT codes 78814, 78815, and 78816 to describe PET with concurrent CT for anatomical localization for CY 2005. One commenter recommended that CMS assign these new CPT codes for PET/CT scans to three different new technology APCs, while another commenter recommended that CMS place these new CPT codes in new technology APC 1516 at a payment rate of $1,450.

Response: The current G code descriptors do not describe PET/CT scan technology, and should not be reported to reflect the costs of a PET/CT scan. At present, we have decided not to recognize the CPT codes for PET/CT scans that the AMA intends to make effective January 1, 2005, because we believe the existing codes for billing a PET scan along with an appropriate CT scan, when provided, preserve the scope of coverage intent of the PET G-codes as well as allow for the continued tracking of the utilization of PET scans for various indications. We plan to issue billing guidance through program instructions and provider education articles for hospitals to use when they provide both a PET and CT scan to patients in their outpatient department. While we acknowledge that PET/CT scanners may be more costly to purchase than dedicated PET scanners, a PET/CT scanner is versatile and may also be used to perform individual CT scans, thereby potentially expanding its use if PET/CT scan demand is limited.

Comment: One commenter supported assigning PET procedures to new technology APC 1513 at a payment rate of $1,150, based on a 50-50 blend of the median cost and the CY 2004 new technology payment, as presented under option 3 of the proposed rule. This commenter stated that option 3 provides the best balance between ensuring continued beneficiary access to this valuable technology and the need for CMS to consistently apply its ratesetting methodology to determine payment rates. Another commenter supported the assignment of PET procedures into a clinically appropriate APC that pays at least $1,200. This commenter believed that a payment of at least $1,200 would compensate adequately for the technology and necessary staffing.

Response: We agree with the commenters that a balance must be reached between ensuring continued beneficiary access to PET scans and the necessity for CMS to apply consistently its rate-setting methodology. Balancing the concern regarding possible adverse effects on patient access that might result from a substantial precipitous reduction in payment with information from thousands of hospital claims and the cost data we received from commenters, we are setting the CY 2005 payment for PET scans based on a 50-50 blend of the median cost and the CY 2004 new technology APC payment rate, as presented under option three in the proposed rule. We believe we have reached this balance for CY 2005 by assigning PET scans to new technology APC 1513 for a blended payment rate of $1,150.

Comment: Another commenter addressed the issue of three new CPT codes 78811, 78812, and 78813 for tumor PET imaging to replace CPT code 78810 (Tumor imaging, positron emission tomography, metabolic evaluation) for CY 2005. The commenter recommended that CMS adopt these new CPT codes in place of the existing G-codes and place them in new clinical APCs, which would result in one level for brain PET scans, two levels for cardiac PET scans, and three levels for tumor PET scans.

Response: At present, we believe that the existing G-codes for PET scans adequately serve the purpose of tracking utilization of PET scans for various indications. Therefore, CMS will continue to recognize the existing G-codes for PET scans.

Comment: One commenter requested that CMS provide the number of single procedure claims that support assigning FDG-PET scans to a clinically appropriate APC according to the median cost of the scans, as presented under option 2 in the proposed rule.

Response: The number of single procedure claims used to create the median of $898.64 discussed in the proposed rule under option 2 for APC 0420 (PET imaging) totaled 55,838 single procedure claims out of 61,492 total claims.

PET (Myocardial)

Comment: One commenter brought to our attention that CPT code 78459 (myocardial imaging, PET, metabolic evaluation) and HCPCS code G0230 (PET imaging; metabolic assessment for myocardial viability following inconclusive SPECT study) are both currently paid under OPPS and describe nearly the same procedure, with the exception that HCPCS code G0230 has a more narrow description. The commenter understood that CMS had intended to replace HCPCS code G0230 with CPT code 78459, but was confused by the payable status indicator for both codes. Two commenters recommended that CMS clarify the proper use of these codes and move CPT code 78459 from APC 0285 (Myocardial Positron Emission Tomography), with a payment rate of $690.61 to APC 1516 with a payment rate of $1,450.

Response: We appreciate the commenter bringing to our attention the Start Printed Page 65718duplication of codes for myocardial PET imaging for metabolic assessment. At present, we will change the status indicator for CPT code 78459 (Myocardial imaging, PET, metabolic evaluation) to “B,” not payable under the OPPS, and move HCPCS code G0230 (PET imaging; metabolic assessment for myocardial viability following inconclusive SPECT study), along with the other PET codes currently assigned to APC 1516, from APC 1516 to APC 1513 for CY 2005. We will seek advice on the APC placement of HCPCS code G0230 from the Advisory Panel on APC Groups during their next meeting.

Comment: Several commenters indicated that the resources, other than the radiopharmaceuticals, required to perform the PET myocardial perfusion imaging studies assigned to APC 0285 (Myocardial Positron Emission Tomography) do not differ significantly from many of the PET tumor imaging procedures contained in new technology APC 1516. These commenters requested an explanation for the payment rate decrease from $1,058.87 in the proposed rule for the CY 2004 update to $772.08 in the final rule for the CY 2004 update, and the further decrease to $690.61 in the proposed rule for the CY 2005 update. The commenters objected to CMS creating an exception to the 2 times rule for APC 0285. The commenters believed that the small volume of these procedures and the complexity of multiple G-codes to describe both single and multiple imaging sessions preclude reasonable conclusions about the cost of providing these services. The commenters recommended that CMS move the 18 G-codes from APC 0285 paying $690.61 to APC 1516 with a payment rate of $1,450. The commenters further recommended that we reduce the complexity of billing for these procedures by collapsing these eighteen G-codes into two CPT codes based on resources for single and multiple studies, replacing HCPCS codes G0030-G0047 with CPT code 78491 (Myocardial imaging, PET, perfusion; single study at rest or stress) and CPT code 78492 (Myocardial imaging, PET, perfusion; multiple studies at rest or stress).

Response: The steady decline of the payment rate for APC 0285 since the CY 2004 proposed rule is attributable to the 153-percent increase in the number of single procedure claims used to set the payment rate for APC 0285, which gave rise to better data to more accurately set the payment rate. In the CY 2004 proposed rule, we used 613 single procedure claims out of 1,584 total claims (39 percent of total claims) to set the CY 2004 proposed payment rate of $1,058.87. In the CY 2004 final rule, we used 1,089 single procedure claims out of 1,778 total claims (61 percent of total claims) to set the CY 2004 final payment rate of $772.08. In the CY 2005 proposed rule, we used 1,451 single procedure claims out of 1,946 total claims (75 percent of total claims) to set the CY 2005 proposed payment rate of $690.61. At present, composition of APC 0285 will be maintained for CY 2005 while we collect claims data on HCPCS codes G0030 through G0047. Based on our CY 2003 data for the specific G-codes, we cannot identify a predictable pattern of increased hospital costs associated with multiple studies as compared with single studies. We will present before the Advisory Panel on APC Groups during their next meeting the commenters' recommendation to recognize CPT codes 78491 and 78492 as representing single and multiple myocardial PET studies and movement of these codes from APC 0285 to APC 1516. We note that we will be moving the PET scans currently in APC 1516 to APC 1513 for CY 2005, and will bring that to the Panel's attention as they consider potential APC movement of the myocardial PET studies.

d. Bard Endoscopic Suturing System

For CY 2005, we proposed to create APC 0422 for Level II Upper GI Procedures and to assign HCPCS code C9703 (the Bard Endoscopic Suturing System), as well as other procedures to APC 0422 based on clinical and resource homogeneity. Currently, HCPCS code C9703 is assigned to New Technology APC 1555, with a payment of $1,650. Our examination of CY 2003 claims data for HCPCS code C9703 revealed that 137 of the 171 single claims were from a single institution with an extremely low and consistent cost per claim. We do not believe that those 137 claims represent the service described by HCPCS code C9703, which includes an upper gastrointestinal endoscopy along with suturing of the esophagogastric junction. Therefore, in establishing the median for APC 0422, we did not use the 137 claims, which we believe were incorrectly coded.

Comment: Several commenters opposed the movement of HCPCS code C9703 (Bard Endoscopic Suturing System) from New Technology APC 1555 with a payment rate of $1,650 to clinical APC 0422 (Level II Upper GI Procedures) with a proposed payment rate of $1,274. The commenters indicated that the proposed payment under APC 0422 is inadequate to cover even the equipment costs alone. The commenters contended that the claims data are insufficient to support movement of this procedure out of its new technology APC and into a clinical APC, and urged CMS to maintain HCPCS code C9703 in New Technology APC 1555 with a payment rate of $1,650.

Response: As we stated in the proposed rule, our examination of the CY 2003 claims data for APC 0422 revealed that 137 of the 171 single claims for HCPCS code C9703 were incorrectly coded. Therefore, the remaining single claims were used in establishing the median for APC 0422. Considering that HCPCS code C9703 has remained in a new technology APC for 2 years with a relatively modest volume, we are not convinced that maintaining HCPCS code C9703 in a new technology APC will necessarily result in a high volume for future ratesetting. Furthermore, the median cost as calculated for HCPCS code C9703, using the subset of single claims, has been relatively stable over the past 2 years and consistent with the median for APC 0422. In addition, in keeping with our practice to use CPT codes, if possible, we will discontinue HCPCS code C9703 and instruct providers to report service with this technology under CPT code 0008T (Upper gastrointestinal endoscopy with suture), which will be payable under the OPPS for CY 2005. In this final rule with comment period, we are finalizing our proposal to move HCPCS code C9703, which will be replaced with CPT code 0008T, from New Technology APC 1555 to clinical APC 0422 for CY 2005. Code 0008T is assigned status indicator “NI” and, as such, is open for public comment during the 60-day comment period associated with this final rule with comment period.

e. Stretta System

Comment: Several commenters objected to the movement of HCPCS code C9701 (Stretta system) from New Technology APC 1557 with a payment rate of $1,850 to clinical APC 0422 (Level II Upper GI Procedures) with a proposed payment rate of $1,274. The commenters indicated that the proposed payment is inadequate to cover even the equipment costs alone, and urged CMS to maintain HCPCS code C9701 in New Technology APC 1557 with a payment rate of $1,850.

Response: The single claims volume for HCPCS code C9701 has remained modest for the past 2 years of its placement in a new technology APC. Therefore, we do not believe that maintaining HCPCS code C9701 in a new technology APC will necessarily result in a high volume for future Start Printed Page 65719ratesetting. Furthermore, the median cost for HCPCS code C9701 has been stable over the past 2 years and consistent with the median for APC 0422. Moreover, we can now discontinue HCPCS code C9701 and will instruct providers to report service with this technology under CPT code 43257 (Upper gastrointestinal endoscopy with delivery of thermal energy), a new CPT code that will be payable under OPPS for CY 2005. We are finalizing our proposal to move HCPCS code C9701, which will be replaced with CPT code 43257, from New Technology APC 1557 to clinical APC 0422 for CY 2005.

f. Gastrointestinal Tract (GI) Capsule Endoscopy

Comment: Several comments opposed our proposal to move CPT code 91110 (GI Capsule Endoscopy) from New Technology APC 1508 with a payment rate of $650 to clinical APC 0141 (Level I Upper GI Procedures) with a proposed payment rate of $464.52 for CY 2005. (CPT code 91110 (Capsule Endoscopy) replaced HCPCS code G0262 in CY 2004. HCPCS code G0262 was mapped to New Technology APC 1508 in CY 2004.) The commenters explained that the cost data for CPT code 91110 are unreliable due to multiple coding changes over the last 3 years and, therefore, believed that the data should not be used to set the payment rate. The commenters indicated that the device costs are $450, and under the proposed payment rate, only $14 would be available to cover the service portion of the procedure. The commenters expressed concern that patient access to care would be hindered by moving the service into clinical APC 0141. The commenters also contended that the proposed assignment of this procedure to APC 0141 is inappropriate because none of the other services that reside in APC 0141 require a device of significant cost and the codes are not clinically homogeneous with CPT code 91110. The commenters urged CMS to maintain CPT code 91110 in New Technology APC 1508 with a payment rate of $650. One commenter suggested that CMS assign a C code to the capsule and instruct providers to bill this C-code along with HCPCS code G0262. One commenter requested that, if CMS does not maintain CPT code 91110 in new technology APC 1508, CMS consider two additional options: (1) Limiting the rate reduction for CY 2005 to 5 percent of the CY 2004 rate; or (2) assign CPT code 91110 to APC 0142 (Small Intestine Endoscopy), which the commenter stated would be a compromise because the payment of $503.20 would still “underpay” the hospital for the costs of providing the procedure.

Response: Generally, we do not establish C-codes for devices outside of the pass-through process, so we will not assign a C-code to the capsule. We remind providers that they should include the charges for device costs associated with this capsule within the charges reported for CPT code 91110. We agree with the commenters that CPT code 91110 may not belong in APC 0141 based on clinical homogeneity and resource consumption. We had almost 4,000 single claims, about 90 percent of all CY 2003 claims for capsule endoscopy, available for use in calculating the median cost of the service. We have confidence that our median reflects hospital resources needed to perform the service. As one commenter recommended, we believe that the resource costs and clinical nature of CPT code 91110 are more consistent with other codes that reside in APC 0142. Therefore, in this final rule with comment period, we are moving CPT code 91110 from New Technology APC 1508 to clinical APC 0142 for CY 2005, as the commenter suggested.

g. Proton Beam Therapy

Comment: Several commenters urged CMS to maintain intermediate (CPT code 77523) and complex (CPT code 77525) proton beam therapies in New Technology APC 1511 at a payment rate of $950 for CY 2005. The commenters indicated that the proposed payment rate of $678.31 for CY 2005 does not capture the significant difference in resource consumption and complexity between the simple and the intermediate/complex procedures. These commenters expressed concern that the low volume of claims submitted by only two facilities provides volatile and insufficient data for movement into the proposed clinical APC 0419 (Proton Beam Radiation Therapy) at a payment rate of $678.31. They pointed out that more than four additional centers are currently under construction or in the planning phases in response to the high demand for this technology. The commenters explained that the extraordinary capital expense of between $70-$125 million and high operating costs of a proton beam necessitate adequate payment for this service to protect the financial viability of this emerging technology. They feared that a payment reduction would halt diffusion of this technology and negatively impact patient access to this cancer treatment.

Two commenters explained that the CY 2005 proposed payment rates for CPT codes 77523 (intermediate proton beam treatment) and 77525 (complex proton beam treatment) were based on costs derived by applying CCRs from the most recent Medicare cost reports to charges reported on CY 2003 claims submitted by two hospitals, which were the only two proton therapy centers in operation in the United States at the time. The commenters further indicated that these two hospitals, from which all of the intermediate and complex proton therapies claims were derived, reported the costs and charges of proton therapy along with the costs and charges for all other radiation therapy services on the radiation therapy department line. One commenter calculated an overall radiation therapy department CCR of 0.2442 using CY 2003 data from one of these hospitals. This commenter then calculated a proton beam therapy CCR of 0.4175 by isolating the costs and charges for proton beam therapy from the costs and charges for the overall radiation therapy department. The commenter applied this proton beam therapy CCR of 0.4175 to calculate the costs based on average CY 2003 charges for intermediate and complex proton beam treatments and reported a cost of $1,105.96 for intermediate proton beam treatment and a cost of $1,216.60 for complex proton beam treatment, significantly above Medicare's proposed payment rate of $678.31 for CY 2005.

Commenters believed that this understatement of costs in the Medicare cost reports from these two hospitals is largely responsible for the inadequacy of the proposed payment rates for intermediate and complex proton beam treatments. The commenters requested that CMS apply the proton beam therapy CCR of 0.4175, based on proton beam specific cost data provided by one of these commenters, for determining the median costs of proton beam therapy. The commenters believed that the revised costs support the maintenance of CPT codes 77523 and 77525 in New Technology APC 1511 at a payment rate of $950 for CY 2005. The commenters also noted the recommendation of the Advisory Panel on APC Groups to maintain intermediate and complex proton beam therapies in New Technology APC 1511 at a payment rate of $950 for CY 2005 and urged CMS to adopt that recommendation.

Response: We will not apply the commenter's calculated CCR to determine the median costs of proton beam therapy because we are unable to replicate the commenter's proton beam therapy CCR calculation of 0.4175 by Start Printed Page 65720isolating the costs and charges for proton beam therapy from the costs and charges for the overall radiation therapy department. However, having considered the concerns of numerous commenters that patient access to proton beam therapy may be impeded by a significant reduction in OPPS payment, we are setting the CY 2005 payment for CPT codes 77523 and 77525 by calculating a 50-50 blend of the median cost of $690.45 derived from 2003 claims and the CY 2004 new technology APC payment rate of $950. We will use the result of that calculation ($820) to assign intermediate and complex proton beam therapies (CPT codes 77523 and 77525) to New Technology APC 1510 for a blended payment rate of $850 for CY 2005.

After consideration of these public comments and based upon our review of the latest claims data available, we are moving the procedures listed in Table 14 from their current new technology APCs to the APCs listed, as we have adequate data on these procedures to enable us to make the necessary APC assignment.

Start Printed Page 65721

4. Public Comments Received Relating to Other New Technology APC Issues

a. Computerized Reconstruction CT of Aorta

In the August 16, 2004 proposed rule, we proposed to reassign code G0288 (Reconstruction, CTA of aorta for preoperative planning and evaluation post vascular surgery) from New Technology APC 1506 to clinical APC 0417 (Computerized Reconstruction) for CY 2005.

Comment: Several commenters expressed concern about our proposal to move G0288 from New Technology APC 1506 to clinical APC 0417. The commenter asserted that the reassignment results in a decreased payment amount from $450 to approximately $247, a rate that commenters believe is too low to cover the costs of providing the service.

The commenters suggested that CMS use external data to calculate rates rather than relying on hospital claims data, that CMS maintain G0288 in its current new technology APC assignment until hospital claims are more accurate, or that CMS go ahead with the reassignment to a clinical APC but continue to base payment on a rate that is consistent with the CY 2004 rate. One commenter provided invoices from hospitals across the country to support its assertion that our proposed payment will be to low.

One commenter also requested that CMS change the descriptor for code G0288 to read “Three-dimensional pre-operative and post-operative computer-aided measurement planning and simulation in accordance with measurements and modeling specifications of the Society for Vascular Surgery” in order to ensure that the code is only used for true three-dimensional preoperative and postoperative computer-aided measurement planning and simulation technologies.

Response: A predecessor C-code to G0288 had a new technology APC assignment in CY 2002, with a payment level of $625. The C-code was deleted for CY 2003, and G0288, a more general treatment planning code, was then assigned to the same new technology APC for CY 2003, with a payment of $625. For CY 2004, we proposed to move G0288 from a new technology APC to a clinical APC based on over 1,000 claims, with a median cost of $272. Based on hospital data provided by a commenter on the CY 2004 proposed rule and our conclusion that there may have been Medicare claims that understated the costs of the treatment planning software, we placed G0288 in a new technology APC with a payment of $450 for CY 2004, consistent with a 50/50 blend of our data with the analysis of a commenter. For CY 2005, we believe we have adequate claims data on which to base payment for G0288 and to reassign the service to its own clinical APC. We had almost 5,000 total claims for code C9703 (first 3 months of CY 2003 when the C-code was still in the grace period) and G0288, and over half of these were single claims available for APC median calculation. We are confident that the median cost for APC 0417 reflects hospital resource costs, and we are reassured by the consistency of our median cost data over the past several years for this service.

Accordingly, we are adopting as final our proposal to assign code G0288 to APC 0417 for CY 2005.

We are not changing the name of G0288 at this time. However, we will take the commenter's suggestion into consideration in the future if the need arises. We revised the descriptor for the code for CY 2004 to clarify that the service can be used for treatment planning prior to surgery and for postsurgical monitoring. We believe that the current G code descriptor appropriately describes the service.

b. Kyphoplasty

Comment: One commenter, a manufacturer of medical devices used to restore spinal function and treat vertebral compression fractures, suggested that CMS should place kyphoplasty, a new procedure to treat vertebral compression fractures, into New Technology APC 1535. The commenter stated that kyphoplasty is currently billed using code 22899 (Unlisted procedure of the spine). The commenter claimed that, according to our policy, because CMS received its application before June 2004, the procedure is eligible for new technology APC payments in October 2004. The commenter was surprised that it did not see a proposal to place kyphoplasty into a new technology APC in our proposed rule or in the October 2004 OPPS update. The commenter stated that using an unlisted code creates problems concerning billing and payment for hospitals.

Response: We have completed our evaluation of the new technology application for kyphoplasty and have assigned new C-codes that describe the procedure. We have assigned these codes to existing clinical APC 0051 rather than to a new technology APC. We believe that APC 0051 is appropriate for kyphoplasty in terms of clinical characteristics and resource costs. Reasonable placement into an existing APC that is appropriate in terms of clinical characteristics and resource costs is one of our criteria in deciding whether a service should be placed into a new technology APC (66 FR 59900, November 30, 2001).

Concerning the commenter's assertion that because CMS received its application before June 2004, the procedure is eligible for payment status as a new technology APC in October 2004, we remind the public that the timing of eligibility for payment, if any, is not bound to when an application is filed with CMS. As we state on the CMS Web site notice at http://www.cms.gov, if an application is filed by a certain date (for example, by June 1), the earliest date that such an item or service can be considered for new payment status is the following quarter (for example, October 1). This means that any additional coding and payment, if warranted, could begin later than the following quarter. Because it is important that our payment and coding systems do not impede access by Medicare beneficiaries to the best available medical care, we review all applications as quickly as possible, given the complexity of the issues and the thoroughness we believe such reviews require. The timing of completion of our evaluation of any specific application depends on such factors as the complexity of the application, the completeness of all materials submitted, whether the review team requires additional information and the amount of time before we receive additional materials and information. Of course, the service needs to be otherwise eligible for assignment to a new technology APC (or as a pass-through assignment in the case of a new device, drug, or biological).

We note that while we consider these new codes as final, the codes and the placement of the services are subject to comment within 60 days of the publication of this final rule with comment period, as stated elsewhere in this rule. Moreover, the public may comment on our placement of services to the APC Panel, which often hears comments and testimony concerning the placement of new services brought to us by interested parties.

Accordingly, the codes for kyphoplasty are:

C9718 Kyphoplasty, one vertebral body, unilateral or bilateral injection

C9719 Kyphoplasty, one vertebral body, unilateral or bilateral injection; each additional vertebral body (list separately in addition to code for primary procedure)Start Printed Page 65722

c. Laser Treatment of Benign Prostatic Hyperplasia (BPH)

In the August 16, 2004 proposed rule, HCPCS code C9713 (Non-contact laser vaporization of prostate, including coagulation control of intraoperative and postoperative bleeding) was assigned to New Technology APC 1525 for CY 2005. The assignment of this code to New Technology APC 1525 was a continuation of the new technology APC placement established on April 1, 2004.

Comment: One commenter, the manufacturer of medical equipment used in the treatment of benign prostatic hyperplasia (BPH) stated that its product, the GreenLight Laser, was the only technology available that uses a 532nm or “green” wavelength as an energy source and that CMS had assigned code C9713 in response to an application for a new technology APC assignment from Laserscope. The commenter indicated that other technologies that do not employ the same energy wavelength and the same noncontact vaporization technique should not be billed with code C9713. The commenter expressed concern that the costs of the other techniques are less than those for GreenLight Laser and thus the other techniques should not be paid under New Technology APC 1525. The commenter requested CMS to revise the descriptor of code C9713 to describe only 532nm laser technologies such as the GreenLight Laser.

Response: We acknowledge that HCPCS code C9713 was established following our review of the new technology application from Laserscope. We also agree that code C9713 may be used by hospitals to report such procedures using the Laserscope product, the GreenLight PVP, described in the application for new technology assignment. We established code C9713 based on our understanding of the information provided to us that the service may be different from other services used to treat BPH. We look forward to receiving and assessing the medical review, analysis, and evaluation of the service and technology through the usual AMA coding and payment processes. In general, we do not tailor temporary procedure codes in the “C” series to particular products and have not been persuaded that a redefinition of code C9713 is necessary at this time. With respect to other techniques for treatment of BPH, we would rely on the hospitals to determine which HCPCS code, whether C9713 or one of the CPT codes, most accurately describes the procedure for treatment of BPH for which they are billing. With regards to the commenter's claim that the costs of other techniques described by code C9713 are less than warranted by the New Technology APC 1525, our policy is to review the costs of services assigned to New Technology APCs each year to determine if an alternate placement in another APC is warranted. We continue to believe that placement of code C9713 in a new technology APC is appropriate for CY 2005.

d. Computerized Tomographic Angiography (CTA)

In the August 16, 2004 proposed rule, we included the APC assignment and the payment rate for computed tomographic angiography (CTA). These procedures, coded using one of several CPT codes, depending on the body region under study, involve acquisition of a CT scan with and without contrast material, as well as image post-processing. The assigned CTA CPT codes under APC 0662 had a proposed payment rate of $320.60. That proposed payment rate was slightly lower than that for a CT scan ($323.21) and significantly lower than the sum of the proposed payment for CT scan and image reconstruction, CPT code 76375 ($98), billed separately.

Comment: A number of commenters were concerned about the lower payment rates for the CTA procedures and asked CMS to review and revise the proposed payment rate.

The commenters pointed out that, prior to 2001, two codes were used to code for the procedure: one for the CT scan and another for the 3-D reconstruction. The commenters indicated that, in 2001, CPT codes were created to enable specific coding for CTA procedures, including image post-processing in the CTA codes, but those codes were still assigned to the same APC (0333) as CT procedures that did not include image reconstruction. They added that, in CY 2003, the CTA procedures were assigned to their own APC (0662). The commenters asserted that in spite of the creation of an APC specific to CTA procedures, the OPPS payment amounts have not reflected the additional costs for CTA compared to CT. They believed that the low payment rates are due to continuing confusion and conflicting information among providers concerning appropriate billing and charging practices associated with CTA procedures.

One commenter performed a number of analyses in an attempt to understand and address the apparent billing problems. In its investigation, the commenter discovered that, in 2002, only 40 percent of all hospitals that performed both CT and CTA charged more for CTA than for CT. The commenter also found in its study of hospital charge structures that there is wide variation in methods employed by hospitals and that only 29 percent of hospitals use costs to set charges.

While all commenters recommended that CMS adjust the payment rate for CTA procedures to equal that for APC 0333 plus APC 0282, one commenter recommended that we do this using the adjustment made under the Medicare Physician Fee Schedule for CY 2003 as a model. That commenter suggested that we should ignore CTA claims and instead rely on CT claims (APC 0333) plus reimbursement for image reconstruction (APC 0282) as a basis for setting the rate for CTA services.

Other alternative suggestions provided by the commenter include: use only CTA claims that are “logical;” change coding instructions and edits to allow CTA to be billed in addition to image reconstruction; or make an administrative adjustment to increase CTA payment.

Finally, the commenters encouraged CMS to investigate alternative methods for calculating CCRs in order to achieve more accurate costs on which to base our rates.

Response: Although we understand the commenters' points of view and appreciate the comprehensive analyses they shared with us, we cannot identify any action that would be appropriate for us to take. As the commenters are aware, we rely on hospital claims data to set payment rates and have made clear our intent to rely solely on those claims by CY 2007. If the claims data are inaccurate, especially across a broad spectrum of providers as the commenters believe is evidenced in this case, we have no way to determine which claims are more or less accurate than any others.

To implement the commenters' suggestion that we make the payment rate for CTA (APC 0662) equal to the sum of the rates for CT alone (APC 0333) plus image reconstruction (APC 0282) would require that we have accurate cost information about the cost of image reconstruction for CTA specifically and for CT alone, as utilized with CTA. This is not the case. The image reconstruction code CPT 76375 (coronal, sagittal, multiplanar, oblique, 3-dimensional and/or holographic reconstruction of computed tomography, magnetic resonance imaging, or other tomographic modality) is not limited to image reconstruction performed for CTA and may be used in any number of other procedures. Based on the available CPT codes for CTA, we Start Printed Page 65723would not expect any current utilization of CPT code 76375 to be for CTA post-image processing, unless there was no appropriate CTA code to describe the body region imaged. We believe this would be rare. In addition, our current cost data for CT alone do not necessarily reflect the resources utilized for the CT portion of CTA.

We also do not believe that for the last 3 years there has been conflicting information given to providers concerning appropriate billing and charging practices associated with CTA procedures. The CPT code descriptors clearly include image post-processing for CTA procedures. In response to previous comments, we did provide a separate APC for CTA procedures beginning in CY 2003 in recognition that hospital resources might be different for CTA procedures as compared with CT procedures. From the over 100,000 claims for CTA procedures from CY 2003, we were able to use about 50 percent of the claims to determine hospitals' costs for the services. Our number of claims for CTA procedures increased significantly between CY 2002 and CY 2003. From the 2003 full year of data, we have calculated that median hospital costs for the APCs for CT and CTA services were approximately equal, at $329. Because hospitals set their own charges for services, which we then convert to costs, we see no reason why adding the costs for CT alone plus the costs for image reconstruction would necessarily provide a better estimate of costs for CTA than our analysis of our specific CTA claims.

Similarly, in order to make an adjustment akin to that made for the Medicare Physician Fee Schedule for CY 2003, we would need to have accurately coded cost data for the individual components of CTA, performed in the context of CTA, on which to base that change. We do not have that data, and the OPPS system, unlike the Medicare Physician Fee Schedule, relies upon historical hospital claims data to develop relative costs of services.

Lastly, we do not agree that we should provide coding guidance that differs from that embodied in the CPT code descriptors in this case. Our current edits that do not allow CTA to be billed in addition to image reconstruction are consistent with the CPT code descriptors for CTA procedures.

We created a separately paid, specific APC for those procedures in an attempt to provide an accurate payment for CTA. Moreover, by creating a unique APC for the procedures, we provided the means for hospitals to bill for all of the costs associated with CTA, entirely separate from their billing for CT. We cannot now assume that the claims billed for that APC are incorrect and that those billed for CT alone are correct.

We acknowledge the commenters' belief that the claims are flawed and that hospitals' divergent charge structures do not result in consistent charging for CT scans, CTAs or image reconstruction, but note that those claims comprise the data on which the OPPS relies for payment of a wide variety of hospital outpatient services. We must rely on hospitals to manage their charge structures in a manner that accurately and best reflects the services provided.

For the reasons stated above, we will not alter the payment rates for CTA, APC 0662, for CY 2005. Once again, we encourage hospitals to take all actions necessary to assure that they are billing accurately and including all resources utilized to deliver services. As discussed in detail in section III. of this preamble, we are continuing our work to refine the CCRs used for ratesetting.

e. Acoustic Heart Sound Services

Comment: Several commenters addressed the need to assign a recently created code for acoustic heart sound services for recording and computer analysis to an APC. One of the commenters indicated that the acoustic heart sound recording can be performed in the first 5 minutes of an emergency department service, together with an ECG, to enable the earliest possible detection of acute cardiac conditions. The commenter related that AMA's CPT Editorial Panel created three new Category III codes for acoustic heart sound recording that correspond to performing the procedure, physician interpretation of results, and recording and interpretation in combination. The commenter contended that one of these codes, CPT Category III code 0069T (Acoustic heart sound recording and computer analysis only) could be payable under the OPPS. The commenters noted that we did not propose an APC assignment for code 0069T in our proposed rule, and they requested an APC assignment effective January 1, 2005. One of the commenters believed that the most appropriate clinical APC to assign this code is APC 0099 (Electrocardiograms).

Response: One of the commenters, a manufacturer of the acoustic heart sound system, had previously applied for assignment of these codes to new technology APCs and we have previously evaluated the three acoustic heart sound services. We agree that only code 0069T could be payable under the OPPS. The comment that acoustic heart sound recording can be performed in the first 5 minutes of a visit by an ECG technician, together with an ECG, to enable the earliest possible detection of acute cardiac conditions, demonstrates that there are limited additional facility resources associated with the acoustic heart sound recording in conjunction with an ECG. It is also our understanding that the AMA's coding advice indicates that the acoustic heart sound services are to be used in conjunction with electrocardiography services. We believe it is worthwhile to recognize code 0069T under the OPPS to track its utilization and develop cost data. However, because the service may be performed quickly and is always accompanied by an ECG, we are assigning a packaged status to code 0069T for CY 2005. Although not separately payable under the OPPS, charges for the acoustic heart sound service will be packaged with charges for the separately payable services with which it is performed. With regards to the comment that we did not assign an APC in our proposed rule, we note that we do not recognize under the OPPS new CPT codes on a mid-year basis, even though the AMA may assign new tracking codes mid-year, as it did in this case. We assign new CPT codes on an annual basis, effective with our January 1 updates to the OPPS. Because this is a new code assignment that was not proposed in the CY 2005 proposed rule, interested parties will be able to comment on this new payment assignment in response to this final rule with comment period. This code is included in Addendum B.

f. Laparoscopic Ablation Renal Mass

Comment: Commenters asked that we move CPT code 50542 (Laparoscopic ablation renal mass) out of APC 0131 (Level II Laparoscopy) and place it in new technology APC 1574 (New Technology, Level XXXVII ($9,500-$10,000) until meaningful data can be obtained for the procedure. The commenter indicated that the procedure, including required devices, might cost approximately $10,000 because of the cost of the cryosurgery device. The commenter indicated that because they did not find any claims for this code that contained the device code for cryoablation probes (C2618), CMS should discard the data as being valid to set the weight for this code.

Response: Code 50542 represents a service that may or may not be performed with cryoablation equipment. Therefore, the absence of the device code for cryoablation probes on the Start Printed Page 65724claims may be an accurate reflection of the service as it was performed. The median cost for the service appears to be appropriately placed in APC 0131 and the service is clinically coherent with other services in APC 0131. Therefore, we are retaining its placement in APC 0131 for CY 2005.

g. Intrabeam Intra-Operative Therapy

Comment. One commenter, the manufacturer of the Intrabeam Intra-Operative Therapy System, commented that this procedure, a treatment for women diagnosed with early-stage breast cancer, which is currently assigned to APC 0312 (Radioelement Applications) and is billed using CPT code 77776, is currently underpaid in APC 0312. The commenter claimed that there is no current APC mechanism to capture the cost information specific to this technology, and there are insufficient Medicare claims data at this time to make an appropriate clinical APC assignment. The commenter requested that CMS assign the Intrabeam procedure to a new technology APC. In addition, the commenter requested that CMS create two new level II HCPCS codes with the following descriptors: (1) Surgical placement and removal of intra-operative direct application x-ray source using surgical closure techniques; and (2) Administration of radiation therapy by intra-operative direct application of x-ray source.

Response. We recently received from the manufacturer of the Intrabeam Intra-Operative Radiation Therapy procedure an application for assignment of this procedure to a new technology APC. We are currently engaged in review of that application.

h. New Technology Process Issues

Comment: In response to the OPPS final rule with comment period published November 7, 2003, one commenter asserted that CMS had failed to establish an acceptable method for evaluating the costs and clinical efficacy of therapeutic medical technologies before assigning a code and New Technology APC payment under the OPPS. The commenter urged CMS to propose evaluation criteria for determining costs and clinical efficacy. In developing such criteria, the commenter encouraged CMS to require that all filings with the FDA be submitted to CMS for review and for CMS to rely heavily on the predicated device in the FDA application, require all privately held companies to provide CMS with a list of investors/owners, utilize generally accepted accounting principles, seek advice from the Medicare Coverage Advisory Committee (MCAC) or the Medical Technology Council (MTC), consider evaluation methods used by other health insurers, and consider recommendations from experts in the field. The commenter believed that if CMS had consulted the MCAC or the MTC, which advise CMS on whether specific medical treatments and technology should receive coverage, neither the MCAC nor the MTC would have recommended coverage for the CyberKnife technology, as an example.

In response to our August 16, 2004 proposed rule, one commenter, a device manufacturer, urged CMS to make changes to the pass-through and new technology application and evaluation processes to provide disclosure of applications filed with CMS and to create an opportunity for the public to comment on the disposition of proposed or final actions on applications. The commenter believed that public processes can be adopted, while retaining CMS' quarterly update capability for coding and payment.

Response: As required by section 942(a) of Pub. L. 108-173, we recently established the Council on Technology and Innovation (CTI) which brings together CMS senior leadership to better coordinate coverage, coding and payment policy to support the goal of high quality, high value care. The CTI aims to provide CMS with improved methods for developing practical information about the clinical benefits of new medical technologies to aid in achieving more efficient coverage and payment of these medical technologies. The CTI will also help identify and develop study methods for gathering reliable evidence about the risks and benefits of new and existing medical technologies that can be carried out more easily on a regular basis, such as simple protocols, registries, and other study methods.

The CTI will support CMS' efforts to develop better evidence on the safety, effectiveness, and cost of new and approved technologies to help promote their more effective use. As directed in section 942(a) of Pub. L. 108-173, the CMS Council coordinates the activities of Medicare coverage, coding, and payment for new technologies and the exchange of information on new technologies between CMS and other entities charged with making similar considerations and decisions.

G. Changes to the Inpatient List

At the APC Panel's February 2004 meeting, we advised the APC Panel of a request that we had received to move four codes for percutaneous abscess drainage 44901 (Drain append. abscess, percutaneous), 49021 (Drain abdominal abscess), 49041 (Drain percutaneous abdominal abscess), 49061 (Drain, percutaneous, retroper. abscess)) from the inpatient list and to assign them to appropriate APCs. The APC Panel also recommended that we evaluate other codes on the inpatient list for possible APC assignment and that we consider eliminating the inpatient list.

In the August 16, 2004 proposed rule, we proposed to remove the four above-cited codes and assign them to clinically appropriate APCs, as recommended by the APC Panel. We also proposed to assign code 44901 to APC 0037, code 49021 to APC 0037; code 49041 to APC 0037; and code 49061 to APC 0037. We discuss in section VII.E. of this final rule with comment period our response to the APC Panel's recommendation that we either abolish the inpatient list or evaluate it for any appropriate changes, the public comments we received on our proposal, and our responses to those public comments.

H. Assignment of “Unlisted” HCPCS Codes

1. Background

Some HCPCS codes are used to report services that do not have descriptors that define the exact service furnished. They are commonly called “unlisted” codes. The code descriptors often contain phrases such as: “unlisted procedure,” “not otherwise classified,” or “not otherwise specified.” The unlisted codes typically fall within a clinical or procedural category, but they lack the specificity needed to describe the resources used in the service. For example, CPT code 17999 is defined as “Unlisted procedure, skin, mucous membrane and subcutaneous tissue.” The unlisted codes provide a way for providers to report services for which there is no HCPCS code that specifically describes the service furnished. However, the lack of specificity in describing the service prevents us from assigning the code under the Medicare OPPS to an APC group based on clinical homogeneity and median cost.

In the August 16, 2004 proposed rule, we listed in Table 15 our proposed APC reassignments of unlisted HCPCS codes. In most cases, the unlisted codes are assigned to the lowest level, clinically appropriate APC group under the Medicare OPPS. This creates an incentive for providers to select the appropriate, specific HCPCS code to describe the service if one is available. In addition, if there is no HCPCS code that accurately describes the service, placing the unlisted code in the lowest level APC group provides an incentive Start Printed Page 65725for interested parties to secure a code through the AMA's CPT process that will describe the service. Once a code that accurately describes the service is created, we can collect data on the service and place it in the correct APC based on the clinical nature of the service and its median cost.

We do not use the median cost for the unlisted codes in the establishment of the weight for the APC to which the code is assigned because, by definition of the code, we do not know what service or combination of services is reflected in the claims billed using the unlisted code.

Our review of HCPCS code assignments to APCs has revealed that there are a number of unlisted codes that are not assigned to the lowest level APC.

2. Proposed and Final Policy for CY 2005

In the August 16, 2004 proposed rule, we proposed to reassign specified unlisted HCPCS codes for CY 2005 OPPS to the lowest level APC in the clinical grouping in which the unlisted code is located. We displayed a listing of our proposed reassignment of the unlisted HCPCS codes in Table 15 of the proposed rule.

We received a number of public comments on our proposals.

Comment: Some commenters supported placing all unlisted codes in the lowest paid APC and noted that they believed that there are others, such as CPT code 43999 (Unlisted procedure stomach), which is now in APC 0141, that should be added to the list of those to be placed in the lowest APC. They recommended that CMS review the entire list of CPT codes to find others that should be moved to the lowest level APC.

Some commenters opposed placing “unlisted” or “not otherwise classified” codes in the lowest APC applicable to the category of service. They believed that it is inappropriate for CMS to develop payment policies aimed at forcing stakeholders to seek new HCPCS codes for the services being performed. They indicated that moving these codes to the lowest paying APC would decrease payment for 18 of the 20 procedures by more than 70 percent and would create a barrier to new technology. They indicated that CMS should analyze the costs associated with particular unlisted codes and assign them to APCs that appropriately reflect the cost to perform the services but in the meantime, should retain them in the existing APCs in which they are placed. One commenter urged us to follow the process that is followed for physician payment when unlisted codes are used, with fiscal intermediaries negotiating payment for the unlisted code depending on the actual service provided each time. One commenter indicated that putting the unlisted codes in the lowest level APC provides a disincentive for facilities to adopt new technology because it will not be paid adequately.

Response: We appreciate the support of the commenters who agreed with placing unlisted codes in the lowest APC for the clinical category. With respect to the comment that CPT code 43999 should be moved out of APC 0141 and should be placed in the lowest APC for gastrointestinal procedures, we have not moved it from APC 0141 because we believe that APC 0141 is the lowest APC appropriate to the clinical category of services for CPT code 43999.

We have reviewed again the proposed list of unlisted or “not otherwise classified” codes being moved to the lowest APC and based on that re-review have determined that we do not need to make any additional changes to that proposed list in this final rule with comment period.

By definition, “unlisted” or “not otherwise classified” codes do not describe the services being performed, and the services coded using “unlisted” codes vary over time as new CPT and HCPCS codes are developed. Therefore, it is impossible for any level of analysis of past hospital data to result in appropriate placement of the service for the upcoming year in an APC in which there is clinical integrity of the groups and weights. Therefore, we believe that the appropriate default, in the absence of a code that describes the service being furnished, is placement in the lowest level APC within the clinical category in which the unlisted code falls. We see no need to expand the process that is followed for physician payment of unlisted codes to the outpatient hospital setting. The assignment of the unlisted codes to the lowest level APC in the clinical category specified in the code provides a reasonable means for interim payment until such time as there is a code that specifically describes what is being paid. It encourages the creation of codes where appropriate and mitigates against overpayment of services that are not clearly identified on the bill. For new technologies that are complete services but may not have yet been granted a specific CPT code, the new technology payment mechanism is available under OPPS. Outlier payments may also be available under the OPPS in a case of an expensive new technology for which a specific code is not available and for which the costs of the new procedure exceed the outlier threshold.

Comment: One commenter indicated that the principal problem behind the use of unlisted or not otherwise classified codes is the AMA's bias against giving CPT codes for new services and technologies unless a physician group requests the code to provide a mechanism for increased physician payment for the service. The commenter asked that CMS, as the largest and most powerful licensee of CPT, influence the AMA to reduce the amount of time it takes to release new CPT codes for use in the OPPS so that the need for use of unlisted codes will diminish and the new services can be paid appropriately more quickly after they come onto the market. The commenter also asked that CMS reduce its “barriers” to placement of new services that require new technologies into new technology APCs or to granting of pass through payment status. The commenter indicated that lowering these “barriers” also would eliminate much of the use of the unlisted codes.

Response: An individual, a physician group, or a manufacturer may submit a request for a new CPT code. CMS works collaboratively with the AMA to establish new CPT codes, recognizing that the process is governed and controlled by the AMA. The AMA CPT process involves methodical consideration of new coding proposals, which may be time consuming. In addition, the payment system changes required by new codes take some time to implement. Under the OPPS, we make available the pass-through and new technology payment mechanisms, using C-codes and G-codes to allow new services, devices, and technologies to be available to clinicians and providers to facilitate appropriate payment for such services. The commenter did not indicate what “barriers” to placement of new services exist. However, to assist the public, we provide further guidance in section IV.C. of the preamble concerning additional comments on the topic of the surgical insertion or implantation criterion for the pass-through device payment mechanism.

In this final rule with comment period, we are adopting as final, without modification, the proposed reassignment of unlisted HCPCS codes to move all unlisted or “not otherwise classified” codes to the lowest level APC that is appropriate to the clinical nature of the service, as displayed in Table 15.

Start Printed Page 65726

I. Addition of New Procedure Codes

During the first two quarters of CY 2004, we created 85 HCPCS codes that were not addressed in the November 7, 2003 final rule with comment period that updated the CY 2004 OPPS. We have designated the payment status of those codes and added them to the April and July updates of the 2004 OPPS (Transmittals 3144, 3154, 3322, and 3324). We showed these codes in Table 16 of the proposed rule. Thirty of the new codes were created to enable providers to bill for brand name drugs and to receive payments at a rate that differs from that for generic equivalents, as mandated in section 1833(t)(14)(A)(i) of the Act as added by Pub. L. 108-173. In the August 16, 2004 proposed rule, we solicited comment on the APC assignment of these services. Further, consistent with our annual APC updating policy, we proposed to assign the new HCPCS codes for CY 2005 to the appropriate APCs.

