Skip to Content

Proposed Rule

Medicare Program; Proposed Changes to the Hospital Outpatient Prospective Payment System and Calendar Year 2006 Payment Rates

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble Start Printed Page 42674

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would revise 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 proposed rule describes proposed changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the prospective payment system. This proposed rule would also change the requirement for physician oversight of mid-level practitioners in critical access hospitals (CAHs). These changes would be applicable to services furnished on or after January 1, 2006.

DATES:

To be ensured consideration, comments must be received at one of the addresses provided in the ADDRESSES section, no later than 5 p.m. on September 16, 2005.

ADDRESSES:

In commenting, please refer to file code CMS-1501-P. 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 on specific issues in this proposed rule to http://www.cms.hhs.gov/​regulations/​ecomments. (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word).

2. By regular 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-1501-P, P.O. Box 8016, Baltimore, MD 21244-8018.

3. By express or overnight mail. You may send 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-1501-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4. 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.

Submission of Comments on Paperwork Requirements: For comments that relate to information collection requirements, mail a copy of comments to the following addresses: Centers for Medicare & Medicaid Services, Office of Strategic Operations and Regulatory Affairs, Security and Standards Group, Office of Issuances, Room C4-24-02, 7500 Security Boulevard, Baltimore, MD 21244-1850, Attn: James Wickliffe, CMS-1501-P; and, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 3001, New Executive Office Building, Washington, DC 20503, Christopher Martin, CMS Desk Officer, CMS-1501-P.

Comments submitted to OMB may also be e-mailed to the following address: Christopher_Martin@omb.eop.gov, or faxed to OMB at (202) 395-6974.

Submitting Comments: We welcome comments from the public on all issues set forth in this rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-1501-P and the specific “issue identifier” that precedes the section on which you choose to comment.

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. CMS posts all electronic comments received before the close of the comment period on its public Web site as soon as possible after they have been received. Hard copy comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244-1850, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Start Further Info

FOR FURTHER INFORMATION, CONTACT:

Rebecca Kane, (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:

Electronic Access

This Federal Register document is 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 Proposed Rule

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, Pub. L. 105-33

BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, Pub. L. 106-554

BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, Pub. L. 106-113

CAH Critical access hospital

CBSA Core-Based Statistical Areas

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

CMHC Community mental health center Start Printed Page 42675

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, 2005, 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, Pub. L. 92-463

FDA Food and Drug Administration

FI Fiscal intermediary

FSS Federal Supply Schedule

FY Federal fiscal year

GAO Government Accountability Office

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, Pub. L. 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, Pub. L. 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

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, Pub. L. 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 Hospital 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 To Be Implemented Beginning in CY 2006

1. Hold Harmless Provisions

2. Study and Authorization of Adjustment for Rural Hospitals

3. Payment for “Specified Covered Outpatient Drugs”

4. Adjustment in Payment Rates for “Specified Covered Outpatient Drugs” for Overhead Costs

5. Budget Neutrality Adjustment

F. CMS' Commitment to New Technologies

G. Summary of the Major Content of This Proposed Rule

II. Proposed Updates Affecting Payments for CY 2006

A. Recalibration of APC Relative Weights for CY 2006

1. Database Construction

a. Database Source and Methodology

b. Proposed Use of Single and Multiple Procedure Claims

2. Proposed Calculation of Median Costs for CY 2006

3. Proposed Calculation of Scaled OPPS Payment Weights

4. Proposed Changes to Packaged Services

B. Proposed Payment for Partial Hospitalization

1. Background

2. Proposed PHP APC Update for CY 2006

3. Proposed Separate Threshold for Outlier Payments to CMHCs

C. Proposed Conversion Factor Update for CY 2006

D. Proposed Wage Index Changes for CY 2006

E. Proposed Statewide Average Default Cost-to-Charge Ratios

F. Expiring Hold Harmless Provision for Transitional Corridor Payments for certain Rural Hospitals

G. Proposed Adjustment for Rural Hospitals

1. Factors Contributing to Unit Cost Differences Between Rural Hospitals and Urban Hospitals

2. Explanatory Variables

3. Results

H. Proposed Hospital Outpatient Outlier Payments

I. Calculation of Proposed National Unadjusted Medicare Payment

J. Proposed Beneficiary Copayments for CY 2006

1. Background

2. Proposed Copayment for CY 2006

3. Calculation of the Proposed Unadjusted Copayment Amount for CY 2006

III. Proposed Ambulatory Payment Classification (APC) Group Policies

A. Background

B. Proposed Changes—Variations Within APCs

1. Application of the 2 Times Rule

a. APC 0146: Level I Sigmoidoscopy

b. APC 0342: Level I Pathology

2. Proposed Exceptions to the 2 Times Rule

C. New Technology APCs

1. Background

2. Proposed Refinement of New Technology Cost Bands

3. Proposed Requirements for Assigning Services to New Technology APCs

4. Proposed Movement of Procedures from New Technology APCs to Clinically Appropriate APCs

a. Proton Beam Therapy

b. Stereotactic Radiosurgery

c. Other Services in New Technology APCs

D. Proposed APC-Specific Policies

1. Hyperbaric Oxygen Therapy

2. Allergy Testing

3. Stretta Procedure

4. Vascular Access Procedures

E. Proposed Addition of New Procedure Codes

IV. Proposed Payment Changes for Devices

A. Device-Dependent APCs

B. APC Panel Recommendations Pertaining to APC 0107 and APC 0108

C. Pass-Through Payments for Devices

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

2. Proposed Policy for CY 2006

D. Other Policy Issues Relating to Pass-Through Device Categories

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

a. Background

b. Proposed Policy for CY 2006

2. Criteria for Establishing New Pass-Through Device Categories

a. Surgical Insertion and Implantation Criterion

b. Public Comments Received and Our Responses

c. Existing Device Category Criterion

V. Proposed Payment Changes for Drugs, Biologicals, and Radiopharmaceutical Agents

A. Transitional Pass-Through Payment for Additional Costs of Drugs and Biologicals Start Printed Page 42676

1. Background

2. Expiration in CY 2005 of Pass-Through Status for Drugs and Biologicals

3. Drugs and Biologicals with Proposed Pass-Through Status in CY 2006

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

1. Background

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

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

a. Proposed Payment for Specified Covered Outpatient Drugs

(1) Background

(2) Proposed Changes for CY 2006 Related to Pub. L. 108-173

(3) Data Sources Available for Setting CY 2006 Payment Rates

(4) CY 2006 Proposed Payment Policy for Radiopharmaceutical Agents

(5) MedPAC Report on APC Payment Rate Adjustment of Specified Covered Outpatient Drugs

b. Proposed CY 2006 Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals with HCPCS Codes But Without OPPS Hospital Claims Data

C. Proposed Coding and Billing Changes for Specified Covered Outpatient Drugs

1. Background

2. Proposed Policy for CY 2006

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

1. Background

2. Proposed Policy for CY 2006

E. Proposed Payment for Vaccines

F. Proposed Changes in Payments for Single Indication Orphan Drugs

VI. Estimate of Transitional Pass-Through Spending in CY 2006 for Drugs, Biologicals, and Devices

A. Total Allowed Pass-Through Spending

B. Estimate of Pass-Through Spending for CY 2006

VII. Proposed Brachytherapy Payment Changes

A. Background

B. Proposed Changes Related to Pub. L. 108-173

VIII. Proposed Coding and Payment for Drug Administration

A. Background

B. Proposed Changes for CY 2006

C. Proposed Changes to Vaccine Administration

IX. Hospital Coding for Evaluation and Management (E/M) Services

X. Proposed Payment for Blood and Blood Products

A. Background

B. Proposed Changes for CY 2006

XI. Proposed Payment for Observation Services

A. Background

B. Proposed CY 2006 Coding Changes for Observation Services

C. Proposed Criteria for Separately Payable Observation Services

1. Diagnosis Requirements

2. Observation Time

3. Additional Hospital Services

4. Physician Evaluation

D. Separate Payment for Direct Admission to Observation Care (APC 0600)

XII. Procedures That Will Be Paid Only as Inpatient Procedures

A. Background

B. Proposed Changes to the Inpatient List

C. Ancillary Outpatient Services When Patient Expires

XIII. Proposed Indicator Assignments

A. Proposed Status Indicator Assignments

B. Proposed Comment Indicators for the CY 2006 OPPS Final Rule

XIV. Proposed Nonrecurring Policy Changes

A. Proposed Payment for Multiple Diagnostic Imaging Procedures

B. Interrupted Procedure Payment Policies (Modifiers -52, -73, and -74)

XV. OPPS Policy and Payment Recommendations

A. MedPAC Recommendations

B. APC Panel Recommendations

C. GAO Recommendations

XVI. Physician Oversight of Mid-Level Practitioners in Critical Access Hospitals

A. Background

B. Proposed Policy Change

XVII. Files Available to the Public via the Internet

XVIII. Collection of Information Requirements

XIX. Response to Public Comments

XX. Regulatory Impact Analysis

A. OPPS: General

1. Executive Order 12866

2. Regulatory Flexibility Act (RFA)

3. Small Rural Hospitals

4. Unfunded Mandates

5. Federalism

B. Impact of Proposed Changes in this Proposed Rule

C. Alternatives Considered

1. Option Considered for Proposed Payment Policy for Separately Payable Drugs and Biologicals

2. Payment Adjustment for Rural Sole Community Hospitals

3. Change in the Percentage of Total OPPS Payments Dedicated to Outlier Payments

D. Limitations of Our Analysis

E. Estimated Impacts of this Proposed Rule on Hospitals

F. Estimated Impacts of this Proposed Rule on Beneficiaries

Regulation Text

Addenda

Addendum A—List of Ambulatory Payment Classification (APCs) with Status Indicators, Relative Weights, Payment Rates, and Copayment Amounts for CY 2006

Addendum B—Payment Status by HCPCS Code and Related Information—CY 2006

Addendum C—Healthcare Common Procedure Coding System (HCPCS) Codes by Ambulatory Payment Classification (APC) (Available only on CMS Web site via Internet. Refer to section XVII. of the preamble of this proposed rule.)

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

Addendum D2—Comment Indicators

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

Addendum H—Wage Index for Urban Areas

Addendum I—Wage Index for Rural Areas

Addendum J—Wage Index for Hospitals That Are Reclassified

Addendum K—Puerto Rico Wage Index by CBSA

Addendum L—Out-Migration Wage Adjustment—CY 2006

Addendum M—Hospital Reclassifications and Redesignations by Individual Hospitals and CBSA

Addendum N—Hospital Reclassifications and Redesignations by Individual Hospitals under Section 508 of Pub. L. 108-173

Addendum O—Hospitals Redesignated as Rural Under Section 1886(d)(8)(E) of the Act

I. Background

A. Legislative and Regulatory Authority for the Hospital 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 reasonable 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 amended by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. 108-173, enacted on December 8, 2003. (Discussion of provisions related specifically to the CY 2006 OPPS is included in sections V. and VII. of this proposed rule.) The OPPS was first implemented 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 Start Printed Page 42677assigned. 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 proposed rule. 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. Section 611 of Pub. L. 108-173 provided for Medicare coverage of an initial preventive physical examination, subject to the applicable deductible and coinsurance, as an outpatient department service, payable under the OPPS. 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. Section 614 of Pub. L. 108-173 amended section 1833(t)(1)(B)(iv) of the Act to exclude OPPS payment for screening and diagnostic mammography services. 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 (MPFS); 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 15, 2004, we published in the Federal Register a final rule with comment period (69 FR 65681) that revised the OPPS to update the payment weights and conversion factor for services payable under the calendar year (CY) 2005 OPPS on the basis of claims data from January 1, 2003 through December 31, 2003, and to implement certain provisions of Pub. L. 108-173. In addition, we responded to public comments received on the January 6, 2004 interim final rule with comment period relating to Pub. L. 108-173 provisions that were effective January 1, 2004, and finalized those policies. Further, we responded to public comments received on the November 7, 2003 final rule with comment period pertaining to the APC assignment of HCPCS codes identified in Addendum B of that rule with the new interim (NI) comment indicators; and public comments received on the August 16, 2004 OPPS proposed rule (69 FR 50448).