We did not receive any public comments on our proposal. Accordingly, in this final rule with comment period, we are adopting as final our proposal to assign the new HCPCS codes for CY 2005 to the appropriate APCs, as shown in Addendum B of this final rule with comment period, without modification.

J. OPPS Changes Relating to Coverage of Initial Preventive Physical Examinations and Mammography Services Under Pub. L. 108-173

1. Payment for Initial Preventive Physical Examinations (Section 611 of Pub. L. 108-173)

a. Background

Section 611 of Pub. L. 108-173 provides for coverage under Medicare Part B of an initial preventive physical examination for new beneficiaries, effective for services furnished on or after January 1, 2005. This provision applies to beneficiaries whose coverage period under Medicare Part B begins on or after January 1, 2005, and only for an initial preventive physical examination performed within 6 months of the beneficiary's initial coverage date.

Current Medicare coverage policy does not allow for payment for routine physical examinations (or checkups) that are furnished to beneficiaries. Before the enactment of Pub. L. 108-173, all preventive physical examinations had been excluded from coverage based on section 1862(a)(7) of the Act, which states that routine physical checkups are excluded services. This exclusion is specified in regulations under § 411.15(a). In addition, preventive physical examinations had been excluded from coverage based on section 1862(a)(1)(A) of the Act. This section of the Act provides that items and services must be reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member (as implemented in regulations under § 411.15(k)).

Coverage of initial preventive physical examinations is provided only under Medicare Part B. As provided in the statute, this new coverage allows payment for one initial preventive physical examination within the first 6 months after the beneficiary's first Part B coverage begins, although that coverage period may not begin before Start Printed Page 65727January 1, 2005. We also note that Pub. L. 108-173 did not make any provision for the waiver of the Medicare coinsurance and Part B deductible for the initial preventive physical examination. Payment for this service would be applied to the required Medicare Part B deductible, which is $110 for CY 2005, if the deductible has not been met, and the usual coinsurance provisions would apply.

b. Amendments to Regulations

In the August 16, 2004 proposed rule, we proposed to amend our regulations to add a new § 410.16 that would provide for coverage of initial preventive physical examinations in various settings, including the hospital outpatient department, as specified in the statute, and specify the condition for coverage and limitation on coverage. In addition, we proposed to conform our regulations on exclusions from coverage under § 411.15(a)(1) and § 411.15(k) to the provisions of section 611 of Pub. L. 108-173. Specifically, we proposed to specify an exception to the list of examples of routine physical checkups that are excluded from coverage under § 411.15(a) and to add a new exclusion under § 411.15(k)(11).

We proposed to amend § 419.21 of the OPPS regulations to add a new paragraph (e) to specify payment for an initial preventive physical examination as a Medicare Part B covered service under the OPPS if the examination is furnished within the first 6 months of the beneficiary's first Medicare Part B coverage.

We noted that the initial preventive physical examination was also addressed in detail in our proposed rule to update the Medicare Physician's Fee Schedule for CY 2005 (69 FR 47487, August 5, 2004). However, because we believe the same elements of the initial physical examination furnished in a physician's office would also apply when the examination is performed in a hospital outpatient clinic, we proposed to revise the applicable regulations to reflect this requirement.

Section 611(b) of Pub. L. 108-173 defines an “initial preventive physical examination” to mean physicians” services consisting of—

(1) A physical examination (including measurement of height, weight, blood pressure, and an electrocardiogram (EKG), but excluding clinical laboratory tests) with the goal of health promotion and disease detection; and

(2) Education, counseling, and referral with respect to screening and other preventive coverage benefits separately authorized under Medicare Part B, excluding clinical laboratory tests.

Specifically, section 611(b) of Pub. L. 108-173 provides that the education, counseling, and referral services with respect to the screening and other preventive services authorized under Medicare Part B include the following:

(1) Pneumococcal, influenza, and hepatitis B vaccine and their administration;

(2) Screening mammography;

(3) Screening pap smear and screening pap smear and screening pelvic examination;

(4) Prostate cancer screening tests;

(5) Colorectal cancer screening tests;

(6) Diabetes outpatient self-management training services;

(7) Bone mass measurements;

(8) Screening for glaucoma;

(9) Medical nutrition therapy services for individuals with diabetes and renal disease;

(10) Cardiovascular screening blood tests; and

(11) Diabetes screening tests.

Section 611(d)(2) of Pub. L. 108-173 amended sections 1861(s)(2)(K)(i) and (s)(2)(K)(ii) of the Act to specify that the services identified as physicians' services and referred to in the definition of initial preventive physical examination include services furnished by a physician assistant, a nurse practitioner, or a clinical nurse specialist. We refer to these professionals as “qualified nonphysician practitioners.”

Based on the language of the statute, our review of the medical literature, current clinical practice guidelines, and United States Preventive Services Task Force recommendations, we proposed (under proposed new § 410.16(a), Definitions) to interpret the term “initial preventive physical examination” for purposes of this new benefit to include all of the following services furnished by a doctor of medicine or osteopathy or a qualified nonphysician practitioner:

(1) Review of the beneficiary's comprehensive medical and social history. We proposed to define “medical history” to include, as a minimum, past medical and surgical history, including experience with illnesses, hospital stays, operations, allergies, injuries, and treatments; current medications and supplements, including calcium and vitamins; and family history, including a review of medical events in the patient's family, including diseases that may be hereditary or place the individual at risk. We proposed to define “social history” to include, at a minimum, history of alcohol, tobacco, and illicit drug use; work and travel history; diet; social activities; and physical activities.

(2) Review of the beneficiary's potential (risk factors) for depression (including past experiences with depression or other mood disorders) based on the use of an appropriate screening instrument that the physician or qualified nonphysician practitioner may select from various available standardized screening tests for this purpose, unless the appropriate screening instrument is defined through the national coverage determination (NCD) process.

(3) Review of the beneficiary's functional ability and level of safety (that is, at a minimum, a review of the following areas: Hearing impairment, activities of daily living, falls risk, and home safety), based on the use of an appropriate screening instrument, which the physician or qualified nonphysician practitioner may select from various available standardized screening tests for this purpose, unless the appropriate screening instrument is further defined through the NCD process.

(4) An examination to include measurement of the beneficiary's height, weight, blood pressure, a visual acuity screen, and other factors as deemed appropriate, based on the beneficiary's comprehensive medical and social history and current clinical standards.

(5) Performance of an electrocardiogram and interpretation.

(6) Education, counseling, and referral, as deemed appropriate, based on the results of elements (1) through (5) of the definition of the initial preventive physical examination.

(7) Education, counseling, and referral, including a written plan for obtaining the appropriate screening and other preventive services, which are also covered as separate Medicare Part B benefits; that is, pnuemococcal, influenza, and hepatitis B vaccines and their administration, screening mammography, screening pap smear and screening pelvic exams, prostate cancer screening tests, diabetes outpatient self-management training services, bone mass measurements, screening for glaucoma, medical nutrition therapy services, cardiovascular screening blood tests, and diabetes screening tests.

As we indicated in the OPPS proposed rule, we are addressing the public comments that we received on our proposal to revise our regulations to include specific coverage of initial preventive physical examinations under Medicare Part B and finalizing our coverage policy for initial preventive physical examinations in the final rule for the CY 2005 Medicare Physician Fee Start Printed Page 65728Schedule published elsewhere in this issue.

c. Assignment of New HCPCS Codes for Payment of Initial Preventive Physical Examinations

There was no CPT code that contained the specific elements included in the initial preventive physical examination. Therefore, in the August 16, 2004 proposed rule, we proposed to establish a new HCPCS code to be used to bill for the new service under both the Medicare Physician Fee Schedule and the OPPS. We proposed a code, GXXXX, for the full service, including an EKG, but not including the other previously mentioned preventive services that are currently separately covered and paid under the Medicare Part B screening benefits. When these other preventive services are performed, they should be billed using the existing appropriate HCPCS and CPT codes.

For payment under the Medicare Physician Fee Schedule, relative value units were proposed for the new HCPCS code for the initial preventive physical based on equivalent resources and work intensity to those contained in CPT evaluation and management code 99203 (New patient, office or other outpatient visit) and CPT 93000 (Electrocardiogram, complete) (69 FR 47487, August 5, 2004). The “technical component” of the Medicare Physician Fee Schedule (the costs other than those allocated for the physician's professional services and professional liability insurance which are billed and paid for separately, when appropriate) is the portion of the fee schedule payment that is most comparable to what Medicare pays under the OPPS. The estimated “technical component” of the Medicare Physician Fee Schedule payment for GXXXX was between $50 and $100.

d. APC Assignment of Initial Preventive Physical Examination

Given our lack of cost data to guide assignment of the new code to a clinically appropriate APC, in our proposed rule, we proposed assignment of the new code GXXXX (Initial preventive physical examination) to New Technology APC 1539 (New Technology, Level II) with a payment level between $50 and $100. We believed that the proposed temporary assignment to a new technology APC would allow us to pay for the new benefit provided in the OPD while we accrued claims data and experience on which to base a clinically relevant APC assignment in the future.

We received a number of public comments regarding the proposed payment for the initial preventive physical examination and its proposed APC placement.

Comment: A number of commenters highlighted billing and operational concerns with the definition of a single HCPCS code, GXXXX, for the initial preventive physical examination. The commenters explained that, in hospitals where the EKG was performed in a separate department from the location of the physical examination, the technician charging for the service would have no way of distinguishing an EKG related to the initial preventive physical examination from other EKG tracings performed for diagnostic purposes, for which the hospital would bill for that specific service. The commenters noted that physicians often send their patients to hospitals for the EKG tracing, and if hospitals performed the EKG associated with the initial preventive physical examination in this context, they would have no way to bill for the EKG. The commenters presented various alternative coding possibilities for our consideration to address these situations.

Response: Section 611 of Pub. L. 108-173 does require a screening EKG to be performed as part of the initial preventive physical examination visit. In view of the different circumstances that may occur when performing the full initial preventive physical examination, we are establishing four new G codes for the initial preventative physical examination for CY 2005.

  • G0344: Initial preventive physical examination; face-to-face visit, services limited to new beneficiary during the first 6 months of Medicare Part B enrollment. This code is assigned a status indicator “V” for the OPPS.
  • G0366: Electrocardiogram, routine EKG with at least 12 leads; performed as a component of the initial preventive physical examination with interpretation and report. This code is assigned a status indicator “B” for the OPPS.
  • G0367: Electrocardiogram, tracing only, without interpretation and report, performed as a component of the initial preventive physical examination. This code is assigned status indicator “S” for the OPPS.
  • G0368: Electrocardiogram, interpretation and report only, performed as a component of the initial preventive physical examination. This code is assigned status indicator “A” for the OPPS.

In the hospital, performance of the complete initial preventive physical examination service would be coded using both the G0344 and G0367 codes. As required by the statute, the new codes describe the visit and the EKG, but not the other previously mentioned preventive services that are currently separately covered and paid under the Medicare Part B screening benefits. When these other preventive services are performed, they should be billed using the existing appropriate HCPCS and CPT codes.

To comply with Pub. L. 108-173, the initial preventive physical examination must include the EKG, regardless of whether a diagnostic EKG had previously been performed. Both components of the initial preventive physical examination, the examination and the EKG, must be performed to fulfill the statutory benefit for either of the components to be paid. Billing instructions for providers will be issued.

In addition to our decision to create two codes for hospitals to report for performance of the initial preventive physical examination service, we are assigning the codes to appropriate APCs as follows: G0344 is assigned to APC 0601 (Mid Level Clinic Visits), and G0367 is assigned to APC 0099 (Electrocardiograms). These APC assignments result in a total payment of approximately $78, slightly more than the $75 payment rate proposed for the comprehensive initial preventive physical examination service in the proposed rule.

Comment: A few commenters requested that CMS increase the payment for the initial preventive physical examination benefit and stated that the payment rate set is too low to cover the required clinical resources.

Response: As stated in our proposed rule, the payment rate for the comprehensive initial preventive physical examination service under the OPPS was based on the rate proposed under the Medicare Physician Fee Schedule, which utilized estimates of necessary resources for the initial preventive physical examination benchmarked against the resources required to deliver existing evaluation and management and electrocardiogram services in the physician office. Based on comments concerning the adequacy of our proposed payment for the comprehensive initial preventive physical examination service and our decision to separate the examination service from the EKG for coding and payment purposes, we explicitly compared the resources we anticipated for the examination service delivered in the hospital to the OPPS median cost for the existing new office or other outpatient visit service which was used as a crosswalk. CPT code 99203 (Office Start Printed Page 65729or other outpatient visit for a new patient) is in APC 0601, which has a median cost of $57.66. The AMA/Specialty Society RVS Update Committee survey data for code 99203 showed 51 minutes of staff time, and we believe the initial preventive physical examination will reflect comparable time and consumption of hospital resources. As we expect the hospital resources utilized for code G0344 to be similar to those needed for clinic visits for which we have historical hospital cost data, we will place G0344 in APC 0601 rather than in a new technology APC as we proposed for the initial preventive physical examination comprehensive service. We expect the hospital resources utilized for the screening EKG tracing, code G0367, to be very similar to those necessary for a diagnostic EKG tracing, code 93005 and assigned to APC 0099. Together these APCs (0601 and 0099) will pay approximately $78, several more dollars than we proposed for the comprehensive service. We will monitor our claims data for the initial preventive physical examination services as hospitals gain experience delivering the services. We are finalizing our placement of code G0344 in APC 0601 for CY 2005 and code G0367 in APC 0099 for 2005.

Comment: Several commenters asked that CMS provide explicit instructions and guidelines, respectively, to providers and beneficiaries regarding the details of what will be included in the new initial preventive physical examination benefit, the eligibility requirements, and how providers should bill Medicare for the new service. One commenter asked if the preventive physical examination will be subject to the evaluation and management guidelines.

Response: We will release appropriate manual and transmittal instructions and information from the CMS educational components for the medical community, including a MedLearn Matters article and fact sheets such as the “2005 Payment Changes for Physicians and Other Providers: News From Medicare for 2005”. The medical community can join this effort in educating physicians and beneficiaries by their own communications, bulletins, or other publications. In addition, we have specifically included information on the new initial preventive physical examination benefit in the 2005 version of the Medicare and You Handbook and revised booklet, Medicare's Preventive Services. A new 2-page fact sheet on all of the new preventive services, including the initial preventive physical examination benefit, will be available this Fall, and a bilingual brochure for Hispanic beneficiaries will also be available in the near future. Information will be disseminated by CMS regional offices, State Health Insurance Assistance Programs (SHIPs), and various partners at the national, State, and local levels. Information on the new benefit will also be made available to the public through Web site, http://www.medicare.gov, the partner Web site to http://www.cms.hhs.gov, the toll free number 1-800-MEDICARE, numerous forums hosted by CMS, and conference exhibits and presentations.

The initial preventive physical examination will not be subject to each hospital's internal set of evaluation and management guidelines that hospitals were instructed to develop at the implementation of the OPPS in the August 7, 2000 final rule (65 FR 18451) because we have defined one explicit service, without levels.

Comment: Several commenters asked how providers of initial preventive physical examination services will know if a particular beneficiary is eligible to receive the new benefit due to the statutory time and coverage frequency (one-time benefit) limitations.

Response: The statute provides for coverage of a one-time initial preventive physical examination that must be performed for new beneficiaries by qualified physicians or certain specified nonphysician practitioners within the first 6 month period following the effective date of the beneficiary's first Medicare Part B coverage. Because physicians or qualified nonphysician practitioners may not have the complete medical history for a particular new beneficiary, including information on possible use of the one-time benefit, these clinicians are largely relying on their own medical records and the information the beneficiary provides to them in establishing whether or not the initial preventive physical examination benefit is still available to a particular individual and has not been performed by another qualified practitioner. Because a second initial preventive physical examination will always fall outside the definition of the new Medicare benefit, an advance beneficiary notice (ABN) need not be issued in those instances where there is doubt regarding whether the beneficiary has previously received an initial preventive physical examination. The beneficiary will always be liable for a second initial preventive physical examination, no matter when it is conducted. However, for those instances where there is sufficient doubt as to whether the statutory 6-month period has lapsed, the physician or qualified nonphysician practitioner should issue an ABN to the beneficiary that indicates that Medicare may not cover and pay for the service. If the physician or qualified nonphysician practitioner does not issue an ABN to the beneficiary and Medicare denies payment for the service because the statutory time limitation for conducting the initial preventive physical examination has expired, the physician or qualified nonphysician practitioner may be held financially liable.

Comment: One commenter recommended that CMS compare the requirements of the initial preventive physical examination to the contemplated requirements for similar but not-yet-disclosed facility-specific evaluation and management level definitions. The commenter wanted to ensure that the technical requirements are comparable between the new benefit and similar evaluation and management service definitions being contemplated by CMS.

Response: We will take the commenter's recommendation into consideration in our ongoing work to develop new evaluation and management codes for the OPPS.

2. Payment for Certain Mammography Services (Section 614 of Pub. L. 108-173)

Section 614 of Pub. L. 108-173 amended section 1833(t)(1)(B)(iv) of the Act to provide that screening mammography and diagnostic mammography services are excluded from payment under the OPPS. This amendment applies to screening mammography services furnished on or after December 8, 2003 (the date of the enactment of Pub. L. 108-173), and in the case of diagnostic mammography, to services furnished on or after January 1, 2005. As a result of this amendment, both screening mammography and diagnostic mammography will be paid under the Medicare Physician Fee Schedule.

In the August 16, 2004 proposed rule, we proposed to amend § 419.22 of the regulations by adding a new paragraph(s) to specify that both screening mammography and diagnostic mammography will be excluded from payment under the OPPS, in accordance with section 614 of Pub. L. 108-173. We received a few public comments on our proposal.

Comment: A few commenters expressed support for the movement of payment for diagnostic mammograms from the OPPS to the Medicare Physician Fee Schedule.

Response: We appreciate the commenters' support. Additional Start Printed Page 65730discussion of section 614 of Pub. L. 108-173 can be found in the final rule for the CY 2005 Medicare Physician Fee Schedule published elsewhere in this issue.

Comment: A few commenters recommended that the payment rates for mammography be increased. The commenters stated that beneficiary access to mammography is being limited due to a growing number of radiologists who refuse to read mammograms due to low payment and high malpractice rates and recent closure of a large number of centers across the country.

Response: We set the payment rates for diagnostic mammography based on hospital claims data, consistent with the payment methodology for OPPS services. In fact, in accordance with section 614 of Pub. L. 108-173, which requires that diagnostic mammography be paid now under the Medicare Physician Fee Schedule, payment is set using an entirely different process. This statutory change in the payment process results in a somewhat increased payment for mammography procedures from that under the OPPS.

Comment: One commenter asked CMS to clarify that the increase in payment for diagnostic mammography furnished in the hospital outpatient department does not “come out of the [Medicare Physician Fee Schedule] budget.”

Response: The increase in payment for diagnostic mammography furnished in the hospital outpatient department has no effect on payment for Medicare Physician Fee Schedule services. We are using the Medicare Physician Fee Schedule rate to set Medicare payment for diagnostic mammography furnished in the hospital outpatient department, as required by statute. Further, we are not including diagnostic mammography in our model for setting the relative weights under the OPPS. Thus, the increase in payment for diagnostic mammography furnished in the hospital outpatient department also has no effect on payment for any other OPPS services.

In this final rule, we are adopting, as final without modification, our proposed revision of § 419.22 to incorporate the provisions of section 614 of Pub. L. 108-173.

III. Recalibration of APC Relative Weights for CY 2005

A. Database Construction

Section 1833(t)(9)(A) of the Act requires that the Secretary review and revise the relative payment weights for APCs at least annually, beginning in CY 2001 for application in CY 2002. In the April 7, 2000 OPPS final rule (65 FR 18482), we explained in detail how we calculated the relative payment weights that were implemented on August 1, 2000, for each APC group. Except for some reweighting due to APC changes, these relative weights continued to be in effect for CY 2001. This policy is discussed in the November 13, 2000 interim final rule (65 FR 67824 through 67827).)

In the August 16, 2004 OPPS proposed rule, we proposed to use the same basic methodology that we described in the April 7, 2000 final rule to recalibrate the relative APC weights for services furnished on or after January 1, 2005, and before January 1, 2006. That is, we proposed to recalibrate the weights based on claims and cost report data for outpatient services. We proposed to use the most recent available data to construct the database for calculating APC group weights. We provide a complete description of the data processes we proposed to use for the creation of the CY 2005 OPPS payment rates in the August 16, 2004 proposed rule (69 FR 50448).

For the purpose of recalibrating APC relative weights for CY 2005 displayed in this final rule with comment period, we used the most recent available claims data, which were the approximately 132 million final action claims for hospital OPD services furnished on or after January 1, 2003, and before January 1, 2004. Of the 132 million final action claims for services provided in hospital outpatient settings, 106 million claims were of the type of bill potentially appropriate for use in setting rates for OPPS services (but did not necessarily contain services payable under the OPPS). Of the 106 million claims, we were able to use 51 million whole claims (from which we created 84 million single procedure claim records) to set the final OPPS CY 2005 APC relative weights. We used claims from this period that had been processed before June 30, 2004, to calculate the APC weights and payments contained in Addenda A and B of this final rule with comment period.

We received one general public comment on our proposed OPPS database construction for CY 2005 discussed in the August 16, 2004 proposed rule.

Comment: One commenter suggested that CMS use a nationally representative sample of hospitals from which cost data could be collected for purposes of setting relative weights. The commenter suggested that such a sample could be used to validate findings from the larger claims data set or to establish median costs that more accurately reflect the costs of providing device-related procedures and other outpatient services, or both. As an alternative, the commenter suggested conducting a demonstration project using a sample of hospitals that would receive small grants for set up and training to test the feasibility of collecting a valid reliable and manageable data set from which to develop payment rates.

Response: We believe that the Medicare hospital outpatient claims and hospital cost reports are the best, nationally representative database of such information at present. Nevertheless, we acknowledge that an approach that would involve the collection of additional hospital data from a representative sample could have some merit. However, in addition to the resources that would be required for us to pursue such an approach, we also are concerned about the costs to hospitals associated with such an additional data collection effort. Nevertheless, we remain interested and invite additional suggestions from hospitals and other stakeholders on ways to enhance the data we now use to set relative weights for services paid under the OPPS.

1. Treatment of Multiple Procedure Claims

For CY 2005, we proposed to continue to use single procedure claims to set the medians on which the weights would be based (69 FR 50474). As indicated in the August 16, 2004 proposed rule, we received many requests that we ensure that the data from claims that contain charges for multiple procedures were included in the data from which we calculate the CY 2005 relative payment weights (69 FR 50474). Requesters believe that relying solely on single procedure claims to recalibrate APC relative weights fails to take into account data for many frequently performed procedures, particularly those commonly performed in combination with other procedures. They believe that, by depending upon single procedure claims, we base relative payment weights on the least costly services, thereby introducing downward bias to the medians on which the weights are based.

We agree that, optimally, it is desirable to use the data from as many claims as possible to recalibrate the relative payment weights, including those with multiple procedures. As discussed in the explanation of single procedure claims below, we have used the date of service on the claims and a list of codes to be bypassed to create “pseudo” single claims from multiple procedure claims. We refer to these newly created single procedure claims Start Printed Page 65731as “pseudo” singles because they were submitted by providers as multiple procedure claims.

2. Use of Single Procedure Claims

We use single procedure claims to set the median costs for APCs because we are, so far, unable to ensure that packaged costs can be correctly allocated across multiple procedures performed on the same date of service. However, bypassing specified codes that we believe do not have significant packaged costs enables use of more data from multiple procedure claims. For CY 2003, we created “pseudo” single claims by bypassing HCPCS codes 93005 (Electrocardiogram, tracing), 71010 (Chest x-ray), and 71020 (Chest x-ray) on a submitted claim. However, we did not use claims data for the bypassed codes in the creation of the median costs for the APCs to which these three codes were assigned because the level of packaging that would have remained on the claim after we selected the bypass code was not apparent and, therefore, it was difficult to determine if the medians for these codes would be correct.

For CY 2004, we created “pseudo” single claims by bypassing these three codes and also by bypassing an additional 269 HCPCS codes in APCs. We selected these codes based on a clinical review of the services and because it was presumed that these codes had only very limited packaging and could appropriately be bypassed for the purpose of creating “pseudo” single claims. The APCs to which these codes were assigned were varied and included mammography, cardiac rehabilitation, and level I plain film x-rays. To derive more “pseudo” single claims, we also broke claims apart where there were dates of service for revenue code charges on that claim that could be matched to a single procedure code on the claim on the same date.

As in CY 2003, we did not include the claims data for the bypassed codes in the creation of the APCs to which the 269 codes were assigned because, again, we had not established that such an approach was appropriate and would aid in accurately estimating the median cost for that APC. For CY 2004, from about 16.3 million otherwise unusable claims, we used about 9.5 million multiple procedure claims to create about 27 million “pseudo” single claims. For the CY 2005 OPPS rates in this final rule with comment period, from about 24 million otherwise unusable claims, we used about 18 million multiple procedure claims to create about 52 million “pseudo” single claims.

For CY 2005, we proposed to continue using date of service matching as a tool for creation of “pseudo” single claims and take a more empirical approach to creating the list of codes that we would bypass to create “pseudo” single claims. The process we proposed for CY 2005 OPPS resulted in our being able to use some part of 89 percent of the total claims eligible for use in OPPS ratesetting and modeling in developing this final rule with comment period. In CY 2004, we used some part of the data from 82 percent of eligible claims. This process enabled us to use, for CY 2005, 84 million single bills for ratesetting: 52 million “pseudo” singles and 33 million “natural” single bills.

We proposed to bypass the 383 codes, which we published in Table 17 of the proposed rule (69 FR 50476 through 50486), to create new single claims and to use the line-item costs associated with the bypass codes on these claims in the creation of the median costs for the APCs into which they are assigned (69 FR 50474 through 50486). Of the codes on this list, only 123 (32 percent) were used for bypass in CY 2004.

We developed the proposed bypass list using four criteria:

a. We developed the following empirical standards by reviewing the frequency and magnitude of packaging in the single claims for payable codes other than drugs and biologicals. We proposed to use these standards to determine codes that could be bypassed to create “pseudo” single claims for median setting. (More explanation regarding the use of these standards is provided in our August 16, 2004 OPPS proposed rule (69 FR 50475).)

  • There were 100 or more single claims for the code.
  • Five percent or fewer of the single claims for the code had packaged costs on that single claim for the code.
  • The median cost of packaging observed in the single claim was equal to or less than $50.
  • The code is not a code for an unlisted service.

b. We examined APCs relying on a low volume of single claims, and it became apparent that several radiological supervision and interpretation codes were commonly billed with the procedural codes in the APCs. We then reviewed all radiological supervision and interpretation codes to assess their viability as bypass codes. For the codes included on the proposed list published in Table 17, we determined that, generally, the packaging on claims, including these radiological supervision and interpretation codes, should be associated with the procedure performed.

c. We examined radiation planning and related codes provided by a professional organization. In the organization's opinion, the codes could safely be bypassed and used without packaging to set medians for the APCs into which these codes are assigned. Many of the codes the organization recommended met our criteria under item a., and the remaining codes were close. Therefore, after reviewing such codes, we proposed to adopt as bypass codes all radiation planning and related codes as provided by the organization.

d. We included HCPCS codes 93005 and 71010. These codes have been bypassed for the past 3 years and generate a significant amount of new single claims because they are very commonly done on the same date of surgery. They have low median packaged costs and a low percentage of single claims with any packaged costs, 6 percent and 18 percent, respectively.

In the August 16, 2004 proposed rule, we invited public comment on the “pseudo” single process, including the bypass list and the criteria. We received a number of public comments on our proposals.

Comment: Some commenters stated that CMS should provide an impact analysis by medical specialty and APC for the bypass list. Commenters indicated that 26 radiation oncology codes, which represent over 40 percent of the radiation oncology codes, are on the proposed list and that it is not clear what impact the inclusion of these codes will have on payment for radiation oncology procedures.

Response: The OPPS pays hospitals for the hospital services they furnish and, therefore, we focus our impact analysis on the providers who provide services and to whom the payment is made. It is impractical to do an impact analysis by hospital category, much less medical specialty and APC, for each and every step of the process we use to establish medians on which we base our payment rates.

However, to facilitate the public's ability to do specialized detailed analyses beyond what is practical for us to do, we make available the claims we use to set median costs. Specifically, the claims we used to set the payment rates for CY 2004 OPPS and CY 2005 OPPS are available to the public for public use in extended and focused analysis at any level of interest. Moreover, exhaustive discussion of our process is contained in both the CY 2004 and CY 2005 OPPS final rule with comment period claims accounting documents that are available on www.cms.hhs.gov/​providers/​Start Printed Page 65732hopps.asp, to facilitate the use of such claims for further analysis. Therefore, we provide to the public the data needed for a focused exhaustive analysis of impact by medical specialty or on any basis on which any party with a special interest has a particular concern.

The 383 bypass codes presented in Table 17 of the proposed rule represent the result of an empirical and clinical analysis that identified HCPCS codes for which we could not observe significant packaged costs in the CY 2003 claims data and for which there was no clinical reason that a procedure or service should have significant packaged costs. These criteria are detailed in the proposed rule and were carefully chosen to avoid the inaccurate redistribution of packaged costs (69 FR 50474 through 50475). Inclusion of a HCPCS code on the bypass list is not predicated on the median impact, but rather empirical evidence or clinical arguments that these procedures do not contain significant packaged costs that would call into question their appropriateness for inclusion on the bypass list.

Comment: Most commenters supported the use of a bypass list and date of service matching as a way to use more data from multiple claims. One commenter was concerned that the bypass list may inappropriately break multiple claims into single procedure claims by assuming that the amount and frequency of packaging on procedures found on single bills was the same as would exist on multiple procedure claims. The commenter stated that claims involving multiple APCs are by their nature the most complex combinations of services requiring many more resources than if they were performed singly and that, therefore, CMS may be incorrect to generalize that the packaging found on single bills would also be present for the same procedure done as a multiple procedure. Another commenter opposed the use of the bypass list, citing it as a “bandaid” and as not a satisfactory way to deal with the presence of multiple procedure claims over the long run. The commenter indicated that, given the OPPS experience gained over the past years, CMS should be able to perform a study of multiple procedure claims that provides a mechanism for using them.

Response: We have retained and used the proposed bypass methodology in creating the median costs used to set the CY 2005 OPPS relative payment weights in this final rule with comment period. We believe that the use of the bypass list gives us considerably more single claims for ratesetting than had we not used it and that it is a valid representation of codes for which there is seldom any packaging and for which the packaging that exist, is minimal. Given the inability of any concrete processes that provide a way to attribute packaging on multiple bill claims, we believe that the best and only alternative available is for us to use the packaging on single bill claims to determine whether a code can be safely bypassed in the creation of “pseudo single” claims for median setting. We continue to examine the means by which we could use all multiple procedure claims and to invite additional recommendations from the public on how we might do so.

Comment: One commenter strongly objected to any method of using multiple procedure claims that would rely in any way on payment weights because the commenter believed that any such method would compound problems in the data by carrying them forward into future years.

Response: We expect to examine a number of different ways of using the data from multiple procedure claims and will evaluate each carefully before we discard any particular process. As we have in the past for updating the OPPS, if we decide to pursue any particular process change, we will discuss our findings and any proposed changes to the OPPS median development process in the proposed rule and consider public comments on the proposal before we change the process.

Comment: Some commenters indicated that the use of single procedure claims means that the most typical correctly coded claims are not used for many services. They added that many of the procedures that implant a device are actually replacing an existing device, which means that the removal of the device is billed with one code while the implant is billed with another code on the same claim on the same date of service, thereby creating a multiple procedure claim that will become two “pseudo” single claims under the CMS process. The commenters also stated that services that are provided only in addition to other services, such as noncoronary intravascular ultrasound, can never be correctly coded as a single procedure claim. They contended that such correctly coded claims will be multiple major procedure claims and thus will not be used for median cost setting. The commenters stated that the nature of some services being routinely performed in combination with other services means that, under the current CMS methodology, only small percentages of the claims will be used to set the medians and that those claims are likely to be the incorrectly coded claims.

Response: We recognize that there are categories of service that are typically done in combination with other services at such frequency that acquiring valid single procedure claims is very difficult, if not impossible. We are planning to explore these services for which the medians are set based on a small percentage of the claims that are submitted with the APC Panel in the future to determine what methods may be available to deal effectively with these situations.

In the August 16, 2004 proposed rule, we also discussed suggestions that we had received for creating “pseudo” single claims, which included recommendations that the costs in packaged revenue codes and packaged HCPCS codes be allocated separately to paid HCPCS codes based on the prior year's payment weights or payment rates for the single procedures. Still other suggestions recommended that we allocate the packaged costs in proportion to the charges or to the costs for the major procedures based on the current year's claims. We are concerned that using a prior year's median costs, relative weights or payment rates as the basis to allocate current year's packaged costs to current year costs for payable HCPCS codes may not be appropriate. For example, if two procedures are performed and one uses an expensive device, this methodology would split the costs of the device between the service that uses the device and a service that does not use the device, thus resulting in an incorrect allocation of the packaged costs. For this reason, we did not propose to incorporate these suggestions in our ratesetting methodology. However, we stated in our proposed rule that we intended to examine them more thoroughly.

We did not propose a methodology beyond use of dates of service and the expanded bypass list. However, we solicited specific proposals that would be provided as comments on how multiple procedure claims can be better used in calculating the relative payment weights.

Comment: One commenter asked that CMS clarify whether the “pseudo” single claims data for CPT codes 93307 (Echo exam of heart), 93303 (Echo transthoracic), and 93320 (Doppler echo exam, heart) were used in setting APC relative weights and, if so, the impact of this proposal. Another commenter asked that CMS clarify whether HCPCS codes for drugs, radiopharmaceuticals, and blood products were bypassed to create “pseudo” singles. The commenter Start Printed Page 65733believed that packaged costs are never associated with these items; therefore, they should always be bypassed.

Response: The claims data for the three referenced CPT codes were used in setting the APC relative weights for these services. They were included in the list of bypass codes because they met the criteria for inclusion, which focused on selecting only claims that often did not include packaged services and for which packaging on the single bills was very modest.

We agree with the commenter that drugs, radiopharmaceuticals, and blood products would rarely be expected to have associated packaged costs. Presence of codes for these items on a claim does not result in a multiple claim, as we do not consider the items to be major procedures.

Comment: One commenter asked that CMS add CPT codes 76362 (Computed tomography guidance for, and monitoring of, visceral tissue ablation), 76394 (Magnetic resonance guidance for, and monitoring of, visceral tissue ablation), and 76940 (Us guide, tissue ablation) to the bypass list because they are often billed with CPT code 47382 (Radiofrequency ablation procedures of the liver) and CPT code 20982 (Radiofrequency ablation procedures of the bone). The commenter believed that this approach would create more single claims for those codes.

Response: The three CPT codes that the commenter requested we add to the bypass list did not have sufficient claims volume at the time the bypass list was created to meet the criteria for inclusion. When we next review the bypass list, we will examine these codes for inclusion on any future bypass list.

Comment: One commenter objected to use of data-based criteria as the only determinant of whether services are included on the bypass list. Specifically, the commenter objected to the inclusion of CPT evaluation and management codes 99213 and 99214 on the bypass list even though CPT codes 99211, 99212, and 99215 are not included on the list. The commenter believed that CMS should not assume that these codes do not typically have packaged costs associated with them because less than 5 percent of the claims with the code appeared on a claim with packaged charges. The commenter believed that all codes that “meet the 5 percent data test” should be qualitatively reviewed to determine whether clinical practice and charging methods support the assertion that packaged dollars are not related to the service proposed for the bypass list. The commenter also recommended that CMS include on the bypass list “add-on” CPT codes that have a status indicator of “N” so that the remaining packaged services on the claim would be packaged to the main procedure if that were the only other APC reported on the claim. The commenter recommended that “add-on” CPT codes with APC payment should be accepted as bypass codes if the only other CPT code on the claim is the main procedure.

Response: The commenter is incorrect in believing that the only criterion used to determine if a code were suitable for inclusion on the bypass list was whether 5 percent of the claims for the code appeared with packaged charges. As we discussed above, there were a number of criteria that had to be met which were focused on ensuring that packaging did not occur often or in significant amounts when it did occur. We reviewed the clinical appropriateness of the codes that were derived from applying the criteria, and did not remove any as a result of the review. Given the large volume of evaluation and management services, we believe that the evaluation and management codes we included on the bypass list were appropriate for inclusion. As we discussed with regard to the radiological supervision and evaluation codes and the simple EKG and chest x-ray codes, clinical practice and charging methods were also factors in determining inclusion on the bypass list.

With respect to the add-on codes, those that have a status indicator of “N” would not cause a claim to be a multiple procedure claim (because they are not separately paid). Thus it would not be useful to add them to the bypass list (which is intended to break multiple procedure claims into two single claims). Those add-on codes that are paid separately may or may not have packaging associated with them. Thus, it would be incorrect to assume that all packaging on the claim would be associated with the core procedure to which the add-on code is an appendage. For example, insertion of a left ventricular pacing lead as an add-on procedure to the insertion of a cardioverter-defibrillator carries considerable packaged costs with the add-on service, such as the device, significant additional operating room time, and extra drugs and medical supplies, and, therefore, it would not be suitable for inclusion on the bypass list.

After carefully reviewing all public comments received, we are adopting as final the bypass codes listed in Table 16 below.

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B. Calculation of Median Costs for CY 2005

In this section of the preamble, we discuss the use of claims to calculate the OPPS payment rates for CY 2005. (The hospital outpatient prospective payment page on the CMS Web site on which this final rule with comment period is posted provides an accounting of claims used in the development of the final rates: http://www.cms.hhs.gov/​hopps.) The accounting of claims used in the development of the final rule with comment period is included under supplemental materials for this final rule with comment period. That accounting provides additional detail regarding the number of claims derived at each stage of the process. In addition, we note that below we discuss the files of claims that comprise the data sets that are available for purchase under a CMS data user contract. Our CMS Web site, http://www.cms.hhs.gov/​providers/​hopps includes information about purchasing the following two OPPS data files: “OPPS limited data set” and “OPPS identifiable data set.”

In this final rule with comment period, we are using the same methodology as proposed in the August 16, 2004 proposed rule to establish the relative weights that we used in calculating the OPPS payment rates for CY 2005 shown in Addenda A and B to this final rule with comment period. This methodology is as follows:

We used outpatient claims for full CY 2003 to set the relative weights for CY 2005. To begin the calculation of the relative weights for CY 2005, we pulled all claims for outpatient services furnished in CY 2003 from the national claims history file. This is not the population of claims paid under the OPPS, but all outpatient claims (for example, critical access hospital (CAH) claims, and hospital claims for clinical laboratory services for persons who are neither inpatients nor outpatients of the hospital).

We then excluded claims with condition codes 04, 20, 21, and 77. These are claims that providers submitted to Medicare knowing that no payment will be made. For example, providers submit claims with a condition code 21 to elicit an official denial notice from Medicare and document that a service is not covered. We then excluded claims for services furnished in Maryland, Guam, and the U.S. Virgin Islands because hospitals in those geographic areas are not paid under the OPPS.

We divided the remaining claims into the three groups shown below. Groups Start Printed Page 657442 and 3 comprise the 106 million claims that contain hospital bill types paid under the OPPS.

1. Claims that were not bill types 12X, 13X, 14X (hospital bill types), or 76X (CMHC bill types). Other bill types, such as ASCs, bill type 83, are not paid under the OPPS and, therefore, these claims were not used to set OPPS payment.

2. Bill types 12X, 13X, or 14X (hospital bill types). These claims are hospital outpatient claims.

3. Bill type 76X (CMHC). (These claims are later combined with any claims in item 2 above with a condition code 41 to set the per diem partial hospitalization rate determined through a separate process.)

In previous years, we have begun the CCR calculation process using the most recent available cost reports for all hospitals, irrespective of whether any or all of the hospitals included actually filed hospital outpatient claims for the data period. However, in developing the proposed rule and this final rule with comment period, we first limited the population of cost reports to only those for hospitals that filed outpatient claims in CY 2003 before determining whether the CCRs for such hospitals were valid. This initial limitation changed the distribution of CCRs used during the trimming process discussed below.

We then calculated the CCRs at a departmental level and overall for each hospital for which we had claims data. We did this using hospital specific data from the Hospital Cost Report Information System (HCRIS). As indicated in the proposed rule, we used the same CCRs as those used in calculating the relative weights that we used in developing the proposed rule. We did not recalculate CCRs to reflect updated cost report data.

We then flagged CAHs, which are not paid under the OPPS, and hospitals with invalid CCRs. These included claims from hospitals without a CCR; those from hospitals paid an all-inclusive rate; those from hospitals with obviously erroneous CCRs (greater than 90 or less than .0001); and those from hospitals with CCRs that were identified as outliers (3 standard deviations from the geometric mean after removing error CCRs). In addition, we trimmed the CCRs at the departmental level by removing the CCRs for each cost center as outliers if they exceeded +/−3 standard deviations of the geometric mean. In prior years, we did not trim CCRs at the departmental level. However, for CY 2005, as proposed, we trimmed at the departmental CCR level to eliminate aberrant CCRs that, if found in high volume hospitals, could skew the medians. We used a four-tiered hierarchy of cost center CCRs to match a cost center to a revenue code with the top tier being the most common cost center and the last tier being the default CCR. If a hospital's departmental CCR was deleted by trimming, we set the departmental CCR for that cost center to “missing,” so that another departmental CCR in the revenue center hierarchy could apply. If no other departmental CCR could apply to the revenue code on the claim, we used the hospital's overall CCR for the revenue code in question.

We then converted the charges on the claim by applying the CCR that we believed was best suited to the revenue code indicated on the line with the charge. (We discussed in greater detail the allowed revenue codes in the proposed rule (69 FR 50487).) If a hospital did not have a CCR that was appropriate to the revenue code reported for a line-item charge (for example, a visit reported under the clinic revenue code but the hospital did not have a clinic cost center), we applied the hospital-specific overall CCR, except as discussed in section V.H. of this final rule with comment period, for calculation of costs for blood.

Thus, we applied CCRs as described above to claims with bill types 12X, 13X, or 14X, excluding all claims from CAHs and hospitals in Maryland, Guam, or the U.S. Virgin Islands, and flagged hospitals with invalid CCRs. We excluded claims from all hospitals for which CCRs were flagged as invalid.

We identified claims with condition code 41 as partial hospitalization services of CMHCs and removed them to another file. These claims were combined with the 76X claims identified previously to calculate the partial hospitalization per diem rate.

We then excluded claims without a HCPCS code. We also removed claims for observation services to another file. We removed to another file claims that contained nothing but flu and pneumococcal pneumonia (“PPV”) vaccine. Influenza and PPV vaccines are paid at reasonable cost and, therefore, these claims are not used to set OPPS rates. We note that the two above mentioned separate files containing partial hospitalization claims and the observation services claims are included in the files that are available for purchase as discussed above.

We next copied line-item costs for drugs, blood, and devices (the lines stay on the claim but are copied off onto another file) to a separate file. No claims were deleted when we copied these lines onto another file. These line-items are used to calculate the per unit median for drugs, radiopharmaceuticals, and blood and blood products. The line-item costs were also used to calculate the per administration cost of drugs, radiopharmaceuticals, and biologicals (other than blood and blood products) for purposes of determining whether the cost of the item would be packaged or paid separately. Section 1833(t)(16)(B) of the Act, as added by section 621(a)(2) of Pub. L. 108-173, requires the Secretary to lower to $50 the threshold for separate payment of drugs and biologicals and the per administration cost derived using these line-item cost data would be used to make that decision for CY 2005. As discussed in the November 7, 2003 OPPS final rule with comment period (68 FR 63398), we had also applied a $50 threshold to these items for the CY 2004 update to the OPPS.

We then divided the remaining claims into five groups.

1. Single Major Claims: Claims with a single separately payable procedure, all of which would be used in median setting.

2. Multiple Major Claims: Claims with more than one separately payable procedure or multiple units for one payable procedure. As discussed below, some of these can be used in median setting.

3. Single Minor Claims: Claims with a single HCPCS code that is not separately payable. These claims may have a single packaged procedure or a drug code.

4. Multiple Minor Claims: Claims with multiple HCPCS codes that are not separately payable without examining dates of service. (For example, pathology codes are packaged unless they appear on a single bill by themselves.) The multiple minor file has claims with multiple occurrences of pathology codes, with packaged costs that cannot be appropriately allocated across the multiple pathology codes. However, by matching dates of service for the code and the reported costs through the “pseudo” single creation process discussed earlier, a claim with multiple pathology codes may become several “pseudo” single claims with a unique pathology code and its associated costs on each day. These “pseudo” singles for the pathology codes would then be considered a separately payable code and would be used like claims in the single major claim file.