Subsequent to publishing the November 15, 2004 final rule with comment period, we published a correction of final rule with comment period on December 30, 2004 (69 FR 78315). This document corrected technical errors that appeared in the November 15, 2004 final rule with Start Printed Page 42678comment period. It also provided additional information about the CY 2005 wage indices for the OPPS that was not published in the November 15, 2004 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 Ambulatory Payment Classification (APC) Groups (the APC Panel), discussed under section I.D.2. of this preamble, fulfills this requirement. The Act further specifies that the APC 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 originally signed the charter establishing the APC Panel. The APC Panel is technical in nature and is governed by the provisions of the Federal Advisory Committee Act (FACA), as amended (Pub. L. 92-463). Since its initial chartering, the Secretary has twice renewed the APC Panel's charter: On November 1, 2002, and on November 8, 2004. The renewed charter indicates that the APC Panel continues to be technical in nature; is governed by the provisions of the FACA with a Designated Federal Official (DEO) to oversee the day-to-day administration of the FACA requirements and to provide to the Committee Management Officer all committee reports for forwarding to the Library of Congress; may convene up to three meetings per year; and is chaired by a Federal official who also serves as a CMS medical officer.

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. Six members' terms expired on March 31, 2005; therefore, a Federal Register notice was published on February 25, 2005, requesting nominations to the APC Panel. We received only 13 nominations before the nomination period closed on March 15, 2005. Therefore, we extended the deadline for nominations to May 9, 2005, and announced the extension in the Federal Register on April 8, 2005 (70 FR 18028). The entire APC Panel membership and information pertaining to it, including Federal Register notices, meeting dates, agenda topics, and meeting reports are identified on the CMS Web site: 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 six subsequent meetings, with the last meeting taking place on February 23 and 24, 2005. (The APC Panel did not meet on February 25, 2004, as announced in the meeting notice published on December 30, 2004, (69 FR 78464).) Prior to each of these biennial meetings, we published a notice in the Federal Register to announce each meeting and, when necessary, to solicit and announce 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), December 24, 2003 (68 FR 74621), August 5, 2004 (69 FR 47446), and December 30, 2004 (69 FR 78464).

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, and February 11, 2005. The Observation Subcommittee, which was established on June 24, 2003, and reestablished with new members on March 8, 2004, and February 11, 2005, 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 and reestablished with new members on February 11, 2005, 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 discussion of the recommendations resulting from the APC Panel's February 2005 meeting are included in the sections of this preamble that are specific to each recommendation.

E. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 To Be Implemented Beginning in CY 2006

On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. 108-173, was enacted. Pub. L. 108-173 made changes to the Act relating to the Medicare OPPS. In the January 6, 2004 interim final rule with comment period and the November 15, 2004 final rule with comment period, we implemented provisions of Pub. L. 108-173 relating to the OPPS that were effective for CY 2004 and CY 2005, respectively. Provisions of Pub. L. 108-173 that were implemented in CY 2004 or CY 2005, and that are continuing in CY 2006, are discussed throughout this proposed rule. Moreover, in this proposed rule, we are proposing to implement the following provisions of Pub. L. 108-173 that affect the OPPS beginning in CY 2006:

1. Hold Harmless Provisions

Section 411 of Pub. L. 108-173 amended section 1833(t)(7)(D)(i) of the Act and extended the hold harmless provision for small rural hospitals having 100 or fewer beds through December 31, 2005. Section 411 of Pub. L. 108-173 further amended section 1833(t)(7) of the Act to provide that hold-harmless transitional corridor payments shall apply through December Start Printed Page 4267931, 2005 to sole community hospitals (SCHs) (as defined in section 1886(d)(5)(D)(iii) of the Act) located in a rural area. In accordance with these provisions, effective January 1, 2006, we are proposing to discontinue transitional corridor payments for small rural hospitals having 100 or fewer beds and for SCHs located in a rural area.

2. Study and Authorization of Adjustment for Rural Hospitals

Section 411(b) of Pub. L. 108-173 added a new paragraph (13) to section 1833(t) of the Act to authorize an “Adjustment for Rural Hospitals”. This provision requires us to conduct a study to determine if costs incurred by hospitals located in rural areas by APCs exceed those costs incurred by hospitals located in urban areas. This provision further requires us to provide for an appropriate adjustment by January 1, 2006, if we find that the costs incurred by hospitals located in rural areas exceed those costs incurred by hospitals located in urban areas.

3. Payment for “Specified Covered Outpatient Drugs”

Section 621(a)(1) of Pub. L. 108-173 added section 1833(t)(14) to the Act that specifies payments for certain “specified covered outpatient drugs” beginning in 2006. Specifically, section 1833(t)(14)(A)(iii)(I) of the Act states that such payment shall be equal to what we determine to be the average acquisition cost for the drug, taking into account hospital acquisition cost survey data furnished by the Government Accountability Office (GAO). Section 1833(t)(14)(A)(iii)(II) of the Act further notes that if hospital acquisition cost data are not available, payment for specified covered outpatient drugs shall equal the average price for the drug established under section 1842(o), section 1847(A), or section 1847(B) of the Act as calculated and adjusted by the Secretary as necessary. Both payment approaches are subject to adjustments under section 1833(t)(14)(E) of the Act as discussed below.

4. Adjustment in Payment Rates for “Specified Covered Outpatient Drugs” for Overhead Costs

Section 621(a)(1) of Pub. L. 108-173 added section 1833(t)(14)(E) to the Act. Section 1833(t)(14)(E)(ii) of the Act authorizes us to make an adjustment to payments for “specified covered outpatient drugs” to take into account overhead and related expenses such as pharmacy services and handling costs, based on recommendations contained in a report prepared by the Medicare Payment Advisory Commission (MedPAC).

5. Budget Neutrality Adjustment

Section 621(a)(1) of Pub. L. 108-173 amended the Act by adding section 1833(t)(14)(H), which requires that additional expenditures resulting from adjustments in APC payment rates for specified covered outpatient drugs be taken into account beginning in CY 2006 and continuing in subsequent years, in establishing the OPPS conversion, weighting, and other adjustment factors.

F. CMS' Commitment to New Technologies

(If you choose to comment on issues in this section, please include the caption “Commitment to New Technologies” at the beginning of your comment.)

CMS is committed to ensuring that Medicare beneficiaries will have timely access to new medical treatments and technologies that are well-evaluated and demonstrated to be effective. We launched the Council on Technology and Innovation (CTI) to provide the Agency with improved methods for developing practical information about the clinical benefits of new medical technologies to result in faster and more efficient coverage and payment of these medical technologies. The CTI supports CMS efforts to develop better evidence on the safety, effectiveness, and cost of new and approved technologies to help promote their more effective use.

We want to provide doctors and patients with better information about the benefits of new medical treatments and/or technologies, especially compared to other treatment options. We also want beneficiaries to have access to valuable new medical innovations as quickly and efficiently as possible. We note there are a number of payment mechanisms in the OPPS and the IPPS designed to achieve appropriate payment of promising new technologies. In the OPPS, qualifying new medical devices may be paid on a cost basis by means of transitional pass-through payments, in addition to the APC payments for the procedures which utilize the devices. In addition, qualifying new services may be assigned for payment to New Technology APCs or, if appropriate, to regular clinical APCs. In the IPPS, qualifying new technologies may receive add-on payments to the standard diagnosis-related group (DRG) payments. We also note that collaborative efforts are underway to facilitate coordination between the Food and Drug Administration (FDA) and CMS with regard to streamlining the CMS coverage process by which new technologies come to the marketplace.

To promote timely access to new medical treatments and technologies, in this proposed rule we are proposing enhancements to both the OPPS pass-through payment criteria for devices as discussed in section IV.D.2. of this preamble and the qualifying process for assignment of new services to New Technology APCs or regular clinical APCs discussed in section III.C.3. of this preamble. We are proposing to make device pass-through eligibility available to a broader range of qualifying devices. We are also proposing to change the application and review process for assignment of new services to New Technology APCs to promote thoughtful review of the coding, clinical use and efficacy of new services by the wider medical community, encouraging appropriate dissemination of new technologies. These enhancements are explained in this proposed rule.

G. Summary of the Major Content of This Proposed Rule

In this proposed rule, we are setting forth proposed changes to the Medicare hospital OPPS for CY 2006. These changes would be effective for services furnished on or after January 1, 2006. The following is a summary of the major changes that we are proposing to make:

1. Proposed Updates to Payments for CY 2006

In section II. of this preamble, we set forth—

  • The methodology used to recalibrate the proposed APC relative payment weights and the proposed recalibration of the relative payment weights for CY 2006.
  • The proposed payment for partial hospitalization, including the proposed separate threshold for outlier payments for CMCHs.
  • The proposed update to the conversion factor used to determine payment rates under the OPPS for CY 2006.
  • 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 for CY 2006.
  • The proposed update of statewide average default cost-to-charge ratios.
  • Proposed changes relating to the expiring hold harmless payment provision.
  • Proposed changes to payment for rural sole community hospitals for CY 2006. Start Printed Page 42680
  • Proposed changes in the way we calculate hospital outpatient outlier payments for CY 2006.
  • Calculation of the proposed national unadjusted Medicare OPPS payment.
  • The proposed beneficiary copayment for OPPS services for CY 2006.

2. Proposed Ambulatory Payment Classification (APC) Group Policies

In section III. of this preamble, we discuss our proposal to establish a number of new APCs and to make changes to the assignment of HCPCS codes under a number of existing APCs based on our analyses of Medicare claims data and recommendations of the APC Panel. We also discuss in section III. of this preamble, the application of the 2 times rule and proposed exceptions to it; proposed changes for specific APCs; the proposed refinement of the New Technology cost bands; the proposed movement of procedures from the New Technology APCs; and the proposed additions of new procedure codes to the APC groups.

3. Proposed Payment Changes for Devices

In section IV. of this preamble, we discuss proposed changes to the device-dependent APCs and to the pass-through payment for three categories of devices.

4. Proposed Payment Changes for Drugs, Biologicals, and Radiopharmaceutical Agents

In section V. of this preamble, we discuss proposed changes for drugs, biologicals, radiopharmaceutical agents, and vaccines.

5. Estimate of Transitional Pass-Through Spending in CY 2006 for Drugs, Biologicals, and Devices

In section VI. of this preamble, we discuss the proposed methodology for estimating total pass-through spending and whether there should be a pro rata reduction for transitional pass-through drugs, biologicals, radiopharmacials, and categories of devices for CY 2006.