5. Non-OPPS Claims: Claims that contain no services payable under the OPPS are excluded from the files used for the OPPS. Non-OPPS claims have codes paid under other fee schedules, for example, durable medical equipment or clinical laboratory. Start Printed Page 65745

We note that the claims listed in numbers 1, 2, and 4 above are included in the data files that can be purchased as described above.

We set aside the single minor claims and the non-OPPS claims (numbers 3 and 5 above) because we did not use either in calculating median cost.

We then examined the multiple major and multiple minor claims (numbers 2 and 4 above) to determine if we could convert any of them to single major claims using the process described previously. We first grouped items on the claims by date of service. If each major procedure on the claim had a different date of service and if the line-items for packaged HCPCS and packaged revenue codes had dates of service, we broke the claim into multiple “pseudo” single claims based on the date of service.

After those single claims were created, we used the list of “bypass codes” in Table 16 of this final rule with comment period to remove separately payable procedures that we determined contain limited costs or no packaged costs from a multiple procedure bill. A discussion of the creation of the list of bypass codes used for the creation of “pseudo” single claims is contained in section III.A.2. of this preamble.

When one of the two separately payable procedures on a multiple procedure claim were on the bypass code list, the claim was split into two single procedure claims records. The single procedure claim record that contained the bypass code did not retain packaged services. The single procedure claim record that contained the other separately payable procedure retained the packaged revenue code charges and the packaged HCPCS charges.

We excluded those claims that we were not able to convert to singles even after applying both of the techniques for creation of “pseudo” singles. We then packaged the costs of packaged HCPCS (codes with status indicator “N” listed in Addendum B to this final rule with comment period) and packaged revenue codes into the cost of the single major procedure remaining on the claim. The list of packaged revenue codes is shown in Table 17 below.

After removing claims for hospitals with error CCRs, claims without HCPCS codes, claims for immunizations not covered under the OPPS, and claims for services not paid under the OPPS, 56 million claims were left. This subset of claims is roughly one-half of the 106 million claims for bill types paid under the OPPS. Of these 56 million claims, we were able to use some portion of 52 million (91 percent) whole claims to create the 84 million single and “pseudo” single claims for use in the CY 2005 median payment ratesetting.

We also excluded claims that either had zero costs after summing all costs on the claim or for which CMS lacked an appropriate provider wage index. For the remaining claims, we then wage adjusted 60 percent of the cost of the claim (which we determined to be the labor-related portion), as has been our policy since initial implementation of the OPPS, to adjust for geographic variation in labor-related costs. We made this adjustment by determining the wage index that applied to the hospital that furnished the service and dividing the cost for the separately paid HCPCS code furnished by the hospital by that wage index. As proposed, we used the final pre-reclassified wage indices for IPPS and any subsequent corrections. We used the pre-reclassified wage indices for standardization because we believe that they better reflect the true costs of items and services in the area in which the hospital is located than the post-reclassification wage indices, and would result in the most accurate adjusted median costs.

We then excluded claims that were outside 3 standard deviations from the geometric mean cost for each HCPCS code. We used the remaining claims to calculate median costs for each separately payable HCPCS code; first, to determine the applicability of the “2 times” rule, and second, to determine APC medians as based on the claims containing the HCPCS codes assigned to each APC. As stated previously, section 1833(t)(2) of the Act provides that, subject to certain exceptions, the items and services within an APC group cannot be considered comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secretary) for an item or service in the group is more than 2 times greater than the lowest median cost for an item or service within the same group (“the 2 times rule”). Finally, we reviewed the medians and reassigned HCPCS codes to different APCs as deemed appropriate. Section III.B. of this preamble includes a discussion of the HCPCS code assignment changes that resulted from examination of the medians and for other reasons. The APC medians were recalculated after we reassigned the affected HCPCS codes.

A detailed discussion of the medians for blood and blood products is provided at section V.I. of this preamble. We provide a discussion of the medians for APC 0315 (Level II Implantation of Neurostimulator), and APC 0651 (Complex Interstitial Radiation Application), at sections III.C.2.a. and III.C.2.b., respectively, of this preamble.

A discussion of the medians for APCs that require one or more devices when the service is performed is provided at section III.C. of this preamble. A discussion of the median for observation services is provided at section VII.D. of this preamble and a discussion of the median for partial hospitalization is provided at section X.C. of this preamble.

We received a number of public comments concerning our proposed data processes for calculating the CY 2005 OPPS relative weights and median costs.

Comment: Some commenters requested that CMS provide specialty-specific and APC-specific impact tables that provide additional information and analysis of its proposal to trim CCRs on a departmental basis. The commenters stated that CMS should justify why it trimmed departmental CCRs at ±3 standard deviations from the geometric mean and explain the impact of the change.

Response: We chose to trim at ±3 standard deviations from the geometric mean because cost and charge data are traditionally log normal distributed and because the 3 standard deviations threshold is standard policy for identifying outliers in CMS' payment systems. We do not believe that an impact analysis for the departmental-level CCR trim is necessary because the overall number of cost-centers trimmed were minimal relative to the number of hospitals and because this trim only removed extreme department CCRs, both low and high. We fully expect that, had we chosen not to trim at the department-level, extreme cost estimates would have been removed during our trim at the HCPCS-level performed later in the data development process.

For example, we trimmed the most department CCRs, 68, from cost center 5500, Medical Supplies Charged to Patients. The low CCRs that were trimmed ranged from 0.00008 to 0.0281. The high CCRs that were trimmed ranged from 0.39530 to 6069.17. Even after the department-level trim, only 7 percent of the hospitals in our data set defaulted to the overall CCR for services mapped to this cost center.

Comment: One commenter stated that the CCRs fell between 1996 and 2002 because charges were increasing faster than costs and that this change resulted in a significant payment decrease for hospitals for which we used the default CCR. The commenter urged CMS to instruct fiscal intermediaries to work with these hospitals in determining Start Printed Page 65746CCRs that will provide accurate cost estimates.

Response: The commenter misunderstood the source of the CCRs used to adjust hospital costs to charges for OPPS median setting. We do not use the CCRs that fiscal intermediaries calculate for purposes of outlier payments, and cost reimbursement. Instead, we use hospital specific data from the health care cost reporting information system and independently calculate CCRs for each standard and nonstandard cost center in which the costs of outpatient services are to be found as well as an overall CCRs for the costs of outpatient care. Hence, intermediaries have no role in the calculation of the CCRs used to reduce charges to approximate costs for OPPS median cost setting.

Comment: One commenter asked that CMS justify why did it not use cost-to-charge data from all hospitals for CY 2005 OPPS calculations when, in the past, CMS used cost report data from all hospitals without regard to whether the hospital had filed data during a specified period.

Response: In the past, we first calculated CCRs for all providers, trimmed the overall hospital CCRs, and then compared the providers for which we had valid CCRs to the providers for which we had claims data. For CY 2005 OPPS, we first determined the providers for which we had claims data and we then calculated the CCRs for those hospitals so that the trimming would occur only across the hospitals for which we had claims data because a CCR is of value only if there are claims to which to apply it.

Comment: One commenter urged CMS to greatly expand the outpatient code editor (OCE) edits to return to providers claims that fail edits that are appropriate to the type of service being billed. The commenter cited as examples, the creation of edits that return claims for chemotherapy administration procedures if anti-neoplastics (cancer chemotherapy) are not also billed on the same day and edits that return claims for services that require the use of contrast agents if no contrast agent were billed. The commenter believed that this would greatly improve the data on which median costs are set.

Response: We do not intend, at this time, to greatly expand the OCE edits to force correct coding as the commenter recommends beyond the edits for correct coding of device procedures that are discussed in section III.C.4 of this final rule with comment period. While we recognize that these kinds of edits would likely result in better coding, they would also impose a significant burden on hospitals. We do, however, encourage hospitals to review their claims completion processes carefully and to edit their claims before they are submitted to maximize the likelihood that the claims are correct and complete. Such a practice would both assist us in developing better OPPS rates, but more importantly, ensure that hospitals are being correctly paid for all of the services they furnish to our beneficiaries.

Comment: One commenter noted the prevalence of drug billing and charging errors and recommended that CMS revise its median trimming methodology for drugs from ±3 standard deviations from the geometric mean to a trim by provider by drug based on the correlation of units and charges. This approach assumes that hospitals engaged in accurate and consistent unit coding and billing will demonstrate a strong correlation between units and per unit charges. The commenter noted that CMS' current trim is very conservative, especially for low costs per unit because it will only eliminate negative cost values, which do not exist in the data. The commenter further suggested that CMS' trim of department-level CCR's and the use of C-code only claims to set device medians are comparable to this proposal.

Response: We agree that billing accurate units has proven challenging for some hospitals in light of various differences in packaged versus delivered units, changing drug pricing, and unit changes in HCPCS codes. Clearly, our goal in conducting the current trim at ±3 standard deviations from the geometric mean is to remove aberrant per unit costs, or costs that are so far removed from the geometric mean that the probability of their occurrence is less than 1 percent. However, even after this trim is conducted, we remain concerned about the per unit cost estimates for some drug codes.

We believe, however, that the current trim of drug costs, while conservative, is not as limiting as suggested in the comment. The natural logarithm of costs per unit less than $1 will be negative. The trim compares the natural logarithm of the cost to the geometric mean, ±3 standard deviations and removes low and high cost observations. The low trim threshold may also be negative if costs are less than $1. In addition to using a trim, we also rely on a median cost rather than an average cost. Averages are subject to the influence of extreme outliers. Using a median instead of a mean eliminates this concern. Assuming most line-items for any given drug are coded correctly, using a trim and the median should provide a robust per unit cost estimate. Nonetheless, we do recognize that for selected low-volume or complex products, this approach is still not sufficient to remove all errors.

We are concerned, however, about implementing systematic trimming at the provider-level as suggested by the commenter for several reasons. First, this approach would remove the data for multiple providers from any given median calculation, making the assumption that their data were inaccurate, when, in fact, a few instances of poor coding may adversely impact the provider's correlation coefficient. Thus, a provider may actually be coding and charging accurately in many cases. In rare instances, we have removed a specific provider when it is more than obvious that the data are erroneous, but we only do this after a careful review of the provider's claims data. It is our preference to remove aberrant line-items rather than a provider's entire data for any given drug. Second, correlation coefficients for a provider may fluctuate if they are based on very low-volume, even if the majority of line-items appear accurate. Third, the commenter's proposed correlation coefficient approach lacks a generally accepted threshold when a providers' data should be removed, unlike the widely accepted trim of 3 standard deviations from the mean. Finally, this approach assumes that a negative correlation coefficient implies that a provider erred in setting its charging practices.

While we agree that the proposed trim seeks to improve the accuracy of the claims data, which is the goal of all trimming, we disagree that the commenter's proposed trim is necessarily comparable to the use of a department-level CCR trim and the limitation of claims to those with C-codes for estimating medians for device-dependent APCs. The department-level trim does not eliminate a provider entirely, it eliminates the department-level CCR for a specific hospital and replaces this CCR with the overall CCR for that hospital. Relying on C-coded claims to calculate device-dependent medians assures us that the device was used with the device-dependent procedure. The specific cost associated with the device code is not considered in subsetting claims and the subsetting is done by claim, not by provider. While the commenter's proposed methodology is not appropriate for use at this time, we nonetheless believe that the commenter's suggested approach can serve as a useful tool in helping us begin the process of identifying providers Comment: One commenter indicated that using the overall CCR where the Start Printed Page 65747departmental CCR cannot be used may skew the costs derived from application of CCRs to charges. The commenter suggested that CMS develop a method for replacing departmental CCRs similar to that used for blood and blood products whereby the CCR that would apply would not be the overall CCR but a national CCR calculated based on the departmental CCRs of hospitals that do report the more pertinent specific cost centers on their cost reports.

Response: We will consider whether doing so is practical and whether it would yield more accurate cost estimates. However, there were very specific characteristics of the reporting of blood such as a very specific cost center and very specific revenue codes that may not exist for other services.

Comment: One commenter asked that CMS undertake a study to improve the reporting of costs in conjunction with the CCR development. The commenter stated that a more timely process should be implemented so that currently accurate CCRs are used to translate hospital charges to costs and that consideration should be given to attaining greater detail from the hospitals to calculate the CCRs to better reflect the full line of services being offered by hospitals.

Response: We study means by which we could improve the development of cost-to-charge ratios annually. We also use the most current cost report data from the HCRIS system to calculate the cost to-charge-ratios and we use charges from the most current claims data. However, hospitals have great latitude in the way they organize their costs and complete their cost reports. We have no plans to alter the existing instructions to require cost report detail that is not currently provided. We will, instead, continue to examine how the data currently submitted by hospitals can be used to secure the most accurate estimates of cost for the full range of services furnished by hospitals.

After carefully reviewing all comments, we are adopting as final, for OPPS services furnished on or after January 1, 2005, the process for calculating median costs that we described in this section and the list of packaged services shown in Table 17 below. This table contains the list of packaged services by revenue code that we used in developing the APC weights and medians listed in Addenda A and B of this final rule with comment period.

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C. Adjustment of Median Costs for CY 2005

1. Device-Dependent APCs

Table 19, which we published in the proposed rule (69 FR 50492), contains a list of APCs consisting of HCPCS codes that cannot be provided without one or more devices. For CY 2002 OPPS, we used external data in part to establish the medians used for weight setting. At that time, many devices were eligible for pass-through payment. For that year, we estimated that the total amount of pass-through payments would far exceed the limit imposed by statute. To reduce the amount of a pro rata adjustment to all pass-through items, we packaged 75 percent of the cost of the devices (using external data furnished by commenters on the August 24, 2001 proposed rule) into the median cost for the APCs associated with these pass-through devices. The remaining 25 percent of the cost was considered to be pass-through payment. (Section VI. of this preamble includes a discussion of the pro rata adjustment.)

For CY 2003 OPPS, which was based on CY 2001 claims data, we found that the median costs for certain device-dependent APCs when all claims were used were substantially less than the median costs used for CY 2002. We were concerned that using the medians calculated from all claims would result in payments for some APCs that would not compensate the hospital even for the cost of the device. Therefore, we calculated a median cost using only claims from hospitals that had separately billed the pass-through device in CY 2001 (that is, hospitals whose claims contained the C-code for the pass-through device). Furthermore, for any APC (whether device-dependent or not) where the median cost would have decreased by 15 percent or more from CY 2002 to CY 2003, we limited decreases in median costs to 15 percent plus half of the amount of any reduction beyond 15 percent (68 FR 47984). For a few particular device-dependent APCs for which we believed that access to the service was in jeopardy, we blended external data furnished by commenters on the August 9, 2002 proposed rule (67 FR 57092) with claims data to establish the median cost used to set the payment rate. For CY 2003, we also eliminated the HCPCS C-codes for the devices and returned to providers those claims on which the deleted device codes were used. (The November 1, 2002 OPPS final rule (67 FR 66750) and section III.C.4 of this preamble contain a discussion regarding the required use of C-codes for specific categories of devices.)

For CY 2004 OPPS, which was based on CY 2002 claims data, we used only claims on which hospitals had reported devices to establish the median cost for the device-dependent APCs in Table 18. We did this because we found that the median costs calculated when we used all claims for these services were inadequate to cover the cost of the device if the device was not separately coded on the claim. Using only claims containing the code for the device (a C-code) provided costs that were closer to those used for CY 2002 and CY 2003 for these services. For a few particular APCs in which we believed that access to the service was in jeopardy, we used external data provided by commenters on the August 12, 2003 proposed rule in a 50 percent blend with claims data to establish the device portion of the median cost used to set the payment rate (68 FR 63423). We also reinstated for CY 2004, but on a voluntary basis, the reporting of C-codes for devices.

Thus, in developing the median costs for device-dependent APCs for CYs 2002, 2003, and 2004, we applied certain adjustments to our claims data as provided under the authority of section 1833(t)(9)(A) of the Act to ensure equitable payments to the hospitals for the provision of such services. As stated in the August 16, 2004 proposed rule, we have continued to receive comments from interested parties as part of the APC Panel process urging us to determine whether the claims data that would be used in calculating the median costs for device-dependent APCs for payment in CY 2005 would represent valid relative costs for these services (69 FR 50490). Careful analysis of the CY 2003 data that we used in calculating the median costs for the CY 2005 OPPS payment rates revealed problems similar to those discussed above in calculating device-dependent APC median costs based solely on claims data. Calculation of the CY 2005 median costs for the device-dependent APCs indicated that some of the medians appeared to appropriately reflect the costs of the services, including the cost of the device, and others did not. Of the 41 device-dependent APCs analyzed, 27 have median costs that are lower than the medians on which the OPPS payments were based in CY 2004. In contrast, 14 device-dependent APCs have median costs that are higher than the medians on which OPPS payments were based in CY 2004.

The differences between the CY 2004 payment medians and the proposed CY 2005 median costs using CY 2003 claims data are attributable to several factors. As discussed above, the CY 2004 payment medians were based on a subset of claims that contained the codes for the devices without which the procedures could not be performed, and several APCs were adjusted using external data. The CY 2005 OPPS median costs on which the proposed payment rates in the August 16, 2004 proposed rule were based, were calculated based on all single bills, including “pseudo” single bills, for the services in the APCs and (not a subset Start Printed Page 65750of claims containing device codes) and were not adjusted using external data. In fact, as stated previously, we eliminated device coding requirements for hospitals in CY 2003. Consequently, there were no device codes reported for almost all devices in the CY 2003 claims data. Thus, it was not possible to use only the CY 2003 claims data containing device codes to calculate APC device-dependent medians as was done in CY 2004. Similarly, it was not possible to calculate a percentage of the APC cost attributed to device codes based on CY 2003 claims data.

In light of these data issues for CY 2005, we examined several alternatives to using CY 2003 claims data to calculate the proposed median costs for device-dependent APCs. As discussed in the August 16, 2004 proposed rule, we considered using CY 2004 OPPS medians with an inflation factor, as recommended by the APC Panel and by several outside organizations. We rejected this option because it would not recognize any changes in relative costs for these APCs and would not direct us towards our goal of using all single claims data as the basis for payment weights for all OPPS services.

We also considered using the medians we calculated from all single bills with no adjustments. However, the results of using this approach without increasing the payments for some important high cost services for CY 2005 could result in the closing of hospital programs that provide these services thus, jeopardizing access to needed care. Therefore, we did not adopt this approach.

In addition, we considered subsetting claims based on the presence of charges in certain revenue codes. These revenue codes include: 272, sterile supplies; 275, pacemakers; 278, other implants; 279, other supplies/devices; 280, oncology; 289, other oncology; and 624, investigational devices. We determined that the medians increased for some device-dependent APCs when we used only claims with a charge in at least one of these revenue codes, but our analysis provided no reliable evidence that the charges that would be found in these revenue codes were necessarily for the cost of the device.

Further, we considered using CY 2002 claims to calculate a ratio between the median calculated using all single bills and the median calculated using only claims with HCPCS codes for devices on them, and applying that ratio to the median calculated using all single bills from CY 2003 claims data. We rejected this option because it assumes that the relationship between the costs of the claims with and without codes for devices is a valid relationship not only for CY 2002 but CY 2003 as well. It also assumes no changes in billing behavior. We have no reason to believe either of these assumptions is true and, therefore, we did not choose this option.

In summary, we considered and rejected all of the above options. We have given special treatment to the device-dependent APCs for the past 3 years, recognizing that, in a new payment system, hospitals need time to establish correct coding processes and, considering the need to ensure continued access to these important services. After 3 years of such consideration, we believe that it is time to begin a transition to the use of pure claims data for these services (reflected in these APCs) to ensure the appropriate relativity of the median costs for all payable OPPS services. Our goal is to establish payment rates that provide appropriate relative payment for all services paid under the OPPS without creating payment disincentives that may reduce access to care.

Therefore, we proposed to base median costs for device-dependent APCs in CY 2005 on the greater of (1) median costs calculated using CY 2003 claims data, or (2) 90 percent of the APC payment median for CY 2004 for such services. We proposed this adjustment because we believe that some variation in median costs is to be expected from year to year, and we believe that recognizing up to a 10 percent variation in our payment approach is a reasonable limit. In the August 16, 2004 proposed rule, we solicited comments on all aspects of theses issues and particularly on steps that can be taken in the future to transition from the historic payment medians to claims based median costs for OPPS ratesetting for these important services. In addition, we discussed this issue with the APC Panel at its September 1 through 2, 2004 meeting. The Panel recommended that we base median costs for these APCs on no less than 95 percent of the CY 2004 median not to exceed 105 percent of the CY 2004 payment median.

We received numerous public comments on our proposals.

Comment: A number of commenters objected to the proposal to set the payment medians for device APCs at 90 percent of the CY 2004 payment median for the APC. They indicated that many of these APCs had already been reduced substantially over the past few years and that permitting them to be reduced another 10 percent would mean that some hospitals may close their programs and send patients to other hospitals for these services. Some commenters recommended that the median costs for these APCs be set at 100 percent of the CY 2004 payment median. Some commenters recommended that CMS use the CY 2004 payment median plus an update amount as the median cost for the CY 2005 OPPS. Commenters also recommended that instead of using median costs from claims data with any adjustment, that we collect actual hospital acquisition data or use cost data provided by manufacturers and other stakeholders and substitute that data for the device portion of the median costs. They indicated that we used external data in the past and that we should do so this year also. They cited APCs 0081, 0107, 0108, 0225, 0229, 0259, 0385, and 0386 as cases in which the proposed APC payment rates were less than the cost of the devices and as those for which CMS should use external data in setting the payment rates for CY 2005. A commenter supported the proposal to pay the greater of the CY 2005 claims based median or 90 percent of the CY 2004 payment median.

Response: For the reasons discussed below, we set the adjusted CY 2005 OPPS device-dependent median at the greater of the CY 2005 OPPS unadjusted median or 95 percent of the CY 2004 OPPS adjusted final payment median rather than the greater of the CY 2005 unadjusted median or 90 percent of the CY 2004 OPPS adjusted final median as we proposed in the August 16, 2004 proposed rule. We view this as a transition to the full use of claims data to set the medians for these services. The integrity of a prospective payment system lies heavily in its reliance on a standardized process applied to a standardized data source. The use of external data can, as some commenters point out, unfairly unbalance the payments and result in inequities in payment. (Section III.C.5. of this preamble includes a discussion on the use of external data.)

We considered setting the medians at the CY 2004 adjusted final payment medians with and without further inflation, but we think a certain amount of fluctuation in costs from year to year is to be expected as the costs of services decline after they have been on the market for some time. Moreover, we considered our proposal to pay the greater of the CY 2005 unadjusted median or 90 percent of the CY 2004 OPPS adjusted final payment median, but acknowledged the concerns of the commenters who believe that setting the comparison at 95 percent of the CY 2004 OPPS final adjusted payment median was more appropriate and less likely to impede access to these important services. We recognize that adjustments Start Printed Page 65751to median costs derived from claims data may be necessary yet again in the CY 2006 OPPS due to the voluntary nature of the reporting of device codes in CY 2004. However, as discussed further below at section III.C.4. of this preamble in our discussion of mandatory coding for devices, we expect that reporting of device codes in the CY 2005 claims will enable us to rely upon the claims data for setting the median costs without adjustment in CY 2007.

Comment: Some commenters opposed the APC Panel's recommendation to limit increases in median costs for device APCs to 5 percent over the CY 2004 payment median because the commenters believe such a limit would be arbitrary and would be a hindrance to the improvement of cost data.

Response: We agree and we have not limited the extent to which the median costs for device-dependent APCs may increase for the CY 2005 OPPS. We believe that in a number of cases, providers are reporting the charges for the devices and have otherwise greatly improved coding of their services, resulting in increases in median costs that appear to appropriately reflect the costs of the services furnished. We have no indication that the increases do not otherwise properly reflect the costs of services and, therefore, see no reason to constrain the increases that have resulted.

Comment: Some commenters stated that CMS should look long term to determining a factor through regression analysis that enables CMS to adjust the charges for high cost devices so that the methodology will result in more accurate costs for high cost devices.

Response: We will review and consider the results of credible studies of the possible compression of all charges, both for high cost services and low cost services. Studies that focus only on part of the spectrum of hospital charges, for example, those which look at low markup of high cost items but not at high markup of low cost items, would not be useful in a relative weight system.

Comment: Some commenters indicated that hospitals typically markup high cost items and services less than they markup low cost items and services and that CMS' cost finding methodology does not recognize this because it applies a uniform cost-to-charge ratio (for the department or hospital overall) to the charges, which then yields distorted costs. They recommended that CMS resolve this problem using external data from manufacturers and other stakeholders until such time that CMS can comply with the GAO study that recommended that CMS “analyze variation in hospital charge setting to determine if the OPPS payment rates uniformly reflect hospitals' costs of provided outpatient services and if they do not, to make appropriate changes to the methodology.” The commenters asked that CMS provide explicit instructions to hospitals regarding how to adequately capture and charge for high cost devices.

Response: As we discussed previously, we have decided not to use external data to adjust the APC payment rates for CY 2005 OPPS. We do, however, reassess our existing methodology each year to determine how we can best create rates that uniformly reflect hospitals' cost of providing outpatient services. We will not provide instructions to hospitals regarding how to capture and charge for high cost devices. As a matter of policy, we do not tell hospitals how to set their charges for their services. However, we will continue to inform hospitals of the importance of their charge data in future ratesetting and encourage them to include all appropriate charges on their Medicare claims.

Comment: One commenter objected to us applying the wage index adjustment to the cost of a device in a device-dependent APC because, as the commenter stated, the wage index is intended to address the identified differential in wages across localities. The commenter contends that there is no demonstration of a similar differential in the costs of devices across localities.

Response: Previous studies have shown that across the entirety of all services paid under OPPS, approximately 60 percent of total cost is labor related. Therefore we believe it is appropriate to apply the wage index to 60 percent of the payment for each service. The application of the wage index to the payment for the device-dependent APC can either inflate the total payment for the device-dependent APC or reduce it depending on whether the hospital is in a high cost or low cost area. In many cases, if we ceased to apply the wage index adjustment to 60 percent of the APC payment, the payment to the hospital for the APC would be significantly reduced. We will, however, consider whether it is appropriate to continue to apply the wage index adjustment as we currently do.

Comment: One commenter asked that we add CPT codes 47382, (Radiofrequency ablation procedures of the liver) and CPT code 20982, (Radiofrequency ablation procedures of the bone) to the list of device-dependent APCs because they require the use of devices.

Response: We will consider whether these services should be added to the list of device-dependent APCs in the future. However, it is unclear to us what proportion of total cost of each of these procedures is the cost of the device because codes are not reported for the devices. We do not agree that the cost of the devices could be derived from charges reported in particular revenue codes because there is no identification of the items charged under any revenue code.

Comment: Some commenters indicated that the reductions in APC payments following termination of pass-through status for devices have resulted in the elimination of programs at hospitals that have chosen to no longer implant prosthetic devices.

Response: We share the concern that beneficiaries should have access to services covered under Medicare and believe that our payment policies under OPPS have consistently taken this concern into account.

Comment: Some commenters indicated that the proposed payment rates for APCs 0081, 0107, 0108, 0222, 0229, 0385, and 0386 are inadequate and do not cover the cost of the device; therefore, they do not provide payment for the facility services. The commenters stated that hospitals have taken a loss on these services for several years and cannot continue to provide the services at a loss. The commenters developed alternative cost estimates using external data and urged CMS to use these data rather than its claims data as the basis for developing median costs.

Response: As stated, for device-dependent APC in general, we have not used external data to adjust any median costs for CY 2005 OPPS. Instead, we set the medians for these APCs at the greater of the median cost for CY 2005 derived using claims data or 95 percent of the CY 2004 OPPS adjusted payment median. Beginning in CY 2005, we will also require that the claims containing codes assigned to these APCs also contain a code for an appropriate device for the claim to be paid, so that in CY 2007 we will have correctly coded claims to help us in setting the payment weights.

Comment: Some commenters stated that the proposed payment for cryoablation of the prostate (CPT code 55873) is insufficient to cover the cost for the procedure. They further stated that CMS should factor in external data that shows hospital costs to exceed $9,000, eliminate or adjust claims for APC 0674 in which the charges for Start Printed Page 65752cryoablation probes are less than $7500, or discard all claims containing CPT code 55873 in the Medicare database for which the total hospital costs are less than $6500. The commenters indicated that access to this care would be impeded if the APC payment is not sufficient to pay the full cost of the service. The commenters believed that APC payment at less than full costs for the service will give rise to the use of alternative means of treating prostate cancer. These commenters indicated that the charges hospitals report on their claims are seldom sufficient to result in the full cost of all of the supplies and equipment needed to furnish the service. The commenters also indicated that when the only claims used to set the median are those for which the code for cryoablation probes is found, the median increases significantly.

Response: The codes for the cryoablation probes used in providing cryoablation of the prostate were billed in CY 2003 because they were paid as pass-through payments in CY 2003. Therefore, they exist in the claims data and we used them to screen for correctly coded claims in setting the median cost for APC 0674. The median derived using the subset of claims is $6,562.69, a decrease of 5.10 percent from the CY 2004 final payment median for APC 0674. Therefore, based on the device-dependent APC policy that we are finalizing for CY 2005, we set the median for APC 0674 at 95 percent of the CY 2004 final payment median, or $6,569.33.

Comment: Some commenters supported the increased payment for cochlear implant services (CPT code 69930 in APC 0259) even though they indicated that they believe that the Medicare payment continues to be insufficient to fully pay for the costs of both the device and the procedure. One commenter provided an independent statistical analysis of the Medicare claims data and invoice data that the commenter indicated revealed hospital costs of $27,954 based on a screen of claims that contained HCPCS code L8614 and asked that CMS set the payment at that amount. Some commenters stated that they believe that some hospitals are using the cochlear implant codes to code implantation of less expensive implantable hearing aid devices. The commenter also asked that CMS provide education and develop a guidance document for hospitals specific to coding and billing for cochlear implant surgery.

Response: The device code for cochlear implants remained active in CY 2003 because Medicare uses it for purposes other than the OPPS. In developing the CY 2005 OPPS medians, we created a subset of claims for implantation of cochlear implants that contained the device code and calculated the median for the CY 2005 OPPS using only those correctly coded claims. This yielded a median cost of $26,006.74, which we used as the basis for the APC 0259 payment weight for the CY 2005 OPPS. While it is certainly possible that some hospitals are misusing the code for cochlear implantation to bill for less costly implanted hearing aid devices, we have no way to make that determination using the claims data. However, we note that hospitals billing in such a manner do so at their own risk of being found to have filed a false claim. We will consider what general education activities we need to undertake with regard to all devices but we are disinclined to focus on specific devices to the exclusion of others.

Comment: One commenter indicated that the proposed decrease in payment rates for APC 0039 (Level I Implantation of Neurostimulator) is not acceptable as it would not enable hospitals to cover the cost of the service. Moreover, the commenter stated that hospitals have failed to code and bill correctly for this service and that there are no disincentives for incorrect coding and billing. The commenter further stated that the only diagnosis on the claims for APC 0039 should be that for epilepsy because that is the fundamental reason for implanting the device. However, according to the commenter, examination of the claims for APC 0039 revealed that only 12 percent of those claims contained an epilespsy diagnosis; therefore, the remaining claims caused the median to incorrectly represent the implantation of the device for treatment of epilepsy. The commenter recommended that CMS use external data to ensure that the costs of the device and procedure are adequate to avoid discouraging hospitals from providing the care.

Response: As with other device-dependent APCs, the absence of device codes on the claims for CY 2003 means that we were unable to screen the claims to positively identify which claims include the neurostimulator device costs and we are not confident that screening only for the diagnosis of epilepsy will resolve the coding problem. Therefore, we have set the median for APC 0039 at 95 percent of the CY 2004 final adjusted payment median.

Comment: Some commenters objected to the assignment of status indicator “T” to APC 0229 (Transcatheter Placement of Intravascular Stent) because they believe it should not be subject to the multiple procedure reduction due to its dependence on a device. They believed that the payment for the services is undervalued because it is typically done with other procedures and that it is further underpaid by the application of the multiple procedure reduction.

Response: We have not changed the status indicator for APC 0229 because the cost of the device for services in this APC is less than 50 percent of the total cost of the service. Therefore, the multiple procedure reduction of 50 percent does not result in the APC payment being less than the device cost. Moreover, there are efficiencies when multiple services are performed on the same day that we believe justify applying the multiple procedure reduction to the services in this APC.

Comment: One commenter asked that CMS require hospitals to show the actual acquisition cost for devices on the bill using a UB92 value code and the amount. The commenter recommended that where 50 percent or more of the APC is attributable to packaged device cost, CMS should obtain actual device information and use it to determine if APC cost calculations are reasonable.

Response: We do not believe the imposition of an additional reporting requirement would be effective. Such a requirement would be both burdensome and unlikely to provide the actual hospital acquisition cost because hospitals have the ability to reflect general rebates and discounts on a per device basis.

Comment: One commenter asked that we make separate payments for CRT-Ds (pacemaker-defibrillators) for which there was a new technology add-on payment under the IPPS for FY 2005, so that payment for this service under the IPPS and the OPPS would be better aligned.

Response: CRT-Ds were paid on a pass-through basis under the OPPS in CYs 2001 and 2002. Their OPPS pass-through status expired in CY 2003 and their component services were packaged into clinical APC 0107 (Insertion of Cardioverter-Defibrillator) and APC 0108 (Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads) and. Accordingly, no separate additional payment is appropriate for these devices.

After carefully reviewing the comments, considering the APC Panel recommendations and examining the claims data, we are adjusting the medians for device-dependent APCs based on comparison of the CY 2005 median costs and the CY 2004 final payment median costs. Specifically, we decided to set the median costs for these Start Printed Page 65753APCs at the higher of the CY 2005 median cost from our claims data or 95 percent of the CY 2004 final adjusted median cost used to set the payment in CY 2004 rather than 90 percent of the CY final adjustment median cost as we proposed.

We believe that this adjustment methodology provides an appropriate transition to eventual use of all single bill claims data without adjustment, and that the methodology moves us towards the goal of using all single bill data without adjustment by CY 2007. It is a simple and easily understood methodology for adjusting median costs. Where reductions occur compared to CY 2004 OPPS, we believe that, under this methodology, the reductions will be sufficiently modest that providers will be able to accommodate them without ceasing to furnish services that Medicare beneficiaries need.

In addition, beginning in CY 2005, as proposed, we are requiring hospitals to bill all device-dependent procedures using the appropriate C-codes for the devices. We believe that this approach mitigates against the reduction of access to care while encouraging hospitals to bill correctly for the services they furnish. We intend this requirement to be the first step towards use of all available single bill claims data to establish medians for device-dependent APCs. Our goal is to use all single bills for device-dependent APCs in developing the CY 2007 OPPS, which we expect to base on data from claims for services furnished in CY 2005. We further discuss our coding requirement in section III.C.4. of this preamble.

Table 18 below, which is sorted by APC, contains the CY 2004 OPPS payment medians, the CY 2005 OPPS final adjusted medians using single bill claims from January 1, 2003, through December 31, 2003), and the medians derived from the adjustment processes discussed further below.

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We also note that as a result of our initial data analysis for device-dependent APCs, we proposed to make the following additional adjustments to specific device-dependent APCs for the reasons specified:

a. APC 0226: Implantation of Drug Infusion Reservoir

We proposed to remove APC 0226 (Implantation of Drug Infusion Reservoir) from the list of device-dependent APCs and to use its unadjusted single bill median of $2,793.30 as the basis for the payment weight. CPT code 62360 (Implantation or replacement of device for intrathecal or epidural drug infusion, subcutaneous reservoir) is assigned to APC 0226. In CY 2002, when we packaged 75 percent of the cost of the device into the payment for the procedure with which the device was billed to reduce the pro rata adjustment, we inadvertently packaged the cost of an implantable infusion pump (C1336 and C1337) rather than that of a drug reservoir. Our data indicated that the reservoir used in performing CPT code 62360 costs considerably less than an implantable infusion pump, and we believe that the median cost for APC 0226 appropriately reflects the relative cost of the service and the required device.

We did not receive any public comments on this proposal. Accordingly, we have removed APC 0226 from the device-dependent APC list and used its unadjusted single bill median of $2,541.43 as the basis for its CY 2005 relative payment weight.

b. APC 0048: Arthroscopy With Prosthesis

In addition, we proposed to delete APC 0048 (Arthroplasty with Prosthesis) from the list of device-dependent APCs for CY 2005 and to not adjust the median costs for this APC because we believe that the CY 2005 median cost for this APC as restructured is reasonable and appropriate. Based on our careful analysis of the CY 2003 claims data for this APC, we believe the difference between the CY 2004 and CY 2005 median cost is attributable to the migration of certain high cost CPT codes (23470, 24361, 24363, 24366, 25441, 25442, 25446) from APC 0048 to new APC 0425 (Level II Arthroplasty with Prosthesis) and, as such, this change would not adversely limit beneficiary access to this important service. Therefore, we did not propose to apply a device-dependent adjustment to the median cost for APC 0048.

We did not receive any public comments on this proposal. Accordingly, for CY 2005 we are removing APC 0048 from the device-dependent list and are not adjusting the median cost for this APC.

c. APC 0385: Level I Prosthetic Urological Procedures

We proposed to move CPT code 52282 (Cystourethroscopy, insert urethral stent), from APC 0385 (Level I Prosthetic Urological Procedure) and assign it to APC 0163 (Level IV Cystourethoscopy and other Genitourinary Procedures), for clinical homogeneity. As titled, APC 0385 was intended for the assignment of certain urological procedures that require the use of prosthetics. However, CPT code 52282 requires the use of a stent rather than a urological prosthetic. Therefore, we proposed to reassign CPT code 52282 to APC 0163. Recalculation of the median cost for APC 0385 after reassigning CPT code 52282 yielded a median cost for that APC that is consistent with its CY 2004 median payment. Thus, we did not propose a device-dependent adjustment for the median cost for APC 0385.

Comment: Some commenters asked that we keep CPT code 52282 in APC 0385 and not move it to APC 0163. These commenters believed that placement of CPT code 52282 in APC 0385 would maintain clinical coherence and resource similarity. They also supported the APC Panel's recommendation that all three codes, which we proposed to move from APC 0385 to 0386 (CPT codes 53440, 53444, and 54416) should be retained in APC 0385 for CY 2005 OPPS because they are dissimilar in terms of the nature of the surgical procedure and the sophistication of the prosthetic urology device that is implanted.

Response: We have moved CPT code 52282 from APC 0385 to APC 0163 because we believe that this service is more compatible from a clinical and resource perspective with the other cystourethroscopy services assigned to APC 0163 than with services assigned to APC 0385. We have retained CPT codes 53440 and 53444 to APC 0385 because the median costs for these procedures in the CY 2003 data that were used to develop this final rule with comment period indicate that the resources required for them are similar to those for CPT code 54400, which is also assigned to APC 0385. However, we have placed CPT code 54416 in APC 0386 because the median cost shows that the resources are much more like those for services assigned to APC 0386 than the median costs for services in APC 0385. CPT code 54416 requires removal and replacement of a non-inflatable or inflatable prosthesis and our resource data demonstrate relatively high costs for the service, most typically associated with replacement of an inflatable prosthesis. Thus, the nature of the services are sufficiently similar such that CPT code 54416 is clinically coherent with the services in APC 0386.

d. APC 0119: Implantation of Infusion Device and APC 0115: Cannula/Access Device Procedures

We proposed to remove CPT code 49419 (Insert abdom cath for chemo tx), from APC 0119 (Implantation of Infusion Pump) and assign it to APC 0115 (Cannula/Access Device Procedures) to achieve clinical homogeneity within APC 0115. Unlike all the other codes assigned to APC 0115, HCPCS code 49419 does not require the use of an infusion pump. Rather, this code is used when inserting an intraperitoneal cannula or catheter with a subcutaneous reservoir. Thus, we believed it would be more appropriate clinically to reassign HCPCS code 49419 to APC 0115 that includes procedures that require the use of devices similar to that required for CPT code 49419.

Comment: One commenter recommended that we move the CPT code 36260 (Insertion of infusion pump) and CPT code 36563 (Insert tunneled cv catheter) from APC 0119 to APC 0227 (Implantation of Drug Infusion Device), which is also for implantation of infusion pumps. The commenter indicated that all of these services are for implantation of infusion pumps and that the external cost data on the pumps are not dissimilar.

Response: We have not combined the codes in these APCs because they are not clinically homogeneous. Specifically, the services in APC 0227 are for the insertion of spinal infusion pumps and those in APC 0119 are for insertion of vascular infusion pumps. We see no clinical reason to move these codes as suggested by the commenter.

2. Treatment of Specified APCs

a. APC 0315: Level II Implantation of Neurostimulator

As stated in the August 16, 2004 proposed rule, CPT code 61866 (Implant neurostim arrays) was brought to our attention by means of an application for a new device category for transitional pass-through payment for the Kinetra® neurostimulator, a dual channel neurostimulator currently approved and used for Parkinson's disease. We denied approval for a new device category for the Kinetra® neurostimulator because the device is described by a previously Start Printed Page 65757existing category, C1767 (Generator, neurostimulator (implantable)).

The manufacturer of Kinetra® stated that the AMA created CPT 61886 to accommodate implantation of the Kinetra® neurostimulator and that no services other than implantation of the Kinetra® are currently described by that CPT code. Even though the Kinetra® did not receive full FDA pre-market approval until December 2003, hospital outpatient claims were reported in CYs 2002 and 2003 (289 total claims in CY 2003) for this device. The manufacturer asserted that these claims must have been miscoded because the Kinetra® could not have been used in performing CPT code 61886 before obtaining FDA approval in December 2003. Therefore, the manufacturer did not believe that the device cost could be included in the median for CPT code 61886, which has been assigned to APC 0222.

In examining the CY 2003 claims for CPT code 61866, we noted that many of the claims also contained codes for procedures related to treatment with cranial nerve stimulators, including the placement of electrodes for cranial nerve stimulation. The placement of the cranial neurostimulator electrodes used with the Kinetra® is currently an inpatient rather than outpatient procedure. Therefore, we would not expect patients being prepared for cranial nerve stimulation to also have a Kinetra® neurostimulator for deep brain stimulation for Parkinson's disease placed at the same time. Thus, it seems possible that the CY 2003 claims for CPT code 61886, generally, are incorrectly coded and do not include the dual chamber neurostimulator in the reported charges.

Prior to the availability of the dual channel neurostimulator Kinetra® for bilateral deep brain stimulation, it is our understanding that patients diagnosed with Parkinson's disease had two single channel neurostimulator generators implanted in the same operative session. According to the Kinetra® manufacturer, this device will now replace the insertion of two single channel neurostimulators and the cost of the Kinetra® is equivalent to the cost of two single channel neurostimulators. Given this information, we examined our CY 2003 claims data and found that 69 single claims were reported for patients with a diagnosis of Parkinson's disease and that 2 single channel neurostimulator pulse generators (CPT code 61885) were implanted on the same day. The median cost for these claims was $20,631. Other than the device costs, we believe the procedural costs for the insertion of two single channel devices or one dual channel device should be roughly comparable. Therefore, we proposed to establish a new APC 0315, Level II Implantation of Neurostimulator, for CPT code 61886, and assign it a median cost of $20,631. Because of our concern that hospitals correctly code OPPS claims for CPT code 61886, we also proposed to require device coding (C-code) for APC 0315 to improve the coding on all claims for placement of a dual channel cranial neurostimulator pulse generator or receiver, as we proposed for APC 0039, Implantation of Neurostimulator, for placement of a single channel cranial neurostimulator, discussed in section III. C. of this preamble.

Comment: We received one comment in support of our proposed median cost for APC 0315.

Response: We appreciate the commenter's support. Accordingly, we are finalizing our CY 2005 proposal to assign CPT code 61886 to APC 0315 with an assigned median cost of $20,633.70.

b. APC 0651: Complex Interstitial Radiation Application

For CY 2003, APC 0651 included CPT code 77778 (Complex interstitial radiation source application). This code was not to be used for prostate brachytherapy because we created HCPCS codes G0256 (Prostate brachytherapy with palladium sources) and G0261 (Prostate brachytherapy with iodine sources) in which we packaged the cost for placement of needles or catheters and sources into a single APC payment for each G code (67 FR 66779). When we calculated the median from all single bills for CPT code 77778 from CY 2003 data for CY 2005 OPPS, we found that 73 percent of the single bills for this APC were for prostate brachytherapy and, therefore, were miscoded. The median for APC 0651, using all single bills, including those miscoded for prostate brachytherapy, was $2,641.67. When we removed the incorrectly coded claims for prostate brachytherapy, which we believed to contain brachytherapy sources and which are paid separately for CY 2004 and will be paid separately for CY 2005, the median was $1,491.39. This is the amount that we proposed for payment for CY 2005 OPPS for APC 0651. The proposed median was considerably higher than the median cost of $589.72 for CY 2004 OPPS (from CY 2002 claims data).

We believed that this adjusted median was appropriate for APC 0651 when used for prostate brachytherapy because the service described by CPT code 77778 is only one of several components of the payment for the service in its entirety. When it is used for prostate brachytherapy, hospitals should also bill for the placement of the needles and catheters using CPT code 55859 and should also bill the brachytherapy sources separately. Hospitals will be paid for both APCs and for the cost of sources.

Section 621(b)(1) of Pub. L. 108-173 specifically provides separate payment in CY 2005 “* * * for a device of brachytherapy, consisting of a seed or seeds (or radioactive source) * * *” at the hospital's charge adjusted to cost. We proposed to package the cost of other services such as the needles or catheters into the payment for the brachytherapy APCs and not to pay on the same basis as the brachytherapy sources because the law does not include needles and catheters in its definition of brachytherapy sources to be paid on charges adjusted to cost.

We also recognized that APC 0651 is used for brachytherapy services other than prostate brachytherapy and that, in some of those cases, there are no other separate procedure codes for placement of the needles or catheters. In those cases, which are represented in the claims we used to calculate the proposed median (once the miscoded claims for prostate brachytherapy were excluded), we believed that the charges for CPT code 77778 may have included the placement of the needles or catheters and, therefore, the median may be somewhat overstated when used as the basis for payment for prostate brachytherapy and the other forms of brachytherapy that have procedure codes for placement of needles and catheters. Similarly, we believed that the median may be understated when used to pay for brachytherapy services for which there are no separate HCPCS codes for needle or catheter placement. We considered whether to create new G codes for the placement of catheters and needles for the brachytherapy services for which such codes do not exist, but we were concerned that doing so might create unneeded complexity and that the existing data may not support establishing medians for the new codes. We requested comments on how to address those services for which there are currently no HCPCS codes for placement of needles and catheters for brachytherapy applications.

Comment: Commenters indicated that the absence of codes for brachytherapy needle/catheter placement is problematic because hospitals are forced to use existing “not otherwise classified” codes that makes claims analysis difficult for ratesetting. They asked that we create three “not otherwise classified” HCPCS codes for the placement of needles and catheters Start Printed Page 65758for application of brachytherapy sources other than prostate brachytherapy so that they can be billed and paid appropriately. Specifically, they asked (1) that CMS create a code for 1-4 needles/catheters and place it in APC 1507; (2) that CMS create a code for placment of 5-10 catheters and place it in New Technology APC 1513; and (3) that CMS create a new code for more than 10 needles/catheters and place it in New Technology APC 1522.

Response: We have not created HCPCS codes for needle/catheter placement for CY 2005 as suggested by the commenters. We do not believe that the requested new, “not otherwise classified” codes would be any more meaningful for OPPS ratesetting than the existing “not otherwise classified” codes.

As explained in the November 30, 2001 final rule (66 FR 59897), new Technology APCs are for complete procedures, not devices or drugs or biologicals, but such items may be part of the cost of the complete service. To qualify for OPPS payment under the new technology APCs, a service must meet the following criteria:

  • Service must be a complete service.
  • Service must not be described by an existing HCPCS code or combination of codes.
  • Service could not have been adequately represented in the claims data used for the most current annual OPPS payment update.
  • Service does not qualify for additional payment under pass-through payment provisions.
  • Service cannot reasonably be placed in an existing APC group that is appropriate in terms of clinical characteristics and resource costs.
  • Service is medically reasonable and necessary.
  • Service falls within scope of Medicare benefits.

Processes and requirements for pass-through and new technology service APC applications are provided in more detail on the OPPS Web site: http://www.cms.hhs.gov/​poviders/​hopps/​.

Implicit in the criteria is that there exists a meaningful description of the services for which new technology status is being requested. We do not believe the “not otherwise classified” codes proposed by the commenters are sufficiently specific that they could satisfy the criteria. We believe that CPT already contains sufficient “not otherwise classified” codes for the coding of placement of brachytherapy needles and catheters in locations of the body for which specific codes do not now exist. We are unable to specify the “not otherwise classified” codes that should be used because the “not otherwise classified” codes are generally categorized by body part or function, and, therefore, the code that would apply depends on the location in the body in which the needles and catheters are being placed. For example, placement of needles or catheters in a shoulder muscle would be coded differently from placement of needles or catheters in the pancreas.

Comment: Some commenters supported the proposed payment for APC 0651 (Complex Interstitial Radiation Source Application). They indicated that, together with separate payment for the brachytherapy sources and the placement of needles and catheters, the proposed payment would provide adequate payment for these important services.

Response: We appreciate the commenters' support. Further discussion regarding the payment for APC 0651 is provided at III.C.2.b.

Comment: One commenter indicated that there are many supplies and devices other than needles and catheters that are used in providing brachytherapy and asked that CMS develop codes for them so that they could be billed as coded items because such coding would facilitate capture of all the costs associated with performing the services.

Response: We have not created new device codes for the supplies and equipment that the commenter requested because such items are incidental to the service. We do not believe that such incidental items justify development of new device codes.

In this final rule with comment period, the median cost for APC 0651 is $1,283.44, resulting in a national unadjusted payment rate of $1,248.93. There were fewer CY 2003 final action claims for this service in the database that was constructed from the most current claims data and used to develop the weights and median costs for this final rule with comment period. Twelve hospitals whose claims had appeared in the CY 2003 claims data used to calculate the proposed weights and median costs withdrew their claims before we pulled the data for this final rule with comment period. This may have been because they realized that they had billed incorrectly and withdrew the claims to bill correctly.

Our examination of the claims data set for this final rule with comment period reveals that the claims largely appear to not include charges for brachytherapy sources. The unadjusted median cost that resulted from use of these claims is $1,283.44, a 117 percent increase over the median cost for CY 2004 for this APC. As we noted previously, the median should reflect accurately the appropriate claims for the APC. We have no reason to believe that this median is flawed. Therefore, we have used it as the basis for the CY 2005 OPPS unadjusted payment rate of $1,248.93.

c. APC 0659: Hyperbaric Oxygen Therapy

In the August 16, 2004 proposed rule, we stated that over the past year, we have received a number of questions about billing and payment for HCPCS code C1300 (Hyperbaric oxygen under pressure, full body chamber, per 30 minute interval). In light of these issues, we carefully examined the CY 2003 single procedure claims data that we proposed to use to calculate the CY 2005 median for APC services. Based on our examination of single procedure claims filed for HCPCS code C1300 in CY 2003, we believe that the claims for these services were either miscoded or the therapy was aborted before its completion. The claims that we examined reflected a pattern that is inconsistent with the clinical delivery of this service. Hyperbaric oxygen therapy (HBOT) is prescribed for clinical conditions such as promoting the healing of chronic wounds. It is typically prescribed on average for 90 minutes and, therefore, you would expect hospitals to bill multiple units of HBOT to achieve full body hyperbaric oxygen therapy. In addition to the therapeutic time spent at full hyperbaric oxygen pressure, treatment involves additional time for achieving full pressure (descent), providing air breaks to prevent neurological and other complications from occurring during the course of treatment, and returning the patient to atmospheric pressure (ascent). Our examination of the claims data revealed that providers who billed multiple units of C1300 reported a consistent charge for each “30 minute” unit. Conversely, providers who billed only a single unit of C1300, suggesting either a miscoded or aborted service, reported a charge that was 3 to 4 times greater than the per “30 minute” unit reported by providers billing multiple units of HCPCS code C1300. While it appears that many of the single procedure HBOT claims that we examined represented billing for a full 90 to 120 minutes of HBOT (including ascent, descent, and air break time), they were improperly billed as 1 unit rather than as 3 or 4 units of HBOT. Consequently, this type of incorrect coding would result in an inappropriately high per 30 minute median cost for HBOT or a median cost Start Printed Page 65759for HBOT of $177.96 derived using single service claims and “pseudo” single service claims. This is a significant issue because HBOT is the only procedure assigned to APC 0659.

Our initial analysis of the HBOT claims data further revealed that about 40 percent of all HBOT claims included packaged costs. To confirm our belief that these packaged costs were not associated with HBOT, we examined the other major payable procedures billed in conjunction with HBOT. As a result, we identified billed services such as drug administration and wound debridement that we would typically expect to have associated packaged services. We also looked at the magnitude of packaged costs in our single bills and found the majority of these costs were small, less than $30, and concentrated in revenue codes 25X, Pharmacy, and 27X, Medical/Surgical Supplies.

As a result of these coding anomalies, we proposed to calculate a “30 minute” median cost for APC 0659, using a total of 30,736 claims containing multiple units or multiple occurrences of HBOT, about 97 percent of all HBOT claims. Based on our finding, we proposed to exclude claims with only one unit of HBOT. We estimated costs on these claims using the respiratory therapy cost center CCR when one was available. Otherwise we used the hospital's overall CCR. Using this proposed methodology, the proposed median cost per unit of C1300 was $82.91. Based on hospitals' charges on correctly coded claims, we believe this estimate is much more accurate for 30 minutes of HBOT. Thus, we proposed a median cost for APC 0659 of $82.91 for CY 2005.

We received many public comments on this proposal.

Comment: Overall, commenters expressed concern about the proposed reduction in payment for HBOT. There also was great consistency in the comments. Almost all the commenters cited a recent research report by The Lewin Group (Lewin) that examined our methodology for calculating a payment rate for APC 0659 and offered us several alternatives for identifying a median for HBOT. In their evaluation of our proposed change for calculating a median for HBOT, The Lewin Group ultimately concluded that, while our proposed use of claims with multiple units of C1300 in lieu of the clams with a single unit of C1300 was appropriate for calculating the median cost, we used an inappropriate cost-to-charge ratio to estimate costs from charges on those multiple unit claims.

Lewin surveyed the majority of hospitals billing Medicare for HBOT, requesting specific pages from each hospital's cost report to determine where HBOT services are reported and the associated CCR. Lewin received completed responses from 120 hospitals, a 30 percent response rate. The majority of responding hospitals, 63 percent, frequently broke out the costs of hyperbaric/wound care in a subscripted cost center on their cost report. In addition, 24 percent included their costs in the respiratory therapy cost center, and the remainder included their costs in disparate cost centers including emergency room and physical therapy. For those hospitals reporting separate line-items for hyperbaric/wound care, Lewin used CMS claims data to estimate a median CCR of 0.400 as compared with the median CCR for respiratory therapy of 0.248. Lewin also sought to establish the generalizability of their sample findings by demonstrating that responding hospitals were geographically diverse and that the respiratory therapy CCR for the responding hospitals was comparable to that observed in the claims data. Finally, Lewin used their survey findings to estimate a proportional difference in CCRs between respiratory therapy and the observed, hyperbaric-related CCRs of 1.411 and, applying this adjustment to the CMS claims data, they calculated a payment rate of $118.21.

Practically all commenters offered four possible alternatives to our proposed methodology. First, commenters suggested that CMS leave HBOT reimbursement at its CY 2004 level until CMS can accurately estimate costs and charges for HBOT. Second, commenters suggested that CMS apply The Lewin Group methodology in estimating median cost. Third, commenters suggested that CMS adopt The Lewin Group's estimated median of $118.21 per 30 minutes. With regard to this specific recommendation, several commenters stated that they thought that the $118 rate was appropriate, and one commenter believed a rate of $120 or greater would be acceptable. Finally, commenters suggested that CMS default to the overall CCR of 0.47 in lieu of using the respiratory therapy CCR.

Response: We agree with the commenters that The Lewin Group analysis provides sufficient evidence that the CCR for HBOT is not reflected solely in the respiratory therapy cost center. With regard to the first recommended alternative, we do not believe it is appropriate to maintain the CY 2004 HBOT payment rate for CY 2005. We have clearly demonstrated that the single procedure claims are inappropriate for calculating a median cost, and the submitted research did not dispute our median calculation methodology. We cannot undertake the recommended second alternative and replicate The Lewin Group's methodology because the hyperbaric/wound care cost report cost center line-items are neither standard nor non-standard cost centers. We presume that these line-items for hyperbaric/wound care are subscripted cost centers that are ultimately rolled-up in to a standard cost center on the electronic cost report data. Without the specific subscripted information, we cannot calculate a cost-to-charge ratio specific to HBOT.

We also do not believe it is appropriate to adopt the $118.21 estimate made by Lewin using its survey results and our data, the third recommended alternative. The Lewin survey indicates diversity among hospitals in the subscripted location of reported hyperbaric oxygen costs on the cost report. In addition, the $118.21 is based on an adjustment to the CCR that assumes all nonresponding hospitals report their costs in the hospital-specific hyperbaric oxygen-related cost centers, even though roughly one-fourth of hospitals in the Lewin sample were demonstrated to report costs in the respiratory therapy cost center and 13 percent reported costs in other cost centers. The submitted research further indicates fairly substantial variation in the CCRs for the responding hospitals in the HBOT-related cost centers. In light of this, we agree to adopt the last recommended alternative, which is to calculate the median using the overall CCR. As several commenters noted, defaulting to the hospital's overall CCR is standard OPPS policy when an appropriate cost center cannot be assigned to a revenue code. We estimate an overall, hospital-weighted, median CCR for all hospitals of 0.33 and a hospital-weighted, median CCR for respiratory therapy for all hospitals of 0.27. Using the overall CCR to estimate costs from charges associated with HCPCS code C1300, we calculated a median cost of $93.26 using 38,505 claims in the final rule data. We used this median to set the final CY 2005 payment for APC 0659.

Comment: One commenter conducted an internal study of 11 member hospitals and reported a median total cost of $126.42. The study findings acknowledged that we found billing anomalies in the claims with single units, but noted that our proposed approach will have unintended financial consequences. The commenter requested that we review our claims data to ensure HBOT rates that reflect the full cost of providing HBOT services. Start Printed Page 65760

Response: As discussed above, we agree that the proposed cost for HBOT was too low because it relied solely on the respiratory therapy CCR. However, based on the volume and consistency of claims for HBOT, we still believe that the claims data are correct. As already discussed, we will base payment for HBOT on a median calculated using the overall hospital CCR. Further, the purpose of OPPS is not to pay the full cost of a service for any given hospital, but rather to proportionally redistribute total OPPS dollars in a manner that reflects relative resource use. APC payment rates are based on the median cost of a group of services, or in this case, one service, to achieve the averaging effect of a prospective payment system and are not intended to reimburse the full cost to a specific hospital. The costs for these 11 member hospitals may fall above the median cost for all hospitals billing HBOT.

Comment: One commenter reviewed CMS claims with multiple units and found an overall average of 15 units of HBOT per claim. This commenter recommended that CMS review a sample of medical records.

Response: We expect that this finding is the result of outlier claims and unit coding errors. In our analyses of HBOT claims for the proposed rule, we found that the vast majority of claims, 93 percent, were for 3 to 5 units of service. Further, The Lewin Group analysis reviewed above did not dispute the appropriateness of using claims with multiple units for calculating a median cost. As discussed above, we believe that the appropriate concern in estimating a median cost for HBOT is the disparity in charging and cost reporting practices among hospitals and not with the claims themselves, a finding that mitigates the need for medical record review.

Comment: One commenter recommended that CMS continue to compile claims data on HBOT and refer this issue to the APC Panel before making changes.

Response: By using claims with multiple units, we believe that we have ample claims data. However, the APC Panel is an official public forum designed to consider and advise us on APC-related issues. If this is a particular concern to the public, the public is invited to present this concern at the next APC Panel meeting.

After carefully reviewing all comments received, we are basing payment for HBOT on a median calculated using the overall hospital CCR rather than the respiratory therapy CCR as proposed. As discussed above, using the overall CCR to estimate costs from charges associated with HCPCS code C1300, we calculated a final CY 2005 payment for APC 0659 of $90.75.

3. Other APC Median Cost Issues

a. APC 0312 Radioelement Applications

Comment: Some commenters stated that the payment rate for APC 0312 (Radioelement Applications) is inadequate to pay for the staff, supplies and appliances that are needed to furnish the service. The commenters further stated that the APC payment should be similar to that for APC 0651.

Response: The median for APC 0312 has increased significantly from the CY 2004 payment median of $199.90 to the CY 2005 OPPS final rule with comment period median of $326.65. Moreover, we were able to use 28 percent of the total claims in CY 2003 for this APC to set the median cost for the CY 2005 OPPS. Therefore, we see no reason to adjust the median for this APC to the level of APC 0651.

b. Percutaneous Radiofrequency Ablation of Liver Tumors

Comment: Some commenters objected to the proposal to move CPT code 47382 (Percutaneous radiofrequency of liver tumors), from a New Technology APC to clinical APC 0423 (Level II Percutaneous Abdominal and Biliary Procedures) because they believe that there is an inadequate number of claims on which to base median costs, and that median costs are inappropriately low because device costs associated with performing this procedure are underreported. They indicated that the proposed reimbursement does not cover the costs of the single use catheters used in performing the service. The commenters stated that revenue codes should be used to screen for appropriately coded claims. They contended that if CMS cannot complete this analysis for this final rule with comment period, CMS should retain CPT code 47382 in a new technology APC at the CY 2004 payment rate until more representative cost data are available. They argued that this latter approach is consistent with how CMS has handled APC payments for PET services since CY 2001. The commenters also recommended that CPT codes 76362 (CT guidance for and monitoring of visceral tissue ablation), 76394 (Magnetic resonance imaging for and monitoring of visceral tissue ablation), and 76940 (Ultrasound guidance for and monitoring of visceral tissue ablation) be added to the bypass list so that more single bills could be used to set the median for CPT code 47382.

Response: We believe that the claims volume is sufficiently adequate to remove CPT code 47382 from New Technology APC 1557 and place it in a clinical APC. Moreover, the median cost, $1,801.84, derived from the CY 2003 claims data for APC 0423, is very close to the payment that was made for New Technology APC 1557 of $1,850. Therefore, as proposed, this service will be placed in clinical APC 0423 and paid based on its historic claims data for services furnished for the CY 2005 OPPS.

In addition, the three CPT codes that the commenter recommended we add to the bypass list do not meet the CY 2005 criteria for inclusion on the list. However, we will consider their inclusion when we next review items for inclusion in CY 2006.

c. Heparin Coated Stents

Comment: One commenter objected to CMS' policy that heparin coated stents should be coded under C1874 (Stent, coated/cov w/del sys) because the commenter believes that to do so will adversely affect the median cost of the stents. The commenter urged us to create a unique C-code if HCPCS codes G0290 and G0291, which are used for placement of drug eluting stents, are retired.

Response: HCPCS codes G0290 and G0291 will remain active codes for CY 2005 and we see no reason to create another C-code at this time. We will determine whether there is a need for another C-code to differentiate between stents if and when HCPCS codes G0290 and G0291 are retired.

d. Aqueous Drainage Assist Device

Comment: One commenter asked that CMS ensure that the costs of code C1783 (Aqueous drainage assist device) are packaged with the costs of the procedures with which the device is most commonly billed. The commenter stated that codes C1783, L8610 and L8612 would usually be billed with procedures that are in APC 0673.

Response: We package the costs of devices that are billed on the same claim with the procedural APCs into the cost of the procedural APC. Thus, the extent to which the costs of these devices are packaged into the median cost for the procedure depends upon the extent to which the hospitals include the charges for the devices on the claim, with or without including the code for the device. To the extent that hospitals included charges for these devices on the claims for the procedures in which they were used, those charges would be converted to costs and packaged into the median cost for the procedure. Start Printed Page 65761

4. Required Use of C-Codes for Devices

An important ancillary issue in regard to using hospital outpatient claims data to calculate median costs for a device-dependent APC is whether to require that hospitals bill the HCPCS codes for the devices that are required for use in the provision of the services in these APCs. We deleted HCPCS codes for devices in CY 2003 because hospitals objected to the complexity of this coding, and we believed that hospitals would charge for the devices in appropriate revenue codes. Our review of the claims data does not support this belief. Hospitals do not appear to routinely include the charges for the devices they use when they bill for all of the related services in the device-dependent APCs. Therefore, as discussed in the August 16, 2004 proposed rule, we proposed requiring hospitals to code devices for APCs to improve the quality of the claims data in support of our transition to the use of all single claims to establish payment rates for those APCs. We made this proposal cautiously, as we realize that it imposes a burden on hospitals to code the devices.

For the CY 2005 OPPS, we proposed to require coding of devices required for APCs for which we proposed to adjust the median costs for the CY 2005 OPPS. The APCs and the devices that were proposed for device coding were published in Table 20 of the August 16, 2004 proposed rule (69 FR 50497 through 50499). Specifically, if one device is shown for one APC, that device would have to be billed on the claim for a service in that APC or the claim would be returned to the provider for correction. If more than one device is shown for one APC, the provider would be required to bill one of the device codes shown on the same claim with the service in that APC for the claim to be accepted.

We also proposed to require coding of C1900 (Left ventricular lead) required to perform the service described in APC 0418, Left Ventricular Lead, because the service cannot be done without the lead, and because the device has been billed separately for pass-through payment in CYs 2003 and 2004. We believe that continued coding of the device would not impose a burden on hospitals. Similarly, because of our concerns regarding the correct coding of claims for CPT code 61886 (Implant neurostim arrays), assigned to APC 0315 (discussed in greater detail in section III.C.2.a. of this preamble), we proposed to require device coding for APC 0315 (Level II Implantation of Neurostimulator) to improve the coding on claims for placement of a dual channel cranial neurostimulator pulse generator or receiver, just as we proposed to require device coding for APC 0039 (Implantation of Neurostimulator) for placement of a single channel cranial neurostimulator as noted below.

We solicited comments on the proposed C-code requirements.

In addition, we announced in the proposed rule that we are considering expanding the device coding requirements in the future. We believed that, by requiring device coding for a small subset of device-dependent APCs each year, we would minimize the marginal annual coding burden on hospitals and begin to improve data for these APCs, which have consistently proven to be problematic. We believed coding of devices was essential if we were to improve the accuracy of claims data sufficiently to better calculate the correct relative costs of device-dependent APCs in relation to the other services paid under the OPPS.

We asked that the public inform us of the device codes that are essential to the procedures contained in the device-dependent APCs listed in Table 20 of the proposed rule. The alphanumeric HCPCS codes for devices that were reactivated for CY 2004 OPPS can be found on the CMS Web site at http://www.cms.hhs.gov/​providers under coding. They are in the section of alphanumeric codes that begin with the initial letter “C.”

We received a number of comments regarding our request.

Comment: In general, commenters supported a requirement for mandatory device coding for all devices, not only those for which CMS proposed mandatory reporting. However, they had different views regarding what the requirement should contain and how it should be enforced. Some commenters asked that we require that all procedures for device-dependent APCs contain a C-code to identify the device used in the procedure. They indicated that they believed that this requirement is crucial to acquiring valid cost data for these services. Some commenters were concerned about the administrative burden that required C-coding imposes on hospitals and urged CMS to reassess the burden within 2 years if it imposes mandatory C-coding for devices. Other commenters urged CMS to implement a grace period of no less than 90 days after implementation of the CY 2005 OPPS to enable hospitals to be sure that they are prepared for device code edits. During this period, the commenters wanted intermediaries to accept the codes and not return incorrectly coded claims. The commenters indicated that the edits should be included in this final rule with comment period so that hospitals can begin to work on them as soon as possible. Those commenters suggested that the device codes for which edits will not be implemented in CY 2005 should not be required until CY 2006. The commenters indicated that both OCE and intermediary systems must be ready to handle this change, and that no edits should be implemented if they are not and if providers have not had at least 30 days notice. Some commenters urged CMS to base any edits or list of required device codes on CPT codes, not APCs, because in some cases, not all codes in an APC require the same device. One commenter objected to the use of edits to return to providers claims that contain a procedure code that cannot be done without a device but which contain no device code. The commenter indicated that CMS has been inconsistent in its policies governing coding of devices since the inception of the OPPS and should provide some greater period of stability in coding before it edits for the presence of the device codes.

Response: We appreciate the comments, but continue to believe coding of devices is vital to enhancing the device-dependent APC claims data. Therefore, as proposed, effective for services provided on or after January 1, 2005, we will require hospitals to include device category codes on claims when such devices are used in conjunction with procedures billed and paid for under the OPPS. While we are requiring use of these device codes for reporting all such devices effective January 1, 2005, we will not implement the edits contained in Table 19 until April 1, 2005, to provide time for further review and for hospitals to prepare for them. The edits will not apply to claims that contain a procedure code reported with a modifier 73 or 74 to signify an interrupted procedure because we recognize that in those cases, the procedure might have been interrupted before the device was implanted.

We will apply the edits at the CPT/HCPCS code level to be as precise as possible. Table 19 includes the edits that we expect to go into effect April 1, 2005. The table of edits and the definitions of the C-codes (Table 20 of this preamble) will be posted on the CMS Web site on the OPPS page. As noted on Table 19, there are some CPT codes for which edits cannot be established, for example, because of the optional nature of the use of a device when performing the service. Although there is no official comment period Start Printed Page 65762associated with implementation of the edits, we welcome comments on the edits to be implemented on April 1, 2005, particularly from hospitals to whose claims the edits will apply and from medical specialties whose physicians use the devices in the procedures performed in hospital outpatient settings. Comments may be sent to OutpatientPPS@cms.hhs.gov if possible, by December 1, 2004.

In the future, we will consider edits for additional procedure codes in other device-dependent APCs. We will post all final edits on the CMS Web site with an announcement of the calendar quarter in which we expect to implement them. We will also provide them in a Medlearn Matters article. Any future edits will be implemented as always as part of the quarterly OCE release. We intend to expand the editing of device-dependent procedure codes for appropriate device C-codes as expeditiously but also as carefully as possible. The next group of device procedures for which we will consider edits will include those procedures in APCs for which we set the median cost at 95 percent of the CY 2004 payment median but for which we did not propose edits in the August 16, 2004 proposed rule.

Comment: One commenter asked that CMS encourage manufacturers to put the applicable HCPCS device C-code on the device package and that CMS work with FDA to expedite placement of C-codes on device packages. The commenter also urged CMS to simplify the C-codes to be consistent with the information routinely reported by physicians in operative reports. The commenter gave, as an example, the seven device codes used with APC 0087 (Noncoronary Angioplasty or Atherectomy), all of which could be reported using only one code for “transluminal catheter”. The commenter stated that such simplification would greatly improve the likelihood that the device is coded on the claim because the description that distinguishes one of the seven codes from another is typically not documented in the hospital's record and is not information the coder would know. Other commenters asked that CMS actively undertake a program designed to educate providers on how to bill for devices and how to set charges for high cost devices so that future updates to the OPPS will more accurately reflect the costs of these services. Some commenters urged CMS to create and maintain a file on the CMS Web site that contains a complete crosswalk of devices codes to CPT codes in the device APCs. Some commenters asked that CMS provide a detailed revenue code to device code crosswalk so that hospitals will promote more uniformity in billing for devices.

Response: We will carefully examine how we can facilitate correct coding of devices, including possible communication with the FDA. We will also consider the extent to which we can simplify the HCPCS codes for devices to facilitate straightforward coding. Finally, we will determine the extent to which we can improve provider education regarding correct coding for devices. However, we will not undertake any activity designed to advise hospitals on how to set charges for their services or to designate what revenue codes hospitals should use on a device-specific basis.

The edits that we created to ensure the coding of devices for the selected APCs that are listed in Table 19 of this preamble are also available as an Excel file in the supporting documentation of this final rule with comment period that will be posted on the CMS Web site and will also be contained in the transmittals for the January 2005 OPPS update and OCE release. Moreover, as described above, we will post any added edits for device coding on the OPPS page of the CMS Web site so that providers can have ready access to them.

Comment: Some commenters asked that we add particular device and procedure combinations to the table of edits. Specifically, a commenter asked that we add APC 0259 (Cochlear Implant Surgery) as paired with device code L8614 (Cochlear implant), and APC 0040 paired with both device codes C1778 (Lead neurostimulator) and C1883 (Adapter/extension packing lead or neurostimulator lead). Another commenter asked that we add code C1787 (Patient programmer, neurostimulator) to the required devices for APC 0222. Another commenter asked that the same device codes be required for the CPT codes in APC 0087 as we proposed to require for APC 0085 because the commenter believes that the same devices are used in both APCs. Other commenters asked that we include edits for other APCs, for example, APC 0385 (Level I Prosthetic Urological Procedures) and APC 0386 (Level I Prosthetic Urological Procedures).

Response: Except as discussed below, we have not added any APCs to the list that we proposed be edited for device codes at this time. Although our policy to require hospitals to code all devices is effective January 1, 2005, we will not implement edits until April 1, 2005. We will consider the comments regarding additional edits for later implementation. We believe that it is preferable to focus first on the APCs most affected and to add subsequent edits after careful deliberation. In this manner we can minimize the potential for adverse effects on claims processing and hospitals' cash flow.

However, we have added one CPT code to the list of codes that will be edited for device codes. We inadvertently omitted a proposed edit for CPT code 33225 (Left ventricular pacing lead add-on), which we proposed to place in New technology APC 1525. This procedure uses the device code C1900 (Left ventricular lead), whose pass-through status expires in January 2005. We proposed that when the lead is implanted as a stand-alone procedure using CPT code 33224 (Insert pacing lead and connect), we would edit for the presence of the device code for the lead on the claim. However, we believe that it is also appropriate to edit for the presence of the lead on a claim for the add-on code, CPT code 33225, and that it should pose no additional burden on hospitals because hospitals have been required to bill the device code C1900 for pass-through payment since CY 2004.

Summary of provisions related to required use of C-codes for devices that we are making final beginning in CY 2005:

1. Hospitals are required to report device category codes on claims when such devices are used in conjunction with procedure(s) billed and paid for under the OPPS in order to improve the claims data used annually to update the OPPS payment rates.

2. Beginning April 1, 2005, the OCE will include edits to ensure that certain procedure codes are accompanied by an associated device category code.

3. CMS will post the OCE edits that are to be implemented beginning April 1, 2005 on the CMS Web site to give hospitals and the provider community ample opportunity to review them and provide feedback prior to implementation.

4. Edits will apply at the CPT/HCPCS code level rather than the APC level.

5. Edits will not apply when a procedure code is reported with a modifier −73 or −74 to designate an incomplete procedure.

6. CMS will add edits as needed in future quarterly updates of the OCE to ensure that hospitals are reporting device category codes appropriately with associated procedure codes. CMS will post future device category and procedure code edits on the CMS Web site to give hospitals and the provider Start Printed Page 65763community ample opportunity for input prior to implementation.

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5. Submission of External Data

In the August 16, 2004 proposed rule, we stated that we would consider external data submitted with respect to any APC to the extent that such data enable us to verify or adjust claims data where we are convinced that such an adjustment to the median cost is appropriate. Further, we stated that all comments and any data we use would be available for public inspection and commenters should not expect that any data furnished as part of the comment Start Printed Page 65770would be withheld from public inspection. We also stated that parties who submit external data for devices should also submit a strategy that can be used to determine what part of the median cost represents the device to which the external data applies. We stated in the proposed rule that external data that are likely to be of optimal use should meet the following criteria:

  • Represent a diverse group of hospitals both by location (for example, rural and urban) and by type (for example, community and teaching). We preferred that commenters identify each hospital, including location with city and State, nonprofit vs. for profit status, teaching vs. nonteaching status, and the percent of Medicare vs. non-Medicare patients receiving the service. A pseudo identifier could be used for the hospital identification. Data should be submitted both “per hospital” and in the aggregate.
  • Identify the number of devices billed to Medicare by each hospital as well as any rebates or reductions for bulk purchase or similar discounts and identify the characteristics of providers to which any such price rebates or reductions apply.
  • Identify all HCPCS codes with which each item would be used.
  • Identify the source of the data.
  • Include both the charges and costs for each hospital for CY 2003.

Meeting the criteria would help enable us to compare our CY 2003 claims data to the submitted external data and help us determine whether the submitted data are representative of hospitals that submit claims under the OPPS.

We noted in the proposed rule that information containing beneficiary-specific information (for example, medical records, and invoices with beneficiary identification on it) must be altered, if necessary, to remove any individually identifiable information, such as information that identifies an individual, diagnoses, addresses, telephone numbers, attending physician, medical record number, and Medicare or other insurance number. Moreover, individually identifiable beneficiary medical records, including progress notes, medical orders, test results, and consultation reports must not be submitted to us. Similarly, photocopies of checks from hospitals or other documents that contain bank routing numbers must not be submitted to us.

We received a number of public comments concerning the submission of external data.

Comment: Some commenters supported use of claims data and strongly opposed use of data from external sources to set the OPPS payment rates. They believed that claims data more accurately reflects the costs hospitals incur to provide outpatient services. They strongly opposed use of external data because they believe that item specific adjustments will make OPPS unduly complex and result in unfair imbalances in payments. They believed that CMS should remain committed to the principles of prospective payment and the use of the averaging process rather than seeking to pay actual cost for one element of costs (for example, new technology) at the expense of all other items, which would result after application of mandated budget neutrality adjustments. Conversely, other commenters indicated that CMS should rely on external data in lieu of claims data for procedures that require high cost devices because the CMS methodology of applying a cost-to-charge ratio to charges to acquire costs will always result in costs that are below the actual acquisition cost of the device and that, barring a significant change in CMS' cost finding process, external data are the only means by which valid cost data for high cost devices can be introduced into the OPPS. Some commenters provided external data on the devices of interest to them and some provided specific amounts calculated using external data, which they asked that we substitute for claims data in setting the weight for the APC of interest to them.

Response: We have not applied numbers from external data in our adjustments of median costs for the CY 2005 OPPS. While recognizing that external data aids in our general analysis of determining payment rates, we believe that generally such use of external data is not the optimal way to set payment rates for services in a relative weight system. As we discussed in section III.C.5. of this preamble, we believe that using external data has a significant potential for creating an unfair imbalance in a prospective payment system. However, we appreciate the efforts of some commenters in providing us with external data.

Comment: Some commenters urged us to use external data in the construction of APC rates and urged us to use confidential data for this purpose. Some commenters are concerned about the criteria CMS proposed for external data and urged us to expand the use of confidential external data to calculate future payment rates whenever such data are indicated and proven reliable based on the data's merits. The commenter did not suggest criteria for determining if confidential proprietary external data are reliable.

Response: As we indicated in the August 16, 2004 proposed rule, all information sent in response to comments will be made available to the public for review. We believe that all parties who are affected by the payment rates set under this system should have access to the information on which the rates are set.

Comment: One commenter indicated that CMS should use external data for all device APCs in which the device cost exceeds 5 percent of the total APC cost because to do otherwise would unfairly benefit some categories of services compared to other categories of services.

Response: We have not used external data to adjust any medians for the CY2005 OPPS. As discussed above, we applied the same adjustment rules to all device medians.

After carefully reviewing all public comments received, we have decided not to use any external data to adjust the median costs for the CY 2005 OPPS for the reasons discussed above.

D. Calculation of Scaled OPPS Payment Weights

Using the median APC costs discussed previously, we calculated the relative payment weights for each APC for CY 2005 shown in Addenda A and B to this final rule with comment period. As in prior years, we scaled all the relative payment weights to APC 0601 (Mid-Level Clinic Visit) because it is one of the most frequently performed services in the hospital outpatient setting. We assigned APC 0601 a relative payment weight of 1.00 and divided the median cost for each APC by the median cost for APC 0601 to derive the relative payment weight for each APC. Using CY 2003 data, the median cost for APC 0601 is $57.32 for CY 2005.

Section 1833(t)(9)(B) of the Act requires that APC reclassification and recalibration changes, wage index changes, and other adjustments be made in a manner that assures that aggregate payments under the OPPS for CY 2005 are neither greater than nor less than the aggregate payments that would have been made without the changes. To comply with this requirement concerning the APC changes, we compared aggregate payments using the CY 2004 relative weights to aggregate payments using the CY 2005 proposed relative weights. Based on this comparison, we proposed to make an adjustment to the weights for purposes of budget neutrality. The unscaled weights were adjusted by 0.984667135 for budget neutrality. The CY 2005 Start Printed Page 65771relative weights, which incorporate the recalibration adjustments explained in this section, are listed in Addendum A and Addendum B to this final rule with comment period.

Section 1833(t)(14)(H) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, states that “Additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion factor, weighting and other adjustment factors for 2004 and 2005 under paragraph (9) but shall be taken into account for subsequent years.” Section 1833(t)(14) provides the payment rates for certain specified covered outpatient drugs. Therefore, the incremental cost of those specified covered outpatient drugs (as discussed in section II.J. of this final rule with comment period) is excluded from the budget neutrality calculations but the base median cost of the drugs continues to be a factor in the calculation of budget neutrality. Accordingly, we calculated median costs for the specified covered outpatient drugs to which this section applies and used those medians and the frequencies in the calculation of the scaler for budget neutrality.

Under section 1833(t)(16)(C) of the Act, as added by section 621(b)(1) of Pub. L. 108-173, payment for devices of brachytherapy consisting of a seed or seeds (or radioactive source) is to be made at charges adjusted to cost for services furnished on or after January 1, 2004 and before January 1, 2006. As we stated in our January 6, 2004 interim final rule, charges for the brachytherapy sources will not be used in determining outlier payments and payments for these items will be excluded from budget neutrality calculations, consistent with our practice under the OPPS for items paid at cost. (We provide a discussion of brachytherapy payment issues at section VII.G. of this final rule with comment period.)

IV. Payment Changes for Devices

A. Pass-Through Payments for Devices

1. Expiration of Transitional Pass-Through Payments for Certain Devices

Section 1833(t)(6)(B)(iii) of the Act requires that, under the OPPS, a category of devices be eligible for transitional pass-through payments for at least 2, but not more than 3 years. This period begins with the first date on which a transitional pass-through payment is made for any medical device that is described by the category. In our November 7, 2003 final rule with comment period (68 FR 63437), we specified six device categories currently in effect that would cease to be eligible for pass-through payment effective January 1, 2005.

The device category codes became effective April 1, 2001, under the provisions of the BIPA. Prior to pass-through device categories, we paid for pass-through devices under the OPPS on a brand-specific basis. All of the initial category codes that were established as of April 1, 2001, have expired; 95 categories expired after CY 2002 and 2 categories expired after CY 2003. All of the categories listed in Table 21, along with their expected expiration dates, were created since we published the criteria and process for creating additional device categories for pass-through payment on November 2, 2001 (66 FR 55850 through 55857). We based the expiration dates for the category codes listed in that table on the date on which a category was first eligible for pass-through payment.

There are six categories for devices that would have been eligible for pass-through payments for at least 2 years as of December 31, 2004. In our November 7, 2003 final rule with comment period, we finalized the December 31, 2004 expiration dates for these six categories. (Three other categories listed in Table 21, as proposed, C1814, C1818, and C1819, will expire on December 31, 2005.) As indicated in Table 21, as proposed, the six categories that will expire as of December 31, 2004, are: C1783, C1884, C1888, C1900, C2614, and C2632. Each category includes devices for which pass-through payment was first made under the OPPS in CY 2002 or CY 2003.

In the November 1, 2002 final rule, we established a policy for payment of devices included in pass-through categories that are due to expire (67 FR 66763). For CY 2003, we packaged the costs of the devices no longer eligible for pass-through payments into the costs of the procedures with which the devices were billed in CY 2001. There were few exceptions to this established policy (brachytherapy sources for other than prostate brachytherapy, which is now also separately paid in accordance with section 621(b)(2) of Pub. L. 108-173). For CY 2004, we continued to apply this policy for categories that expired on January 1, 2004.

2. Proposed and Final Policy for CY 2005

In the August 16, 2004 proposed rule, we proposed to continue to base the expiration date for a device category on the earliest effective date of pass-through payment status of the devices that populate the category. This basis for determining the expiration date of a device category is the same as that used in CY 2003 and CY 2004.

We also proposed that payment for the devices that populate the six categories that would cease to be eligible for pass-through payment after December 31, 2004, would be made as part of the payment for the APCs with which they are billed. This methodology for packaging device cost is consistent with the packaging methodology that we describe in section III. of this final rule with comment period. To accomplish this, we proposed to package the costs of devices that would no longer be eligible for pass-through payment in CY 2005 into the HCPCS codes with which the devices are billed.

In the proposed rule, we noted that category C1819 (Tissue localization excision device) was added subsequent to our proposed rule for CY 2004. We first announced the start date and the proposed expiration date for this device category in our November 7, 2003 final rule with comment period. Therefore, we proposed to maintain the category's December 31, 2005 expiration date. We invited specific comments on the proposed expiration date for category C1819.

We received a number of public comments on our proposals relating to the expiration dates for transition pass-through devices.

Comment: One commenter noted that C1884 (Embolization protection system) is used for carotid stenting. The commenter recommended that CMS continue paying pass-through payment for C1884 until carotid stenting APC costs are established.

Response: Carotid stenting procedures are on the inpatient list for the OPPS and, therefore, are not paid by Medicare when performed in the outpatient hospital setting. To the extent that C1884 has been used with other procedures payable under the OPPS, we packaged the costs of C1884 into the APCs that include the procedures with which this device code was billed.

Comment: One commenter objected to our proposal to remove HCPCS code C1884 from pass-through status, effective January 1, 2005. The commenter believed that the service had been unfairly subjected to the device offset because it was totally new and did not replace any existing device. The commenter claimed that, for CY 2003, code C1884 inappropriately received very little pass-through payment when the device was used. The commenter indicated that CMS subsequently recognized its error by changing the offset policy for CY 2004, the second year of the device's pass-through status, Start Printed Page 65772and, therefore should give the device a third year of pass-through payment.

Response: We disagree with the commenter that we inappropriately made little pass-through payments for C1884. The commenter is correct that, for CY 2004, following notice and comment rulemaking, we changed the policy for applying offsets. As of January 1, 2004, we apply offsets, on a device-category-specific basis, when we determine that an APC contains costs associated with the device. Under the policy in effect prior to CY 2004, we applied offsets when a device category was billed with any of the APCs on our device offset list. This policy change affected all the categories in effect in CYs 2003 and 2004, including C1884. Some of these categories went into effect as of January 1, 2003; thus their pass-through status will expire after exactly 2 years. Other categories began receiving pass-through payments in the middle of 2002. Therefore, their categories will have more than 2, but less than 3 years with pass-through payment. We would not be able to extend pass-through payment for the second group of categories for an additional year, because they would then have greater than the statutory maximum of 3 years of pass-through payment.

We see no reason to adopt the commenter's suggestions to only change the status for code C1884. In CY 2003, C1884, like all our other pass-through categories, was subject to the same offset policy. Therefore, we are not changing the expiration date of device category C1884.

This device will cease to be a pass-through device effective January 1, 2005, at which time it will have had 2 years of pass-through payment.

We note that the expiration dates of C1884 and most other categories (the exception being C1819, discussed below) that were in effect at the time of our final rule for CY 2004 (68 FR 63437) were made final in that same rule, having been proposed in the proposed rule for CY 2004. We are now merely reaffirming that policy.

A few commenters supported our proposal to remove the six device categories from further pass-through payments and our proposal to package the costs of these devices into the cost of the APCs with which they are billed. The commenters indicated that incorporating these technologies into the APC system will minimize special payment incentives to use certain devices over others.

Comment: One commenter was concerned that pass-through payment for a brachytherapy-related solution (C2632, Brachytherapy solution, Iodine-125, per mCi) would expire from pass-through payment after December 31, 2004, under our proposal, and requested a third year of pass-through payment, until December 31, 2005, because pass-through payment has been made only since January 1, 2003. The commenter claimed that this category still qualifies for another year of pass-through payment.

Response: Because the brachytherapy solution in question, C2632, is a brachytherapy source separately payable under the OPPS according to section 621(b) of Pub. L. 108-173, it will continue to receive cost-based payment as of January 1, 2005, based on those statutory provisions, rather than on the pass-through payment provisions. Section VII.G. of this final rule with comment period explains those provisions and includes code C2632 for cost-based payment in CY 2005. As indicated, in regard to other comments concerning expired categories, this brachytherapy device will have had 2 years of pass-through status on January 1, 2005. Our policy is that pass-through devices are removed from pass-through status as soon as permitted under the statute. Therefore, this device will cease to be a pass-through device effective January 1, 2005, at which time it will have had 2 years of pass-through payment.

Comment: A few commenters were concerned that pass-through payment for C2614 (Probe, percutaneous lumbar diskectomy) in APC 0220 (Level I Nerve Procedures) would expire from pass-through payment after December 31, 2004, under our proposal, and requested that CMS continue to pay for this device category separately on a pass-through basis. The commenters were under the impression that the methodology used to determine whether or not a device category would continue to be eligible for payment in CY 2005 was if it showed “that there were no close or identifiable costs associated with the devices relating to the respective APCs that are normally billed with them.”

One commenter indicated that the payment for APC 0220 is not sufficient to cover the cost of the high end disposable RF lumbar probe coded under C2614. The commenter was also concerned that this device, which is used in performing CPT code 62287 (Percutaneous diskectomy), and which costs $1,150, will cease to be eligible for pass-through payments effective January 2005. The commenter stated that the device has increased effectiveness and reduced recovery time for patients but unless CMS increases the payment for APC 0220 for which we proposed to pay $996.69, hospitals will be forced to cease using it in 2005. The commenter urged that CMS continue pass-through payment for C2614 until such time as the payment rate for APC 0220 is adequate to cover the cost of the probe.