6. Proposed Brachytherapy Payment Changes

In section VII. of this preamble, we include a discussion of our proposal concerning coding and payment for the sources of brachytherapy.

7. Proposed Coding and Payment for Drug Administration

In section VIII. of this preamble, we discuss our proposed coding and payment changes for drug administration services.

8. Hospital Coding for Evaluation and Management (E/M) Services

In section IX. of this preamble, we include a discussion of our proposal for developing the coding guidelines for evaluation and management services.

9. Proposed Payment for Blood and Blood Products

In section X. of this preamble, we discuss our proposed payment changes for blood and blood products.

10. Proposed Payment for Observation Services

In section XI. of this preamble, we discuss our proposed criteria and coding changes for separately payable observation services.

11. Procedures That Will Be Paid Only as Inpatient Services

In section XII. of this preamble, we discuss the procedures that we are proposing to remove from the inpatient list and assign to APCs.

12. Proposed Indicator Assignments

In section XIII. of this preamble, we discuss the proposed changes to the list of status indicators assigned to APCs and present our proposed comment indicators for the CY 2006 OPPS final rule.

13. Proposed Nonrecurring Policy Changes

In section XIV. of this preamble, we discuss proposed changes in payments for multiple diagnostic imaging procedures and in the interrupted procedures payment policies.

14. OPPS Policy and Payment Recommendations

In section XV. of this preamble, we address recommendations made by MedPAC, the APC Panel, and the GAO regarding the OPPS for CY 2006.

15. Physician Oversight in Critical Access Hospitals

In section XVI. of this preamble, we address physician oversight for services provided by nonphysician practitioners such as physician assistants, nurse practitioners, and clinical nurse specialists in critical access hospitals (CAHs).

II. Proposed Updates Affecting Payments for CY 2006

A. Recalibration of APC Relative Weights for CY 2006

(If you choose to comment on the issues in this section, please include the caption “APC Relative Weights” at the beginning of your comment.)

1. Database Construction

a. Database Source and Methodology

Section 1833(t)(9)(A) of the Act requires that the Secretary review and revise the relative payment weights for APCs at least annually. 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 a small number of APC changes, these relative payment 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).

We are proposing to use the same basic methodology that we described in the April 7, 2000 final rule to recalibrate the APC relative payment weights for services furnished on or after January 1, 2006, and before January 1, 2007. That is, we would recalibrate the relative payment weights for each APC based on claims and cost report data for outpatient services. We are proposing to use the most recent available data to construct the database for calculating APC group weights. For the purpose of recalibrating APC relative payment weights for CY 2006, we used approximately 127 million final action claims for hospital OPD services furnished on or after January 1, 2004, and before January 1, 2005. Of the 127 million final action claims for services provided in hospital outpatient settings, 102 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 102 million claims, we were able to use 49 million whole claims to set the proposed OPPS APC relative weights for CY 2006 OPPS. From the 49 million whole claims, we created 81 million single records, of which 50 million were “pseudo” single claims (created from multiple procedure claims using the process we discuss in this section).

The proposed APC relative weights and payments in Addenda A and B to this proposed rule were calculated using claims from this period that had been processed before January 1, 2005. We selected claims for services paid under the OPPS and matched these claims to the most recent cost report filed by the individual hospitals represented in our claims data. We are proposing that the APC relative payment weights for CY 2006 under the OPPS would continue to be based on the median hospital costs for services in the APC groups. For the CY 2006 OPPS final rule, we are proposing to base APC median costs on Start Printed Page 42681claims for services furnished in CY 2004 and processed before June 30, 2005.

b. Proposed Use of Single and Multiple Procedure Claims

For CY 2006, we are proposing to continue to use single procedure claims to set the medians on which the APC relative payment weights would be based. As noted in the November 15, 2004 final rule with comment period, we have received many requests asking that we ensure that the data from claims that contain charges for multiple procedures are included in the data from which we calculate the relative payment weights (69 FR 65730 through 65731). Requesters believe that relying solely on single procedure claims to recalibrate APC relative payment 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 APC relative payment weights, including those with multiple procedures. We generally use single procedure claims to set the median costs for APCs because we are, so far, unable to ensure that packaged costs can be appropriately allocated across multiple procedures performed on the same date of service. However, by bypassing specified codes that we believe do not have significant packaged costs, we are able to use more data from multiple procedure claims. In many cases this enables us to create multiple “pseudo” single claims from claims that, as submitted, contained multiple separately paid procedures on the same claim. 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 the same as we did in recalibrating the CY 2005 APC relative payment weights. We refer to these newly created single procedure claims as “pseudo” singles because they were submitted by providers as 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 split the claims 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 CY 2005, we created 383 bypass codes and from approximately 24 million otherwise unusable claims, we used about 18 million multiple procedure claims to create about 52 million “pseudo” single claims.

For CY 2006, we are proposing to continue using date of service matching as a tool for creation of “pseudo” single claims and to continue the use of a bypass list to create “pseudo” single claims. The process we are proposing for CY 2006 OPPS results in our being able to use some part of 90 percent of the total claims that are eligible for use in OPPS ratesetting and modeling in developing this proposed rule. This process enabled us to use, for CY 2006, 81 million single bills for ratesetting: 50 million “pseudo” singles and 31 million “natural” single bills (bills that were submitted containing only one separately payable major HCPCS code).

We are proposing to bypass the 404 codes identified in Table 1 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. Of the codes on this list, 345 were used for bypass in CY 2005. We are proposing to continue the use of the codes on the CY 2005 OPPS bypass list and expand it by adding 46 codes that, using data presented to the APC Panel at its February 2005 meeting, meet the same empirical criteria as those used in CY 2005 to create the bypass list. Our examination of the data against the criteria for inclusion on the bypass list, as discussed below for the addition of new codes, shows that the empirically selected codes used for bypass for the CY 2005 OPPS generally continue to meet the criteria or come very close to meeting the criteria, and we have received no comments against bypassing them.

To facilitate comment, Table 1 indicates the list of codes we are proposing to bypass for creation of “pseudo” singles for CY 2006 OPPS and indicates those used in the CY 2005 OPPS for bypass and those proposed to be added for the CY 2006 OPPS. Bypass codes shown in Table 1 with an asterisk indicate the HCPCs codes we are proposing to add to the list for the CY 2006 OPPS. The criteria we are proposing to use to determine the additional codes to add to the CY 2005 OPPS bypass list in order to create the bypass list for CY 2006 OPPS are discussed below.

The following empirical criteria were developed by reviewing the frequency and magnitude of packaging in the single claims for payable codes other than drugs and biologicals. We assumed that the representation of packaging on the single claims for any given code is comparable to packaging for that code in the multiple claims:

  • There were 100 or more single claims for the code. This number of single claims ensured that observed outcomes were sufficiently representative of packaging that might occur in the multiple claims.
  • Five percent or fewer of the single claims for the code had packaged costs on that single claim for the code. This criterion results in limiting the amount of packaging being redistributed to the payable procedure remaining on the claim after the bypass code is removed and ensures that the costs associated with the bypass code represent the cost of the bypassed service.
  • The median cost of packaging observed in the single claim was equal to or less than $50. This limits the amount of error in redistributed costs.
  • The code is not a code for an unlisted service.

We also added to the bypass list three codes (CPT codes 51701, 51702, and 51703 for bladder catheterization) which do not meet these criteria. These Start Printed Page 42682codes have been packaged and have never been paid separately. For that reason, when these were the only services provided to the beneficiary, no payment was made to the hospital. The APC Panel's packaging subcommittee recommends that we make separate payment when they are the only service on the claim. See section II.A.4. of this preamble for further discussion of our proposal to pay them separately. We are proposing to add them to the bypass list because changing them from packaged to separately paid would result in the reduction of the number of single bills on which we could base median costs for other major separately paid procedures which are billed on the same claim with these procedure codes. Single bills which contain other procedures would become multiple procedure claims when these bladder catheterization codes were converted from packaged to separately paid status.

We examined the packaging on the single procedure claims in the CY 2004 data used for this proposed rule for these codes. We found that none of these codes met the empirical standards for the bypass list. However, we believe that when these services are performed on the same date as another separately paid procedure, any packaging that appears on the claim would appropriately be associated with the other procedures and not with these codes. Therefore, we believe that bypassing them does not adversely affect the medians for other procedures. Moreover, future separate payment for these codes does not harm the hospitals that furnish these services, in view of the historical absence of separate payment for them under the OPPS in the past. Hence, we propose to pay separately for these codes and to add them to the bypass list for the CY 2006 OPPS.

We specifically invite public comment on the “pseudo” single process, including the bypass list and the criteria.

Table 1.—Proposed CY 2006 HCPCS Bypass Codes for Creating “Pseudo” Single Claims for Calculating Median Costs

HCPCS code 1Short descriptionStatus indicator
11056*Trim skin lesions, 2 to 4T
11057*Trim skin lesions, over 4T
11719Trim nail(s)T
11720Debride nail, 1-5T
11721Debride nail, 6 or moreT
17003*Destroy lesions, 2-14T
31231*Nasal endoscopy, dxT
31579Diagnostic laryngoscopyT
51701*Insert bladder catheterX
51702*Insert temp bladder catheterX
51703*Insert bladder catheter, complexX
51798*Us urine capacity measureX
54240Penis studyT
67820*Revise eyelashesS
70030*X-ray eye for foreign bodyX
70100X-ray exam of jawX
70110X-ray exam of jawX
70130X-ray exam of mastoidsX
70140X-ray exam of facial bonesX
70150X-ray exam of facial bonesX
70160X-ray exam of nasal bonesX
70200X-ray exam of eye socketsX
70210X-ray exam of sinusesX
70220X-ray exam of sinusesX
70250X-ray exam of skullX
70260X-ray exam of skullX
70328X-ray exam of jaw jointX
70330X-ray exam of jaw jointsX
70336*Magnetic image, jaw jointS
70355Panoramic x-ray of jawsX
70360X-ray exam of neckX
70370*Throat x-ray & fluoroscopyX
70371Speech evaluation, complexX
70450Ct head/brain w/o dyeS
70480Ct orbit/ear/fossa w/o dyeS
70486Ct maxillofacial w/o dyeS
70544Mr angiography head w/o dyeS
70551*Mri brain w/o dyeS
71010Chest x-rayX
71015Chest x-rayX
71020Chest x-rayX
71021Chest x-rayX
71022Chest x-rayX
71023*Chest x-ray and fluoroscopyX
71030Chest x-rayX
71034Chest x-ray and fluoroscopyX
71090X-ray & pacemaker insertionX
71100X-ray exam of ribsX
71101X-ray exam of ribs/chestX
Start Printed Page 42683
71110X-ray exam of ribsX
71111X-ray exam of ribs/chestX
71120X-ray exam of breastboneX
71130X-ray exam of breastboneX
71250Ct thorax w/o dyeS
72040X-ray exam of neck spineX
72050X-ray exam of neck spineX
72052X-ray exam of neck spineX
72069*X-ray exam of trunk spineX
72070X-ray exam of thoracic spineX
72072X-ray exam of thoracic spineX
72074X-ray exam of thoracic spineX
72080X-ray exam of trunk spineX
72090X-ray exam of trunk spineX
72100X-ray exam of lower spineX
72110X-ray exam of lower spineX
72114X-ray exam of lower spineX
72120X-ray exam of lower spineX
72125Ct neck spine w/o dyeS
72128*Ct chest spine w/o dyeS
72141Mri neck spine w/o dyeS
72146Mri chest spine w/o dyeS
72148Mri lumbar spine w/o dyeS
72170X-ray exam of pelvisX
72190X-ray exam of pelvisX
72192Ct pelvis w/o dyeS
72220X-ray exam of tailboneX
73000X-ray exam of collar boneX
73010X-ray exam of shoulder bladeX
73020X-ray exam of shoulderX
73030X-ray exam of shoulderX
73050X-ray exam of shouldersX
73060X-ray exam of humerusX
73070X-ray exam of elbowX
73080X-ray exam of elbowX
73090X-ray exam of forearmX
73100X-ray exam of wristX
73110X-ray exam of wristX
73120X-ray exam of handX
73130X-ray exam of handX
73140X-ray exam of finger(s)X
73218Mri upper extremity w/o dyeS
73221Mri joint upr extrem w/o dyeS
73510X-ray exam of hipX
73520X-ray exam of hipsX
73540X-ray exam of pelvis & hipsX
73550X-ray exam of thighX
73560X-ray exam of knee, 1 or 2X
73562X-ray exam of knee, 3X
73564X-ray exam, knee, 4 or moreX
73565X-ray exam of kneesX
73590X-ray exam of lower legX
73600X-ray exam of ankleX
73610X-ray exam of ankleX
73620X-ray exam of footX
73630X-ray exam of footX
73650X-ray exam of heelX
73660X-ray exam of toe(s)X
73700Ct lower extremity w/o dyeS
73718*Mri lower extremity w/o dyeS
73721Mri jnt of lwr extre w/o dyeS
74000X-ray exam of abdomenX
74010*X-ray exam of abdomenX
74210Contrst x-ray exam of throatS
74220Contrast x-ray, esophagusS
74230Cine/vid x-ray, throat/esophS
74235Remove esophagus obstructionS
74240X-ray exam, upper gi tractS
74245X-ray exam, upper gi tractS
74246Contrst x-ray uppr gi tractS
Start Printed Page 42684
74247Contrst x-ray uppr gi tractS
74249Contrst x-ray uppr gi tractS
74250X-ray exam of small bowelS
74300X-ray bile ducts/pancreasX
74301X-rays at surgery add-onX
74305X-ray bile ducts/pancreasX
74327X-ray bile stone removalS
74340X-ray guide for GI tubeX
74350X-ray guide, stomach tubeX
74355X-ray guide, intestinal tubeX
74360X-ray guide, GI dilationS
74363X-ray, bile duct dilationS
74475X-ray control, cath insertS
74480X-ray control, cath insertS
74485X-ray guide, GU dilationS
74742X-ray, fallopian tubeX
75894X-rays, transcath therapyS
75898Follow-up angiographyX
75901Remove cva device obstructX
75902Remove cva lumen obstructX
75945Intravascular usS
75946Intravascular us add-onS
75960Transcatheter intro, stentS
75961Retrieval, broken catheterS
75962Repair arterial blockageS
75964Repair artery blockage, eachS
75966Repair arterial blockageS
75968Repair artery blockage, eachS
75970Vascular biopsyS
75978Repair venous blockageS
75980Contrast xray exam bile ductS
75982Contrast xray exam bile ductS
75984Xray control catheter changeX
75992Atherectomy, x-ray examS
75993Atherectomy, x-ray examS
75994Atherectomy, x-ray examS
75995Atherectomy, x-ray examS
75996Atherectomy, x-ray examS
76012Percut vertebroplasty fluorS
76013Percut vertebroplasty, ctS
76040X-rays, bone evaluationX
76061X-rays, bone surveyX
76062X-rays, bone surveyX
76066Joint survey, single viewX
76070*CT scan, bone density studyS
76075Dexa, axial skeleton studyS
76076Dexa, peripheral studyS
76078Radiographic absorptiometryX
76095Stereotactic breast biopsyT
76096X-ray of needle wire, breastX
76100X-ray exam of body sectionX
76101Complex body section x-rayX
76360Ct scan for needle biopsyS
76380CAT scan follow-up studyS
76393Mr guidance for needle placeS
76511Echo exam of eyeS
76512Echo exam of eyeS
76516Echo exam of eyeS
76519Echo exam of eyeS
76536Us exam of head and neckS
76645Us exam, breast(s)S
76700Us exam, abdom, completeS
76705Echo exam of abdomenS
76770Us exam abdo back wall, compS
76775Us exam abdo back wall, limS
76778*Us exam kidney transplantS
76801*Ob us < 14 wks, single fetusS
76811*Ob us, detailed, sngl fetusS
76817*Transvaginal us, obstetricS
76830Transvaginal us, non-obS
Start Printed Page 42685
76856Us exam, pelvic, completeS
76857Us exam, pelvic, limitedS
76870Us exam, scrotumS
76880Us exam, extremityS
76941Echo guide for transfusionS
76945Echo guide, villus samplingS
76946Echo guide for amniocentesisS
76948Echo guide, ova aspirationS
76950*Echo guidance radiotherapyS
76970*Ultrasound exam follow-upS
76977Us bone density measureX
77280Set radiation therapy fieldX
77285Set radiation therapy fieldX
77295*Set radiation therapy fieldX
77300Radiation therapy dose planX
77301Radiotherapy dose plan, imrtX
77315Teletx isodose plan complexX
77326Radiation therapy dose planX
77327Brachytx isodose calc intermX
77328Brachytx isodose plan complX
77331Special radiation dosimetryX
77332Radiation treatment aid(s)X
77333Radiation treatment aid(s)X
77334Radiation treatment aid(s)X
77336Radiation physics consultX
77370Radiation physics consultX
77402*Radiation treatment deliveryS
77403Radiation treatment deliveryS
77404*Radiation treatment deliveryS
77408*Radiation treatment deliveryS
77409Radiation treatment deliveryS
77411Radiation treatment deliveryS
77412Radiation treatment deliveryS
77413Radiation treatment deliveryS
77414Radiation treatment deliveryS
77416Radiation treatment deliveryS
77417Radiology port film(s)X
77418Radiation tx delivery, imrtS
77470Special radiation treatmentS
78350Bone mineral, single photonX
80502Lab pathology consultationX
85060Blood smear interpretationX
86585TB tine testX
86850RBC antibody screenX
86870RBC antibody identificationX
86880Coombs test, directX
86885Coombs test, indirect, qualX
86886Coombs test, indirect, titerX
86890Autologous blood processX
86900Blood typing, ABOX
86901Blood typing, Rh (D)X
86905Blood typing, RBC antigensX
86906Blood typing, Rh phenotypeX
86930Frozen blood prepX
86970RBC pretreatmentX
88104Cytopathology, fluidsX
88106Cytopathology, fluidsX
88107Cytopathology, fluidsX
88108Cytopath, concentrate techX
88160Cytopath smear, other sourceX
88161Cytopath smear, other sourceX
88172Cytopathology eval of fnaX
88182Cell marker studyX
88300Surgical path, grossX
88304Tissue exam by pathologistX
88305Tissue exam by pathologistX
88311Decalcify tissueX
88312Special stainsX
88313Special stainsX
88321Microslide consultationX
Start Printed Page 42686
88323Microslide consultationX
88325Comprehensive review of dataX
88331Path consult intraop, 1 blocX
88342ImmunohistochemistryX
88346Immunofluorescent studyX
88347Immunofluorescent studyX
90801Psy dx interviewS
90804*Psytx, office, 20-30 minS
90805Psytx, off, 20-30 min w/e&mS
90806Psytx, off, 45-50 minS
90807Psytx, off, 45-50 min w/e&mS
90808Psytx, office, 75-80 minS
90809Psytx, off, 75-80, w/e&mS
90810Intac psytx, off, 20-30 minS
90818Psytx, hosp, 45-50 minS
90826Intac psytx, hosp, 45-50 minS
90845PsychoanalysisS
90846Family psytx w/o patientS
90847Family psytx w/patientS
90853Group psychotherapyS
90857Intac group psytxS
90862Medication managementX
92002Eye exam, new patientV
92004Eye exam, new patientV
92012Eye exam established patV
92014Eye exam & treatmentV
92020*Special eye evaluationS
92081*Visual field examination(s)S
92082Visual field examination(s)S
92083Visual field examination(s)S
92135Opthalmic dx imagingS
92136Ophthalmic biometryS
92225Special eye exam, initialS
92226Special eye exam, subsequentS
92230Eye exam with photosT
92250Eye exam with photosS
92275ElectroretinographyS
92285Eye photographyS
92286Internal eye photographyS
92520Laryngeal function studiesX
92541*Spontaneous nystagmus testX
92546Sinusoidal rotational testX
92548PosturographyX
92552Pure tone audiometry, airX
92553Audiometry, air & boneX
92555Speech threshold audiometryX
92556Speech audiometry, completeX
92557*Comprehensive hearing testX
92567TympanometryX
92582Conditioning play audiometryX
92585Auditor evoke potent, compreS
92604*Reprogram cochlear implt 7 >X
93005Electrocardiogram, tracingS
93225ECG monitor/record, 24 hrsX
93226ECG monitor/report, 24 hrsX
93231Ecg monitor/record, 24 hrsX
93232ECG monitor/report, 24 hrsX
93236ECG monitor/report, 24 hrsX
93270ECG recordingX
93278ECG/signal-averagedS
93303Echo transthoracicS
93307Echo exam of heartS
93320Doppler echo exam, heartS
93731Analyze pacemaker systemS
93732*Analyze pacemaker systemS
93733Telephone analy, pacemakerS
93734Analyze pacemaker systemS
93735*Analyze pacemaker systemS
93736Telephonic analy, pacemakerS
93741*Analyze ht pace device snglS
Start Printed Page 42687
93743Analyze ht pace device dualS
93797Cardiac rehabS
93798Cardiac rehab/monitorS
93875Extracranial studyS
93880Extracranial studyS
93882Extracranial studyS
93886Intracranial studyS
93888Intracranial studyS
93922Extremity studyS
93923Extremity studyS
93924Extremity studyS
93925Lower extremity studyS
93926Lower extremity studyS
93930*Upper extremity studyS
93931Upper extremity studyS
93965Extremity studyS
93970Extremity studyS
93971Extremity studyS
93975Vascular studyS
93976Vascular studyS
93978Vascular studyS
93979Vascular studyS
93990Doppler flow testingS
94015Patient recorded spirometryX
95115Immunotherapy, one injectionX
95117*Immunotherapy injectionsX
95165Antigen therapy servicesX
95805Multiple sleep latency testS
95806*Sleep study, unattendedS
95807Sleep study, attendedS
95812Electroencephalogram (EEG)S
95813Eeg, over 1 hourS
95816Electroencephalogram (EEG)S
95819Electroencephalogram (EEG)S
95822Sleep electroencephalogramS
95864Muscle test, 4 limbsS
95867*Muscle test, head or neckS
95872Muscle test, one fiberS
95900Motor nerve conduction testS
95921Autonomic nerv function testS
95925*Somatosensory testingS
95926Somatosensory testingS
95930Visual evoked potential testS
95937Neuromuscular junction testS
95950Ambulatory eeg monitoringS
95953EEG monitoring/computerS
95970*Analyze neurostim, no progS
95972*Analyze neurostim, complexS
95974*Cranial neurostim, complexS
96000Motion analysis, video/3dS
96100Psychological testingX
96115Neurobehavior status examX
96117*Neuropsych test batteryX
96900Ultraviolet light therapyS
96910Photochemotherapy with UV-BS
96912Photochemotherapy with UV-AS
96913Photochemotherapy, UV-A or BS
98925*Osteopathic manipulationS
98940Chiropractic manipulationS
99213Office/outpatient visit, estV
99214Office/outpatient visit, estV
99241Office consultationV
99242*Office consultationV
99243Office consultationV
99244Office consultationV
99245Office consultationV
99273Confirmatory consultationV
99274Confirmatory consultationV
99275Confirmatory consultationV
D0473Micro exam, prep & reportS
Start Printed Page 42688
G0101CA screen; pelvic/breast examV
G0127Trim nail(s)T
G0166Extrnl counterpulse, per txT
G0175OPPS Service, sched team confV
HCPCSDescriptorSI
Q0091Obtaining screen pap smearT
1 HCPCS codes shown with an asterisk are bypass codes we are proposing to add to the list for CY 2006.