Response: The commenters are incorrect in their understanding of our criteria for proposing to expire device categories. We proposed to expire C2614 because it has received pass-through payment for at least 2 years, which is also the basis for our proposal to expire the other five device categories listed for expiration in CY 2005 in our proposed rule. A device with no close or identifiable costs associated with the devices relating to the respective APCs that are normally billed with them is actually a factor in determining whether to apply an offset, which would reduce the pass-through payment amount, as explained in the August 16, 2004 proposed rule (69 FR 50501). As indicated, similar to other responses in regard to other comments concerning other categories due to expire, this disc decompression device will have had 2 years of pass-through status on January 1, 2005. Our policy is that pass-through devices are removed from pass-through status as soon as permitted under the statute. Therefore, this device will cease to be a pass-through device effective January 1, 2005, at which time it will have had 2 years of pass-through payment.

We have considered the commenter's concern regarding placement of code C2614, the code for a device that is used in performing CPT code 62287, in APC 0220 and find that the resource costs for CPT code 62287 may be more appropriate for APC 0221 (Level II Nerve Procedures). Therefore, we have reassigned CPT code 62287 to APC 0221, for which the CY 2005 payment rate is $1,635.87.

Comment: One commenter recommended that CMS continue to pay for C2614 as a pass-through device category until CMS determines how the procedure, percutaneous lumbar diskectomy, is coded for determination of accurate APC cost weighting.

Response: As explained previously, we packaged costs of the C-code devices into the APCs that include the procedures with which the device codes were billed. We are packaging the costs related to code C2614 in this manner.

Comment: One commenter, a device manufacturer, recommended that CMS extend the expiration date for pass-through payment of C1819 (Tissue localization excision device) until December 31, 2006, instead of ending pass-through payment after CY 2005. The commenter claimed that CMS will have only a partial year of data for the Start Printed Page 65773CY 2006 year, unless it extends the date that the category is effective for pass-through payment. This commenter claimed that the proposed payment for APC 0028, in which therapeutic breast cancer procedures, CPT codes 19125 and 19160, are placed, increased by only $100 and does not represent any device codes. The commenter asserted that CMS needs to collect data over 2 years and increase payment for APC 0028 to at least $1,345 starting in CY 2007. The commenter also pointed out that two categories set to expire after December 31, 2005, C1814 (Retinal tamonade device, silicone oil) and C1818 (Integrated keratoprosthesis), would be paid as pass-through devices several months longer than C1819, resulting in a greater amount of data for ratesetting than will be available for C1819.

Response: We believe it is premature to make any conclusions and recommendations concerning the payment rate for APC 0028 for CY 2006 or CY 2007. Presumably, after the pass-through period ends, the device costs of category code C1819 will be included in the median costs of APC 0028 if the device is billed with procedures that are included in that APC. We reiterate that, as with other categories due to expire, this tissue localization device will have had 2 years of pass-through status on January 1, 2006. Our policy is that pass-through devices are removed from pass-through status as soon as permitted under the statute. Therefore, this device will cease to be a pass-through device effective January 1, 2006.

In this final rule with comment period, we are finalizing the proposed expiration dates for device categories as specified in the proposed rule, as indicated in Table 21 below.

B. Provisions for Reducing Transitional Pass-Through Payments to Offset Costs Packaged into APC Groups

1. Background

In the November 30, 2001 final rule, we explained the methodology we used to estimate the portion of each APC rate that could reasonably be attributed to the cost of the associated devices that are eligible for pass-through payments (66 FR 59904). Beginning with the implementation of the CY 2002 OPPS update (April 1, 2002), we deducted from the pass-through payments for the identified devices an amount that reflected the portion of the APC payment amount that we determined was associated with the cost of the device, as required by section 1833(t)(6)(D)(ii) of the Act. In the November 1, 2002 final rule, we published the applicable offset amounts for CY 2003 (67 FR 66801).

For the CY 2002 and CY 2003 OPPS updates, to estimate the portion of each APC rate that could reasonably be attributed to the cost of an associated pass-through device eligible for pass-through payment, we used claims data from the period used for recalibration of the APC rates. Using those claims, we calculated a median cost for every APC without packaging the costs of associated C-codes for device categories that were billed with the APC. We then calculated a median cost for every APC with the costs of the associated device category C-codes that were billed with the APC packaged into the median. Comparing the median APC cost without device packaging to the median APC cost including device packaging enabled us to determine the percentage of the median APC cost that is attributable to the associated pass-through devices. By applying those percentages to the APC payment rates, we determined the applicable amount to be deducted from the pass-through payment, the “offset” amount. We created an offset list comprised of any APC for which the device cost was at least 1 percent of the APC's cost.

As first discussed in our November 1, 2002 final rule (67 FR 66801) the offset list that we publish each year is a list of offset amounts associated with those APCs with identified offset amounts developed using the methodology described above. As a rule, we do not know in advance which procedures and APCs may be billed with new categories. Therefore, an offset amount is applied only when a new device category is billed with an APC appearing on the offset list. The list of potential offsets for CY 2004 is currently published on the CMS Web site: http://www.cms.hhs.gov, as “Device-Related Portions of Ambulatory Payment Classification Costs for 2004.”

For CY 2004, we modified our policy for applying offsets to device pass-through payments. Specifically, we indicated that we would apply an offset to a new device category only when we could determine that an APC contains costs associated with the device. We continued our existing methodology for determining the offset amount, described above. We were able to use this methodology to establish the device offset amounts for CY 2004 because providers reported device codes (C-codes) on the CY 2002 claims used for CY 2004 OPPS. However, for the CY 2005 update to the OPPS, we proposed to use CY 2003 claims that do not include device coding. (Section III. of this final rule with comment period contains a fuller discussion of our proposed and final requirement for use Start Printed Page 65774of C-codes for CY 2005.) In the CY 2004 OPPS update, we reviewed the device categories eligible for continuing pass-through payment in CY 2004 to determine whether the costs associated with the device categories are packaged into the existing APCs. Based on our review of the data for the categories existing in CY 2004, we determined that there were no close or identifiable costs associated with the devices relating to the respective APCs that are normally billed with them. Therefore, for those device categories, we set the offset to $0 for CY 2004.

2. Proposed and Final Policy for CY 2005

As we proposed in the August 16, 2004 proposed rule, in this final rule with comment period for CY 2005, we are continuing to review each new device category on a case-by-case basis as we did in CY 2004 to determine whether device costs associated with the new category are packaged into the existing APC structure. We are setting the offsets to $0 for the currently established categories that would continue for pass-through payment into CY 2005. If, during CY 2005, we create a new device category and determine that our data contain identifiable costs associated with the devices in any APC, we will adjust the APC payment if the offset is greater than $0. If we determine that device offsets greater than $0 are appropriate for any new category that we create during CY 2005, we will announce the offset amounts in the program transmittal that announces the new category.

Further, as we proposed, in this final rule with comment period for CY 2005, we are using the device percentages (portion of the APC median cost attributable to the packaged device) that we developed for potential offsets in CY 2004 and apply these percentages to the CY 2005 payment amounts to obtain CY 2005 offset amounts, in cases where we determine that an offset is appropriate. As proposed, we are using the device percentage developed for CY 2004 because, as noted above, for the CY 2005 update to the OPPS, we are using CY 2003 claims that do not include device codes. Therefore, we are not easily able to determine the device portions of APCs for CY 2003 claims data. We have posted the list of device-dependent APCs and their respective device portions on the CMS Web site: http://www.cms.hhs.gov for CY 2004 We will update the device portions as a percentage of final CY 2005 APC payments and post these on the CMS Web site.

We did not receive any public comments on our proposed policy for reducing transitional pass-through payments to offset costs packaged into APC groups.

C. Criteria for Establishing New Pass-Through Device Categories

Comment: Several commenters from the medical device community asked that CMS revise the criteria under which it evaluates applications for pass-through status for new device categories. The commenters specifically requested that CMS eliminate the current requirement that items that are included in new pass-through device categories must be surgically inserted or implanted through a surgically created incision. The commenters expressed concern that the current requirement may prevent access to innovative and less invasive technologies, particularly in the areas of gynecologic, urologic, colorectal and gastrointestinal procedures. These commenters asked that CMS change the surgical insertion or implantation criterion to allow pass-through payment for potential new device categories that include items introduced into the human body through a natural orifice, as well as through a surgically created incision.

Several of the commenters recommended that CMS allow the creation of a new pass-through category for items implanted or inserted through a natural orifice, as long as the other existing criteria are met. The commenters do not believe that such an expansion of the criteria would significantly increase the amount spent on pass-through device categories and asked that CMS implement this change in January 2005. A few commenters predicted that this modification would result in expenditures of less than one quarter of the total amount available for pass-through payments. A few commenters further asked that CMS allow new categories, even if the name or terminology associated with the requested category resembles an expired category, even if that entails modifying the description of the expired category. One commenter claimed that manufacturers of technologies that are implanted through a surgically created opening have two options for incremental payment: (1) Pass-through payment; and (2) new technology APC, and that those not requiring a surgical incision have only one option for additional payment (the new technology APC).

Response: We share the views of the commenters about the importance of ensuring access for Medicare beneficiaries to new technologies that offer substantial clinical improvement in the treatment of their medical conditions. We also recognize that, since the initial implementation of the OPPS, there have been beneficial changes in the methods by which some conditions are treated. These are issues that the agency takes very seriously and considers in the context of both pass-through device categories and payment for new, complete procedures through assignment to either a new technology APC or an existing clinical APC.

We note that other payment mechanisms exist within the OPPS for complete procedures that use new technology. These other payment mechanisms (establishment of a new code, where appropriate, and assignment to either a new technology APC or to a clinical APC) are already available, and do not require the implantation of a device through a surgical incision.

We are also interested in hearing the views of other parties and receiving additional information on these issues. While we appreciate and welcome additional comments on these issues from the medical device makers, we are also interested in hearing the views of Medicare beneficiaries, of the hospitals that are paid under the OPPS and of physicians and other practitioners who attend to patients in the hospital outpatient setting. For that reason, we are soliciting additional comments on this topic within the 60-day comment period for this final rule with comment period. (See the ADDRESSES section of this preamble for information on submitting comments. When submitting comments on this issue, please include the caption “Device Categories” at the beginning of your comment.) In framing their comments, commenters are asked to consider the following questions:

1. The comments discussed above refer to devices introduced into the body through natural orifices. We are seeking comments on whether this includes orifices that are either naturally or surgically created, as in the case of ostomies? If you believe this includes only natural orifices, why do you distinguish between natural and surgically created orifices?

2. How would you define “new,” with respect to time and to predecessor technology? What additional criteria or characteristics do you believe distinguish “new” devices that are surgically introduced through an existing orifice from older technology that also is inserted through an orifice?

3. What characteristics do you consider to distinguish a device that might be eligible for a pass-through category even if inserted through an Start Printed Page 65775existing orifice from materials and supplies such as sutures, clips or customized surgical kits that are used incident to a service or procedure?

4. Are there differences with respect to instruments that are seen as supplies or equipment for open procedures when those same instruments are passed through an orifice using a scope?

Concerning the request that we allow new categories for new devices by modifying the descriptors of existing categories, we note there are systems difficulties with changing a descriptor of an existing HCPCS code, such as payment considerations of claims prior to when a modification would be made. Moreover, both hospitals and manufacturers have informed us in the past that coding changes have led to confusion on the part of hospital coders. Modifying established device category C-codes would only exacerbate any such coding confusion. Therefore, we note that we are not inclined to change the descriptors of existing C-codes at this time.

Comment: One commenter recommended that CMS revise the cost significant criterion for establishing new device categories for pass-through payment. The commenter stated that medical devices are sometimes used as part of procedures that are secondary to a primary procedure, and in these cases the cost significance threshold of at least 25 percent of the APC rate associated with the services performed with the device should be adjusted downward to reflect the lower APC payment made for the secondary service. The commenter provided as an example those cases when the secondary procedure would be subject to the multiple procedure discount, thus lowering the APC payment associated with the procedure by 50 percent. The commenter indicated that this scenario happens infrequently.

Response: We disagree that our cost significance criterion for a proposed new device category for pass-through payment requires revision or adjustment. The criterion commented on requires that the estimated average reasonable cost of devices in a proposed new device category exceeds 25 percent of the applicable APC payment amount for the service associated with the device category (67 FR 66785). Very few new device category applications are denied for pass-through payment because they do not meet this cost criterion. If the proposed category of devices can be billed with more than one APC, we generally use the lowest APC payment rate applicable for use with the nominated device when we test against this cost criterion, thus increasing the probability the device will pass the cost significance criterion. We do not believe any further adjustment is needed for this cost criterion.

Therefore, we are not making any additional changes to our policy for CY 2005.

V. Payment Changes for Drugs, Biologicals, Radiopharmaceutical Agents, and Blood and Blood Products

A. Transitional Pass-Through Payment for Additional Costs of Drugs and Biologicals

1. Background

Section 1833(t)(6) of the Act provides for temporary additional payments or “transitional pass-through payments” for certain drugs and biological agents. As originally enacted by the BBRA, this provision required the Secretary to make additional payments to hospitals for current orphan drugs, as designated under section 526 of the Federal Food, Drug, and Cosmetic Act (Pub. L. 107-186); current drugs and biological agents and brachytherapy used for the treatment of cancer; and current radiopharmaceutical drugs and biological products. For those drugs and biological agents referred to as “current,” the transitional pass-through payment began on the first date the hospital OPPS was implemented (before enactment of BIPA (Pub. L. 106-554), on December 21, 2000).

Transitional pass-through payments are also required for certain “new” drugs, devices and biological agents that were not being paid for as a hospital OPD service as of December 31, 1996, and whose cost is “not insignificant” in relation to the OPPS payment for the procedures or services associated with the new drug, device, or biological. Under the statute, transitional pass-through payments can be made for at least 2 years but not more than 3 years. In Addenda A and B to this final rule with comment period, pass-through drugs and biological agents are identified by status indicator “G.”

The process to apply for transitional pass-through payment for eligible drugs and biological agents can be found on pages of our CMS Web site: http://www.cms.hhs.gov. If we revise the application instructions in any way, we will post the revisions on our Web site and submit the changes to the Office of Management and Budget (OMB) for approval, as required under the Paperwork Reduction Act (PRA). Notification of new drugs and biological application processes is generally posted on the OPPS Web site at: http://www.cms.hhs.gov/​hopps.

2. Expiration in CY 2004 of Pass-Through Status for Drugs and Biologicals

Section 1833(t)(6)(C)(i) of the Act specifies that the duration of transitional pass-through payments for drugs and biologicals must be no less than 2 years and no longer than 3 years. The drugs whose pass-through status will expire on December 31, 2004, meet that criterion. In the August 16, 2004 proposed rule, Table 22 listed the 13 drugs and biologicals for which we proposed that pass-through status would expire on December 31, 2004.

Comment: One commenter, a national hospital association, supported our proposal to remove these 13 drugs from the pass-through status on December 31, 2004.

Response: We appreciate the commenters' support for our proposal.

For this final rule with comment period, in Table 22 below, we are specifying the drugs and biologicals for which pass-through status will expire on December 31, 2004. This listing is the same as that published in the proposed rule.

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3. Drugs and Biologicals With Pass-Through Status in CY 2005

As we proposed in the August 16, 2004 proposed rule, we are continuing pass-through status for CY 2005 for 18 drugs and biologicals listed in Table 23 of this final rule with comment period. The APCs and HCPCS codes for drugs and biologicals that will have pass-through status in CY 2005 are assigned status indicator “G” in Addendum A and Addendum B, respectively, to this final rule with comment period.

Section 1833(t)(6)(D)(i) of the Act sets the payment rate for pass-through eligible drugs (assuming that no pro rata reduction in pass-through payment is necessary) as the amount determined under section 1842(o) of the Act. Section 303(c) of Pub. L. 108-173 amended Title XVIII of the Act by adding new section 1847A. This new section establishes the use of the average sales price (ASP) methodology for payment for drugs and biologicals described in section 1842(o)(1)(C) of the Act furnished on or after January 1, 2005. Therefore, as we proposed in the August 16, 2004 proposed rule, in CY 2005, we will pay under the OPPS for drugs and biologicals with pass-through status consistent with the provisions of section 1842(o) of the Act as amended by Pub. L. 108-173 at a rate that is equivalent to the payment these drugs and biologicals will receive in the physician office setting, and established in accordance with the methodology described in the CY 2005 Physician Fee Schedule final rule published elsewhere in this issue.

Section 1833(t)(6)(D)(i) of the Act also sets the amount of additional payment for pass-through eligible drugs and biologicals (the pass-through payment amount). The pass-through payment amount is the difference between the amount authorized under section 1842(o) of the Act, and the portion of the otherwise applicable fee schedule amount (that is, the APC payment rate) that the Secretary determines is associated with the drug or biological.

In this final rule with comment period, we are adopting as final our proposal to amend § 419.64 of the regulations to conform this section to these changes. Specifically, we are revising paragraph (d) to provide that, subject to any reduction determined under § 419.62(b), the payment for a drug or biological with pass-through status equals the amount determined under section 1842(o) of the Act, minus the portion of the APC payment amount that we determine is associated with the drug or biological.

As we explained in the August 16, 2004 proposed rule, we will make separate payment, beginning in CY 2005, for new drugs and biologicals with an HCPCS code consistent with the provisions of section 1842(o) of the Act, as amended by Pub. L. 108-173, at a rate that is equivalent to the payment they would receive in a physician office setting, whether or not we have received a pass-through application for the item. Accordingly, beginning in CY 2005, the pass-through payment amount for new drugs and biologicals that we determine have pass-through status equals zero. That is, when we subtract the amount to be paid for pass-through drugs and biologicals under section 1842(o) of the Act, as amended by Pub. L. 108-173, from the portion of the otherwise applicable fee schedule amount, or the APC payment rate associated with the drug or biological that would be the amount paid for drugs and biologicals under section 1842(o) of the Act as Start Printed Page 65777amended by Pub. L. 108-173, the resulting difference is equal to zero.

We have used the second quarter ASP numbers for budget neutrality estimates, impact analysis, and for completing Addenda A and B because those were the most recent numbers available to us in time for publication. Changes in program payments due to quarterly updates of ASP for pass-through drugs are factored into our budget neutrality estimates. To be consistent with the ASP-based payments that will be made when these drugs and biologicals are furnished in physician offices, we plan to make any appropriate adjustments to the amounts shown in Addendum A and B if later quarter ASP submissions indicate that adjustments to the payment rate are necessary. We will announce such changes in our program instructions to implement quarterly releases and post any revisions to the Addenda on the http://cms.hhs.gov Web site.

In the proposed rule, we listed in Table 23 the drugs and biologicals for which we proposed pass-through status continuing in CY 2005. We also included in Addendum B to the proposed rule the proposed CY 2005 rates for these pass-through drugs and biologicals based on data reported to CMS as of April 30, 2004. Since publication of the proposed rule on August 16, 2004, we have approved two additional drugs and biologicals for pass-through payment beginning on or after October 1, 2004. These products are Vidaza that has been assigned HCPCS code C9218 (Injection, azacitidine, per 1 mg) and Myfortic that has been assigned HCPCS code J7518 (Mycophenolic acid, oral, per 180 mg). (See Change Request 3420, Transmittal 290 issued August 27, 2004.) In addition, three more products have been approved for pass-through status beginning or after January 1, 2005. They are Orthovice (HCPCS code C9220, Sodium Hyaluronate per 30 mg dose, for intra-articular injection), GraftJacket (Repair)(HCPCS code C9221, Acellular dermal tissue, matrix per 16cm2), and GraftJacket (Soft Tissue)(HCPCS code C9222, Decellularized Soft Tissue Scaffold, per 1 cc). These new eligible pass-through items are listed in Table 23 below.

We received several public comments on the proposed listing and payment rates for drugs and biologicals for pass-through status continuing in CY 2005.

Comment: Two commenters stated that the proposed payment rate for HCPCS code C9203 (Injection, Perflexane lipid microsphere, per single use vial) is inappropriate and should be re-examined. They state that the methods used to price the drug are inconsistent with the Pub. L. 108-173, which requires that payments for pass-through drugs be based at either 106 percent of reported average sales price (ASP) or 83 percent of the average wholesale price (AWP). Pricing at 95 percent of AWP for C9203 creates a competitive disadvantage for contrast agents no longer being paid as pass-through drugs.

One commenter suggests that CMS create a class of echocardiography contrast agents similar to the class established for anti-emetic drugs. This allows for a uniform methodology to price drugs and ensures patient access to all drugs in the same therapeutic class. An alternative proposal identified by the commenter, is to base the payment for Imagent on the method applicable to the pricing for all other specified covered outpatient drugs (that is, 83 percent of the AWP). Yet another proposal included either maintaining pass-through status for all contrast agents or removing Imagent from pass-through designation. Another commenter recommended that the payment rate for all contrast agents be based on median costs reflected in hospital outpatient claims data.

Response: Whereas separate payment was already being made for the contrast agents, either as a pass-through item or as a “specified covered outpatient drug,” the 5HT3 anti-emetic products varied in their payment status, that is, some were packaged and some were paid separately. Although we are making final our proposal to pay separately for the 5HT3 anti-emetic products in CY 2005 in this final rule with comment period, the intent of this policy discussed in section IV.B.2. of this preamble is not to standardize payment for already separately payable drugs. For this reason, the policy does not apply to the echocardiography contrast agents. Therefore, we are not accepting the commenter's recommendation that we create a class of echocardiography contrast agents similar to the class for anti-emetic drugs.

Other proposals to: (1) Change the pass-through payment status for Imagent to a “specified covered outpatient drug,” (2) extend the pass-through payment status for other contrast agents, or (3) use hospital claims data to establish payment for Imagent are not provided for under the statute. Imagent obtained pass-through status effective on April 1, 2003, and will remain a pass-through drug for CY 2005.

Since the ASP for contrast agents was not reported in time for use in developing the APC payments for this final rule with comment period, the CY 2005 first quarter APC payment for Imagent is based on 95 percent of the AWP reported as of May 1, 2003. As previously stated, we plan to update payments for pass-through drugs on a quarterly basis. Beginning in April 2005, payment for Imagent will be based on 106 percent of the reported ASP.

Comment: Several commenters wrote in support of our proposal to remove 13 drugs and biologic agents from the pass-through table as the pass-through period for these items will end on January 1, 2005. Many commenters were very much in favor of our proposal for setting the pass-through payment portion of drugs. They wrote that zero pass-through payments ensures pass-though drugs and biologicals receive the full payment while at the same time eliminates the risk of a pro-rata reduction from occurring. Other commenters urged CMS to update ASP based payment rates for therapies with transitional pass-through status on a quarterly basis as is done for the drugs and biologicals administered in physician offices and paid for in accordance with the same statutory requirements as the drugs and biologicals with pass-through status under the OPPS. Otherwise, they argued, patient access to innovative drug and biological therapies in appropriate outpatient settings could be jeopardized.

Response: We appreciate the comments that support our decision to remove 13 drugs pass-through and biologicals for which pass-through status expires at the end of CY 2004 from the table. With respect to those drugs and biologicals that will continue to be on pass-through status or that may be granted pass-through status in CY 2005, we agree that our payment rules and amounts should be consistent with the ASP-based payments that will be made when these drugs and biologicals are furnished in physician offices since payment for both settings is governed by the same provisions of the Act. Therefore, we plan to make any appropriate adjustments to the amounts shown in Addendum A and B if later quarter ASP submissions indicate that adjustments to the payment rate are necessary. Changes in total payments due to quarterly updates of ASP for pass-through drugs are factored into our budget neutrality estimates.

In this final rule with comment period, we are not making any changes to the listing as a result of public comments. Table 23 below lists the drugs and biologicals that will have pass-through status in CY 2005. Addendum B of this final rule with Start Printed Page 65778comment period lists the final CY 2005 rates for these pass-through drugs and biologicals, which are assigned status indicator “G” based on data reported to CMS as of July 30, 2004.

B. Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through Status

1. Background

Under the OPPS, we currently pay for drugs, biologicals including blood and blood products, and radiopharmaceuticals that do not have pass-through status in one of two ways: packaged payment and separate payment (individual APCs). We explained in the April 7, 2000 final rule (65 FR 18450) that we generally package the cost of drugs and radiopharmaceuticals into the APC payment rate for the procedure or treatment with which the products are usually furnished. Hospitals do not receive separate payment from Medicare for packaged items and supplies, and hospitals may not bill beneficiaries separately for any packaged items and supplies whose costs are recognized and paid for within the national OPPS payment rate for the associated Start Printed Page 65779procedure or service. (Program Memorandum Transmittal A-01-133, issued on November 20, 2001, explains in greater detail the rules regarding separate payment for packaged services.)

Packaging costs into a single aggregate payment for a service, procedure, or episode of care is a fundamental principle that distinguishes a prospective payment system from a fee schedule. In general, packaging the costs of items and services into the payment for the primary procedure or service with which they are associated encourages hospital efficiencies and also enables hospitals to manage their resources with maximum flexibility. Notwithstanding our commitment to package as many costs as possible, we are aware that packaging payments for certain drugs, biologicals, and radiopharmaceuticals, especially those that are particularly expensive or rarely used, might result in insufficient payments to hospitals, which could adversely affect beneficiary access to medically necessary services. As discussed in the November 7, 2003 OPPS final rule with comment period (68 FR 63445), in CY 2004 we packaged payment for drugs, biologicals, and radiopharmaceuticals into the APCs with which they were billed if the median cost per day for the drug, biological, or radiopharmaceutical was less than $50. We established a separate APC payment for drugs, biologicals, and radiopharmaceuticals for which the median cost per day exceeded $50. Our rationale for establishing a $50 threshold was also discussed in the November 7, 2003 OPPS final rule with comment period (68 FR 63444 through 63447).

2. Criteria for Packaging Payment for Drugs, Biologicals, and Radiopharmaceuticals

Section 621(a)(2) of Pub. L. 108-173 amended section 1833(t)(16) of the Act by adding a new subparagraph (B) to require that the threshold for establishing separate APCs for drugs and biologicals be set at $50 per administration for CYs 2005 and 2006. For CY 2005, we proposed to continue our policy of paying separately for drugs, biologicals, and radiopharmaceuticals whose median cost per day exceeds $50 and packaging the cost of drugs, biologicals, and radiopharmaceuticals whose median cost per day is less than $50 into the procedures with which they are billed.

We calculated the median cost per day using claims data from January 1, 2003, to December 31, 2003, for all drugs, biologicals, and radiopharmaceuticals that had an HCPCS code during this time period and were paid (via packaged or separate payment) under the OPPS. Items such as single indication orphan drugs, certain vaccines, and blood and blood products were excluded from these calculations and our treatment of these is discussed separately in sections V.F., E., and I., respectively, of this preamble. In order to calculate the median cost per day for drugs, biologicals, and radiopharmaceuticals to determine their packaging status in CY 2005, in the August 16, 2004 proposed rule, we proposed to use the methodology that was described in detail in the CY 2004 OPPS proposed rule (68 FR 47996 through 47997) and finalized in the CY 2004 final rule with comment period (68 FR 63444 through 63447). We requested comments on the methodology we proposed to continue to use to determine the median cost per day of these items.

We proposed to apply an exception to our packaging rule to one particular class of drugs, the injectible and oral forms of anti-emetic treatments. The HCPCS codes to which our exception to the packaging rule for CY 2005 would apply were listed in Table 24 of the proposed rule (69 FR 50506). Our calculation of median cost per day for these products showed that, if we were to apply our packaging rule to these items, two of the injectible products would be packaged and one would be separately payable. In addition, two of the oral products would be separately payable and one would be packaged. Chemotherapy is very difficult for many patients to tolerate as the side effects are often debilitating. In order for beneficiaries to achieve the maximum therapeutic benefit from chemotherapy and other therapies with side effects of nausea and vomiting, anti-emetic use is often an integral part of the treatment regimen. We wanted to ensure that our payment rules did not impede a beneficiary's access to the particular anti-emetic that is most effective for him or her as determined by the beneficiary and his or her physician. Therefore, we proposed to pay separately for all six injectible and oral forms of anti-emetic products in CY 2005.

We received several public comments on our proposed criteria for packaging payment for drugs, biologicals, and radiopharmaceuticals.

Comment: Many commenters supported our proposal to continue paying separately for drugs, biologicals, and radiopharmaceuticals whose median costs per day exceed $50. The commenters encouraged CMS to continue to maintain the threshold at $50 after CY 2006 and recommended that any additional packaging threshold be examined carefully prior to future implementation so that beneficiary access to therapies will not be compromised as a result. One of the commenters, however, remained concerned about the packaging of other drugs and biologicals that fell below the $50 threshold and recommended that CMS make separate payments for drugs and biologicals that meet one or both of the following criteria: products with median cost per day of at least $50; or products that are eligible for separate payment in other outpatient sites of care and that received a separate payment previously under the OPPS. Another commenter expressed concern about the site of service incentives presented by some drugs being paid when furnished in the physicians' offices, while being packaged in the hospital setting. The commenter urged CMS to consider several options, including: Making separate payment for all drugs in CY 2005 that were separately paid under a previous OPPS payment rate and are separately paid for in physicians' offices; lowering the packaging threshold, for example, to $10 or $20; paying separately for all drugs for which the 106 percent of ASP payment amount in the physicians' office is at least $10; or establishing procedures to ensure that drugs used for similar indications (including off-label uses) are either all packaged or all paid separately. MedPAC, to the contrary, expressed concern about the use of an arbitrary cut-off of $50 per administration for separate payment of drugs. It stated that separate payment for certain more expensive drugs gave hospitals an incentive to use those drugs rather than those that are packaged, and the threshold also gave manufacturers an incentive to price their drugs to ensure that they are above $50 per administration. MedPAC recommended that CMS should carefully analyze alternative thresholds or the creation of larger bundles to allow for alternative approaches once the MMA provision requiring a $50 threshold expires in CY 2007.

Response: We appreciate the support of many commenters for our packaging policy for CY 2005. Section 621(a)(2) of Pub. L. 108-173 requires that the threshold for establishing separate APCs for drugs and biologicals be set at $50 per administration for CYs 2005 and 2006. Therefore, we cannot change the threshold amount for CY 2005 as some of the commenters have suggested. We will take all of the commenters' recommendations into consideration as Start Printed Page 65780we work on our packaging proposal for the CY 2007 OPPS.

However, in light of the commenters' concerns, we have decided to apply our equitable adjustment authority to establish several exceptions to the packaging threshold. We note that there were seven drugs and biologicals that we proposed to pay separately for in our proposed rule. However, when we recalculated their median costs per day using all of the hospital claims used for this final rule with comment period, their median costs per day were less than $50. We considered several payment options for these drugs and biologicals, such as packaging all of the items in CY 2005 or paying separately for all of them as we had proposed. However, after evaluating these drugs carefully, we decided to finalize the following payment policy for these items:

  • Drugs and biologicals that were paid separately in CY 2004 and have median costs per day less than $50 based on the hospital claims data being used for the CY 2005 final rule with comment period would continue to receive separate payment in CY 2005.
  • Those drugs and biologicals that are packaged in CY 2004 and that have median costs per day less than $50 based on the hospital claims data being used for the CY 2005 final rule with comment period would remain packaged in CY 2005.

We believe these policies are the most equitable for this particular set of drugs given the fluctuations in median hospital cost relative to the $50 threshold and their status in CY 2004.

Table 24 lists the seven drugs and biologicals to which this policy will apply along with their CYs 2004 and 2005 payment status indicator. The four items that will be separately paid under this policy meet the definition of sole source “specified covered outpatient drugs” and will be paid between 83 percent and 95 percent of their AWP in CY 2005.

Comment: One commenter indicated that CMS was proposing a packaging policy that appeared to be different from the MMA requirement because a particular drug may be administered more than once per day. Therefore, the commenter added, a drug with a cost per administration of less than $50 that is administered more than once per day would qualify for separate payment under CMS' proposed policy, but would not qualify for separate payment under the MMA requirement. The commenter indicated that the overall impact of this discrepancy is that there will be less packaging of drugs under the OPPS than Congress intended. The commenter was unclear as to whether CMS had the authority to deviate from the statute in this way.

Response: We note that the hospital claims data do not indicate whether there were multiple administrations of the same drug on a single day. Accordingly, we must assume that for all cases there was only a single administration of each drug per day. For packaging purposes, the median cost per day for each drug and biological must, therefore, serve as a proxy for its cost per administration. We will, however, continue to explore ways to distinguish single versus multiple drug administrations for future OPPS updates.

Comment: Numerous commenters, including several manufacturers of pharmaceutical products, individual hospitals, and hospital associations, strongly supported CMS' proposed exception to exclude the six injectible and oral forms of 5HT3 anti-emetic products from the packaging threshold and allow separate payment for all of them. One commenter indicated that CMS' claims data used to determine median cost per day may not be a reliable source for accurate median costs for these products and may understate their actual acquisition and related costs. Another commenter stated that if the $50 threshold were applied to this class of drugs, it would have created an incentive for hospitals to choose therapies based on the opportunity for payment and not their appropriateness for each individual patient. The commenters agreed that this policy would help to ensure beneficiary access to the most appropriate anti-emetic drug for cancer care. Several commenters also urged CMS to give careful thought to the effects of packaging on patient access to other types of drugs and biological therapies. However, one commenter indicated that, in recent months, the Start Printed Page 65781wholesale acquisition cost for one of the injectible anti-emetic drugs specified in the proposed exception was reduced by the manufacturer by seventy-three percent. If the proposed exception were applied to this drug, the payment would provide a margin of over one hundred dollars for each dose administered and the outcome would be contrary to the stated intent of the proposal. The commenter believed that CMS could not have anticipated the perverse payment situation that would result under such an exception and recommended that CMS reconsider and withdraw the exception to the packaging rule for this class of drugs.

Response: We appreciate the commenters' support of our proposal to pay for the six 5HT3 products separately. We also recognize the concerns raised by a commenter informing us of the price reduction for one of the injectible products. However, we firmly believe that packaging some of the 5HT3 anti-emetic products and paying separately for others may negatively impact a beneficiary's access to the particular anti-emetic that is most effective for him or her as determined by the beneficiary and his or her physician. Therefore, we are finalizing our policy to pay separately for all six injectible and oral forms of anti-emetic products in CY 2005. We note that this policy only affects drugs of a particular class (in this case, 5HT3 anti-emetic products) that vary in their payment status (that is, packaged or paid separately), and our intent is not to generally standardize payment methodologies for separately payable drugs of the same class.

Comment: One commenter expressed operational concerns about billing for oral anti-emetics associated with chemotherapy. The commenter indicated that it will be extremely difficult to bill for these drugs when the same HCPCS codes are used for the drugs' use in nausea not associated with chemotherapy and requested that CMS consider establishing a separate HCPCS code or an edit that will only allow payment when a cancer diagnosis is on the claim.

Response: The following HCPCS codes are those hospitals use to report the six 5HT3 products irrespective of their use: J1260 (Injection, Dolasetron, Mesylate, 10 mg), Q0180 (Dolasetron Mesylate, 100 mg, oral), J1626 (Injection, Graniestron Hydrochloride, 100 mcg), Q0166 (Granisetron Hydrochloride, 1 mg, oral), J2405 (Injection, Ondansetron Hydrochloride, per 1 mg), and Q0179 (Ondansetron Hydrochloride 8 mg, oral). The policy discussed above applies only to the packaging status of these products, not to their coverage status. Hospitals should continue billing in accordance with existing coverage rules.

Comment: We received comments on the packaging status of several drugs, biologicals, and radiopharmaceutical agents where the commenters indicated that the items were incorrectly packaged and should be paid separately as sole source “specified covered outpatient drugs.” Specific items mentioned in the comments were HCPCS codes A9524, Q3010, J2790, and J7525. The commenters asserted that the median cost per day calculations for these products were based on inaccurate and incomplete hospital claims data because the hospitals were not likely to have been charging appropriately for the products or billing the correct number of units. One of the commenters also cited changes in HCPCS code descriptors and the lag time in hospitals updating their charge masters to reflect revised code descriptors as possible reasons for why the hospital claims data may be skewed and may not be reflective of hospitals' actual acquisition costs. Another commenter asserted that since many of these drugs were packaged in CY 2003, the claims data did not capture the drugs' actual costs. Commenters urged CMS to review only the “correctly coded” claims when determining median cost per day for these products, use external data to help determine appropriate payment rates, or pay for the drugs separately as sole source “specified covered outpatient drugs” since these items meet that definition. Another commenter requested that CMS retain the CY 2004 payments until there is enough data to accurately determine payment rates.

Response: We understand commenters' concerns about the median cost per day for these particular items. To determine which claims for drugs, biologicals and radiopharmaceuticals are “correctly coded” would require that we attempt to assess which claims indicate that the number of units billed were or were not clinically reasonable. Given variations among patients with respect to the appropriate doses, the variety of indications with different dosing regimens for some agents, our lack of information about how many doses were administered on a given day, the possibility of off-label uses, and our desire not to question the clinical judgment of the prescribing providers on these issues, we do not believe that an approach that attempts to identify and use only “correctly coded” claims is feasible. The hospital claims database is the best and most complete source of data we have for establishing median hospital costs for the services and items paid for under the OPPS.

In section III.B. of this final rule with comment period, we discuss comments concerning our methodology for units trimming. It is possible that some other approaches to units trimming could increase the derived cost per day for some drugs but could also result in decreases for some. For others, it could result in no difference for the drug in relation to the $50 threshold. As a test, we applied several different unit trim approaches to one of the codes for which we received comments and still did not achieve a median cost per day above $50. Nevertheless, we appreciate the thoughtful comments we have received on this topic and will consider the issue of units trimming in later development of our OPPS payment rates. For our final policy for CY 2005, however, we retain the methodology that we proposed. We will also encourage hospitals to carefully consider the descriptions of each HCPCS code when determining the number of units to bill for drugs, biologicals and radiopharmaceuticals. We will consider special efforts related to particular items. We would note, also, that the payment hospitals receive for a particular drug is based on the number of units billed. If a hospital underreports the number of units administered to a patient due to a misunderstanding about the definition of the code, the hospital will not receive the full amount to which it is entitled. Conversely, hospitals should not report more units than appropriate based on the coding description and the amount required to treat the patient.

3. Payment for Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through Status That Are Not Packaged

a. Payment for Specified Covered Outpatient Drugs

Section 621(a)(1) of Pub. L. 108-173 amended section 1833(t) of the Act by adding a new subparagraph (14) that requires special classification of certain separately paid radiopharmaceutical agents and drugs or biologicals and mandates specific payments for these items. Under section 1833(t)(14)(B)(i), a “specified covered outpatient drug” is a covered outpatient drug, as defined in section 1927(k)(2) of the Act, for which a separate APC exists and that either is a radiopharmaceutical agent or is a drug or biological for which payment was made on a pass-through basis on or before December 31, 2002.

Under section 1833(t)(14)(B)(ii) of the Act, certain drugs and biologicals are designated as exceptions and are not Start Printed Page 65782included in the definition of “specified covered outpatient drugs.” These exceptions are:

  • A drug or biological for which payment is first made on or after January 1, 2003, under the transitional pass-through payment provision in section 1833(t)(6) of the Act.
  • A drug or biological for which a temporary HCPCS code has not been assigned.
  • During CYs 2004 and 2005, an orphan drug (as designated by the Secretary).

Section 1833(t)(14)(A)(i) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, specifies payment limits for three categories of specified covered outpatient drugs in CY 2004. Section 1833(t)(14)(F) of the Act defines the three categories of specified covered outpatient drugs based on section 1861(t)(1) and sections 1927(k)(7)(A)(ii), (k)(7)(A)(iii), and (k)(7)(A)(iv) of the Act. The categories of drugs are “sole source drugs,” “innovator multiple source drugs,” and “noninnovator multiple source drugs.” The definitions of these specified categories for drugs, biologicals, and radiopharmaceutical agents under Pub. L. 108-173 were discussed in the January 6, 2004 OPPS interim final rule with comment period (69 FR 822), along with our use of the Medicaid average manufacturer price database to determine the appropriate classification of these products. Because of the many comments received on the January 6, 2004 interim final rule with comment period, the classification of many of the drugs, biologicals, and radiopharmaceuticals changed from that initially published. These changes were announced to the public on February 27, 2004, Transmittal 112, Change Request 3144. Additional classification changes were implemented in Transmittals 3154 and 3322.

We received 25 public comments associated with the January 6, 2004 interim final rule with comment period. These public comments are summarized under section V.B.4. of this preamble.

Section 1833(t)(14)(A) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, also provides that payment for these specified covered outpatient drugs is to be based on its “reference average wholesale price,” that is, the AWP for the drug, biological, or radiopharmaceutical as determined under section 1842(o) of the Act as of May 1, 2003 (section 1833(t)(14)(G) of the Act). Section 621(a) of Pub. L. 108-173 also amended the Act by adding section 1833(t)(14)(A)(ii), which requires that:

  • A sole source drug must, in CY 2005, be paid no less than 83 percent and no more than 95 percent of the reference AWP.
  • An innovator multiple source drug must, in CY 2005, be paid no more than 68 percent of the reference AWP.
  • A noninnovator multiple source drug must, in CY 2005, be paid no more than 46 percent of the reference AWP.

Section 1833(t)(14)(G) of the Act defines “reference AWP” as the AWP determined under section 1842(o) as of May 1, 2003. We interpreted this to mean the AWP set under the CMS single drug pricer (SDP) based on prices published in the Red Book on May 1, 2003.

For CY 2005, we proposed to determine the payment rates for specified covered outpatient drugs under the provisions of Pub. L. 108-173 by comparing the payment amount calculated under the median cost methodology as done for procedural APCs (described previously in the preamble) to the AWP percentages specified in section 1833(t)(14)(A)(ii) of the Act.

Specifically, for sole source drugs, biologicals, and radiopharmaceuticals, we compared the payments established under the median cost methodology to their reference AWP. We proposed to determine payment for sole source items as follows: If the payment falls below 83 percent of the reference AWP, we would increase the payment to 83 percent of the reference AWP. If the payment exceeds 95 percent of the reference AWP, we would reduce the payment to 95 percent of the reference AWP. If the payment is no lower than 83 percent and no higher than 95 percent of the reference AWP, we would make no change.

Comment: A few commenters strongly opposed the decrease in the payment floor for sole source specified covered outpatient drugs from 88 percent of AWP in CY 2004 to 83 percent of AWP in CY 2005. The commenters believed that the decrease was inappropriate and lacked sound policy justification. The commenters recommended that for CY 2005 the payment floor for sole source specified covered outpatient drugs be maintained at 88 percent of AWP. One commenter, however, was concerned about the proposed payment rate for HCPCS code J9395 (Injection, Fulvestrant, 25 mg), which is based on 83 percent of AWP instead of 85 percent of AWP that is the CY 2004 payment level. The commenter asserted that CMS's use of median cost data to establish appropriate payment rates for specified covered outpatient drugs is faulty for this drug because of concerns about the accuracy of the hospital median cost data. The commenter also indicated that several payment changes affecting this drug were likely to have created a significant degree of confusion among hospitals that may have negatively skewed hospital median cost data and led CMS to correlate the data to an AWP-based payment percentage that is too low. Another commenter urged CMS to create an exceptions process that would provide for appropriate adjustments within the MMA-specified payment corridor upon submission of data documenting potential access problems or a payment rate significantly lower than the acquisition cost of the drug. The commenter indicated that creating such an approach would help to minimize disruption to patient access to drugs in the hospital outpatient setting. To the contrary, several commenters were pleased with the payment rates for certain products at 83 percent of their AWPs.

Response: Section 621(a) of Pub. L. 108-173 is very specific in requiring that a sole source drug must be paid no less than 83 percent and no more than 95 percent of the reference AWP in CY 2005. We used the 83 percent of AWP as the payment floor to set payment rates for sole source drugs, unless payments based on median costs were higher, as we lack any data to determine what would be the appropriate payment level between 83 percent and 95 percent of AWP for all sole source drugs. We set up a payment floor to avoid paying for these drugs at different arbitrarily determined payment levels. We note that if data show that the payment rate for a drug falls between the 83 percent floor and 95 percent ceiling, the drug is paid at the payment rate.

We have responded to comments about the relative hospital data from our claims above and in other sections of this preamble. While we certainly share the desire to provide beneficiaries with access to the drugs that are reasonable and necessary for the treatment of their conditions, we do not agree with the comments that we should pay above the 83 percent floor established by the MMA for sole source drugs if the median hospital cost falls below this floor. We believe the intent of the law is to use hospital cost data as the best available information in setting the payment rates for most items paid for under the OPPS. In the case of sole source specified covered outpatient drugs, the MMA provides for a floor of 83 percent of the reference AWP for those items for which the payment based on relative hospital costs would fall below 83 percent of the AWP and a ceiling of 95 percent of the reference AWP for items where the relative Start Printed Page 65783hospital costs from our claims data exceed that amount. We are not convinced that the 83 percent AWP floor is a barrier to appropriate treatment.