2. Proposed Calculation of Median Costs for CY 2006

In this section of the preamble, we discuss the use of claims to calculate the proposed OPPS payment rates for CY 2006. The hospital outpatient prospective payment page on the CMS Web site on which this proposed rule is posted provides an accounting of claims used in the development of the proposed rates: http://www.cms.hhs.gov/​providers/​hopps. The accounting of claims used in the development of the proposed rule is included on the Web site under supplemental materials for the CY 2006 proposed rule. That accounting provides additional detail regarding the number of claims derived at each stage of the process. In addition, 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.”

We are proposing to use the following methodology to establish the relative weights to be used in calculating the proposed OPPS payment rates for CY 2006 shown in Addenda A and B to this proposed rule. This methodology is as follows:

We used outpatient claims for full CY 2004 to set the proposed relative weights for CY 2006. To begin the calculation of the relative weights for CY 2006, we pulled all claims for outpatient services furnished in CY 2004 from the national claims history file. This is not the population of claims paid under the OPPS, but all outpatient claims (including, for example, 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 2 and 3 comprise the 102 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 ambulatory surgical centers (ASCs), bill type 83, are not paid under the OPPS and, therefore, these claims were not used to set OPPS payment.

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

3. Claims that were 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.)

For the cost-to-charge ratio (CCR) calculation process, we used the same approach as that used in developing the final APC rates for CY 2005 (69 FR 65744). That is, we first limited the population of cost reports to only those for hospitals that filed outpatient claims in CY 2004 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). We used the most recent available cost report data, in most cases, cost reports for CY 2002 or CY 2003. We used the most recent cost report available whether submitted or settled. If the most recent available cost report was submitted but not settled, we looked at the last settled cost report to determine the ratio of submitted to settled cost, and we then adjusted the most recent available submitted but not settled cost report using that ratio. We propose to use the most recently submitted cost reports to calculate the CCRs to be used to calculate median costs for the OPPS CY 2006 final rule.

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. This is the same methodology that we used in developing the final CY 2005 CCRs. For CY 2006, we are proposing to trim 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. The hierarchy of CCRs is available for inspection and comment at the CMS Web site: http://www.cms.hhs.gov/​providers/​hopps/​default.asp.

We then converted the charges on the claim by applying the CCR that we believed was best suited to the revenue Start Printed Page 42689code indicated on the line with the charge. Table 2 below in this preamble contains a list of the allowed revenue codes. Revenue codes not included in Table 2 are those not allowed under the OPPS because their services cannot be paid under the OPPS (for example, inpatient room and board charges) and, thus charges with those revenue codes were not packaged for creation of the OPPS median costs. 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 X. of this preamble, 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, and 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 moved them to another file. These claims were combined with the 76X claims identified previously to calculate the proposed partial hospitalization per diem rate.

We then excluded claims without a HCPCS code. We also moved claims for observation services to another file. We moved 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).

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 not used unless the pathology service is the single code on the bill or unless the pathology code is on a separate date of service from the other procedure on the claim. 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 the same as claims in the single major claim file.

5. Non-OPPS Claims: Claims that contain no services payable under the OPPS. These claims 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.

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 split 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 1 of this preamble 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 II.A.1.b. of this preamble.

When one of the two separately payable procedures on a multiple procedure claim was on the bypass code list, we split the claim 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 (but no bypass code) retained the packaged revenue code charges and the packaged HCPCS charges. This enables us to use a claim that would otherwise be a multiple procedure claim and could not be used.

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 (codes with status indicator “N” listed in Addendum B to this proposed rule) 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 2 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, 55 million claims were left. Of these 55 million claims, we were able to use some portion of 49 million whole claims (90 percent of the potentially usable claims) to create the 81 million single and “pseudo” single claims for use in the CY 2006 median payment ratesetting.

We also excluded (1) claims that had zero costs after summing all costs on the claim; (2) claims for which CMS lacked an appropriate provider wage index; and (3) claims containing token charges (charges of less than $1.01) or for which intermediary systems had allocated charges as if the charges were submitted on the claim. We are proposing to delete claims containing token charges. We do not believe that a charge of less than $1.01 would yield a cost that would be valid to set weights for a significant separately paid service. Moreover, effective for services furnished on or after July 1, 2004, the OCE assigns payment flag number 3 to claims on which hospitals submitted token charges for a service with status Start Printed Page 42690indicator “S” or “T” (a major separately paid service under OPPS) for which the intermediary is required to allocate the sum of charges for services with a status indicator equaling “S” or “T” based on the weight for the APC to which each code is assigned. We do not believe that these charges, which were token charges as submitted by the hospital, are valid reflections of hospital resource and that they should not be used to set median costs. Therefore, we are proposing to delete these claims.

For the remaining claims, we then wage adjusted 60 percent of the cost of the claim (which we have previously determined to be the labor-related portion), as has been our policy since the 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 has been our policy since the inception of the OPPS, we are proposing to use 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 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 included in section X. of this preamble. A discussion of the medians for APCs that require one or more devices when the service is performed is included in section IV.A. of this preamble. A discussion of the median for observation services is included in section XI. of this preamble and a discussion of the median for partial hospitalization is included below in section II.B. of this preamble.

Table 2.—CY 2006 Proposed Packaged Services by Revenue Code

Revenue codeDescription
250PHARMACY.
251GENERIC.
252NONGENERIC.
254PHARMACY INCIDENT TO OTHER DIAGNOSTIC.
255PHARMACY INCIDENT TO RADIOLOGY.
257NONPRESCRIPTION DRUGS.
258IV SOLUTIONS.
259OTHER PHARMACY.
260IV THERAPY, GENERAL CLASS.
262IV THERAPY/PHARMACY SERVICES.
263SUPPLY/DELIVERY.
264IV THERAPY/SUPPLIES.
269OTHER IV THERAPY.
270M&S SUPPLIES.
271NONSTERILE SUPPLIES.
272STERILE SUPPLIES.
274PROSTHETIC/ORTHOTIC DEVICES.
275PACEMAKER DRUG.
276INTRAOCULAR LENS SOURCE DRUG.
278OTHER IMPLANTS.
279OTHER M&S SUPPLIES.
280ONCOLOGY.
289OTHER ONCOLOGY.
290DURABLE MEDICAL EQUIPMENT.
343DIAGNOSTIC RADIOPHARMS.
344THERAPEUTIC RADIOPHARMS.
370ANESTHESIA.
371ANESTHESIA INCIDENT TO RADIOLOGY.
372ANESTHESIA INCIDENT TO OTHER DIAGNOSTIC.
379OTHER ANESTHESIA.
390BLOOD STORAGE AND PROCESSING.
399OTHER BLOOD STORAGE AND PROCESSING.
560MEDICAL SOCIAL SERVICES.
569OTHER MEDICAL SOCIAL SERVICES.
621SUPPLIES INCIDENT TO RADIOLOGY.
622SUPPLIES INCIDENT TO OTHER DIAGNOSTIC.
624INVESTIGATIONAL DEVICE (IDE).
630DRUGS REQUIRING SPECIFIC IDENTIFICATION, GENERAL CLASS.
631SINGLE SOURCE.
632MULTIPLE.
633RESTRICTIVE PRESCRIPTION.
681TRAUMA RESPONSE, LEVEL I.
682TRAUMA RESPONSE, LEVEL II.
683TRAUMA RESPONSE, LEVEL III.
684TRAUMA RESPONSE, LEVEL IV.
689TRAUMA RESPONSE, OTHER.
700CAST ROOM.
709OTHER CAST ROOM.
710RECOVERY ROOM.
719OTHER RECOVERY ROOM.
720LABOR ROOM.
721LABOR.
762OBSERVATION ROOM.
810ORGAN ACQUISITION.
819OTHER ORGAN ACQUISITION.
942EDUCATION/TRAINING.

3. Proposed Calculation of Scaled OPPS Payment Weights

Using the median APC costs discussed previously, we calculated the proposed relative payment weights for each APC for CY 2006 shown in Addenda A and B to this proposed rule. 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 2004 data, the median cost for APC 0601 is $60.57 for CY 2006.

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 2006 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 2005 relative weights to aggregate payments using the CY 2006 proposed relative weights. Based on this comparison, we are proposing to make an adjustment to the relative weights for purposes of budget neutrality. The unscaled relative payment weights were adjusted by .999207669 for budget neutrality. The proposed relative payment weights are listed in Addenda A and B to this proposed rule. The proposed relative payment weights incorporate the recalibration adjustments discussed in sections II.A.1. and 2. Start Printed Page 42691

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) of the Act provides the payment rates for certain “specified covered outpatient drugs.” Therefore, the incremental cost of those specified covered outpatient drugs (as discussed in section V. of this preamble) is included in the budget neutrality calculations.

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. (We provide a discussion of brachytherapy payment issues at section VII. of this proposed rule.)

4. Proposed Changes to Packaged Services

Payments for packaged services under the OPPS are bundled into the payments providers receive for separately payable services provided on the same day. Packaged services are identified by the status indicator “N.” 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 for purposes of median cost calculations. Hospitals may use CPT codes to report any packaged services that were performed, consistent with CPT coding guidelines.

As a result of requests from the public, a Packaging Subcommittee to the APC Panel was established to review all the procedural CPT codes with a status indicator of “N.”

Providers have often suggested that many packaged services could be provided alone, without any other separately payable services on the claim, and requested that these codes not be assigned status indicator “N.” The Packaging Subcommittee reviewed every code that was packaged in the CY 2004 OPPS. Based on comments we have received and their own expert judgment, the subcommittee identified a set of packaged codes that are often provided separately and subsequently reviewed utilization and median cost data for these codes. One of the main criteria utilized 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 separately payable services on the claim. The Packaging Subcommittee also examined median costs from hospital claims for packaged services that were billed alone.

The Packaging Subcommittee identified areas for change for some packaged CPT codes that they believe could frequently be provided to patients as the sole service on a given date and that require significant hospital resources as determined from hospital claims data. During the February 2005 meeting, the APC Panel accepted the report of the Packaging Subcommittee and made the following recommendations:

(1) That packaged codes be reviewed by the Panel individually.

(2) That the Packaging Subcommittee continue to meet throughout the year to discuss problematic packaged codes.

(3) That CMS assign a modifier to CPT codes 36540 (Collect blood, venous device); 36600 (Withdrawal of arterial blood); and 51701 (Insertion of non-indwelling bladder catheter), for use when there are no other separately payable codes on the claim. The modifier would flag the outpatient code editor (OCE) to assign payment to the claim.

(4) That CMS maintain the current packaged status indicator for CPT code 76937 (Ultrasound guidance for vascular access).

(5) That CMS change the status indicators for CPT immunization administration codes 90471 and 90472 to allow separate payment and ensure consistency with other injection codes.

(6) That CMS gather more data on CPT code 94762 (Overnight pulse oximetry) to determine how often this code is billed without any other separately payable codes and whether it is performed more frequently alone in rural settings than other settings.

(7) No changes to the packaged status of CPT codes 77790 (radiation source handling) and 94760 and 94761 (both codes measure blood oxygen levels).

(8) That CMS provide education and consistent guidelines to providers and fiscal intermediaries on correct billing procedures for packaged codes in general and in particular for CPT codes 36540, 36600, and 51701 and the recommended modifier, if approved.

(9) That the Packaging Subcommittee review CPT codes 42550 (Injection for salivary x-ray) and 38792 (Sentinel node imaging).

(10) That CPT code 97602 (Nonselective wound care) be referred to the Physician Payment Group within CMS for evaluation of its bundled status as it relates to services provided under the OPPS and that the Physician Payment Group report its conclusions back to the APC Panel.

For CY 2006, we are proposing to maintain CPT codes 36540 (Collect blood venous device) and 36600 (Withdrawal of arterial blood) as packaged services and not adopt the APC Panel's recommendation to add a modifier. We note CPT code 36540 is also bundled under the Medicare Physician Fee Schedule (MPFS), and our data demonstrate that the service is generally billed with other separately payable services. We also have relatively few single claims for CPT code 36600, compared to the procedure's overall frequency. Both of these codes have relatively low resource utilization. As these procedures are almost always provided with other separately payable services, hospitals' payments for those other services include the costs of CPT codes 36540 and 36600.

For CY 2006, we are proposing to pay separately for CPT code 51701 (Insertion of non-indwelling bladder catheter), and to map it to APC 0340 (Minor Ancillary Procedures), with status indicator “X”, and a median cost of $38.52. The APC Panel recommended that we pay separately for this code only when there are no other separately payable services on the claim. However, we are proposing to pay separately for this code every time it is billed. We believe that it is more appropriate to make payment for each procedure rather than increase hospitals' administrative burden by requiring specific coding changes to indicate that there are no other separately payable procedures on the claim. Based on our review of the data, the cost for this procedure is not insignificant, and the volume of single and multiple claims is modest. When we reviewed related codes, including CPT code 51702 (Insertion of temporary indwelling bladder catheter, simple) and CPT code 51703 (Insertion of temporary indwelling bladder catheter, complicate), we noted that these codes also had substantial median costs and a moderate volume of single claims. Therefore, for CY 2006, we are also proposing to pay separately for CPT codes 51702 and 51703, mapping them to APC 0340 with a median cost of $38.52 and APC 0164 (Level I Urinary Start Printed Page 42692and Anal Procedures) with a median cost of $71.54, respectively. CPT codes 51701, 51702, and 51703 will be placed on the bypass list, as discussed in section II.A.1.b. of this proposed rule.

For CY 2006, we are proposing to accept the APC Panel recommendation that CPT code 76937 (Ultrasound guidance for vascular access) remain packaged. We are concerned that there may be unnecessary overuse of this procedure if it is separately payable. In addition, we believe that the service would always be provided with another separately payable procedure, so its costs would be appropriately bundled with the definitive vascular access service. As stated in the CY 2005 final rule with comment period (69 FR 65697), CMS and the Packaging Subcommittee reviewed CY 2004 claims data for CPT code 76937 and determined that this code should remain packaged.

For CY 2006, see section VIII. of this preamble on drug administration regarding CPT codes 90471 and 90472.

For CY 2006, we are proposing to accept the APC Panel recommendations that CPT codes 77790 (Radiation handling), 94760 (Pulse oximetry for oxygen saturation, single determination), and 94761 (Pulse oximetry for oxygen saturation, multiple determinations) remain packaged. We believe that CPT code 77790 is integral to the provision of brachytherapy and should always be billed on the same day with brachytherapy sources and their loading, ensuring that the provider would receive appropriate payment for the radiation source handling and loading bundled with the payment for the brachytherapy service. The small number of single claims for this code in our data verifies that this code is rarely billed alone without other payable services on the claim, and those few single claims may be miscoded claims. Our data review of CPT codes 94760 and 94761 revealed that these codes have low resource utilization, and are most frequently provided with other services. Similar to CPT code 77790, there are many fewer single claims for CPT codes 94760 and 94761 than multiple procedure claims that include CPT codes 94760 and 94761. CPT codes 94760 and 94761 describe services that are very commonly performed in the hospital outpatient setting, and unpackaging these codes would likely significantly decrease the number of single claims available for use in calculating median costs for other services.

For CY 2006, we are proposing to accept the APC Panel recommendation to gather data and review CPT codes 94762, 42550, and 38792 with the Packaging Subcommittee. We will analyze single and multiple procedure claims' volumes and resource utilization data, and review these studies with the Packaging Subcommittee.

We referred CPT code 97602 (non-selective wound care) for MPFS evaluation of its bundled status as CPT code 97602 relates to services provided under the OPPS. CPT code 97602 is assigned status indicator “A” in this OPPS proposed rule, meaning that while it is no longer payable under the OPPS, it is payable under a fee schedule other than OPPS. Under the MPFS, the nonselective wound care services described by CPT code 97602 are “bundled” into the selective wound care debridement codes (CPT codes 97597 and 97598). Under the MPFS, a separate payment is never made for “bundled” services and, because of this designation, the provider does not receive separate payment for non-selective wound care described by CPT code 97602. While this code now falls under the MPFS rules, payment policy for this “bundled” service has not changed and separate payment is not made.

The APC Panel Packaging Subcommittee remains active, and additional issues and new data concerning the packaging status of codes will be shared for its consideration as information becomes available. We continue to encourage submission of common clinical scenarios involving currently packaged HCPCS codes to the Packaging Subcommittee for its ongoing review. Additional detailed suggestions for the Packaging Subcommittee should be submitted to APCPanel@cms.hhs.gov, with “Packaging Subcommittee” in the subject line.

B. Proposed Payment for Partial Hospitalization

(If you choose to comment on issues in this section, please include the caption “Partial Hospitalization” at the beginning of your comment.)

1. Background

Partial hospitalization is an intensive outpatient program of psychiatric services provided to patients as an alternative to inpatient psychiatric care for beneficiaries who have an acute mental illness. A partial hospitalization program (PHP) may be provided by a hospital to its outpatients or by a Medicare-certified CMHC. Section 1833(t)(1)(B)(i) of the Act provides the Secretary with the authority to designate the hospital outpatient services to be covered under the OPPS. Section 419.21(c) of the Medicare regulations that implement this provision specifies that payments under the OPPS will be made for partial hospitalization services furnished by CMHCs. Section 1883(t)(2)(C) of the Act requires that we establish relative payment weights based on median (or mean, at the election of the Secretary) hospital costs determined by 1996 claims data and data from the most recent available cost reports. Payment to providers under the OPPS for PHPs represents the provider's overhead costs associated with the program. Because a day of care is the unit that defines the structure and scheduling of partial hospitalization services, we established a per diem payment methodology for the PHP APC, effective for services furnished on or after August 1, 2000. For a detailed discussion, refer to the April 7, 2000 OPPS final rule (65 FR 18452).

2. Proposed PHP APC Update for CY 2006

To calculate the proposed CY 2006 PHP per diem payment, we used the same methodology that was used to compute the CY 2005 PHP per diem payment. For CY 2005, the per diem amount was based on 12 months of hospital and CMHC PHP claims data (for services furnished from January 1, 2003 through December 31, 2003). We used data from all hospital bills reporting condition code 41, which identifies the claim as partial hospitalization, and all bills from CMHCs because CMHCs are Medicare providers only for the purpose of providing partial hospitalization services. We used CCRs from the most recently available hospital and CMHC cost reports to convert each provider's line-item charges as reported on bills, to estimate the provider's cost for a day of PHP services. Per diem costs were then computed by summing the line-item costs on each bill and dividing by the number of days on the bill.

In a Program Memorandum issued on January 17, 2003 (Transmittal A-03-004), we directed fiscal intermediaries to recalculate hospital and CMHC CCRs using the most recently settled cost reports by April 30, 2003. Following the initial update of CCRs, fiscal intermediaries were further instructed to continue to update a provider's CCR and enter revised CCRs into the outpatient provider specific file. Therefore, for CMHCs, we use CCRs from the outpatient provider specific file.

Historically, the median per diem cost for CMHCs has greatly exceeded the median per diem cost for hospital-based PHPs and has fluctuated significantly Start Printed Page 42693from year to year while the median per diem cost for hospital-based PHPs has remained relatively constant ($200-$225). Medicare providers are required to maintain uniform charges for all payers. We believe that hospitals have multiple payers and are far less likely to significantly change their charges for PHP from year to year. However, many CMHCs have indicated that Medicare is their only payer. As a result, we believe that these providers may have increased and decreased their charges in response to Medicare payment policies. As discussed in more detail in the next section and in the final rule establishing the CY 2004 OPPS (68 FR 63470), we believe that some CMHCs manipulated their charges in order to inappropriately receive outlier payments.

In the CY 2003 update, the difference in median per diem cost for CMHCs and hospital-based PHPs was so great, $685 for CMHCs and $225 for hospital-based PHPs, that we applied an adjustment factor of .583 to CMHC costs to account for the difference between “as submitted” and “final settled” cost reports. By doing so, the CMHC median per diem cost was reduced to $384, resulting in a combined hospital-based and CMHC PHP median per diem cost of $273. As with all APCs in the OPPS, the median cost for each APC was scaled to be relative to the cost of a mid-level office visit and the conversion factor was applied. The resulting per diem rate for PHP for CY 2003 was $240.03.

In the CY 2004 OPPS update, the median per diem cost for CMHCs grew to $1038, while the median per diem cost for hospital-based PHPs was again $225. After applying the .583 adjustment factor to the median CMHC per diem cost, the median CMHC per diem cost was $605. As the CMHC median per diem cost exceeded the average per diem cost of inpatient psychiatric care, we proposed a per diem rate for CY 2004 based solely on hospital-based PHP data. The proposed PHP per diem for CY 2004, after scaling, was $208.95. However, by the time we published the OPPS final rule for CY 2004, we had received updated CCRs for CMHCs. Using the updated CCRs significantly lowered the CMHC median per diem cost to $440. As a result, we determined that the higher per diem cost for CMHCs was not due to the difference between “as submitted” and “final settled” cost reports, but were the result of excessive increases in charges which may have been done in order to receive higher outlier payments. Therefore, in calculating the PHP median per diem cost for CY 2004, we did not apply the .583 adjustment factor to CMHC costs to compute the PHP APC. Using the updated CCRs for CMHCs, the combined hospital-based and CMHC median per diem cost for PHP was $303. After scaling, we established the CY 2004 PHP APC of $286.82.