Comment: One commenter, the manufacturer of AGGRASTAT®, requested that CMS convert the current temporary outpatient HCPCS code C9109 (Injection, Tirofiban HCl, 6.25 mg) to a permanent national HCPCS code with a base dose of 5 mg and continue to maintain the permanent national HCPCS code J3245 (Injection, Tirofiban HCl, 12.5 mg). The commenter asserted that HCPCS codes with units of 5 mg and 12.5 mg would properly reflect the actual doses of AGGRASTAT® that currently exist in the market.

Response: For 2005, the National HCPCS Panel decided to delete HCPCS codes C9109 and J3245 and create a new HCPCS code J3246 (Injection, Tirofiban HCl, 0.25 mg). We hope that the creation of this new HCPCS code will ameliorate the commenter's concerns about appropriate coding for this product.

Comment: We received a number of comments on the packaging status of HCPCS codes J7505 (Muromonab-CD3, parenteral, 5 mg) and J9266 (Pegaspargase, single dose vial). The commenters stated that these two products were incorrectly packaged because the data used to determine packaging status were flawed and requested that both products be paid separately as sole source drugs at a rate between 83 percent and 95 percent of their AWPs.

Response: There were several drugs and biologicals that we proposed to package in the proposed rule, including the two products mentioned in the comments. However, when we recalculated their median costs per day using all of the hospital claims from CY 2003 used for this final rule with comment period, we determined that their median costs per day were greater than $50. Therefore, for CY 2005, we will pay for these drugs and biologicals separately. Items that meet the definition of “specified covered outpatient drugs” (SCOD) will be paid according to the payment methodologies established in the MMA, and payment for items that do not meet the definition will be based on their median unit cost. Table 25 lists the drugs and biologicals that were proposed as packaged drugs and biologicals but will be paid separately in CY 2005. The table also indicates the methodology that will be used to determine their APC payment rates in CY 2005.

Comment: One commenter was concerned about the proposed payment rates for HCPCS codes A9502 (Supply of radiopharmaceutical diagnostic imaging agent, technetium Tc 99m tetrofosmin, per unit dose) and Q3005 (Supply of radiopharmaceutical diagnostic imaging agent, technetium Tc-99m mertiatide, per mci). The commenter indicated that payment corrections made for these two products in the February 27, 2004 CMS Transmittal 113 resulted in significant payment reductions. The commenter was concerned that significant payment fluctuations and reductions were counter-productive to the provision of quality care and will negatively impact the operational viability of nuclear medicine departments. Therefore, the commenter urged CMS to reconsider their proposed payments for these two products.

Response: We understand the commenter's concern about the impact of fluctuations in payment rates for HCPCS codes A9502 and Q3005. However, we note that the payment rates that were listed in the January 6, 2004 interim final rule with comment period for these products were calculated using incorrect reference AWPs as indicated in the February 27, 2004 CMS Transmittal 113. Therefore, we made corrections to the AWPs for these products and recalculated their payment rates according to the payment methodology required by the MMA for sole source “specified covered outpatient drugs”.

Comment: One commenter requested that CMS support a decision by the HCPCS Alpha-Numeric Editorial Panel to issue separate permanent and universal drug codes for echocardiography contrast agents for which applications have been submitted. Specifically, the commenter recommended that CMS support the application submitted for the creation of a J-code for Definity, which is currently being reported as HCPCS code C9112 (Injection, perflutren lipid microsphere, per 2 ml vial).

Response: Decisions regarding the creation of permanent HCPCS codes are coordinated by the National HCPCS Panel. Comments related to the HCPCS code creation process and decisions made by the National HCPCS Panel are Start Printed Page 65784outside the scope of this rule; therefore, we will not respond to this comment. We note that until a J-code is established for this product, hospitals can continue to bill for this product using the HCPCS code C9112.

Comment: Several commenters expressed concern about the proposed payment for intravenous immune globulin. They were concerned that CMS calculated the reference AWP for this code using AWPs for one or more products that were no longer commercially available. For example, Carimune and Panglobulin were removed from the market and replaced with Carimune NF and Panglobulin NF, respectively. The commenters requested that CMS review the current pricing data on the brand products that are currently in the market place and recalculate payment for IVIG as a sole source specified covered outpatient drug. Another commenter was concerned about the proposed payment rate for HCPCS code J7198 (Anti-inhibitor, per IU). The commenter indicated CMS calculated the reference AWP for this code using an AWP for a product called Autoplex that was discontinued from the market in May 2004 and recommended that CMS calculate payment for this HCPCS code using cost data associated with the product Feiba VH that currently exists in the market.

Response: We agree with the comments and accordingly recalculated the base AWP for HCPCS code J1563 (Immune globulin, intravenous, 1 g) excluding AWPs for the two discontinued products, Panglobulin and Carimune. Similarly, we excluded the AWP for the discontinued product, Autoplex, when redetermining the base AWP for HCPCS code J7198 (Anti-inhibitor, per IU). We then recalculated their payment rates as sole source “specified covered outpatient drugs.” We note that these changes resulted in an increase in the base AWPs for both products.

Comment: One commenter, the maker of the product billed under HCPCS code C9201 (Dermagraft, 37.5 cm2), requested that CMS set its CY 2005 payment rate under the OPPS identical to the payment rate in the physician office setting. The commenter anticipated a payment rate of $574.41 (third quarter ASP plus 6 percent) when it is used in the physician office setting during CY 2005; however, the proposed payment rate as a sole source drug under the OPPS was $529.54. The commenter indicated that Dermagraft's cost to all customers is identical regardless of the site of service and establishing a payment rate under the OPPS below the cost of the product to hospitals would hinder their access to medical technologies for which they will not recover their costs. Additionally, we received comments from an association representing a group of specialty hospitals and a professional association expressing concern about the proposed payment level for HCPCS code J3395 (Injection, verteporfin, 15 mg). The commenters indicated that the payment rate for this product is significantly less than the acquisition cost for outpatient facilities and requested that CMS pay for it at a rate that covers the cost of acquiring the drug. The commenter also stated that accurate pricing information for the drug should be available when CMS receives final data from the manufacturer on October 31, 2004 and that the final OPPS payment rate should be reflective of the pricing data.

Response: The products described by HCPCS codes C9201 and J3395 meet the definition of sole source “specified covered outpatient drugs.” The MMA specifies the methodology that determines payment for this group of drugs under the OPPS where, for CY 2005, sole source drugs must be paid between 83 percent and 95 percent of their reference AWP. Since payments for these two products based on the median cost methodology were less than 83 percent of their AWPs, their CY 2005 payment levels were established at 83 percent of their AWP. In these cases, we believe the statute specifically addresses the payment methodology for these drugs.

Comment: A few commenters were concerned about the proposed payment rates for some separately payable drugs and biologicals that did not fall under the category of “specified covered outpatient drugs.” These products would be either paid as pass-through items or their payment rates were based on median cost data; however, the commenters requested that the products be paid as sole source “specified covered outpatient drugs.” One of the commenters requested that external data be used to correct the payment rate for their product. Several rationales were cited for this request to change the payment methodology, such as the use of inaccurate and incomplete hospital claims data to determine payment rates that are lower than actual hospital acquisition costs and eliminating payment differentials between drugs of the same class.

Response: We believe that the MMA defines the items that are to be considered “specified covered outpatient drugs” for payment purposes under the OPPS, and these drugs do not meet the definition. We also recognize that classifying these products as sole source “specified covered outpatient drugs” would increase their payments; however, we are not convinced that the payment rates for these products calculated under current methodologies are insufficient.

In developing our August 16, 2004 proposed rule, there was one sole source item, Co 57 cobaltous chloride (HCPCS code C9013), for which we could not find a reference AWP amount. However, we had CY 2003 claims data for HCPCS code C9013, and therefore, we proposed to derive its payment rate using its median cost per unit. We requested comments on our proposed methodology for determining the payment rate for HCPCS code C9013. We received a few comments in response to our proposal.

Comment: The manufacturer of the product billed under HCPCS code C9013 (Supply of Co 57 cobaltous chloride, radiopharmaceutical diagnostic imaging agent), Rubatrope, along with other commenters, indicated that Rubatrope is an FDA-approved radiopharmaceutical and a sole source drug that meets the definition of a “specified covered outpatient drug;” therefore, it should be paid between 83 percent and 95 percent of AWP. The manufacturer of Rubatrope indicated that it had experienced problems with the production of this product in the past 2 years and thus production was discontinued. However, the product will be commercially available from November 2004. The commenter also indicated that it would send CMS an AWP for this product once it becomes available. Therefore, for CY 2005, the commenters strongly urged CMS to establish payment for C9013 as a sole source drug at 83 percent of AWP.

Response: We understand the commenters' concern about the payment rate for this product and note that HCPCS code C9013 was considered a sole source “specified covered outpatient drug” in the proposed rule. However, as we were not able to determine a reference AWP for this product, we based its proposed payment rate on its median cost from the claims data. At the time of the publication of this final rule, we were still unable to find an AWP for this product, and thus, in the absence of an AWP for this product, as proposed we will use the product's median cost to base its CY 2005 payment rate. However, if we determine an AWP for HCPCS code C9013, we will issue a change to its payment accordingly in a quarterly update of the OPPS.

We note that there are three radiopharmaceutical products for which Start Printed Page 65785we proposed a different payment policy in CY 2005. These products are represented by HCPCS codes A9526 (Ammonia N-13, per dose), C1775 (FDG, per dose (4-40 mCi/ml), and Q3000 (Rubidium-Rb-82). Radiopharmaceuticals are classified as a “specified covered outpatient drug” according to section 1833(t)(14)(B)(i)(I) of the Act and their payment is dependent on their classification as a single source, innovator multiple source, or noninnovator multiple source product as defined by sections 1927 (k)(7)(A)(iv), (ii), and (iii) of the Act. Upon further analysis of these items, we determined that these three products do not meet the statutory definition of a sole source item or a multiple source item. Pub. L. 108-173 requires us to pay for “specified covered outpatient drugs” using specific payment methodologies based on their classification and does not address how payment should be made for items that do not meet the definition of a sole source or multiple source item. Therefore, in the August 16, 2004 proposed rule, we proposed to set the CY 2005 payment rates for these three products based on median costs derived from CY 2003 hospital outpatient claims data, which would reflect hospital costs associated with these products. With regard to HCPCS code A9526, we have no hospital outpatient cost data for this HCPCS code. We received correspondence from an outside source stating that Rubidium-Rb-82 (HCPCS code Q3000) is an alternative product used for procedures for which Ammonia N-13 is also used and these two products are similar in cost. Therefore, we proposed to establish a payment rate for Ammonia N-13 that is equivalent to the payment rate for Rubdium Rb-82.

We listed the proposed CY 2005 payment rates for these three items in Table 25 of the proposed rule (69 FR 50507), requested comments on the proposed payment rates and invited commenters to submit external data if they believe the proposed CY 2005 payment rates for these items do not adequately represent actual hospital costs.

We received many public comments on the proposed payment rates for the three items.

Comment: Many commenters were concerned about the proposed reduction in the payment rate for FDG in CY 2005. They stated that FDG meets the definition of “specified covered outpatient drugs,” and the MMA requires that “specified covered outpatient drugs” be classified as sole source drugs, innovator multiple source drugs, or noninnovator multiple source drugs, and be reimbursed according to a percentage of the reference AWP during CY 2005. Several commenters understood the difficulty CMS had in classifying FDG into one of the three categories of “specified covered outpatient drugs.” However, one of the commenters was concerned that CMS abandoned the methodology prescribed by the MMA and created another payment category for “specified covered outpatient drugs,” which the commenter believed is outside the scope of the MMA.

A commenter suggested that CMS assign FDG to the category that most closely reflects the underlying regulatory and economic environment for the production of FDG, which is the innovator multiple source drug category. The commenter explained that the production and sale of FDG is unusual in that the FDA does not yet require an approved New Drug Application (NDA) or Abbreviated New Drug Application (ANDA). The commenter also stated that the FDA is currently drafting special criteria to govern NDAs and ANDAs for the production and marketing of FDG, and eventually, manufacturers will be required to submit either an NDA or ANDA in order to sell FDG. Right now, there are no approved ANDAs or “generics” for FDG, and none of the FDA approved products is therapeutically equivalent. The commenter indicated that FDG is sold commercially by at least three manufacturers and is produced by numerous hospitals and academic medical centers for their own use, thus making it a multiple source drug. However, until the FDA finalizes its requirements for NDAs and ANDAs for FDG and all manufacturers have an opportunity to comply with those regulations, all FDG marketed in the United States should be considered a “brand” version. Although the different FDG products distributed are not rated as equivalent by the FDA, FDG was originally marketed under an NDA, and currently there are multiple distributors. Thus, although FDG does not meet all aspects of the multiple source innovator drug definition, given the inaccuracies of the hospital outpatient claims data, this commenter, along with several others, recommended that FDG be paid under the MMA at 68 percent of its AWP. Alternatively, some commenters requested that CMS keep the CY 2005 payment for FDG at its CY 2004 level until the completion of the GAO hospital acquisition cost survey, which will allow for a more reliable basis for setting payment based on average acquisition cost. One commenter stated that CMS should use external data submitted by hospitals to determine the true costs of this product. External data from a survey of 2002 nuclear medicine costs reported by hospitals were submitted, and the results indicated that median cost to hospitals for one dose of FDG is $425. Another commenter stated that their current cost for administering one dose of FDG to patients receiving PET scans is $450 and that CMS should research real market costs for this product before reducing payment by $126 from the current CY 2004 payment rate

The commenters all agreed that CMS should not use CY 2003 hospital claims data to calculate payment for FDG in CY 2005 because the reported data fails to accurately capture the actual acquisition cost to hospitals along with all the reasonable costs needed to safely prepare, store, administer, and dispose of the product. Commenters indicated that the HCPCS code descriptor for C1775 is written in a way that requires hospitals to use the same code to report FDG with a concentration of 4mci/ml as they use to report FDG with a concentration of 40 mci/ml, thus making the claims data unreliable, and also, hospitals did not have clear billing and charging guidance. Thus, the commenters claimed that the FDG data from CY 2003 are a flawed basis upon which to make a payment determination and would significantly underpay hospitals. Commenters noted that a reduction in payment for FDG to the proposed payment rate would limit utilization and access to FDG PET because of the financial losses the providers will suffer.

Response: We appreciate these thoughtful comments on our proposed payment rate for FDG. Based on the unique regulatory processes that affect the manufacturing and marketing of FDG, we believe that it is reasonable for us to classify FDG as an innovator multiple source drug. Therefore, we will not reinstate the HCPCS code C9408 (FDG, brand, per dose), which we inadvertently deleted as stated in the October 2004 Update of the OPPS (CMS Transmittal 290). In CY 2005, hospitals should use C1775 to bill for all FDG products.

With respect to calculating payment for FDG in CY 2005, the MMA requires that an innovator multiple source drug must be paid no more than 68 percent of the reference AWP. The MMA sets forth a payment ceiling for the brand innovator multiple source drugs, but does not provide a payment floor for them. We believe that the intent of the statute is to use available hospital Start Printed Page 65786claims to set payment rates for most items paid under OPPS; therefore, we apply the ceiling only when the payment for an item based on the median hospital cost for the drug exceeds the ceiling. As we described in section V.A.3.a. of this final rule with comment period, for innovator multiple source drugs, we set the payment rate at the lower of the payment rate calculated under the standard median cost methodology or 68 percent of the AWP. We have applied this methodology to all of the other innovator multiple source drugs; therefore, we do not believe that it would be appropriate for us to exempt FDG from this methodology and pay for it at 68 percent of AWP, the ceiling for innovator products. We believe that basing payment for this item on relative hospital costs, with the application as appropriate of the previously mentioned ceiling, not only meets the intent but also the requirements of the MMA. The payment rate for C1775 in CY 2005 will be $221.11.

Comment: The manufacturer of CardioGen-82, also known as Rubidium Rb-82, along with other commenters asserted that this product does meet the classification of a sole source drug as defined by the MMA. The commenters indicated that FDA approval for this product was received under an NDA, and there is currently only one manufacturer of the Cardiogen-82 generators used to produce Rubidium Rb-82. Also, there is no FDA-approved generic product for Rubidium Rb-82. One of the commenters indicated that a survey was conducted to obtain data on actual hospital costs for Rubidium Rb-82, which showed that the median per dose cost to hospitals was $244.73. Thus, the commenter believed that CMS hospital cost data were flawed and do not represent true hospital costs; therefore, the hospital claims cost data should not be used to set the payment rate for Rubidium Rb-82 in CY 2005. Other commenters indicated that median cost data used by CMS to calculate the payment rate for Rubidium Rb-82 underreport the actual and reasonable hospital costs needed to safely prepare, store, administer, and dispose of the product. The commenters urged CMS to recognize HCPCS code Q3000 (Supply of radiopharmaceutical diagnostic imaging agent, Rubidium Rb-82, per dose) as a sole source drug and set its payment at 83 percent of its AWP, or at minimum, retain the CY 2004 payment rate.

Response: We appreciate these comments. Based on further evaluation of the appropriate classification for this product, we agree with the commenters that Rubidium Rb-82 should be classified as a sole source product. Therefore, payment for Q3000 will be made at 83 percent of AWP as its payment based on the median cost methodology is less than 83 percent of AWP. The payment rate for Rubidium Rb-82 in CY 2005 will be $153.39 per dose.

Comment: Numerous commenters were concerned about the proposed payment rate for HCPCS code A9526 (Ammonia N-13, per dose). Some of the commenters stated that CMS proposed to treat HCPCS codes Q3000 (Rubidium Rb-82, per dose) and A9526 under a “presumptive functional equivalence” in setting the same payment rate for these products when they are not functionally equivalent. It was also stated that Rubidium Rb-82 and Ammonia N-13 are used for similar procedures, but they have different costs, clinical composition, and utilization patterns. Another commenter indicated that Rubidium Rb-82 significantly differs from the other PET radiopharmaceuticals as it is produced by a radionuclide generator system, compared to FDG and Ammonia N-13 that are made in cyclotrons. A commenter also stated that Ammonia N-13 has no commercial vendors; whereas, Rubidium Rb-82 is produced and distributed by one commercial vendor. Some commenters suggested that CMS pay for A9526 separately, similar to other “specified covered outpatient drugs.” On the other hand, other commenters recommended that, in the absence of reliable cost data or a published AWP, CMS should use the cost of FDG as a proxy for the cost of Ammonia N-13, since these products have equivalent production costs.

Response: We recognize the concerns raised by commenters about our proposal to pay for Ammonia N-13 at the same payment rate as Rubidium Rb-82. We acknowledge that Ammonia N-13 meets the definition of “specified covered outpatient drugs;” however, we have not been able to determine an AWP for this product. Thus, we cannot set a payment rate for this product based on a percentage of its AWP. While some of the commenters recommended that we set the payment rate for Ammonia N-13 at the same level as that for FDG, we are aware this would give rise to the same concerns raised by commenters regarding payment for Ammonia N-13 and Rubidium Rb-82. Therefore, we are not adopting our proposed payment policy for Ammonia N-13. Based on the complete CY 2003 hospital claims data that were used for this final rule with comment period, we were able to identify claims submitted for Ammonia N-13; therefore, for CY 2005, we will use median cost derived from the claims data to set the payment for this product. The CY 2005 payment rate for A9526 will be $109.86 per dose.

Comment: A number of commenters, including several cancer research centers and trade associations representing the radionuclide and radiopharmaceutical industry, biomedical science, and the biotechnology industry, as well as the manufacturers of Bexxar (billed using HCPCS codes C1080, C1081, and G3001) and Zevalin (billed using HCPCS codes C1082 and C1083), expressed concern that 83 percent of AWP is insufficient to reimburse hospitals for the cost of acquiring Zevalin and Bexxar. Several commenters, including the manufacturer of Zevalin, were concerned that the proposed payment rates for Zevalin are inadequate to facilitate patient access to this critical therapy. One commenter stated that, because Zevalin is a radioimmunotherapy, its purchase and use are subject to state regulatory safeguards that limit its availability in the oncology practices; therefore, its access in the hospital outpatient setting is crucial. The commenter urged CMS to maintain the 2004 payment rates for Zevalin, which are at 88 percent of AWP, into CY 2005, and indicated that this stability would make treatment with Zevalin more economically feasible for hospitals.

One commenter, the manufacturer of Bexxar, expressed concern about what they identified as several “inequities” in the coding and proposed payments for Bexxar and Zevalin. Specifically, the commenter pointed out that the payment proposed for Bexxar in CY 2005 is more than $1500 less than the payment proposed for Zevalin. This commenter further recommended that payment for Bexxar be set at its wholesale acquisition cost, which is $19,500, or 95 percent of the RAWP, which would be $22,230. Several commenters indicated that CMS has the option to exceed the floor of 83 percent of AWP established under the MMA for sole source specified covered outpatient drugs, which would enable CMS to set a rate for Bexxar and Zevalin commensurate with their cost.

Two commenters recommended that CMS consider external data where available to supplement its payment determinations for Bexxar and Zevalin.

Response: We share the commenters' concerns that Medicare payment rates not be a barrier to beneficiary access to radioimmunotherapy for the treatment of non-Hodgkins lymphoma. However, we do not agree with the comments that we should set the OPPS payment rates Start Printed Page 65787for Zevalin and Bexxar based on their CY 2004 payment levels, on external data, on their WAC, or on any payment amount other than that which is consistent the designation of radiopharmaceuticals in the MMA as specified covered outpatient drugs.

Zevalin and Bexxar are radiopharmaceuticals, and the MMA includes them as “specified covered outpatient drugs” for the OPPS payment purposes. Each meets the definition of a sole source drug. We believe the intent of the law is that we set payment rates for most items paid for under the OPPS using hospital cost data from the best and most recent information available, unless the statute directs otherwise, as in the case of drugs with pass-through status or new drugs without HCPCS codes. The MMA provides a floor of 83 percent of the reference AWP in CY 2005 for sole source specified covered outpatient drugs for which payment based on relative hospital costs would be less. Similarly, the MMA provides a cap of 95 percent of the reference AWP in CY 2005 for sole source specified covered outpatient drugs for which payment based on relative hospital costs would be higher. The statute provides a payment floor and ceiling for sole source “specified covered outpatient drugs,” at no lower than 83 percent of AWP or higher than 95 percent of AWP; the statute does not require a payment at some intermediate level that falls between 83 percent and 95 percent of AWP.

Payment for Zevalin based on relative hospital costs drawn from CY 2003 claims data would fall below 83 percent of the reference AWP. As we did in the case of other sole source drugs for which payment based on hospital claims would be lower than 83 percent of AWP, we proposed to set payment for Zevalin at 83 percent of the reference AWP. We also proposed to set payment for Bexxar in CY 2005 as a sole source radiopharmaceutical at 83 percent of AWP because, like Zevalin, it is a radiopharmaceutical and, therefore, a sole source specified covered outpatient drug under the MMA. We discuss in section V.G. of this final rule with comment period that we are making final our proposal to treat radiopharmaceuticals the same as we treat drugs and biologicals for purposes of ratesetting, with two exceptions: We will set payment for new radiopharmaceuticals for which we have no claims data, and for new radiopharmaceuticals with pass-through status effective on or after January 1, 2005, based on the MMA CY 2005 payment requirements for specified covered outpatient drugs. We have no ASP for Bexxar because it is a radiopharmaceutical, and manufacturers have not been required to submit ASP for radiopharmaceuticals. We have no claims data from which to calculate relative hospital costs for Bexxar because of the newness of the product. Therefore, we are setting payment for Bexxar in accordance with the MMA requirement that a sole source specified covered outpatient drug be paid no less than 83 percent of AWP in CY 2005.

Comment: A number of commenters, including several cancer centers and a nuclear medicine trade association, asked that CMS provide payment to hospitals for the cost of compounding each patient-specific dose of Bexxar, noting that the compounding costs amount to several thousand dollars in addition to the cost of the drug itself. One of these commenters recommended that the cost of compounding Bexxar be included in the payment for the product and that C1080 and C1081 be assigned to a new technology APC to reflect the total cost of the product plus compounding. One commenter, the manufacturer of Bexxar, is concerned because the payment proposed for Bexxar in CY 2005 does not include payment for the cost of compounding that is required to prepare patient specific doses of diagnostic and therapeutic I-131 tositumomab, whether done by the hospital's own radiopharmacy or by a commercial radiopharmacy. The commenter estimates that hospitals incur a compounding cost of $2,000-$3,000 to furnish Bexxar to a single patient when a commercial radiopharmacy does the compounding. The commenter recommends that CMS either base payment for Bexxar on 95 percent of AWP, continue payment for Bexxar at the CY 2004 level, or establish a new code to enable hospitals to bill separately for Bexxar compounding costs.

Response: Because Zevalin and Bexxar are radiopharmaceuticals that fall under the category of sole source specified covered drugs established by the MMA, the payment rates for these products are based on AWP, as required by the MMA. To the extent that compounding costs are reflected in the AWP, the payment rate includes these costs. If hospitals incur additional compounding costs for the radiolabeled monoclonal antibodies, those costs could be reported as a separate line item charge with an appropriate revenue code or packaged into the charge for CPT codes 78804 and 79403, which could result in an outlier payment if the outlier threshold for those services was exceeded. The MMA requires that MedPAC submit a report to the Secretary by July 1, 2005 on adjustment of payment for ambulatory payment classifications for specified covered outpatient drugs to take into account overhead and related expenses, such as pharmacy services and handling costs. We look forward to receiving this report in anticipation that the data collected by MedPAC will enable us to address drug-related overhead costs in future OPPS updates.

Comment: Several commenters expressed concerns that the payment rates proposed for Bexxar could result in clinicians having to make treatment decisions based upon payment considerations rather than medical considerations, and could result in physicians having to deny patients a potential life-saving therapy. The same commenters were concerned that the payment proposed for Zevalin and Bexxar does not recognize all of the additional costs associated with the provision of radiolabeled antibody therapy or radioimmunotherapy (RIT) for the treatment of non-Hodgkins lymphoma. These commenters urged CMS to consider all of the costs associated with this therapy when setting payment rates for each component of the regimen and recommended that CMS ensure that total payment to hospitals be commensurate with all of the actual costs that hospitals incur to acquire, prepare, and administer radiolabeled antibodies and to perform all of the additional procedures associated with RIT, thereby ensuring that patient access to these vital therapies will not be jeopardized.

Response: We share the commenters' concerns about the extent to which payment considerations influence treatment decisions. However, we believe that to the extent that radioimmunotherapy proves to be an efficacious treatment for patients with certain forms of non-Hodgkins lymphoma, payment in the aggregate for the full array of procedures and services associated with this new form of treatment affords hospitals sufficient flexibility to ensure that payment is not a barrier to beneficiary access when it is deemed reasonable and necessary.

Table 26 below lists the final APC payment rates for sole source drugs, biologicals, and radiopharmaceuticals effective January 1, 2005 to December 31, 2005.

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In order to determine the payment amounts for innovator multiple source and noninnovator multiple source forms of the drug, biological, or radiopharmaceutical, we compared the payments established under the median cost methodology to their reference AWP. For innovator multiple source items, we proposed to set payment rates at the lower of the payment rate calculated under our standard median cost methodology or 68 percent of the reference AWP. For noninnovator multiple source items, we proposed to set payment rates at the lower of the Start Printed Page 65792payment rate calculated under our standard median cost methodology or 46 percent of the reference AWP. We followed this same methodology to set payment amounts for innovator multiple source and noninnovator multiple source “specified covered outpatient drugs” that were implemented by the January 6, 2004 interim final rule with comment period. We listed the proposed payment amounts in Table 26 of the proposed rule.

Comment: One commenter, an association of cancer centers, indicated that CMS proposed the same payment rate for both the brand name and generic versions of a drug. Given that CMS does not have separate HCPCS code level data for brand versus generic drugs in the CY 2003 claims data, the commenter indicated that it did not understand how CMS could use claims data to justify equivalent payment levels for both brand and generic versions of a drug. The commenter was also concerned about the adequacy of using the CY 2003 claims data to calculate the costs of these products and making comparisons to the payment rate ceilings set forth by the MMA for multi-source drugs, especially for the brand name drugs. Therefore, the commenter requested that CMS pay for all brand name drugs at 68 percent of AWP and pay for generics by comparing the calculated cost using the claims data to the 46 percent of AWP threshold and selecting the lower of the two as the payment rate.

Response: For CY 2005, as for the current year, the MMA sets forth different payment ceilings for the brand and generic versions of the drug. The MMA does not provide a payment floor for either the brand or generic versions of such items. Only sole source drugs have a payment floor and ceiling. As stated elsewhere in this final rule with comment period, the CY 2005 payment rate for innovator multiple source (brand name) drugs may not exceed 68 percent of the reference AWP. The payment for noninnovator multiple source (generic) drugs may not exceed 46 percent of the reference AWP. In determining payment rates, we apply those ceilings only when the payment for an item based on the median hospital cost for the drug exceeds one of these ceilings. In some cases, the payment based on the median hospital cost falls below the 46 percent ceiling for generic drugs. In such cases, the payment rate would be the same for brand and generic versions. However, we believe that basing payment for these items on relative hospital costs, with the application as appropriate of the previously mentioned ceilings not only meets the intent but also the requirements of the MMA.

Comment: A few commenters indicated that the proposed payment rate of $410.45 for HCPCS code A9600 (Supply of therapeutic radiopharmaceutical, Strontium-89, per mci) would underpay hospitals for this product since the payment rate was based on flawed CMS median cost data that do not accurately reflect the real acquisition cost of this drug by hospitals. The commenters believed that hospital costs for A9600 are approximately $800 per mci and requested that CMS adjust the payment accordingly. One commenter, who was the manufacturer of this product, asserted that the product is expensive and difficult to manufacture since it is produced in small quantities. The commenter also indicated that the reduction in the payment rate for this product is driving the underutilization of this product and increasing the use of costly narcotic analgesics, thus resulting in a decrease in quality of life and a rise in the cost of health care. Another commenter stated that the HCPCS codes for diagnostic and therapeutic iodine products (C1064, C1065, C1188, C1348, A9528, A9529, A9530, A9531, A9517 and A9518) all describe in various years and forms diagnostic and therapeutic Iodine 131 and that these codes have had varying descriptions that have resulted in flawed cost data. The commenter submitted data indicating that the cost for I-131 in the capsule form is higher than for solution, and recommended that CMS use external data to restore and correct payment rates for the Iodine 131 product so that the payment more accurately reflects actual hospital costs.

Response: We understand the commenters' concerns about establishing appropriate payment rates for these products. We believe that the intent of the statute is to use available hospital claims to set payment rates for most items paid under the OPPS. In the case of multiple source drugs such as these products, the MMA requires that innovator and noninnovator multiple source drugs be paid no more than 68 percent and 46 percent of their AWP, respectively.

As previously stated, for innovator multiple source drugs, we set the payment rate at the lower of the payment rate calculated under the standard median cost methodology or 68 percent of the AWP; and for noninnovator multiple source drugs, we set the payment rate at the lower of the payment rate calculated under the standard median cost methodology or 46 percent of the AWP. Using the most recent available data, we determined that the payment rates based on median cost for these drugs were lower than both 68 percent and 46 percent of their AWPs; therefore, the payment rates for both the innovator and noninnovator forms of these products were based on their median costs.

Comment: One commenter, the maker of one of the viscosupplement drugs, was concerned that the proposed payment rates for the four competitive products are inequitable and will harm beneficiary access to these therapies. The commenter indicated that currently two of the products, Hyalgan and Supartz, are billed using HCPCS code J7317 (Sodium Hyaluronate, per 20 to 25 mg dose for intra-articular injection), and this HCPCS code has been classified as a multi-source drug. The commenter assumed that another product, Orthovisc, would also be billed under HCPCS code J7317. However, the fourth product, Synvisc, is classified as a sole source drug and billed under HCPCS code J7320 (Hylan G-F20, 16 mg, for intra-articular injection). The commenter strongly believed that classifying these products differently resulted in payment rates that will create significant payment inequities and unjustified market distortions. To correct the payment inequity across the class of viscosupplements, the commenter recommended that CMS create separate HCPCS codes for these products and treat each product as a sole source drug. Another commenter strongly recommended that Orthovisc, a new product, be recognized as a pass-through under the OPPS, and be assigned a separate C-code for payments under that system.

Response: We recognize the commenter's concern about payment for these viscosupplement drugs under the OPPS. The National HCPCS Panel coordinates decisions regarding the creation of permanent HCPCS codes; therefore, comments related to the HCPCS creation process and decisions made by the National HCPCS Panel are outside the scope of this rule. However, we note that the product Orthovisc received approval for pass-through status under the OPPS effective January 1, 2005, and a new temporary C-code has been established to allow hospitals to receive pass-through payments for this product.

Comment: A commenter requested that CMS show three separate tables for the nonpass-through drugs; that is, one for sole source drugs, one for innovator multiple source drugs, and one for noninnovator multiple source drugs. Start Printed Page 65793

Response: We have accepted the commenter's suggestion and created three distinct tables listing the sole source drugs, innovator multiple sources drugs, and noninnovator multiple source drugs.

Tables 27 and 28 below list the final payment amounts for innovator and noninnovator multiple source drugs, biologicals, and radiopharmaceuticals, respectively, effective January 1, 2005 to December 31, 2005.

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b. Treatment of Three Sunsetting Pass-Through Drugs as Specified Covered Outpatient Drugs

As we discussed in the August 16, 2004 proposed rule, there are 13 drugs and biologicals whose pass-through status will expire on December 31, 2004. Table 29 below lists these drugs and biologicals.

Pass-through payment was made for 10 of these 13 items as of December 31, 2002. Therefore, these 10 items now qualify as specified covered outpatient drugs under section 1833(t)(14) of the Act, as added by section 621(a) of Pub. L. 108-173, as described above. However, pass-through status for three of the pass-through drugs and biologicals that will expire on December 31, 2004 (C9121, Injection, Argatroban; J9395, Fulvestrant; and J3315, Triptorelin pamoate), was first made effective on January 1, 2003. These items are specifically excluded from the definition of “specified covered outpatient drugs” in section 1833(t)(14)(B)(ii) of the Act, because they are not drugs or biologicals for which pass-through payment was first made on or before December 31, 2002. Pub. L. 108-173 does not address how Start Printed Page 65795to set payment for items whose pass-through status expires in CY 2004, but for which pass-through payment was not made as of December 31, 2002.

Therefore, we proposed to pay for the three expiring pass-through items for which payment was first made on January 1, 2003, rather than on or before December 31, 2002 using the methodology described under section 1833(t)(14) of the Act for specified covered outpatient drugs. We believed that this methodology would allow us to determine appropriate payment amounts for these products in a manner that is consistent with how we pay for drugs and biologicals whose pass-through status was effective as of December 31, 2002, and that does not penalize those products for receiving pass-through status beginning on or after January 1, 2003 and expiring December 31, 2004. In Table 27 in the proposed rule, we listed the CY 2005 OPPS payment rates that we proposed for these three drugs and biologicals.

Of the 13 products for which we proposed that pass-through status expire on December 31, 2004, we proposed to package two of them (C9113, Inj. Pantoprazole sodium and J1335, Ertapenum sodium) because their median cost per day falls below the $50 packaging threshold. We proposed to pay for the remaining 11 drugs and biologicals as sole source items according to the payment methodology for sole source products described above.

We note that darbepoetin alfa (Q0137) will be considered a “specified covered outpatient drug” in CY 2005. Payment for these drugs is governed under section 1833(t)(14) of the Act. Specifically, we proposed that darbepoetin alfa would be paid as a sole source drug at a rate between 83 percent and 95 percent of its reference AWP. Accordingly, we specifically solicited comments on whether we should again apply an equitable adjustment, made pursurant to section 1833(t)(2)(E) of the Act, to the price for this drug.

Comment: Numerous commenters applauded CMS for proposing a fair and consistent payment methodology for drugs and biologicals whose pass-through status expires on December 31, 2004, and supported the proposal to treat these three therapies as specified covered outpatient drugs. They also encouraged CMS to expand this treatment to all separately paid drugs and biologicals in the future. A few commenters, including MedPAC, disagreed with our proposal to pay for the three expiring pass-through items for which payment was first made on January 1, 2003, as “specified covered outpatient drugs.” One commenter indicated that because these three drugs were excluded from the statutory definition of “specified covered outpatient drug,” it did not believe that CMS had the authority to treat newer drugs expiring out of pass-through status as specified covered outpatient drugs. Therefore, the commenter believed that CMS should pay for newer drugs expiring from pass-through status at 106 percent ASP, the rate applicable to the physician setting. MedPAC expressed concern about treating these 3 expiring pass-through drugs differently from the older, historically packaged drugs that are now eligible for separate payment and whose payments will be based on the median cost from the claims data. MedPAC indicated that the purpose of the pass-through payments is to allow time to accumulate data on costs and that there seemed to be no reason to believe that claims data are more accurate for one category of drugs that the other. Therefore, the drugs coming off pass-through, which do not fall under the SCOD category, and the older drugs should be paid consistently.

Response: We appreciate the commenters' support for our proposal to treat the three items for which pass-through status expires on December 31, 2004, but that were approved for pass-through status effective January 1, 2003, similar to the other drugs and biologicals whose pass-through status expires December 31, 2004, but that were approved for pass-through status on or before December 31, 2002. The statute does not address payment for drugs and biologicals that had pass-through status effective on January 1, 2003, but not on or before December 31, 2002. These items are newer drugs than the older products that never received pass-through status. We have accumulated cost data for these three drugs throughout the same 2-year period during which we accumulated cost data for the other drugs and biologicals whose pass-through status expires on December 31, 2004. Therefore, noting that the statute does not address drugs whose pass-through status likewise expires on December 31, 2004, but was approved on January 1, 2003, we believe it is reasonable to pay for these three drugs in a manner consistent with how we pay for the other drugs whose pass-through status likewise sunsets on December 31, 2004.

Comment: We received a number of comments concerning our proposal to pay for both epoetin alfa (marketed under trade name of Procrit) and darbepoetin alfa (marketed under the trade name of Aranesp®) based on 83 percent of their individual reference AWPs. A number of commenters also wrote in response to our solicitation for comments concerning the application of our equitable adjustment authority in determining the payment rate for darbepoetin alfa. Commenters acknowledged that both biologicals meet the MMA definition of specified covered outpatient drug (SCOD) and that the pass-through status of darbepoetin alfa ends on January 1, 2005. One of the commenters supported the proposal to establish payment for darbepoetin alfa as a SCOD, to base CY 2005 payment on its reference AWP, and to discontinue the application of an equitable adjustment to reduce the statutorily mandated payment for any product paid under the OPPS in CY 2005. This commenter stated the proposed payment for darbepoetin alfa as a sole source SCOD is fully consistent with section 621 of the MMA and that this is consistent with the method of payment for all other sole source SCODs. The commenter further stated that when drafting the language for section 622 of the MMA, Congress intended to ensure that considerations of functional equivalence were not applied to darbepoetin alfa after its pass-through status expired. This commenter acknowledges that section 1833(t)(2)(E) of the Act permits CMS to make “adjustments as determined to be necessary to ensure equitable payments.” However, this commenter stated that payments for the two products are already inherently equitable at the proposed rates because they are comparably priced and because CMS proposed to set the payment rates for the two products using the same methodology. The commenter noted that when CMS first applied the equitable adjustment for darbepoetin alfa, in CY 2003, CMS had only three choices for establishing drug payments under the OPPS: (1) Packing payment with related services; (2) using charges from outpatient claims to derive median cost; and (3) paying separately under the pass-through provisions, at 95 percent of AWP. The commenter notes the new payment methodology for all sole source “specified covered outpatient drugs” and argues that by applying this methodology to both of these biologicals, CMS would establish a level playing field and assure that market-based forces remain operable. This commenter also provided data concerning the clinical efficacy of darbepoetin alfa.

Many of the other commenters stated that CMS' application of its equitable adjustment authority deviated from the MMA's intent to pay for sole source Start Printed Page 65796products and multi-source products under separate payment methodologies. The commenters were concerned about the significant impact that application of such authority may have on a company's decision to continue developing innovator products. The commenters also argued that applying such a policy could inject CMS into clinical decisions based solely on economic considerations and create payment incentives that distort patient decisions properly entrusted to treating physicians. One commenter recommended that if CMS plans to utilize this authority again, then CMS should hold a public forum and provide interested parties with an opportunity to submit written comments about the standards that will be used to determine equitable adjustment. Other commenters argued that CMS should comply with the MMA and protect patient access to innovative therapies by not applying functional equivalence or a similar standard to any drug in 2005 or future years.

One commenter on this topic also provided detailed results of clinical studies that the commenter believes support the necessity of a continuation of the equitable payment adjustment. This commenter further stated that the clinical data support the use of a particular conversion ratio in making such an adjustment. The commenter noted that without an equitable adjustment policy, both drugs would be paid at 83 percent of each product's AWP. The commenter estimated weekly payments for the two drugs under four scenarios: an equitable adjustment based on three different conversion ratios and the proposed policy of treating each drug independently without application of an equitable adjustment. According to this commenter, overall Medicare expenditures and beneficiary coinsurance payments would increase for the treatment of chemotherapy-induced anemia in the absence of an equitable payment adjustment. The commenter's estimates assume a 50 percent market share for each of the two drugs and estimated 2005 spending based on 2003 OPPS claims data with anemia market unit growth assumptions of 35 percent in 2004 and 22 percent in 2005. The commenter also noted that the MMA did not remove the Secretary's authority to establish adjustments to ensure equitable payments and that the Secretary retains the authority to determine the CY 2005 payment rate for darbepoetin alfa using the equitable payment policy applied in CY 2003 and CY 2004. This commenter also argued that the MMA prohibition on the use of a functional equivalence standard applies only to pass-through drugs and only to future implementation.

A comment from MedPAC on this issue indicated that as costs to the Medicare program continue to grow, the program will need to examine tools for obtaining value in its purchasing. MedPAC believed that, absent evidence that the CMS' use of its equitable adjustment to set equivalent payment rates for Procrit and Aranesp® denied beneficiaries' access to needed treatments, CMS should pursue value-based purchasing where possible.

Response: As the commenters noted, while we proposed a payment rate for darbepoetin alfa as a sole source SCOD based on its reference AWP, we also specifically solicited comments on whether we should again apply an equitable adjustment, made pursuant to section 1833(t)(2)(E) of the Act, to establish the payment for this drug in CY 2005. After careful consideration of the thoughtful and well-documented comments concerning this issue, we have concluded that it is still appropriate to apply an adjustment to the payment for darbepoetin alfa under our authority in section 1833(t)(2)(E) of the Act to ensure that equitable payments for these two products under the OPPS continue in CY 2005. We agree with those commenters that argued that section 1833(t)(2)(E) of the Act was not affected by the provisions of the MMA and that we retain our authority to make such adjustments to payments under the OPPS. As we have done previously, we will reassess the need to exercise our adjustment authority when we next review the payment rates under the OPPS.

To apply an equitable adjustment for CY 2005, we reviewed the analysis we conducted during 2003 and the additional data we received in 2004. As we discussed in further detail in our November 7, 2003 final rule with comment period for the 2004 update to the OPPS (68 FR 63455) and our November 1, 2002 final rule with comment period for the 2003 update (67 FR 66758), because darbepoetin alfa has two additional carbohydrate side-chains, it is not structurally identical to epoetin alfa. The addition of these two carbohydrate chains affects the biologic half-life of the compound. This change in turn affects how often the biological can be administered, which yields a different dosing schedule for darbepoetin alfa by comparison to epoetin alfa. Amgen has FDA approval to market darbepoetin alfa under the trade name® for treatment of anemia related to chronic renal failure (including patients on and not on dialysis) and for treatment of chemotherapy-related anemia in cancer patients. Epoetin alfa, which is marketed by Ortho Biotech under the trade name Procrit, is approved by FDA for marketing for the following conditions: (1) Treatment of anemia of chronic renal failure (including for patients on and not on dialysis); (2) treatment of Zidovudine-related anemia in HIV patients; (3) treatment of anemia in cancer patients on chemotherapy; and (4) treatment of anemia related to allogenic blood transfusions in surgery patients.

The two biologicals are dosed in different units. Epoetin alfa is dosed in Units per kilogram (U/kg) of patient weight and darbepoetin alfa in micrograms per kilogram (mcg/kg). The difference in dosing metric is due to differences in the accepted convention at the time of each product's development. At the time epoetin alfa was developed, biologicals (such as those like epoetin alfa that are produced by recombinant DNA technology) were typically dosed in International Units (or Units for short), a measure of the product's biologic activity. They were not dosed by weight (for example, micrograms) because of a concern that weight might not accurately reflect their standard biologic activity. The biologic activity of such products can now be accurately predicted by weight, however, and manufacturers have begun specifying the doses of such biologicals by weight. No standard formula exists for converting amounts of a biologic dosed in Units to amounts of drug dosed by weight.