Then, in the CY 2005 OPPS update, the CMHC median per diem cost was $310 and the hospital-based PHP median per diem cost was $215. No adjustments were determined to be necessary and, after scaling, the combined median per diem cost of $289 was reduced to $281.33. We believed that the reduction in the CMHC median per diem cost indicated that the use of updated CCRs had accounted for the previous increase in CMHC charges, and represented a more accurate estimate of CMHC per diem costs for PHP.

For CY 2006, we analyzed 12 months of data for hospital and CMHC PHP claims for services furnished between January 1, 2004, and December 31, 2004. The data indicated that the median per diem cost for CMHCs had dropped to $143, while the median per diem cost for hospital-based PHPs was $209. It appears that CMHCs significantly reduced their charges in CY 2004. The average charge per day for CMHCs in CY 2003 was $1,184 and the average cost per day was $335. In CY 2004, the CMHC average charge per day dropped to $765 and the average cost per day was $167. We have determined that a combination of lower charges and slightly lower CCRs for CMHCs resulted in a significant decline in the CMHC median per diem cost.

Following the methodology used for the CY 2005 OPPS update, the combined hospital-based and CMHC median per diem cost would be $149, a decrease of 48 percent compared to the CY 2005 combined median per diem amount. We believe that after scaling this amount to the cost of a mid-level office visit, the resulting APC rate would be too low to cover the per diem cost for all PHPs.

We are considering an alternative update methodology for the PHP APC for CY 2006 that would mitigate this drastic reduction in payment for PHP. One alternative would be to base the PHP APC on hospital-based PHP data alone. The median per diem cost of hospital-based PHPs has remained in the $200-225 range over the last 5 years, while the median per diem cost for CMHC PHPs has fluctuated significantly from a high of $1,037 to a low of $143. Under this alternative, we would use $209, the median per diem cost for hospital-based PHPs during CY 2004 to establish the PHP APC for CY 2006. However, we believe using this amount would also result in an unacceptable drop in Medicare payments for all PHPs in CY 2006 compared to payments in CY 2005.

Another alternative we are considering is to apply a different trimming methodology to CMHC costs in an effort to eliminate the effect of data for those CMHCs that appeared to have excessively increased their charges in order to receive outlier payments. We compared CMHC per diem costs in CY 2003 to CMHC per diem costs in CY 2004 and determined the percentage change. Initially, we trimmed CMHCs claims where the CMHC's per diem costs changed by 50 percent or more from CY 2003 to CY 2004. After combining the remaining CMHC claims with the hospital-based PHP claims, we calculated a median per diem cost of $160.75. However, this approach did not eliminate the data for all of the CMHCs with unreasonable per diem costs. We then analyzed the resulting median per diem cost if we trimmed CMHC claims where the difference in CMHC per diem costs from 2003 to 2004 was 25 percent. This trimming approach resulted in a combined CMHC and hospital-based PHP median per diem cost of $176. We also trimmed the CMHC claims from the CY 2003 data to see how trimming aberrant data would affect the combined hospital/CMHC median per diem cost. We found that trimming the claims from the CMHCs with a 25 percent difference in per diem cost from CY 2003 to CY 2004 reduced the $289 median per diem cost to $218.

We believe it is important to eliminate aberrant data and we believe trimming certain CMHC data would provide an incentive for CMHCs to stabilize their charges so that we could use their data in future updates of the PHP APC. However, we believe that the trimming methods described above would also result in an unacceptably large decrease in payment. In addition, the trimming method we used was based on percentage change in cost per day, and may not have identified all the CMHCs that may have manipulated their charges in order to receive more outlier payments, for example, CMHCs with high charges and no reduction in charges compared to CY 2003.

Although we prefer to use both CMHC and hospital data to establish the PHP APC, we continue to be concerned about the volatility of the CMHC data. The analyses we have conducted seem to indicate that eliminating aberrant CMHC data results in a median per diem cost more in line with hospital data. We will continue to analyze the CMHC data in developing payment rates, however, if the data continues to Start Printed Page 42694be unstable, we may use only hospital data in the future.

We are considering an approach that would lessen the PHP payment reduction for CY 2006, yet, ensure an adequate payment amount and continue to ensure access to the partial hospitalization benefit for Medicare beneficiaries. For CY 2006, we are proposing to apply a 15-percent reduction in the combined hospital-based and CMHC median per diem cost that was used to establish the CY 2005 PHP APC. That amount would then be scaled to be relative to the cost of a mid-level office visit to establish the PHP APC for CY 2006. We believe a reduction in the CY 2005 median per diem cost would strike an appropriate balance between using the best available data and providing adequate payment for a program that often spans 5-6 hours a day. We believe 15 percent is an appropriate reduction because it recognizes decreases in median per diem costs in both the hospital data and the CMHC data, and also reduces the risk of any adverse impact on access to these services that might result from a large single-year rate reduction. However, we would propose that the reduction in payments for PHP be a transitional measure, and will continue to monitor CMHC costs and charges for these services and work with CMHCs to improve their reporting so that payments can be calculated based on better empirical data, consistent with the approach we have used to calculate payments in other areas of the OPPS.

To apply the methodology, we would reduce $289 (the CY 2005 combined hospital-based and CMHC median per diem cost) by 15 percent, resulting in a combined median per diem cost of $245.65. After scaling, we are proposing the resulting APC amount for PHP of $240.51 for CY 2006, of which $48.10 is the beneficiary's coinsurance. We will continue to analyze the data to determine whether there is a more targeted approach that would allow use of the CMHC and hospital PHP claims data to establish the final PHP rate for CY 2006.

3. Proposed Separate Threshold for Outlier Payments to CMHCs

In the November 7, 2003 final rule with comment period (68 FR 63469), we indicated that, given the difference in PHP charges between hospitals and CMHCs, we did not believe it was appropriate to make outlier payments to CMHCs using the outlier percentage target amount and threshold established for hospitals. There was a significant difference in the amount of outlier payments made to hospitals and CMHCs for PHP. Further analysis indicated the use of OPPS outlier payments for CMHCs was contrary to the intent of the general OPPS outlier policy. Therefore, for CYs 2004 and 2005, we established a separate outlier threshold for CMHCs. We designated a portion of the estimated 2.0 percent outlier target amount specifically for CMHCs, consistent with the percentage of projected payments to CMHCs under the OPPS in each of those years, excluding outlier payments.

As stated in the November 15, 2004 final rule with comment period, CMHCs were projected to receive 0.6 percent of the estimated total OPPS payments in CY 2005 (69 FR 65848). The CY 2005 CMHC outlier threshold is met when the cost of furnishing services by a CMHC exceeds 3.5 times the PHP APC payment amount. The current outlier payment percentage is 50 percent of the amount of costs in excess of the threshold.

CMS and the Office of the Inspector General are continuing to monitor the excessive outlier payments to CMHCs. As previously stated in section II.B.2. above, we used CY 2004 claims data to calculate the proposed CY 2006 per diem payment. These data show the effect of the separate outlier threshold for CMHCs that was effective January 1, 2004. During CY 2004, the separate outlier threshold for CMHCs resulted in $1.8 million in outlier payments to CMHCs, within the 2.0 percent of total OPPS payments identified for CMHCs. In CY 2003, more than $30 million was paid to CMHCs in outlier payments. We believe this difference in outlier payments indicates that the separate outlier threshold for CMHCs has been successful in keeping outlier payments to CMHCs in line with the percentage of OPPS payments made to CMHCs.

As noted in section II.H. of this preamble, for CY 2006, we are proposing to set the target for hospital outpatient outlier payments at 1.0 percent of total OPPS payments. We are also proposing to allocate a portion of that 1.0 percent, 0.006 percent (or 0.006 percent of total OPPS payments), to CMHCs for PHP services. As discussed in section II.G. below, we are proposing a dollar threshold in addition to an APC multiplier threshold for hospital OPPS outlier payments. However, because PHP is the only APC for which CMHCs may receive payment under the OPPS, we would not expect to redirect outlier payments by imposing a dollar threshold. Therefore, we are not proposing a dollar threshold for CMHC outliers. We are proposing to set the outlier threshold for CMHCs for CY 2006 at 3.45 percent times the APC payment amount and the CY 2006 outlier payment percentage applicable to costs in excess of the threshold at 50 percent. As we did with the hospital outlier threshold, we used hospital charge inflation factor to inflate charges to CY 2006.

C. Proposed Conversion Factor Update for CY 2006

(If you choose to comment on issues in this section, please include the caption “Conversion Factor” at the beginning of your comment.)

Section 1833(t)(3)(C)(ii) of the Act requires us to update the conversion factor used to determine payment rates under the OPPS on an annual basis. Section 1833(t)(3)(C)(iv) of the Act provides that, for CY 2006, the update is equal to the hospital inpatient market basket percentage increase applicable to hospital discharges under section 1886(b)(3)(B)(iii) of the Act.

The forecast of the hospital market basket increase for FY 2006 published in the IPPS proposed rule on May 4, 2005 is 3.2 percent (70 FR 23384). To set the OPPS proposed conversion factor for CY 2006, we increased the CY 2005 conversion factor of $56.983, as specified in the November 15, 2004 final rule with comment period (69 FR 65842), by 3.2 percent.

In accordance with section 1833(t)(9)(B) of the Act, we further adjusted the conversion factor for CY 2005 to ensure that the revisions we are making to our updates by means of the wage index are made on a budget-neutral basis. We calculated a proposed budget neutrality factor of 1.002015212 for wage index changes by comparing total payments from our simulation model using the FY 2006 IPPS proposed wage index values to those payments using the current (FY 2005) IPPS wage index values. In addition, to accommodate the proposed rural adjustment discussed in section II.G. of this preamble, we calculated a proposed budget neutrality factor of 0.99652023 by comparing payments with the rural adjustment to those without. For CY 2006, allowed pass-through payments are estimated to decrease to 0.05 percent of total OPPS payments, down from 0.1 percent in CY 2005. The proposed conversion factor is also adjusted by the difference in estimated pass-through payments of 0.05 percent. Finally, decreasing proposed payments for outliers to 1.0 percent of total payments returned 1.0 percent to the conversion factor.

The proposed market basket increase update factor of 3.2 percent for CY 2006, the required wage index budget neutrality adjustment of approximately 1.002015212, the return of 1.0 percent Start Printed Page 42695in total payments from a reduced outlier target, the 0.05 percent adjustment to the pass-through estimate, and the adjustment for the proposed rural payment adjustment of 0.99652023 result in a proposed conversion factor for CY 2006 of $59.350.

D. Proposed Wage Index Changes for CY 2006

(If you choose to comment on issues in this section, please include the caption “Wage Index” at the beginning of your comment.)

Section 1833(t)(2)(D) of the Act requires the Secretary to determine a wage adjustment factor to adjust, for geographic wage differences, the portion of the OPPS payment rate and the copayment standardized amount attributable to labor and labor-related cost. This adjustment must be made in a budget neutral manner. As we have done in prior years, we are proposing to adopt the IPPS wage indices and extend these wage indices to TEFRA hospitals that participate in the OPPS but not the IPPS.