The process that we used in 2003 to define the payment conversion ratio between the two biologicals for CY 2004 is described in the November 7, 2003 final rule with comment period. We refer readers to that discussion, found at 68 FR 63455, for more complete details on that process and the data received and reviewed by CMS during the process. At the conclusion of the 2003 process, we established a conversion ratio of 330 Units of epoetin alfa to 1 microgram of darbepoetin alfa (330:1) for establishing the CY 2004 payment rate for darbepoetin alfa.

During the comment period, each company presented additional data concerning their products. Based upon our analysis to date, we continue to believe that the conversion ratio used for CY 2004 is appropriate for purposes of establishing equitable payment under the OPPS for both epoetin alfa and darbepoetin alfa for CY 2005. Initial review of new information submitted by the commenters provides no compelling Start Printed Page 65797evidence that the conversion ratio of 330:1 is unreasonable. Therefore, for this final rule with comment period, we have established payment for darbepoetin alfa by applying the conversion ratio of 330:1 to 83 percent of the AWP for epoetin alfa. The resulting payment rate for darbepoetin alfa is $3.66 per microgram. We will continue to assess the data we have received thus far and invite the submission of additional information. In order to fully evaluate and assess this issue in determining whether any further adjustment of the conversion ratio is necessary, additional analysis will be required. If, after additional review and analysis, we determine that a different conversion ratio is more appropriate, we will make a change in the payment rate for darbepoetin alfa to reflect the change in ratio as soon as possible.

We do not believe that our application of an equitable adjustment will create a barrier to treatment for the conditions for which these products are prescribed or to the product of choice of the beneficiary and his or her treating physician. According to the most recent average sales price (ASP) information collected by CMS and available in time for this final rule with comment period, 106 percent of ASP for darbepoetin alfa is $3.69 per microgram. This amount would have been the basis for payment under the OPPS on January 1, 2005 if pass-through status did not expire and if we did not apply an equitable adjustment. Furthermore, as we have emphasized in prior rulemaking on this topic, our conversion of amounts of a biologic dosed in Units to amounts of a drug dosed by weight strictly for the purpose of calculating a payment rate should not in any way be viewed as a statement regarding the clinical use of either product. The method we use to convert Units to micrograms in order to establish equitable payments is not intended to serve as a guide for dosing individual patients in clinical practice. By using a conversion ratio solely for the purpose of establishing equitable payments, CMS is not attempting to establish a lower or upper limit on the amount of either biological that a physician should prescribe to a patient. We expect that physicians will continue to prescribe these biologicals based on their own clinical judgment of the needs of individual patients.

Table 29 below lists the final CY 2005 OPPS payment rates for the three sunsetting pass-through drugs and biologicals that will be treated as specified covered outpatient drugs.

c. CY 2005 Payment for Nonpass-through Drugs, Biologicals, and Radiopharmaceuticals With HCPCS Codes, But Without the OPPS Hospital Claims Data

Pub. L. 108-173 does not address the OPPS payment in CY 2005 for new drugs and biologicals that have assigned HCPCS codes, but that do not have a reference AWP or approval for payment as pass-through drugs or biologicals. Because there is no statutory provision that dictates payment for such drugs and biologicals in CY 2005, and because we have no hospital claims data to use in establishing a payment rate for them, we investigated other possible options to pay for these items in CY 2005. Clearly, one option is to continue packaging payment for these new drugs and biologicals that have their own HCPCS codes until we accumulate sufficient claims data to calculate median costs for these items. Another option is to pay for them separately using a data source other than our claims data. The first option is consistent with the approach we have taken in prior years when claims data for new services and items have not been available to calculate median costs. However, because these new drugs and biologicals may be expensive, we are concerned that packaging these new drugs and biologicals may jeopardize beneficiary access to them. In addition, we do not want to delay separate payment for a new drug or biological solely because a pass-through application was not submitted.

Therefore, for CY 2005, we proposed to pay for these new drugs and biologicals with HCPCS codes but which do not have pass-through status at a rate that is equivalent to the payment they would receive in the physician office setting, which would be established in accordance with the methodology described in the CY 2005 Medicare Physician Fee Schedule proposed rule (69 FR 47488, 47520 through 47524). We noted that this payment methodology is the same as the methodology that will be used to calculate the OPPS payment amount that pass-through drugs and biologicals will be paid in CY 2005 in accordance with section 1842(o) of the Act, as amended by section 303(b) of Pub. L. 108-173, and section 1847A of the Act. Thus, we proposed to treat new drugs and biologicals with established HCPCS codes the same, irrespective of whether pass-through status has been determined. We also proposed to assign status indicator “K” to HCPCS codes for new drugs and biologicals for which we have not received a pass-through application.

In light of our August 16, 2004 proposal, we understood that manufacturers might be hesitant to apply for pass-through status. However, we did not believe there would be many instances in CY 2005 when we would not receive a pass-through application for a new drug or biological that has an HCPCS code. To avoid delays in setting an appropriate payment amount for new drugs and biologicals and to expedite the processing of claims, we strongly encouraged manufacturers to continue submitting pass-through applications for new drugs and biologicals when FDA Start Printed Page 65798approval for a new drug or biological is imminent to give us advance notice to begin working to create an HCPCS code and APC. The preliminary application would have to be augmented by FDA approval documents and final package inserts once such materials become available. However, initiating the pass-through application process as early as possible would enable us to expedite coding and pricing for the new drugs and biologicals and accelerate the process for including them in the next available OPPS quarterly release.

In the August 16, 2004 proposed rule, we discussed how we proposed to pay in CY 2005 for new drugs and biologicals between their FDA approval date and assignment of an HCPCS code and APC. We shared the desire of providers and manufacturers to incorporate payment for new drugs and biologicals into the OPPS as expeditiously as possible to eliminate potential barriers to beneficiary access and to minimize the number of claims that must be processed manually under the OPPS interim process for claims without established HCPCS codes and APCs, and we solicited public comments on our proposal.

Comment: Several commenters commended CMS's proposal to set payment rates for new drugs with HCPCS codes using the same methodology proposed to set payment for drugs with pass-through status, regardless of whether a pass-through application has been submitted for the new drug. They applauded CMS for acknowledging that packaging payment for these new therapies might jeopardize beneficiary access to them. However, a comment from MedPAC indicated that CMS's proposal to pay 106 percent of ASP for this particular group of drugs and biologicals represented a change in policy where drugs of this nature were previously packaged until sufficient claims data were accumulated to calculate payment rates, unless they received pass-through status via an application process. MedPAC was concerned that the newly approved drugs and biologicals that do not go through the pass-through payment mechanism will be added to the OPPS system without any control on spending since this policy does not have a budget neutrality provision, similar to pass-through payments. Given that the pass-through policy existed as a controlled mechanism for introducing new drugs into the OPPS, these drugs should either be treated through the pass-through process or continue to be packaged under the previous policy.

Response: We appreciate the commenters' support for our proposal to pay for new drugs with HCPCS codes, but without pass-through status and hospital claims data under the same methodology that will be used to pay for them in the physician office setting. We also understand MedPAC's concern about budget neutrality associated with this policy. Our intent in paying for new drugs and biologicals with HCPCS codes, but without pass-through status and hospital claims data, separately, was that we recognized that some of these new products would be important new therapies in treatment of such diseases as cancer. We also believe that the MMA provision that requires CMS to pay for new drugs and biologicals before a code is assigned indicates that Congress intended for us to pay separately for new items until we have hospital claims data that would allow us to determine whether the product should be packaged. We are concerned that packaging their payments may prevent hospitals from acquiring these products and in turn harm beneficiaries' access to them. We do not expect the volume of new drugs and biologicals to which we would apply this policy in CY 2005 to be so significant as to have an effect on budget neutrality. Moreover, we would not expect this policy to have a differential impact on budget neutrality any more than payment for the drugs would affect pass-through spending had the drugs been approved for pass-through status. We also believe (and strongly encourage) that stakeholders will continue to apply for pass-through status for new drugs, biologicals and radiopharmaceuticals as a means of ensuring that we have all of the information required to establish accurate payments for these items as quickly as possible. At the same time, if we were to package all such items, we are concerned that it would provide a disincentive for manufacturers to come forward and request codes for new items. Under the MMA provision described above, we are required to pay for new drugs and biologicals without HCPCS code at 95 percent of AWP, which we would expect to generally be higher than 106 percent of ASP. We also believe the MMA provision regarding drugs without HCPCS codes indicates that Congress clearly intended that we pay separately for new drugs and biologicals. Therefore, for CY 2005 we will finalize the policy that we proposed to pay separately for new drugs and biologicals with HCPCS codes but without pass-through status and hospital claims data based on the payment for the same new products in a physician office.

We will, however, monitor this carefully during the course of CY 2005 and reassess the policy for CY 2006. In CY 2005, payment for these new drugs and biologicals will be based on 106 percent of ASP. In the absence of ASP data, we will use wholesale acquisition cost (WAC) for the product to establish the initial payment rate. If WAC is also unavailable, then we will calculate payment at 95 percent of the May 1, 2003 AWP or the first reported AWP for the product. We have used the second quarter ASP data from CY 2004 because those were the most recent numbers available to us in time for the publication for this rule. To be consistent with the ASP-based payments that will be made when these drugs and biologicals are furnished in the physician offices, we plan to make any appropriate adjustments to the amounts shown in Addendum A and B if later quarter ASP submissions indicate that adjustments to the payment rates are necessary. We will announce such changes in our program instructions to implement quarterly releases and post any revisions to the addenda on the www.cms.hhs.gov Web site. We will similarly adjust payment for items for which we used AWP or WAC because ASP was not available if ASP becomes available from later quarter submissions.

For CY 2005, we will apply this policy to three drugs and biologicals that are new effective January 1, 2005 and do not have pass-through status and hospital claims data. These drugs will be separately payable under the OPPS, and thus, we have assigned them to status indicator “K”. Table 30 below lists these drugs and biologicals and the payment methodologies used to calculate their APC payments listed in Addendum A and B of this rule.

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We have also identified several drugs and biologicals with new HCPCS codes created effective January 1, 2004, that do not meet the definition of “specified covered outpatient drugs” and for which we would not have CY 2003 hospital claims data. These items are packaged in CY 2004, and we also proposed to package them for CY 2005 in the proposed rule. To avoid negatively impacting beneficiary access to these new products by packaging them, we will be paying for these drugs in CY 2005 under the same methodology that will be used to pay for them in the physician office setting. The rules for determining payment for these drugs will be the same as the rules for new drugs with HCPCS codes but without pass-through status in CY 2005. In CY 2005, these drugs will be separately payable under the OPPS, and thus, we have assigned status indicator “K” to these drugs. Table 31 below lists these drugs and biologicals and the payment methodologies used to calculate their APC payments listed in Addendum A and B of this rule.

We note that CPT 90715 (Tdap vaccine > 7 im) was newly created in 2004; however, we will not apply this payment policy to this code because all of the vaccines similar to this product are packaged in CY 2004 and will remain packaged in CY 2005. This payment policy also will not apply to new radiopharmaceuticals since all radiopharmaceuticals meet the definition of “specified covered outpatient drugs”. Therefore, payment for new radiopharmaceuticals will be made according to the payment methodologies established for “specified covered outpatient drugs” under section 1833(t)(14)(A)(ii) of the Act.

Comment: One commenter noted that CMS historically had declined to process pass-through applications prior to FDA approval, consequently many manufacturers have ceased submitting early applications. The commenter stated that manufacturers may be uncomfortable submitting the detailed information required for the pass-through application prior to securing FDA approval. The commenter suggested that a more realistic expectation of the timeframe for pass-through application would be at or subsequent to FDA approval, when the product launch is imminent.

Response: We recognize that some manufacturers may be concerned about submitting detailed information for pass-through application in advance of FDA's approval for their product. However, we reiterate that we strongly encourage manufacturers to continue submitting pass-through applications when FDA approval for a new drug or biological is imminent to give us advance notice to begin working to create a HCPCS code and an APC for their product. While we will not be able to give final approval to the pass-through application prior to FDA approval, early notification about the product prior to FDA approval can expedite the granting of a new product-specific code and implementation of Start Printed Page 65800that code and appropriate payment rate within our system.

d. Payment for Separately Payable NonPass-Through Drugs and Biologicals

As discussed in section V.B.2. of the August 16, 2004 proposed rule, for CY 2005, we used CY 2003 claims data to calculate the proposed median cost per day for drugs, biologicals, and radiopharmaceuticals that have an assigned HCPCS code and are paid either as a packaged or separately payable item under the OPPS. Section 1833(t)(14) of the Act, as added by section 621(a) of Pub. L. 108-173, specified payment methodologies for most of these drugs, biologicals, and radiopharmaceuticals. However, this provision did not specify how payment was to be made for separately payable drugs and biologicals that never received pass-through status and that are not otherwise addressed in section 1833(t)(14) of the Act. Some of the items for which such payment is not specified are (1) those that have been paid separately since implementation of the OPPS on August 1, 2000, but are not eligible for pass-through status, and (2) those that have historically been packaged with the procedure with which they are billed but, based on the CY 2003 claims data, their median cost per day is above the legislated $50 packaging threshold. Because Pub. L. 108-173 does not address how we are to pay for such drugs and biologicals (any drug or biological that falls into one or the other category and that has a per day cost greater than $50), we proposed to set payment based on median costs derived from the CY 2003 claims data. Because these products are generally older or low-cost items, or both, we believe that the payments will allow us to provide adequate payment to hospitals for furnishing these items. In the proposed rule, we listed in Table 28 the drugs and biologicals to which the proposed payment policy would apply.

We received numerous public comments on our proposal.

Comment: A commenter expressed concern about the proposed payment rate for HCPCS code J7342 (Dermal tissue, of human origin, with or without other bio-engineered or processed elements, with metabolically active elements, per square centimeter) when billed by Maryland-based hospitals and comprehensive outpatient rehabilitation facilities (CORFs).

Response: We understand the commenter's concern; however, Maryland-based hospitals and CORFs are excluded from payment under the OPPS and the OPPS payment rates do not apply to them. This final rule with comment period addresses only the providers that are paid under the OPPS. Therefore, this comment is outside the scope of this rule.

Comment: An association for manufacturers of contrast agents supported CMS' proposal to pay separately for certain MRI contrast agents (for example, HCPCS codes A4643 and A4647). However, the commenter was concerned that the payment rates for these products were based on CY 2003 hospital claims data and that the overall accuracy of the hospital median cost data is questionable; therefore, the commenter recommended that CMS review the proposed payment rates for MRI contrast agents and requested that such review include a confirmation that the median cost data used as the basis for calculating the payment rates are correct. The commenter also indicated that the proposed rule did not have unit descriptors for the HCPCS codes A4643 and A4647 and requested that CMS add the unit descriptor, “up to 20 ml” to HCPCS codes A4643 and A4647 in order to provide further clarity and facilitate more accurate coding and billing by hospitals.

Response: We understand the commenter's concern about setting appropriate payment rates for these products. These products do not meet the definition of “specified covered outpatient drugs” as defined in the MMA; however, we do have a significant number of CY 2003 hospital claims data for these products. It is our general policy under the OPPS to use the most recent available hospital claims data in setting the OPPS payment rates. For CY 2005, both of these products will be separately payable items. The payment rate for A4643 will be based on approximately 14,200 claims for approximately 27,000 services, and payment for A4647 will be based on approximately 87,600 claims for approximately 155,000 services.

We believe that the CY 2003 claims data contain a sufficiently robust set of claims for both products on which to base the payment rates for these items using the methodology that will be used for other separately payable non-pass-through drugs and biologicals. With respect to adding unit descriptors to A4643 and A4647, we suggest that the commenter pursue these changes through the process set up by the National HCPCS Panel.

Comment: A commenter expressed concern that CMS may have inappropriately packaged low osmolar contrast material (LOCM) drugs into APCs based on a determination that the drugs do not meet CMS's packaging rule because they are below the $50 threshold required for separate payment. The commenter questioned the accuracy of the median cost data used as the basis for CMS's decision as CMS' paid claims files for LOCM do not include unit descriptors for the HCPCS codes A4644, A4645, and A4646. The commenter is concerned that this makes it difficult to interpret the data in any meaningful way for purposes of determining what the payment rates for these drugs should be and whether they should be paid separately, in particular, because the dose administered per procedure can range from 10 ml to 200 ml. The commenter also believed that CMS should pay for LOCM drugs separately in the hospital outpatient setting because they are paid as such in the physician office setting. Therefore, the commenter recommended that CMS exercise its discretion to apply an exception to the packaging rule to LOCM as it did with the anti-emetics and allow separate payment for LOCM drugs in CY 2005. The commenter also suggested that CMS assign the unit descriptor “per 10 ml” to HCPCS codes A4644, A4645, and A4646.

Response: We recognize that the commenter is concerned about the packaging of the three LOCM products. Based on the methodology used to calculate median cost per day for drugs and biologicals, as explained in section V.B.2. of the preamble, we determined that the per day costs of these products were below $50. Therefore, these items were packaged. We note that the LOCM products are a unique class of drugs that have always been packaged from the beginning of the OPPS in August 1, 2000, and this is the first year that we looked into the cost data for these drugs to determine whether they should be paid separately. We realize that for CY 2005 these drugs will be packaged under the OPPS, but will receive separate payment in the physician office setting. However, based upon the statutory packaging threshold for drugs and biologicals as per administration cost less than $50, we believe that it is appropriate for us to package the LOCM drugs under the OPPS. With respect to adding unit descriptors to HCPCS code A4644, A4645, and A4646, we suggest that the commenter pursue these changes through the process set up by the National HCPCS Panel.

Comment: We received comments concerning the new Part D prescription drug benefit mandated by the MMA and the intersection between drugs covered by Part D and Part B.

Response: Because such issues are not within the scope of this CY 2005 OPPS Start Printed Page 65801final rule with comment period, we will not respond to those comments in this document.

Comment: We received many comments from makers of drug and biological products, national trade associations, and an association for cancer centers suggesting that CMS should expand the future rate-setting methodology for “specified covered outpatient drugs” to include all drugs and biologicals that either are or were previously paid separately under the OPPS, regardless of whether the drugs meet or exceed the $50 threshold. The commenters also recommended that CMS also work with GAO and MedPAC to ensure that their respective studies of the acquisition costs and pharmacy service and overhead costs include all of these drugs and biologicals and that the studies are thorough and will contain all the information CMS needs to set proper payment rates in the future. Many of these commenters were concerned about CMS' use of claims, other data, and the methodologies used to establish the OPPS payments for drugs and biologicals that do not meet the definition of “specified covered outpatient drugs” and therefore, are not statutorily required to be included in these studies. The commenters suggested that CMS should not implement different methodologies for “specified covered outpatient drugs” and other separately paid drugs in CY 2006; instead, CMS should ensure appropriate payment for all Medicare covered drugs by applying the acquisition cost-based payment methodology to all separately paid drugs. One commenter believed that Congress fully intended for all separately paid drugs and biologicals to be paid based on hospital acquisition costs, as informed by these studies. Another commenter recommended that CMS continue to accept external cost data that may be submitted by knowledgeable stakeholders, such as manufacturers, providers, or patients to provide verification of hospital acquisition costs for specific drugs and biologicals. One commenter indicated that it would like to work with CMS as it prepares the hospital acquisition cost survey for the CY 2006 rates.

Response: We appreciate the interest expressed by many of the commenters regarding the MMA-mandated surveys that will be conducted by the GAO and MedPAC of hospital acquisition cost for drugs and biologicals and their overhead and related costs, respectively. However, we note that these provisions of the MMA affect payment for drugs and biologicals in CY 2006, and thus, these comments fall outside the scope of this rule. Therefore, we will not be responding to these comments at this time.

Comment: A commenter requested that CMS examine every HCPCS J-code for drugs to ensure that the dosage definitions for the HCPCS codes are set at the lowest available manufacturers' dosage and match the customary dispensing packaging.

Response: Changes to the HCPCS J-codes are made by the National HCPCS Panel; therefore, this comment is outside the scope of this OPPS final rule. We suggest that the commenter pursue these changes through the process established by the National HCPCS Panel.

Start Printed Page 65802

e. CY 2005 Change in Payment Status for HCPCS Code J7308

Since implementation of the OPPS on August 1, 2000, HCPCS code J7308 (Aminolevulinic acid HCI for topical administration, 20 percent single unit dosage form) has been treated as a packaged item and denoted as such using status indicator “N”. Thus, historically we have not allowed separate payment for this drug under the OPPS and it does not meet the statutory definition of a specified covered outpatient drug. For CY 2005, we proposed to allow separate payment for this drug at 106 percent of ASP, which is equivalent to the payment rate that it would receive under the Medicare Physician Fee Schedule. We proposed a CY 2005 ASP and payment under the OPPS for HCPCS code J7308 of $88.86. We solicited comments on our proposed payment methodology for HCPCS code J7308 for CY 2005.

We did not receive any comments on our proposed policy. However, we did receive a comment on this policy in response to the January 6, 2004 interim final rule with comment period, which we discuss below.

Comment: One commenter requested that HCPCS code J7308 be paid separately under the OPPS because its cost is in excess of the $50 median cost per day threshold, and the drug is also paid separately under the Medicare Physician Fee Schedule in CY 2004.

Response: We agree with the commenter and will finalize our policy to pay separately for J7308 at the payment rate that it would receive under the Medicare Physician Fee Schedule. The payment rate listed in Addenda A and B of the August 16, 2005 proposed rule was based on the second quarter ASP submission for CY 2004. As stated in section V.A. 3. of this final rule with comment period, we plan to make any appropriate adjustments to the amount shown in Addenda A and B if later quarter ASP submissions indicate that adjustments to the payment rate for this drug is necessary.

4. Public Comments Received on the January 6, 2004 Interim Final Rule With Comment Period and Departmental Responses

As discussed in section V.B.3. of this final rule with comment period, on January 6, 2004, we published in the Federal Register an interim final rule with comment period (69 FR 822) that implemented section 621(a)(1) of Pub. L. 108-173. Section 621(a)(1) specified payment limits on three categories of specific covered outpatient drugs and defined these three categories of drugs.

We received many pieces of correspondence that contained public comments associated with the January 6, 2004 interim final rule with comment period. Many of the comments expressed concerns about the following issues: treating radiopharmaceuticals as “drugs;” establishing mechanisms to pay for drugs without HCPCS codes at 95 percent of AWP; correcting the classification of specific items to sole source “specified covered outpatient drugs;” eliminating the use of “equitable adjustments” to the OPPS payment for drugs and biologicals or applying any functional equivalence standards; paying separately for drugs that are either packaged or whose payment is based on median cost as “specified covered outpatient drugs”; expanding the list of items that will be studied in the MMA-mandated GAO and MedPAC surveys of certain OPD services; using the cost-to-charge methodology and the hospital outpatient claims data to set payment rates for certain drugs and biologicals; identifying and establishing appropriate payment rates for innovator and noninnovator multiple source drugs; and changing HCPCS code descriptors for radiopharmaceuticals to reflect the products as administered to patients.

We will not address these comments separately in this section because these issues are discussed in detail throughout this entire section (section V.) of this final rule with comment period. However, for those public comments that are not specifically addressed in section V., a summary of them and our responses to those comments follow:

Comment: A commenter suggested that CMS create separate HCPCS codes for Neoral, Sandimmune, and the other cyclosporine products. The commenter indicated that currently all of these products are being billed using HCPCS code J7502 (Cyclosporine, oral, 100 mg). The commenter stated that the payment rates for the brand name products should not be linked to the payment rates for the non-innovator products because this situation creates access issues to the branded products, and CMS should not limit patient access to the specific formulation deemed medically appropriate for the individual needs of the specific patients.

Response: We note that for both CYs 2004 and 2005, hospitals can use HCPCS code C9438 to bill for the brand name forms of oral cyclosporine. As stated V.A.3.a. of this final rule with comment period, the MMA set forth different payment ceilings for the brand and generic versions of a drug where the CY 2005 payment rate for innovator multiple source (brand name) drugs may not exceed 68 percent of the reference AWP and the payment for generic versions may not exceed 46 percent of the reference AWP. We explained previously that we apply those ceilings only where the payment for an item based on the median hospital cost for the drug exceeds one of these ceilings. In some cases, the payment based on the median hospital cost falls below the 46 percent ceiling for generic drugs. In such cases, the payment rate would be the same for brand and generic versions. We believe that basing payment for these items on relative hospital costs, with the application as appropriate of the previously mentioned ceilings not only meets the intent but also the requirements of the MMA.

Comment: A commenter recommended that CMS consider pricing information from several authoritative sources when determining the reference AWP, including Red Book and First Data Bank, on a case-by-case basis since such pricing information can be used to resolve outstanding payment issues and ensure greater accuracy in calculating the OPPS payment rates.

Response: We appreciate this comment and will consider this recommendation when we reassess the OPPS payment rates.

Comment: Several commenters noted that CMS changed the classification for many of the biologicals products to sole source “specified covered outpatient drugs” in the February 27, 2004 CMS Transmittal 113 without discussing why the changes were made. One of the commenters indicated that the definition for sole source “specified covered outpatient drugs” in the MMA is different from the Medicaid rebate definition. The commenter stated that the MMA defined sole source drugs as: (1) A biological product (as defined under section 1861(t)(1) of the Act); or (2) a single source drug (as defined in section 1927(k)(7)(A)(iv) of the Act). The commenters requested that CMS clarify that it intends to treat all biological products as sole source drugs in the future as the law requires.

Response: We agree with the commenters that biologicals products are defined as sole source “specified covered drugs” in the MMA, and we will determine payment rates for these products accordingly.

Comment: We received several comments on the mechanism for establishing payment rates for innovator and noninnovator multiple source drugs. One commenter urged CMS to set the payment rates closer to the actual Start Printed Page 65804costs for all products and services and provide differential reimbursement for innovator multiple source products only if their actual acquisition costs were markedly higher than that for the noninnovator multiple source products. Another commenter indicated that innovator and noninnovator multiple source drugs were discounted very similarly, and therefore, differential payments were not necessary. A commenter also requested that CMS obtain legislative approval to price these innovator and noninnovator multiple source drugs using a blended payment rate set halfway between 46 percent and 68 percent of their reference AWPs.

Response: We appreciate these suggestions and note that the methodology that will be used to determine payment rates for innovator and noninnovator multiple source drugs in CY 2005 is described in detail in section V.A.3.a. of this final rule with comment period.

C. Coding and Billing for Specified Outpatient Drugs

As discussed in the January 6, 2004 interim final rule with comment period (69 FR 826), hospitals were instructed to bill for sole source drugs using the existing HCPCS code, which were priced in accordance with the provisions of newly added section 1833(t)(14)(A)(i) of the Act, as added by Pub. L. 108-173. However, at that time, the existing HCPCS codes did not allow us to differentiate payment amounts for innovator multiple source and noninnovator multiple source forms of the drug. Therefore, effective April 1, 2004, we implemented new HCPCS codes via Program Transmittal 112 (Change Request 3144, February 27, 2004) and Program Transmittal 132 (Change Request 3154, March 30, 2004) that providers were instructed to use to bill for innovator multiple source drugs in order to receive appropriate payment in accordance with section 1833(t)(14)(A)(i)(II) of the Act. Providers were also instructed to continue to use the current HCPCS codes to bill for noninnovator multiple source drugs to receive payment in accordance with section 1833(t)(14)(A)(i)(III). In this manner, drugs, biologicals, and radiopharmaceuticals will be appropriately coded to reflect their classification and be paid accordingly. In the August 16, 2004 proposed rule, we proposed to continue this coding practice in CY 2005 with payment made in accordance with section 1833(t)(14)(A)(ii) of the Act.

We received a few public comments on our proposal.

Comment: Several commenters urged that CMS delete certain newly created C codes (C9400,Thallous Chloride, brand; C9401 Strontium-89 chloride, brand; C9402 Th I131 so iodide cap, brand; C9403 Dx I131 so iodide cap, brand; C9404 Dx So iodide sol, brand; C9405 Th I131 so iodide, sol. brand) because radiopharmaceuticals are better characterized as either sole source or innovator multiple source drugs. The commenters indicated that the creation of the new codes implied that some radiopharmaceuticals are generic products and others are brand, but there was no identification of which product falls within which code. Further, there was no payment difference between some of the radiopharmaceutical brand products versus generics. The commenters believed these products did not fit the conventional brand versus generic distinctions, and should all be recognized as brand drugs until the GAO report provides additional data. Also, the commenters recommended that the current A-codes be retained at the payment levels CMS proposes for “brand” drugs and believed that deletion of these codes should result in payment for the corresponding radiopharmaceuticals based on their status as a sole source or innovator multi-source drug and would significantly lessen hospital administrative burden and confusion. Another commenter indicated that hospitals needed further clarification on which manufacturers' products can be billed under the HCPCS codes created for the brand and generic forms of a product.

Response: As stated in section V.A.3.a. of this final rule with comment period, section 621(a) of Pub. L. 108-173 sets forth different payment ceilings for the brand and generic versions of a drug where the CY 2005 payment rate for innovator multiple source (brand name) drugs may not exceed 68 percent of the reference AWP and the payment for generic versions may not exceed 46 percent of the reference AWP. We explained previously that we apply those ceilings only where the payment for an item based on the median hospital cost for the drug exceeds one of these ceilings. In some cases, the payment based on the median hospital cost falls below the 46 percent ceiling for generic drugs. In such cases, as the commenters indicate, the payment rate would be the same for brand and generic versions.

We will not be providing a list of brand name and generic products for hospitals to use in determining whether their product is a brand name or generic product. We believe that hospitals are in the best position to correctly determine which type of products they are using. We refer the commenter to the definitions of innovator and noninnovator multiple source drugs stated in the January 6, 2004 interim final rule with comment period (69 FR 822). Hospitals can also use the FDA's Orange Book in determining whether an item they use is a brand name product.

D. Payment for New Drugs, Biologicals and Radiopharmaceuticals Before HCPCS Codes Are Assigned

1. Background

Historically, hospitals have used a code for an unlisted or unclassified drug, biological, or radiopharmaceutical or used an appropriate revenue code to bill for drugs, biologicals, and radiopharmaceuticals furnished in the outpatient department that do not have an assigned HCPCS code. The codes for not otherwise classified drugs, biologicals, and radiopharmaceuticals are assigned packaged status under the OPPS. That is, separate payment is not made for the code, but charges for the code would be eligible for an outlier payment and, in future updates, the charges for the code are packaged with the separately payable service with which the code is reported for the same date of service.

Drugs and biologicals that are newly approved by the FDA and for which an HCPCS code has not yet been assigned by the National HCPCS Alpha-Numeric Workgroup could qualify for pass-through payment under the OPPS. An application must be submitted to CMS in order for a drug or biological to be assigned pass-through status, along with a temporary C-code for billing purposes, and an APC payment amount. Pass-through applications are reviewed on a flow basis, and payment for drugs and biologicals approved for pass-through status is implemented throughout the year as part of the quarterly updates of the OPPS.

In the November 7, 2003 final rule with comment period (68 FR 63440), we explained how CMS generally pays under the OPPS for new drugs and biologicals that are assigned HCPCS codes, but that are not approved for pass-through payment, and for which CMS had no data upon which to base a payment rate. These codes do not receive separate payment, but are assigned packaged status. Hospitals were urged to report charges for the new codes even though separate payment is not provided. Charges reported for the new codes are used to determine hospital costs and payment rates in future updates. For CY 2004, we again Start Printed Page 65805noted that drugs that were assigned an HCPCS code effective January 1, 2004, and that were assigned packaged status, remain packaged unless pass-through status is approved for the drug. If pass-through status is approved for these drugs, pass-through payments are implemented prospectively in the next available quarterly release.

2. Provisions of Pub. L. 108-173

Section 621(a)(1) of Pub. L. 108-173 amended section 1833(t) of the Act by adding paragraph (15) to provide for payment for new drugs and biologicals until HCPCS codes are assigned under the OPPS. Under this provision, we are required to make payment for an outpatient drug or biological that is furnished as part of covered OPD services for which a HCPCS code has not been assigned in an amount equal to 95 percent of AWP. This provision applies only to payments under the OPPS, effective January 1, 2004. However, we did not implement this provision in the January 6, 2004 interim final rule with comment period because we had not determined at that time how hospitals would be able to bill Medicare and receive payment for a drug or biological that did not have an identifying HCPCS code.

As stated earlier, at its February 2004 meeting, the APC Panel heard presentations suggesting how to make payment for a drug or biological that did not have a code. The APC Panel recommended that we work swiftly to implement a methodology to enable hospitals to file claims and receive payment for drugs that are newly approved by the FDA. The APC Panel further recommended that we consider using temporary or placeholder codes that could be quickly assigned following FDA approval of a drug or biological to facilitate timely payment for new drugs and biologicals.

We explored a number of options to make operational the provisions of section 1833(t)(15) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, as soon as possible. One of the approaches that we considered was to establish a set of placeholder codes in the Outpatient Code Editor (OCE) and the PPS pricing software for the hospital OPPS (PRICER) that we would instruct hospitals to use when a new drug was approved. Hospitals would be able to submit claims using the new code but would receive no payment until the next quarterly update. By that time, we would have installed an actual payment amount and descriptor for the code into the PRICER, and would mass-adjust claims submitted between the date of FDA approval and the date of installation of the quarterly release. A second option that we considered was to implement an APC, a C-code, and a payment amount as part of the first quarterly update following notice of FDA approval of a drug or biological. Hospitals would hold claims for the new drug or biological until the quarterly release was implemented and then submit all claims for the drug or biological for payment using the new C-code to receive payment on a retroactive basis. We also considered instructing hospitals to bill for a new drug or biological using a “not otherwise classified” code for which they would receive an interim payment based on charges converted to cost. Final payment would then be reconciled at cost report settlement. While each of these approaches might enable hospitals to begin billing for a newly approved drug or biological as soon as it received FDA approval, each approach had significant operational disadvantages, such as increased burden on hospitals or payment delays, or the risk of significant overpayments or underpayments that could not be resolved until cost report settlement.

We adopted an interim approach that we believe balances the need for hospitals to receive timely and accurate payment as soon as a drug or biological is approved by the FDA with minimal disruption of the OPPS claims processing modules that support the payment of claims. On May 28, 2004 (Transmittal 188, Change Request 3287), we instructed hospitals to bill for a drug or biological that is newly approved by the FDA by reporting the National Drug Code (NDC) for the product along with a new HCPCS code C9399, Unclassified drug or biological. When C9399 appears on a claim, the OCE suspends the claim for manual pricing by the fiscal intermediary. The fiscal intermediary prices the claim at 95 percent of its AWP using Red Book or an equivalent recognized compendium, and processes the claim for payment. This approach enables hospitals to bill and receive payment for a new drug or biological concurrent with its approval by the FDA. The hospital does not have to wait for the next quarterly release or for approval of a product-specific HCPCS to receive payment for a newly approved drug or biological or to resubmit claims for adjustment. Hospitals would discontinue billing C9399 and the NDC upon implementation of an HCPCS code, status indicator, and appropriate payment amount with the next quarterly update.

In the August 16, 2004 proposed rule, we proposed to formalize this methodology for CY 2005 and to expand it to include payment for new radiopharmaceuticals to which a HCPCS code is not assigned (see section V.G. of this preamble). We solicited comments on the methodology and expressed particular interest in the reaction of hospitals to using this approach to bill and receive timely payment under the OPPS for drugs, biologicals, and radiopharmaceuticals that are newly approved by the FDA, prior to assignment of a product-specific HCPCS code.

We received a number of public comments on our proposal.

Comment: One commenter, a state hospital association, is concerned about the ability of hospitals to correctly code for newly approved drugs and biologicals without HCPCS codes using the NDC codes. The commenter indicates that typically only pharmacy systems within hospitals can properly handle the assignment and reporting of a drug's NDC, not the hospital billing systems. Additionally, the use of the Remarks field to report the NDC creates payment delays as it requires manual review and pricing by the fiscal intermediaries. Several commenters, including a national hospital association and several state hospital associations, recommended that CMS adopt a new revenue code subcategory for hospitals to use when reporting these newly FDA-approved drugs and biologicals on UB-92 paper claims. The hospital could use the new revenue code along with the reported NDC in the revenue-code description field. Establishing a new revenue code field, to be used with the description field, allows clearinghouses to scan the paper UB-92 and then convert the data into the appropriate HIPAA standard for auto adjudication. The FI would then no longer have to suspend these paper claims for manual pricing, because it would build logic into the system to auto-adjudicate these claims. The hospital would then continue to report C9399 (HCPCS code indicating Unclassified drug or biological) in the HCPCS field, the units in the Unit field, the date the drug was administered in the date field, and finally, the price of these drugs in the Total Charges field. These commenters believed that this alternative policy would greatly improve the current process for both hospitals and fiscal intermediaries.

Response: We read the hospital associations' recommendation for an alternative approach to report NDCs on UB-92 paper claims with interest and will explore its feasibility with the different components within CMS that are responsible for claims processing, information technology and systems, Start Printed Page 65806and HIPAA standards. It appears that time-consuming systems changes could be required were we to adopt such an approach, which could delay implementation, but we will consider the proposal carefully.

Comment: A maker of pharmaceuticals commends CMS for implementing the mechanism where hospitals can bill and be paid for new drugs without HCPCS codes. However, the commenter is concerned that the use of a miscellaneous code may result in significant payment delays and potentially prevent patient access to new therapies. The commenter suggests that CMS monitor claims submission, timely processing, and payments more closely so that patient access to new therapies is not impeded. Another commenter suggested that CMS should modify this mechanism if necessary to ensure patients have access to cutting-edge drugs. One commenter suggested that CMS explore with its contractors the feasibility of automating processing of these claims by including the NDC number as a claims processing field when the miscellaneous C code appears on a claim since such a process would eliminate the additional costs of manual claim review and expedite provider payment.

Response: We share the commenters' concerns that claims processing systems not impede beneficiary access to new drug therapies. However, we believe the approach that we implemented in CY 2004 and that we proposed to adopt permanently beginning in CY 2005, which requires the use of HCPCS code C9399 to be reported with an appropriate NDC, will result in hospitals receiving payment for new drugs more quickly compared to the process that we followed previously, even though some manual handling of claims is required. We agree with the commenter who suggested that CMS closely monitor claims submission, timely processing, and payments for new drugs, and we intend to do so.

Comment: One commenter encouraged CMS to reconsider the payment policy that requires the reporting of the NDC for new drugs as “mandatory” and consider making the NDC “optional.” For providers unable to automate the reporting of the NDC number due to software limitations, it suggested that CMS consider allowing providers the option of listing the NDC number in the detailed drug name as reported on the itemized statement of charges that can be requested along with the UB reporting the C9399 code.

Response: As we have indicated in previous responses to commenters' suggestions regarding ways to implement the payment requirement for new drugs and biologicals that have not been assigned a HCPCS code, we will also consider this commenter's recommendation to determine its feasibility.

Comment: Several commenters urged CMS to reconsider the policy of preloading several new codes into CMS' computer system and assigning them to new drugs and biologicals as the Food and Drug Administration approved them, rather than requiring manual processing of claims using a single miscellaneous code. If CMS determines that the current policy is imposing too great an administrative burden on hospitals and delays in processing claims that harm hospitals' ability to provide new drugs and biologicals to Medicare beneficiaries, the commenters urged CMS to reconsider its proposal and to explore preloading placeholder codes instead.

Response: Preloading placeholder codes was one of the options that we considered before we implemented C9399, but we found that this approach had its disadvantages, most of which stemmed from concerns about delays related to the dissemination of new codes to providers and installing prices into the claims processing modules in a timely manner. We propose to monitor throughout CY 2005 the use of HCPCS code C9399 and NDC codes to evaluate whether this approach is an improvement over how hospitals were previously paid for new drugs to which a HCPCS code had not been assigned and to determine if changes in the process would be beneficial.

Comment: One commenter indicated that requiring hospitals to submit the National Drug Code on claims imposes an enormous administrative burden on hospitals because there is no field for NDCs on the claims form and, therefore, NDCs cannot be entered on the claim automatically. Rather, claims must be flagged and adjusted manually. The commenter suggested that the best solution is to close the lag time between FDA approval and HCPCS assignment of a new drug. By creating a seamless execution of approval and code assignment, CMS can ensure that the MMA mandate is fulfilled in the least burdensome manner and that providers are adequately paid for providing these new drugs.

Response: While the use of NDCs may impose a degree of reporting burden on hospitals, we believe that, in spite of the inconvenience of manual reporting and claims processing, this approach is the most efficient way to expedite payment to hospitals for newly approved drugs to which a HCPCS code has not been assigned.

Comment: One commenter, an association for cancer centers, supported CMS' proposal for reporting new drugs without HCPCS codes using C9399 and any other necessary data. However, the commenter requested clarification from CMS on whether C9399 can only be used for injectible drugs or whether this code can also be used to report all newly approved FDA drugs (including oral drugs). The commenter believed that C9399 can be used for all Medicare-covered drugs, including oral anti-emetics and oral chemotherapeutics with IV equivalents, but requested that CMS clarify this issue to ensure that fiscal intermediaries correctly process this new code.

Response: Our instructions regarding how hospitals may report a new drug using C9399 and NDCs only indicate the method by which hospitals can bill Medicare for payment if the new drug is covered by the Medicare program. These instructions do not represent a determination that the Medicare program covers a new drug for which a hospital submits a bill using C9399. In addition to determining payment, fiscal intermediaries must determine whether a drug billed with C9399 meets all program requirements for coverage. For example, they must assess whether the drug is reasonable and necessary to treat the beneficiary's condition and whether the drug is excluded from payment because it is usually self-administered. The same rules, regulations, and policies that apply to coverage of drugs, biologicals, and radiopharmaceutical agents that already have a HCPCS code also apply to newly approved items for which a HCPCS code has not yet been assigned.

Comment: Two commenters urged CMS to publish the approved drugs and radiopharmaceuticals that may be submitted under HCPCS code C9399, as well as the appropriate units of measure applicable for each drug or biological and the payment amount for the drug based on 95 percent of the AWP. One commenter indicated that hospitals are concerned that they will not identify all of the drugs that are eligible for this payment and are also concerned that they may inappropriately assign the HCPCS code to drugs that are not eligible for this payment. Additionally, there is an administrative burden placed both on providers and the fiscal intermediaries when CMS does not publish the payment rates for these drugs.

Response: We understand that use of C9399 and NDCs is a departure from how hospitals have become accustomed Start Printed Page 65807to preparing Medicare claims for the OPPS services. However, the MMA mandates that hospitals be paid 95 percent of AWP for new drugs until a HCPCS code is assigned to that drug. We believe this MMA provision is intended to ensure that hospitals can receive timely payment for new drugs, biologicals, and radiopharmaceuticals without having to wait for a HCPCS code to be created and disseminated or for an OPPS payment amount to be implemented in a quarterly OPPS update. Generally, CMS learns of FDA approval of a new product at approximately the same time the public learns of the approval. Hospitals may wish to look to their advocacy associations for assistance in monitoring the FDA Web site to identify new products as they are approved, as a supplemental information source. We also intend to explore ways hospitals could systematically receive timely reports of newly approved drugs by means other than checking the FDA Web site. However, how to report a product rests with the hospital, as it does for any drug, biological, radiopharmaceutical agent, procedure, or service, with or without a HCPCS code. Therefore, we are not accepting the commenters' suggestion that we publish the approved drugs and radiopharmaceuticals that may be submitted under HCPCS code C9399, as well as the appropriate units of measure applicable for each drug or biological and the payment amount for the drug based on 95 percent of the AWP. Rather, we prefer to focus our resources on updating the OPPS on a quarterly basis with codes, APC assignments, and payment amounts for drugs, biologicals, and radiopharmaceuticals newly approved by the FDA during the prior quarter.

We have carefully considered commenters' recommendations and concerns, and we believe that our proposed methodology for using C9399 and NDC codes to bill for drugs, biologicals, and radiopharmaceutical agents newly approved by FDA to which a HCPCS code is not assigned is the most efficient and practicable approach at this time to ensure timely, appropriate Medicare payment for these new products. Therefore, we are making final for CY 2005 our proposed methodology, without modification.

E. Payment for Vaccines

Outpatient hospital departments administer large numbers of immunizations for influenza (flu) and pneumococcal pneumonia (PPV), typically by participating in immunization programs. In recent years, the availability and cost of some vaccines (particularly the flu vaccine) have fluctuated considerably. As discussed in the November 1, 2002 final rule (67 FR 66718), we were advised by providers that the OPPS payment was insufficient to cover the costs of the flu vaccine and that access of Medicare beneficiaries to flu vaccines might be limited. They cited the timing of updates to the OPPS rates as a major concern. They indicated that our update methodology, which uses 2-year-old claims data to recalibrate payment rates, would never be able to take into account yearly fluctuations in the cost of the flu vaccine. We agreed with this concern and decided to pay hospitals for influenza and pneumococcal pneumonia vaccines based on a reasonable cost methodology. As a result of this change, hospitals, home health agencies (HHAs), and hospices, which were paid for these vaccines under the OPPS in CY 2002, have been receiving payment at reasonable cost for these vaccines since CY 2003. We are aware that access concerns continue to exist for these vaccines. However, we continue to believe that payment other than on a reasonable cost basis would exacerbate existing access problems. Therefore, in the August 16, 2004 proposed rule, we proposed to continue paying for influenza and pneumococcal pneumonia vaccines under the reasonable cost methodology in CY 2005.

Comment: Several commenters applauded CMS' proposal to continue to pay for vaccines under the reasonable cost methodology. The commenters indicated that payment on a reasonable cost basis helps ensure that the OPPS rates are adequate to cover hospitals' costs of providing vaccines to Medicare beneficiaries, protecting their health, and reducing Medicare's costs of treating influenza and other preventable illnesses.

Response: We appreciate the commenters' continued support of our policy to pay for influenza and pneumococcal pneumonia vaccines at reasonable cost and finalize our proposal in this final rule with comment period. We note that for CY 2005 a new CPT code for an influenza vaccine was created. The new CPT code 90656 (Influenza virus vaccine, split virus, preservative free, for use in individuals 3 years and above, for intramuscular use) will be paid at reasonable cost in CY 2005. We have assigned status indicator “L” (Not Paid under OPPS. Paid at reasonable cost) to this new CPT code.

F. Changes in Payment for Single Indication Orphan Drugs

Section 1833(t)(1)(B)(i) of the Act gives the Secretary the authority to designate the hospital outpatient services to be covered. The Secretary has specified coverage for certain drugs as orphan drugs (section 1833(t)(14)(B)(ii)(III) of the Act as added by section 621(a)(1) of Pub. L. 108-173). Section 1833(t)(14)(C) of the Act as added by section 621(a)(1) of Pub. L. 108-173, gives the Secretary the authority in CYs 2004 and 2005 to specify the amount of payment for an orphan drug that has been designated as such by the Secretary.

We recognize that orphan drugs that are used solely for an orphan condition or conditions are generally expensive and, by definition, are rarely used. We believe that if the cost of these drugs were packaged into the payment for an associated procedure or visit, the payment for the procedure might be insufficient to compensate a hospital for the typically high cost of this special type of drug. Therefore, in the August 16, 2004 proposed rule, we proposed to continue making separate payments for orphan drugs based on their currently assigned APCs.

In the November 1, 2002 final rule (67 FR 66772), we identified 11 single indication orphan drugs that are used solely for orphan conditions by applying the following criteria:

  • The drug is designated as an orphan drug by the FDA and approved by the FDA for treatment of only one or more orphan conditions(s).
  • The current United States Pharmacopoeia Drug Information (USPDI) shows that the drug has neither an approved use nor an off-label use for other than the orphan condition(s).

Eleven single indication orphan drugs were identified as having met these criteria and payments for these drugs were made outside of the OPPS on a reasonable basis.

In the November 7, 2003 final rule with comment period (68 FR 63452), we discontinued payment for orphan drugs on a reasonable cost basis and made separate payments for each single indication orphan drug under its own APC. Payments for the orphan drugs were made at 88 percent of the AWP listed for these drugs in the April 1, 2003 single drug pricer, unless we were presented with verifiable information that showed that our payment rate did not reflect the price that is widely available to the hospital market. For CY 2004, Ceredase (alglucerase) and Cerezyme (imiglucerase) were paid at 94 percent of AWP because external data Start Printed Page 65808submitted by commenters on the August 12, 2003 proposed rule caused us to believe that payment at 88 percent of AWP would be insufficient to ensure beneficiaries' access to these drugs.

In the December 31, 2003 correction of the November 7, 2003 final rule with comment period (68 FR 75442), we added HCPCS code J9017, arsenic trioxide (per unit) to our list of single indication orphan drugs. As of the time of our August 16, 2004 proposed rule, the following were the 12 orphan drugs that we have identified as meeting our criteria: J0205 Injection, alglucerase, per 10 units; J0256 Injection, alpha 1-proteinase inhibitor, 10 mg; J9300 Gemtuzumab ozogamicin, 5 mg; J1785 Injection, imiglucerase, per unit; J2355 Injection, oprelvekin, 5 mg; J3240 Injection, thyrotropin alpha, 0.9 mg; J7513 Daclizumab parenteral, 25 mg; J9015 Aldesleukin, per vial; J9017 Arsenic trioxide, per unit; J9160 Denileukin diftitox, 300 mcg; J9216 Interferon, gamma 1-b, 3 million units and Q2019 Injection, basiliximab, 20 mg. In the August 16, 2004 proposed rule, we did not propose any changes to this list of orphan drugs for CY 2005.

In the proposed rule, we noted that had we not classified these drugs as single indication orphan drugs for payment under the OPPS, they would have met the definition as a single source specified covered outpatient drug and been paid lower payments which could impede beneficiary access to these unique drugs dedicated to the treatment of rare diseases. Instead, for CY 2005, under our authority at section 1833(t)(14)(C) of the Act, we proposed to pay for all 12 single indication orphan drugs, including Ceredase and Cerezyme, at the rate of 88 percent of AWP or 106 percent of the ASP, whichever is higher. However, for drugs where 106 percent of the ASP would exceed 95 percent of AWP, payment would be capped at 95 percent of AWP, which is the upper limit allowed for sole source specific covered outpatient drugs. For example, Ceredase and Cerezyme would each be paid at 95 percent of the AWP because payment at ASP plus 6 percent for these two drugs not only exceeds 88 percent of the AWP but also exceeds 95 percent of the AWP. We proposed to pay the higher of 88 percent of AWP or 106 percent of ASP capped at 95 percent of AWP to ensure that beneficiaries will continue to have access to such important drugs.

We received the following comments to our August 16, 2004 proposed rule on single indication orphan drugs.

Comment: A few commenters recommended that CMS adopt the FDA's definition of an orphan drug as under the Orphan Drug Act. The commenters indicated that CMS should expand the current list of 12 single-indication orphan drugs that receive special treatment to include several other FDA-designated orphan drugs. One commenter requested that CMS adopt a utilization threshold to identify orphan drugs that would receive the special treatment rather than using its current criteria.

Response: Using the statutory authority in section 1833(t)(1)(B)(i) of the Act, which gives the Secretary broad authority to designate covered OPD services under the OPPS, we have established criteria which distinguish single-indication orphan drugs from other drugs designated as orphan drugs by the FDA under the Orphan Drug Act. Our determination to provide special payment for these drugs neither affects nor deviates from FDA's classification of any drugs as orphan drugs. The special treatment given to this subset of FDA-designated orphan drugs is intended to ensure that beneficiaries have continued access to these life-saving therapies given that these drugs have a relatively low volume of patient use, lack any other non-orphan indication and are typically very costly. Although we are not expanding our criteria to identify orphan drugs that will receive special payment for CY 2005, we will consider the commenters' recommendation of a utilization threshold in future changes to the OPPS orphan drug list.

Comment: We received comments from different drug manufacturers separately requesting that Campath (J9010, Alemtuzumab), Elitek (J2783, Rasburicase), Vidaza (C9218, Azacitidine for injectable suspension), and Botox (J0585, Botulinum toxin type A) be included in the list of single-indication orphan drugs that will receive special payment for CY 2005.

Response: After careful review of the requests for these four drugs to be included in the list of single-indication orphan drugs, we have determined that Campath (J9010) and Vidaza (C9218) do meet our criteria for inclusion in the list. Thus, effective for January 1, 2005, J9010 and C9218 will be paid in accordance with the payment policy for single indication orphan drugs for CY 2005. However, we have determined that Elitek (J2783) and Botox (J0585) do not meet the criteria for inclusion in the list because these drugs have an off-label use as indicated by the 2004 United States Pharmacopoeia Drug Information (USPDI).

Comment: Several commenters, including manufacturers of alpha-1 proteinase inhibitor (J0256) sold under the brand names Prolastin, Aralast and Zemaira, submitted comments expressing concern over the decrease in the payment rate for HCPCS J0256 from the CY 2004 level to the CY 2005 proposed rate. The majority of commenters requested that the payment rate for J0256 be frozen at the CY 2004 levels, rather than based on the AWP of Prolastin, the least expensive drug among the three name brands. As some commenters explained, Prolastin has experienced supply shortages in the past and if the payment rate for the alpha-1 therapy did not take into account the higher AWPs of Aralast or Zemaira, it would be inadequate to cover the actual acquisition costs of the drugs to hospitals.

The manufacturer of Aralast requested that CMS exclude pricing information associated with Prolastin when setting the payment rate for J0256. The commenter stated that although Prolastin is currently available and used in greater quantities than either Aralast or Zemaira , it has experienced supply shortages in the past. Therefore, according to the commenter, the payment rate for J0256 needs to be such that patients will have continued access to all three brand names. Alternatively, the commenter recommended that new HCPCS codes could be created so each brand name could be paid appropriately or CMS could freeze the payment rate for J0256 at the CY 2004 levels, as the majority of commenters recommended.

The manufacturer of Zemaira expressed concern that the proposed payment rate does not meet the actual hospital acquisition cost for this brand name, which is the newest of the three brand names to come on the market to be used in alpha-1 therapy.

We received a comment from an organization representing voluntary health organizations and individual patients that stated that the proposed payments for CY 2005 were adequate to avoid problems with access to the orphan drugs that patients with rare diseases need. In addition, the commenter requested that CMS take actions to monitor any changes in beneficiaries' access to orphan drugs as a result of payment changes, to review the claims database for changes in utilization patterns, to seek input from beneficiaries about access problems, and to inform beneficiaries about payment changes and the potential impact of such changes on their access.

We also received recommendations from a patient advocacy organization requesting that CMS work with the manufacturers of the alpha-1 therapy to obtain the data necessary to raise the proposed OPPS rate of $2.46 (per 10 mg) or to establish the ASP rate which may Start Printed Page 65809enhance patient access to care. The commenter also recommended that CMS base the payment rate for J0256 on all available brands.

Response: After careful evaluation of the issues and concerns raised by commenters in response to our proposed rule, we recognize that our proposed payment rate for HCPCS code J0256 may create an unanticipated access problem during periods of short supply. Therefore, in order to ensure continued beneficiaries' access to this important drug, we will base the payment rate for HCPCS code J0256 on all three brands of the alpha-1 proteinase inhibitor currently available on the market. The adjusted AWP of HCPCS code J0256 will be based on the volume-weighted average of the three drugs. The adjusted AWP will be updated each quarter, as necessary, to reflect any changes in the individual AWP or relative weight of each drug in the calculation of the AWP for HCPCS code J0256. We would expect that as the volume and/or individual AWP increases or decreases for a brand, these changes will be captured in its relative weight and will be reflected in the adjusted AWP for HCPCS code J0256.

We share the commenters' concern for protecting beneficiaries' access to these therapies used for rare disease conditions. As part of our process of developing special payment rates for single indication orphan drugs in CY 2005, our analysis of CY 2003 claims data does not indicate a decrease in utilization of any orphan drugs that may signify barriers to beneficiaries' access to these drugs.

Comment: Several commenters recommended that CMS eliminate the 95 percent AWP cap on single-indication orphan drugs whose ASP plus 6 percent would exceed their 88 percent AWP. According to the commenters, these drugs would not be subject to the 95 percent AWP cap when administered in the physician's office. They argued that CMS should pay for these drugs at the same rate, irrespective of the site of service.

We received a request from the drug manufacturer of Ontak to increase the payment rate for the drug from 88 percent of the May 2004 AWP to 92 percent of the current AWP. Alternatively, the commenter requested that CMS remove the 95 percent AWP cap for J9160 (Ontak).

Response: We believe that access to these life-saving therapies is extremely important and after careful consideration, we will not implement the cap of 95 percent of AWP for any of the single-indication orphan drug for those drugs whose 106 percent ASP exceeds 88 percent of AWP. Effective for CY 2005, payment for all single-indication orphan drugs will be set at the higher of 106 percent of the most current ASP or 88 percent of the most current AWP.

Comment: A few commenters recommended that CMS update the payment rates quarterly, based on the latest ASP and AWP data available. They argue that to lock in the rates for a year based on outdated information could impede patient access to these drugs.

Response: We agree with the commenters and will base payments for single-indication orphan drugs on a quarterly comparison of ASP and AWP data. Appropriate adjustments to the payment amounts shown in Addendum A and B will be made if ASP submissions and AWP data in a later quarter indicate that adjustments to the payment rates are necessary. These changes to the Addenda will be announced in our program instructions released on a quarterly basis and posted on our Web site at http://www.cms.hhs.gov.

Comment: We also received a comment from the manufacturer of Fabrazyme requesting that CMS consider making payment for Fabrazyme (C9208, agalsidase beta) as a single-indication orphan drug. The commenter believes that by statute, CMS is required to pay for the drug at 106 percent of ASP; however, the commenter stated that if CMS were to somehow reach a different conclusion, it would request to be treated as a single-indication orphan drug.

Response: We agree with the commenter that the statute requires that payment for Fabrazyme (C9208), a drug that currently has pass-through status, be made at 106 percent of ASP for CY 2005.

In summary, we have set payment rates for single-indication orphan drugs according to the following policy, effective January 1, 2005:

  • We are using the same criteria that we implemented in CY 2003 to identify single indication orphan drugs used solely for an orphan condition for special payment under the OPPS; and,
  • We are setting payment under the CY 2005 OPPS for single indication orphan drugs at the higher of 88 percent of the AWP or the ASP plus 6 percent, updated quarterly to reflect the most current AWP and ASP data.

While we are not implementing the 95 percent AWP cap on single-indication orphan drugs in CY 2005, we will monitor this decision and may apply the cap in future OPPS updates.

G. Change in Payment Policy for Radiopharmaceuticals

In the November 1, 2002 OPPS final rule (67 FR 66757), we determined that we would classify any product containing a therapeutic radioisotope to be in the category of benefits described under section 1861(s)(4) of the Act. We also determined that the appropriate benefit category for diagnostic radiopharmaceuticals is section 1861(s)(3) of the Act. We stated in the November 1, 2002 final rule that we will consider neither diagnostic nor therapeutic radiopharmaceuticals to be drugs as defined in 1861(t) of the Act (67 FR 66757). Therefore, beginning with the CY 2003 OPPS update, and continuing with the CY 2004 OPPS update, we have not qualified diagnostic or therapeutic radiopharmaceuticals as drugs or biologicals.

As we stated in the August 16, 2004 proposed rule, when we analyzed the many changes mandated by Pub. L. 108-173 that affect how we would pay for drugs, biologicals, and radiopharmaceuticals under the OPPS in CY 2005, we revisited the decision that we implemented in CY 2003 not to classify diagnostic and therapeutic radiopharmaceuticals as drugs or biologicals. In our analysis, we noted that although we did not consider radiopharmaceuticals for pass-through payment in CYs 2003 and 2004, we did apply to radiopharmaceuticals the same packaging threshold policy that we applied to other drugs and biologicals, and which we proposed to continue in CY 2005. In addition, for the CY 2004 OPPS update, we applied the same adjustments to median costs for radiopharmaceuticals that we applied to separately payable drugs and biologicals that did not have pass-through status (68 FR 63441).

In our review of this policy, we noted that section 1833(t)(14)(B)(i) of the Act, as amended by section 621(a) of Pub. L. 108-173, does include “radiopharmaceutical” within the meaning of the term “specified covered outpatient drugs,” although neither section 621(a)(2) nor section 621(a)(3) of Pub. L. 108-173 includes a reference to radiopharmaceuticals.

In an effort to provide a consistent reading and application of the statute, we proposed to apply to radiopharmaceuticals certain provisions in section 621 of Pub. L. 108-173 which affect payment for drugs and biologicals billed by hospitals for payment under the OPPS. We believed it was reasonable to include radiopharmaceuticals in the general category of drugs in light of their Start Printed Page 65810inclusion as specified covered outpatient drugs in section 1833(t)(14)(B) of the Act, as added by section 621(a)(1) of Pub. L. 108-173.

Section 621(a)(1) of Pub. L. 108-173, which amends section 1833(t) of the Act by adding a new subparagraph (14) affecting payment for radiopharmaceuticals under the OPPS, is unambiguous. This provision clearly requires that separately paid radiopharmaceuticals be classified as “specified covered outpatient drugs.” Therefore, in CY 2005, we proposed to continue to set payment for radiopharmaceuticals in accordance with these requirements, which are discussed in detail in section V.B.3. of this preamble.

Section 1833(t)(16)(B) of the Act, as added by section 621(a)(2) of Pub. L. 108-173, requires us to reduce the threshold for the establishment of separate APCs with respect to drugs and biologicals to $50 per administration for drugs and biologicals furnished in 2005 and 2006. We proposed to apply the $50 packaging threshold methodology discussed in section V.B.2. of this final rule with comment period to radiopharmaceuticals as well as to drugs and biologicals.

Section 1833(t)(15) of the Act, added by section 621(a)(1) of Pub. L. 108-173, requires us to make payment equal to 95 percent of the AWP for an outpatient drug or biological that is covered and furnished as part of covered OPD services for which a HCPCS code has not been assigned. We proposed, beginning in CY 2005, to extend to radiopharmaceuticals the same payment methodology discussed in section V.D. of this preamble for new drugs and biologicals before HCPCS codes are assigned. That is, we proposed to pay for newly approved radiopharmaceuticals, as well as newly approved drugs and biologicals, at 95 percent of AWP prior to assignment of a HCPCS code.

Section 1833(t)(5)(E) of the Act, as added by section 621(a)(3) of Pub. L. 108-173, excludes separate drug and biological APCs from outlier payments. Beginning in CY 2005, we proposed to apply section 621(a)(3) of Pub. L. 108-173 to APCs for radiopharmaceuticals. That is, beginning in CY 2005, radiopharmaceuticals would be excluded from receiving outlier payments.

Consistent with our proposed policy to apply to radiopharmaceutical agents payment policies that apply to drugs and biologicals, we further proposed, beginning in CY 2005, to accept applications for pass-through status for certain radiopharmaceuticals. That is, we proposed on a prospective basis to consider for pass-through status those radiopharmaceuticals to which a HCPCS code is first assigned on or after January 1, 2005. As we explain in section V.A.3. of this final rule with comment period, section 1833(t)(6)(D)(i) of the Act sets the payment rate for pass-through eligible drugs and biologicals as the amount determined under section 1842(o) of the Act. In the August 16, 2004 proposed rule, we proposed to pay for drugs and biologicals with pass-through status in CY 2005 consistent with the provisions of section 1842(o) of the Act as amended by Pub. L. 108-173, at a rate that is equivalent to the payment these drugs and biologicals would receive in the physician office setting and set in accordance with the methodology described in the Medicare Physician Fee Schedule Proposed Rule for CY 2005 (69 FR 47488, 47520 through 47524).

We issued an interim final rule with comment period entitled “Medicare Program: Manufacturer Submission of Manufacturer's Average Sales Price (ASP) Data for Medicare Part B Drugs and Biologicals” in the April 6, 2004 Federal Register, related to the calculation and submission of manufacturer's ASP data (69 FR 17935). We need these data in order to determine payment for drugs and biologicals furnished in a physician office setting in accordance with the methodology described in the Medicare Physician Fee Schedule Proposed Rule (69 FR 47488, 47520 through 47524). However, the April 6, 2004 interim final rule with comment period excludes radiopharmaceuticals from the data reporting requirements that apply to Medicare Part B covered drugs and biologicals paid under sections 1842(o)(1)(D), 1847A, or 1881(b)(13)(A)(ii) of the Act (69 FR 17935). As a consequence, we would not have the same type of data available to determine payment for a new radiopharmaceutical approved for pass-through status after January 1, 2005 that would be available to determine payment for a new drug or biological with pass-through status in CY 2005.

Therefore, in order to set payment for a new radiopharmaceutical approved for pass-through status in accordance with 1842(o) of the Act and in a manner that is consistent with how we proposed to set payment for a pass-through drug or biological, we proposed a methodology that would apply solely to new radiopharmaceuticals for which payment would be made under the OPPS and for which an application for pass-through status is submitted after January 1, 2005. That is, in order to receive pass-through payment for a new radiopharmaceutical under the OPPS, a manufacturer would be required to submit data and certification for the radiopharmaceutical in accordance with the requirements that apply to drugs and biologicals under section 303 of Pub. L. 108-173 as set forth in the interim final rule with comment period issued in the April 6, 2004 Federal Register (66 FR 17935) and described on the CMS Web site at http://cms.hhs.gov. We proposed that payment would be determined in accordance with the methodology applicable to drugs and biologicals that is discussed in the CY 2005 Medicare Physician Fee Schedule proposed rule (69 FR 47488, 47520-47524). In the event the manufacturer seeking pass-through status for a radiopharmaceutical does not submit data in accordance with the requirements specified for new drugs and biologicals, we proposed to set payment for the new radiopharmaceutical as a specified covered outpatient drug, under section 1833(t)(14)(A) as added by section 621(a)(1) of Pub. L. 108-173.

We received many public comments on our proposals.

Comment: Many commenters applauded CMS for proposing to treat radiopharmaceuticals as drugs and encouraged CMS to continue to pay for these products as “specified covered outpatient drugs” under the OPPS, consistent with section 621(a) of the MMA. They indicated that this policy ensures consistent treatment of drugs and radiopharmaceuticals, eliminates confusion related to the prior differences in their treatment under the OPPS, and facilitates patient access to these important therapies in clinically appropriate settings. One of the commenters also supported the proposal to exclude radiopharmaceuticals from receiving outlier payments in CY 2005.

Response: We appreciate the commenters' support of our policy to treat radiopharmaceuticals as drugs and will finalize this policy for CY 2005.

Comment: Several commenters opposed our proposal to require manufacturers to submit ASP data for radiopharmaceutical agents with pass-through status. One manufacturer of radiopharmaceuticals stated that there are significant practical problems and legal barriers to reporting ASP for radiopharmaceuticals. The commenter indicated that manufacturers often sell the components of a radiopharmaceutical to independent radiopharmacies. These radiopharmacies then sell unit doses to many hospitals; however, some hospitals also purchase the components Start Printed Page 65811of the radiopharmaceutical and prepare the radiopharmaceutical through in-house radiopharmacies. This commenter asserted that the end result is that there is very often no ASP for the finished radiopharmaceutical product. For example, there may only be manufacturer pricing for the components; however, the price set by the manufacturer for one component of a radiopharmaceutical does not directly translate into the acquisition cost of the “complete” radiopharmaceutical, which may result from the combination of several components. This commenter recommended that CMS be consistent and not require ASP in the OPPS, as CMS does not require ASP for radiopharmaceuticals in the Medicare Physician Fee Schedule. The commenter thus urged CMS to determine payment for pass-through radiopharmaceuticals as specified covered outpatient drugs, based on AWP or acquisition costs. Another commenter recommended that CMS set payment for all pass-through radiopharmaceuticals in CY 2005 using the AWP-based “specified covered outpatient drugs” payment methodology, regardless of whether ASP data are available for the drug and stated that this methodology is more appropriate for these products, because it will be more likely to ensure adequate payment as use of the product is adopted, and thus will provide for robust cost data for future rate-setting purposes.

Response: We appreciate these comments and understand the concerns commenters stated regarding our proposal to require manufacturers of radiopharmaceutical agents with pass-through status to submit ASP data. We recognize the complexities of determining ASP for radiopharmaceuticals because of their unique preparation processes; therefore, we agree with the commenters' concerns about finalizing the proposed policy. Because radiopharmaceuticals are not paid on ASP in the physician office setting, manufacturers of these agents will not be required to report ASPs for payment purposes under the OPPS. Therefore, payment for radiopharmaceuticals with pass-through status will be made in accordance with their status as sole source “specified covered outpatient drugs.” That is, in the absence of both ASP data and hospital claims data, we will set payment for new radiopharmaceuticals approved for pass-through status beginning in CY 2005 at the floor for sole source “specified coveraged outpatient drugs,” which is 83 percent of the AWP.

Comment: A few commenters urged CMS to revise the HCPCS code descriptors for radiopharmaceutical products that do not currently have “per dose” or “per study” descriptors and indicated that “per dose” or “per study” code descriptors will facilitate the collection of more accurate charge and cost data which are necessary to establish equitable payment for radiopharmaceutical agents.

Response: We recognize the concerns expressed by these commenters. As we have stated in the November 7, 2003 OPPS final rule with comment period (68 FR 63451), we continue to believe that in changing descriptors to “per dose” or “per study”, we will lose specificity with respect to the data we will receive from hospitals. We are not convinced that there is a programmatic need to change the radiopharmaceutical code descriptors to “per dose” or that claims data based on the current code descriptors are problematic for setting payment rates for these products. However, we will continue to work with industry representatives to ensure that the current HCPCS descriptors are appropriate and review this issue in the future, if needed. Furthermore, we stress the importance of proper coding by providers so that we can obtain accurate data for future rate setting.

Comment: A commenter strongly supported CMS requiring that hospitals report all HCPCS codes for drugs including those that are packaged and indicated that this will enable CMS to track costs and help to ensure that only correctly coded claims (those with radiopharmaceuticals) are used in setting payment rates for nuclear medicine procedures. Therefore, the commenter recommended that CMS require continued reporting of HCPCS codes for all radiopharmaceuticals (packaged and non-packaged products).

Response: We will continue to strongly encourage hospitals to report charges for all drugs using the correct HCPCS codes for the items used, including the drugs that have packaged status in CY 2005. We agree with the commenter that it is most useful to us when we have a robust set of claims for each item paid for under the OPPS. We would note, however, that with just a very few exceptions, hospitals do appear to be reporting charges for drugs, biologicals and radiopharmaceuticals using the existing HCPCS codes, even when such items have packaged status. At this time, we do not believe it is necessary to institute a requirement for drugs as we are doing for the device category codes. However, we will continue to monitor this through our annual analysis of claims data and will reconsider this in the future, if we determine that it is necessary.

H. Coding and Payment for Drug Administration

Since implementation of the OPPS, Medicare OPPS payment for administration of cancer chemotherapy drugs and infusion of other drugs has been made using the following HCPCS codes:

  • Q0081, Infusion therapy other than chemotherapy, per visit
  • Q0083, Administration of chemotherapy by any route other than infusion, per visit
  • Q0084, Administration of chemotherapy by infusion only, per visit
  • Q0085, Administration of chemotherapy by both infusion and another route, per visit

In the CY 2004 proposed rule, we proposed to change coding and payment for these services to enable us to pay more accurately for the wide range of services and the drugs that we package into these per visit codes. (Background discussion on these codes is included in the August 12, 2003 OPPS proposed rule (68 FR 47998). Commenters on the CY 2004 proposed rule recommended that we use the CPT codes for drug administration. One commenter provided a crosswalk from the CPT codes for drug administration to the Q codes that we could use in a transition. We did not implement this in the final rule for CY 2004 OPPS but indicated that we would consider it for CY 2005 and would discuss it with the APC Panel at its February 2004 meeting.

Commenters and the APC Panel recommended that we discontinue use of code Q0085 for CY 2004 because codes Q0083 and Q0084 could be used together to report the services described by code Q0085. We did implement this change for CY 2004 and made code Q0085 nonpayable for CY 2004 OPPS.

At the February 2004 APC Panel meeting, we presented a proposal from an outside organization that matched CPT codes for chemotherapy and nonchemotherapy infusions to the Q codes currently used to pay for these services under the OPPS. We asked the APC Panel for their perspective on the potential benefit of using the proposed coding approach as the basis for billing and determining the OPPS payment for administering these drugs. The APC Panel recommended that CMS continue to review the organization's proposed coding crosswalk with the goal of using it to transition from the use of Q-codes Start Printed Page 65812to that of CPT codes to bill for administration of these drugs.

In the August 16, 2004 proposed rule, for CY 2005, we proposed to use the CPT codes for drug administration but to crosswalk the CPT codes into APCs that reflect how the services would have been paid under the Q codes. Although hospitals would bill the CPT codes and include the charges for each CPT code on the claim, payment would be made on a per visit basis, using the cost data from the per visit Q codes (Q0081, Q0083 and Q0084) to set the payment rate for CY 2005. See Table 29 of the proposed rule for the proposed crosswalk of CPT codes into APCs based on the Q codes (69 FR 50521). The only change from the crosswalk that was submitted by the outside organization is that we proposed a Q code and APC crosswalk for CPT code 96549 (Unlisted chemotherapy procedure), rather than bundling that service. We believe that Q0083 is the code that would have previously been reported by hospitals to describe the unlisted service. In addition, this would place the unlisted service in our lowest resource utilization APC for chemotherapy, consistent with our policy for other unlisted services.

We proposed to establish the Q code and APC crosswalk for CPT code 96549 because there is no CPT specific charge or frequency data on which to set payments. The CY 2005 OPPS is based on CY 2003 claims data which used the Q codes. Therefore, the only cost data available to us for establishment of median costs is the data based on the Q codes for drug administration. Moreover, the only frequency data that are available for use in calculating the scalar for budget neutrality of payment weights are the frequency data for the Q codes. Therefore, the payments set for the CPT codes must use the cost data for the Q codes and must result in the same payments that would have been made had the Q codes been continued.

Under this proposed methodology, hospitals would report the services they furnish with the CPT codes and would show the charges that they assign to the CPT codes on the claim. The Medicare OCE would assign the code to an APC whose payment is based on the per visit Q code that would have been used absent coding under CPT. In most cases, the OCE would collapse multiple codes or multiple units of the same CPT code into a single unit to be paid a single APC amount. This approach is needed because the data for the Q codes is reported on a per visit basis and more than one unit of a CPT code can be provided in a visit.

For example, CPT code 96410 (Chemotherapy administration infusion technique, up to 1 hour) is for infusion of chemotherapy drugs for the first hour, and CPT code 96412 is for chemotherapy infusion up to 8 hours, each additional hour. The claims data used to set the APC payment rate for these codes is for a per visit amount (taken from CY 2003 data for Q0084 a per visit code). The frequency data on the claim are also on a per visit basis. For CY 2005, we proposed that CPT code 96410 would be paid one unit of APC 0117 (to which CPT code 96410 would be crosswalked) and no separate payment would be made for CPT code 96412, regardless of whether one unit or more than one unit is billed. CPT code 96412 would be a packaged code for CY 2005. Under the Q code data on which the payment weight for APC 0117 is based, the per visit amount would represent a payment that is appropriate for all drug administration services in a visit (that is, one unit of CPT code 96410 and as many units of CPT code 96412 as were furnished in the same visit).

Similarly, we proposed that when a hospital bills 3 units of CPT code 96400 (Chemotherapy administration, subcutaneous or intramuscular, with or without local anesthesia), the OCE would assign one unit of APC 0116 for that code. (APC 0116 is the APC to which CPT code 96400 would be crosswalked.) The payment would be based on Q0083, a per visit code, because, absent the ability to be paid based on CPT codes, the hospital would have billed one unit of Q0083 (for the 3 injections) had we not discontinued the Q codes for CY 2005. The OCE would assume that there was one and only one visit in which there were 3 injections and would pay accordingly (that is, one unit of APC 0116).

We noted that if we adopt the CPT codes for drug administration to ensure accurate payment in the future, it would be critical for hospitals to bill the charges for the packaged CPT codes for drug administration for CY 2005 (that is, the CPT codes with SI=N), even though there would be no separate payment for them in CY 2005. For CY 2007 OPPS, CY 2005 claims data would be used as the basis for setting median costs for each CPT code, based on the reported charges reduced to cost, and would determine what APC configuration ensures most appropriate payment for the CPT drug administration codes. If hospitals do not bill charges in CY 2005 for the packaged drug administration CPT codes such as CPT codes 96412, 96423, 96545, or 90781, they would jeopardize our ability to make accurate payments for services billed and paid under these codes in CY 2007 when we use the CY 2005 data to set the payment weights.

Comment: Most commenters supported our proposal to code drug administration using CPT codes instead of the HCPCS codes. They indicated that it would be less burdensome for hospitals to code services using just one method for Medicare and all other payers. Some commenters opposed the use of CPT codes unless CMS pays an amount for each use of the CPT code, as CMS does under the Medicare Physician Fee Schedule.

Response: We cannot pay an amount for each use of each CPT code because all of our drug administration cost data are on a per visit (not a per code) basis as charges for each of the following three HCPCPS codes, Q0081, Q0083, and Q0084, are reported for a visit and not a service.

We agree that billing for drug administration using the CPT codes will be less burdensome to hospitals and will also facilitate development of more accurate payment rates for drug administration services in future years. For CY 2005 OPPS, we will collapse the CPT codes billed for drug administration into a single unit of the applicable APC for payment as we do not have the CPT code specific claims data for use in establishing a CPT code specific payment. However, we anticipate that we would have the necessary claims for CY 2007 OPPS to set an appropriate APC payment rate for the services described by the CPT codes.

Comment: Several commenters asked that we affirm that hospitals may report CPT codes 90780 (intravenous infusion for therapy/diagnosis administered by physician or under direct supervision of physician; up to one hour) and 90781 (each additional hour up to (8) hours), notwithstanding that the administration is not done by a physician or under the direct supervision of a physician. The commenters stated that such services are typically administered in hospitals by nurses without direct physician supervision and that if hospitals report these codes only when the full definition of the code is met, they would not be able to report the infusion services they furnish.

Response: We do not view the language of these CPT codes' definitions as being an obstacle to or inconsistent with the use of the codes by hospitals for billing Medicare. We view our general requirements regarding physician supervision (with respect to payment for services that are incident to a physician's service in the outpatient hospital setting) as meeting the Start Printed Page 65813physician supervision aspect of the codes and thus, do not believe that use of the codes in the hospital outpatient setting would be prevented by the inclusion of the language in the code definition.

Comment: A commenter asked that we change the status indicator for CPT code 90780 and 90781 to “X” from “T” thereby eliminating the multiple procedure reduction for these codes, which in CY 2005 will replace HCPCS code Q0081 in billing for the administration of infusion therapy. The commenter stated that there is no situation in which the time and resources involved in infusion care should be reduced in the case of an observation patient.

Response: We disagree. The costs of space, utilities and staff attendance are duplicated when the beneficiary is receiving another service at the same time as infusion therapy, in particular when the patient is in observation. Hence it is appropriate to apply a multiple procedure reduction to infusion therapy particularly when the patient is in observation status. We believe it is necessary to understand how the OCE multiple procedure discounting logic functions. Line-items with a service indicator of “T” are subject to multiple procedure discounting unless modifiers 76, 77, 78, and/or 79 are present on the claim. The “T” line-item with the highest payment amount will not be discounted but all other “T” line items will be discounted as multiple procedures. All line-items that do not have a service indicator of “T” will be ignored in determining the discount. Therefore, if the only other services reported with infusion therapy are an emergency department or other visit code, or diagnostic tests and services assigned status indicator “S,” the infusion therapy code would not be subject to the multiple procedure discounting.

Comment: Several commenters stated that multiple visits per day for antibiotic infusion are common and the drug administration policies should permit such visits to be paid separately. The commenters stated that multiple visits for chemotherapy are possible and that provisions should be made for billing and paying them when they occur.

Response: We agree with the commenters on this issue. The reporting and payment for these multiple visits and services will not be an issue once payment for drug administration under the OPPS is made based on CPT code-specific data. However, until such time, hospitals will need to use modifier 59 (distinct procedure) when billing charges for services furnished during multiple visits that follow the initial visit. For CPT codes 90780 and 90781, where there are multiple visits for infusion on the same day, the hospital should report CPT code 90780 with modifier 59 and CPT code 90781, if appropriate, with modifier 59 for each separate visit for infusion. With modifier 59 appended to CPT codes 90780 and 90781, the OCE will allow up to 4 units of APC 0120 (Infusion of nonchemotherapy drugs) to be paid. Similarly, for the chemotherapy administration codes, where there is no modifier 59 reported, the OCE will collapse all codes that map to a particular APC into one unit of that APC and will pay one unit of each applicable APC. The system will assume that all services were furnished in one single encounter. Where the chemotherapy services are provided in multiple encounters, the hospital will need to show modifier 59 on the service furnished in the second encounter. The OCE will map those services into an additional unit of each applicable APC and will pay for each visit. The OCE will not, for a single date of service, pay more than 4 units of APC 120, nor more than 2 units of APCs 116 and 117 (chemotherapy by route other than infusion and infusion of chemotherapy drugs). We intend to reassess these limits based on provider feedback and our review of later claims data.

Comment: One commenter asked that CMS ensure that the costs for CPT code 90780 (Infusion therapy one hour) are included in payment for CPT codes 67221 (Ocular photodynamic therapy) and 67225 (Eye photodynamic therapy add-on) because CPT code 90780 is bundled into both of these procedure codes.

Response: The procedure code definition for CPT code 67221 specifies that intravenous infusion is included, and CPT code 67225 is to be listed separately in addition to CPT code 67221, if a second eye is treated. Therefore, the National Correct Coding Initiative (NCCI) edits preclude payment for CPT code 90780 with CPT codes 67221 and 67225 because the charges for the procedure CPT codes 67221 and 67225 are presumed to include all costs of administering the drug. Correct coding would not include reporting CPT code 90780 for the same visits when photodynamic therapy was provided. We expect that hospitals will include their charges for the necessary infusion in their charges for the procedure codes when they bill CPT codes 67221 or 67225, so that our claims data reflect the costs of all resources necessary to perform the services.

Comment: Several commenters urged CMS to adopt the new and revised AMA definitions for drug administration, which will be HCPCS G-codes in the CY 2005 Medicare Physician Fee Schedule, because the existing CPT codes do not adequately capture the costs of the range of drug administrations. They also urged CMS to educate providers on the correct use of the new CPT codes. The commenters indicated that implementing the new CPT codes for drug administration will be more difficult in hospitals than in physicians' offices because the services are typically provided in more places in hospitals than in physicians' offices.

Response: For CY 2005 OPPS, we are implementing the existing CPT codes for drug administration rather than the new G-codes that will be used for the Medicare Physician Fee Schedule payments. We do not intend to use the new HCPCS G-codes for the OPPS drug administration services until such time as the new CPT codes for those services are issued in CY 2006. We believe that it would be disruptive to hospitals if we required them to implement the HCPCS alphanumeric codes for drug administration in CY 2005 and then switch to the new CPT codes in CY 2006. While only a subset of the physician community administers anti-neoplastic drugs in their offices, we believe that most hospitals do so on an outpatient basis and hence most hospitals would have to change to the new HCPCS codes for CY 2005, only to change again to new CPT codes for CY 2006. However, we are told that all hospitals use the current CPT codes to bill other payers and crosswalk from the current CPT codes to the Q codes to bill Medicare. Thus, using the current CPT codes should be easier for hospitals than their current method for billing Medicare. This would not be the case if we were to require that they use the new HCPCS codes for drug administration.

Comment: One commenter indicated that CMS should revise the OPPS to mirror the policy under the Medicare Physician Fee Schedule that pays separately for each drug administered to permit the payment of one unit of each APC for each and every drug administered. The commenter stated that since CMS acknowledged that there are additional resources used with each administration of a drug, it should apply the same policy to hospitals since all of these services are furnished by nurses, whether in a physician's office setting or a hospital setting.

Response: We are moving to the use of CPT codes for CY 2005 OPPS. However, we will not be paying an APC amount for each unit of each CPT code. Start Printed Page 65814The APC rate is, by necessity, based on historic data for a code that was billed and reported on a per visit basis. Therefore, to pay each unit of a CPT code an APC amount would not accurately reflect the resources used and would result in an overpayment of the costs of the services provided.

Comment: A commenter asked CMS to permit hospitals to continue billing HCPCS codes Q0081, Q0083 and Q0084 for drug administration until April 1, 2005 so that hospitals that do not currently bill the CPT codes for drug administration may have a transition period to convert to CPT code billing.

Response: The three cited Q-codes will be deactivated for the OPPS effective January 1, 2005 and therefore cannot be used up to April 1, 2005. As discussed in our proposed rule, we are eliminating the 90-day grace period for deleted codes effective January 1, 2005. We are adopting this policy because the Health Insurance Portability and Accountability Act (HIPAA) transaction and code set rules require usage of the medical code that is valid at the time that the service is provided. Details regarding elimination of the 90-day grace period for billing deleted codes were issued to our contractors on February 4, 2004, in Transmittal 89, Change Request 3093. Moreover, we are not aware that there are any hospitals that do not bill the CPT codes for drug administration, as hospitals have told us that all payers other than Medicare require that they use the CPT codes and will not accept the Q-codes.

Comment: A commenter asked that CMS use the first two quarters of the CY 2005 claims to set the median costs for drug administration in CY 2006 OPPS so that the transition to the more accurate payments under the CPT codes could begin earlier than CY 2007.

Response: As the CY 2005 claims data will be the basis for the CY 2007 payment weights, we regret that we are unable to transition to the new payments earlier than CY 2007 because of the time required to access the CY 2005 claims data and to process and construct our database for ratesetting and impact analyses. The second quarter of CY 2005 data will not be available to us until at least August 15, 2005, which is far too late for us to have developed and published any CY 2006 proposed rule.

After carefully reviewing all comments received, we are adopting as final our proposal to use the CPT codes for drug administration, effective January 1, 2005. We will collapse the CPT codes billed into a single unit of the applicable APC for payment. In addition, we are establishing the Q-code and APC crosswalk for CPT code 96549 and will be paying 1 unit of APC 0117 for CPT code 96410 (to which CPT code 96410 will be crosswalked). We will not make a separate payment for CPT code 96412 regardless of whether 1 unit or more units are billed. For CY 2005, CPT code 96412 will be a packaged and not paid separately. Further, when a hospital bills 3 units of CPT code 96400 (Chemotherapy administration, subcutaneous or intramuscular, with or without local anesthesia), the OCE will assign 1 unit of APC 0116 for that code and the payment will be based on HCPCS code Q0083, a per visit code. Modifier 59 may be used with codes in APCs 0116, 0117, and 0120 to signify additional encounters on the same date of service for which additional APC payments may be made.

Table 33 below contains the crosswalk of CPT codes for drug administration to drug administration APCs for CY 2005. The last two columns of this table indicate the maximum number of units of the APC that the OCE will assign without or with modifier 59, respectively.

Start Printed Page 65815

I. Payment for Blood and Blood Products

Since the OPPS was first implemented in August 2000, separate payments have been made for blood and blood products in APCs rather than packaging them into payment for the procedures with which they were administered. Administrative costs for processing and storage specific to the transfused blood product are included in the blood product APC payment, which is based on hospitals' charges. Payment for the collection, processing, and storage of autologous blood, as described by CPT code 86890, is made Start Printed Page 65816through APC 0347 (Level III Transfusion Laboratory Procedures).

In CY 2000, payments for bloods were established based on external data provided by commenters due to limited Medicare claims data. From CY 2000 to CY 2002, blood and blood product payment rates were updated for inflation. For CY 2003, as described in the November 1, 2002 final rule (67 FR 66773), we applied a special dampening methodology to blood and blood products that had significant reductions in payment rates from CY 2002 to CY 2003, when median costs were first calculated from hospital claims. Using the dampening methodology, we limited the decrease in payment rates for blood and blood products to approximately 15 percent. For CY 2004, as recommended by the APC Panel, we froze payment rates for blood and blood products at CY 2003 levels. This allowed us to undertake further study of the issues raised by commenters and presenters at the August 2003 and February 2004 APC Panel meetings.

In the August 16, 2004 proposed rule for CY 2005 OPPS, we proposed to continue to pay separately for blood and blood products. We also proposed to establish new APCs that would allow each blood product to be in its own separate APC, as several of the blood product APCs currently contained multiple blood products with no clinical homogeneity or whose product-specific median costs may not have been similar. Thus, we also proposed to reassign some of these HCPCS codes already contained in certain APCs to new APCs. (See Table 30 of the proposed rule (69 FR 50523.)

Other than for autologous blood products, hospital reimbursement for the costs of collection, processing, and storage of blood and blood products are made through the OPPS payments for specific blood product APCs. Wastage and other administrative costs for blood are attributable to overhead and distributed across all hospital services linked to cost centers in the Medicare cost report, through the standard process of converting charges to costs using hospitals' CCRs for each cost center on the cost report.

In the August 16, 2004 proposed rule, we noted that comments to previous OPPS rules had stated that the CCRs that we used to adjust claim charges to costs for blood in past years were too low, resulting in underestimation of the true hospital costs for blood and blood products. In response, we conducted a thorough analysis of the OPPS claims to compare CCRs between hospitals with a blood-specific cost center and hospitals defaulting to the overall hospital CCR. Our past methodology for determining CCRs for blood products included a default to the overall CCR when any given provider had chosen not to report costs and charges in a blood-specific cost center on the cost report. After matching the two blood-specific cost centers to the 38X and 39X revenue codes, we observed a significant difference in CCRs utilized for conversion of blood product charges to costs for those hospitals with and without blood-specific cost centers. The median CCR for those hospitals with a blood-specific cost center was 0.66 for revenue code 38X and 0.64 for revenue code 39X, and for those defaulting to the overall hospital CCR, the result was a CCR of 0.34 for revenue code 38X and 0.33 for revenue code 39X. The median overall CCR for all hospitals in the CY 2005 analysis was 0.33