As discussed in section II.A. of this preamble, we standardize 60 percent of estimated costs (labor-related costs) for geographic area wage variation using the IPPS wage indices that are calculated prior to adjustments for reclassification to remove the effects of differences in area wage levels in determining the OPPS payment rate and the copayment standardized amount.

As published in the original OPPS April 7, 2000 final rule (65 FR 18545), OPPS has consistently adopted the final IPPS wage indices as the wage indices for adjusting the OPPS standard payment amounts for labor market differences. As initially explained in the September 8, 1998 OPPS proposed rule, we believed and continue to believe that using the IPPS wage index as the source of an adjustment factor for OPPS is reasonable and logical, given the inseparable, subordinate status of the hospital outpatient within the hospital overall. In accordance with section 1886(d)(3)(E) of the Act, the IPPS wage index is updated annually. In this proposed rule, we are proposing to use the proposed FY 2006 hospital IPPS wage index published in the Federal Register on May 4, 2005 (70 FR 23550 through 23581), and as corrected and posted on the CMS Web site, to determine the wage adjustments for the OPPS payment rate and the copayment standardized amount for CY 2006. In accordance with our established policy, we are proposing to use the FY 2006 final version of these wage indices to determine the wage adjustments and copayment standardized amount that we will publish in our final rule for CY 2006.

We note that the FY 2006 IPPS wage indices continue to reflect a number of changes implemented in FY 2005 as a result of the new OMB standards for defining geographic statistical areas, the implementation of an occupational mix adjustment as part of the wage index, and new wage adjustments provided for under Pub. L. 108-173. The following is a brief summary of the proposed changes in the FY 2005 IPPS wage indices, continued for FY 2006, and any adjustments that we are proposing applying to the OPPS for CY 2006. We refer the reader to the FY 2006 IPPS proposed rule (70 FR 23367 through 23384, May 4, 2005) for a detailed discussion of the changes to the wage indices.)

1. The proposed continued use of the new Core Based Statistical Areas (CBSAs) issued by the Office of Management and Budget (OMB) as revised standards for designating geographical statistical areas based on the 2000 Census data, to define labor market areas for hospitals for purposes of the IPPS wage index. The OMB revised standards were published in the Federal Register on December 27, 2000 (65 FR 82235), and OMB announced the new CBSAs on June 6, 2003, through an OMB bulletin. In the FY 2005 hospital IPPS final rule, CMS adopted the new OMB definitions for wage index purposes. In the FY 2006 IPPS proposed rule, we again stated that hospitals located in MSAs would be urban and hospitals that are located in Micropolitan Areas or Outside CBSAs would be rural. To help alleviate the decreased payments for previously urban hospitals that became rural under the new MSA definitions, we allowed these hospitals to maintain their assignment to the MSA where they previously had been located for the 3-year period from FY 2005 through FY 2007. To be consistent with IPPS, we will continue the policy we began in CY 2005 of applying the same criterion to TEFRA hospitals paid under the OPPS but not under the IPPS and to maintain that MSA designation for determining a wage index for the specified period. Beginning in FY 2008, these hospitals will receive their statewide rural wage index, although those hospitals paid under the IPPS will be eligible to apply for reclassification. In addition to this “hold harmless” provision, the FY 2005 IPPS final rule implemented a one-year transition for hospitals that experienced a decrease in their FY 2005 wage index compared to their FY 2004 wage index due solely to the changes in labor market definitions. These hospitals received 50 percent of their wage indices based on the new MSA configurations and 50 percent based on the FY 2004 labor market areas. In the FY 2006 IPPS proposed rule, we discussed the cessation of the one-year transition and proposed that hospitals receive 100 percent of their wage index based upon the new CBSA configurations beginning in FY 2006. Again, for the sake of consistency with IPPS, we also are proposing that TEFRA hospitals would receive 100 percent of their wage index based upon the new CBSA configurations beginning in FY 2006.

2. We again proposed to apply the proposed occupational mix adjustment for FY 2006 IPPS to 10-percent of the average hourly wage and leave 90 percent of the average hourly wage unadjusted for occupational mix. As noted in the FY 2006 IPPS proposed rule, we are, essentially, using the same CMS Wage Index Occupational Mix Survey and Bureau of Labor Statistics data to calculate the adjustment. Because there are no significant differences between the FY 2005 and the FY 2006 occupational mix survey data and results, we believe it is appropriate to adopt the IPPS rule and apply the same occupational mix adjustment to 10 percent of the proposed FY 2006 wage index.

3. The reclassifications of hospitals to geographic areas for purposes of the wage index. For purposes of the OPPS wage index, we are proposing to adopt all of the IPPS reclassifications proposed for FY 2006, including reclassifications that the Medicare Geographic Classification Review Board (MGCRB) approved under the one-time appeal process for hospitals under section 508 of Pub. L. 108-173. We note that section 508 reclassifications will terminate March 31, 2007.

4. The proposed continuation of an adjustment to the wage index to reflect the “out-migration” of hospital employees who reside in one county but commute to work in a different county with a higher wage index, in accordance with section 505 of Pub. L. 108-173 (FY 2006 IPPS proposed rule (70 FR 23381 and 23382, May 4, 2005)). Hospitals paid under the IPPS located in the qualifying section 505 “out-migration” counties receive a wage index increase unless they have already been reclassified under section 1886(d)(10) of the Act, redesignated under section 1886(d)(8)(B) of the Act, or reclassified under section 508. As discussed in the FY 2006 IPPS proposed rule, we proposed that reclassified hospitals not receive the out-migration adjustment unless they waive their reclassified Start Printed Page 42696status. For OPPS purposes, we are continuing our policy from CY 2005 to apply the same 505 criterion to TEFRA hospitals paid under the OPPS but not paid under the IPPS. Because TEFRA hospitals cannot reclassify under sections 1886(d)(8) and 1886(d)(10) of the Act or section 508, they are eligible for the out-migration adjustment. Therefore, TEFRA hospitals located in a qualifying section 505 county will also receive an increase to their wage index under OPPS. Addendum L shows the hospitals, including TEFRA hospitals, that we currently believe will receive the out-migration adjustment. However, because we are proposing to adopt the final FY 2006 IPPS wage index, we will adopt any changes in a hospital's classification status that would make them either eligible or ineligible for the out-migration adjustment.

The following proposed FY 2006 IPPS wage indices that were published in the May 4, 2005 Federal Register (70 FR 23550 through 2323581) are reprinted as Addenda in this OPPS proposed rule: Addendum H—Wage Index for Urban Areas; Addendum I—Wage Index for Rural Areas; Addendum J—Wage Index for Hospitals That Are Reclassified; Addendum K—Puerto Rico Wage Index by CBSA; Addendum L—Out-Migration Wage Adjustment; Addendum M—Hospital Reclassifications and Redesignations by Individual Hospital and CBSA; Addendum N—Hospital Reclassifications and Redesignations by Individual Hospital under Section 508 of Pub. L. 108-173; and Addendum O—Hospitals Redesignated as Rural Under Section 1886(d)(8)(E) of the Act. We are proposing to use these FY 2006 IPPS indices, as they are finalized, to adjust the payment rates and coinsurance amounts that we will publish in the OPPS final rule for CY 2006.

With the exception of reclassifications resulting from the implementation of the one-time appeal process under section 508 of Pub. L. 108-173, all changes to the wage index resulting from geographic labor market area reclassifications or other adjustments must be incorporated in a budget neutral manner. Accordingly, in calculating the OPPS budget neutrality estimates for CY 2006, we have included the wage index changes that result from MGCRB reclassifications, implementation of section 505 of Pub. L. 108-173, and other refinements made in the FY 2006 IPPS proposed rule, such as the hold harmless provision for hospitals changing status from urban to rural under the new CBSA geographic statistical area definitions. However, section 508 set aside $900 million to implement the section 508 reclassifications. We considered the increased Medicare payments that the section 508 reclassifications would create in both the IPPS and OPPS when we determined the impact of the one-time appeal process. Because the increased OPPS payments already counted against the $900 million limit, we did not consider these reclassifications when we calculated the OPPS budget neutrality adjustment.

E. Proposed Statewide Average Default Cost-to-Charge Ratios

(If you choose to comment on issues in this section, please include the caption “Cost-to-Charge Ratios” at the beginning of your comment.)

CMS uses CCRs to determine outlier payments, payments for pass-through devices, and monthly interim transitional corridor payments under the OPPS. Some hospitals do not have a valid CCR. These hospitals include, but are not limited to, hospitals that are new and have not yet submitted a cost report, hospitals that have a CCR that falls outside predetermined floor and ceiling thresholds for a valid CCR, or hospitals that have recently given up their all-inclusive rate status. Last year we updated the default urban and rural CCRs for CY 2005 in our final rule published on November 15, 2004 (69 FR 65821 through 65825). We are proposing to update the default ratios using the most recent cost report data for CY 2006.

We calculated the proposed statewide default CCRs using the same CCRs that we use to adjust charges to costs on claims data. Table 3 lists the proposed CY 2006 default urban and rural CCRs by State. These CCRs are the ratio of total costs to total charges from each provider's most recently submitted cost report, for those cost centers relevant to outpatient services. We also adjusted these ratios to reflect final settled status by applying the differential between settled to submitted costs and charges from the most recent pair of settled to submitted cost reports.

The majority of submitted cost reports, 80.79 percent, were for CY 2003. We only used valid CCRs to calculate these default ratios. That is, we removed the CCRs for all-inclusive hospitals, CAHs, and hospitals in Guam and the U.S. Virgin Islands because these entities are not paid under the OPPS, or in the case of all-inclusive hospitals, because their CCRs are suspect. We further identified and removed any obvious error CCRs and trimmed any outliers. We limited the hospitals used in the calculation of the default CCRs to those hospitals that billed for services under the OPPS during CY 2003.

Finally, we calculated an overall average CCR, weighted by a measure of volume, for each State except Maryland. This measure of volume is the total lines on claims and is the same one that we use in our impact tables. For Maryland, we used an overall weighted average CCR for all hospitals in the nation as a substitute for Maryland CCRs, which appear in Table 3. Very few providers in Maryland are eligible to receive payment under the OPPS, which limits the data available to calculate an accurate and representative CCR. The overall decrease in default statewide CCRs can be attributed to the general decline in the ratio between costs and charges widely observed in the cost report data.

Table 3.—Statewide Average Cost-to-Charge Ratios

StateUrban/ruralPrevious default CCRDefault CCR
ALABAMARURAL0.315520.26710
ALABAMAURBAN0.298600.24570
ALASKARURAL0.593880.61850
ALASKAURBAN0.385550.42710
ARIZONARURAL0.397480.32760
ARIZONAURBAN0.309220.26980
ARKANSASRURAL0.359360.31750
ARKANSASURBAN0.382780.30470
CALIFORNIARURAL0.403350.29310
CALIFORNIAURBAN0.324270.24210
COLORADORURAL0.510410.43060
Start Printed Page 42697
COLORADOURBAN0.418630.32170
CONNECTICUTRURAL0.427020.47250
CONNECTICUTURBAN0.465920.44620
DELAWARERURAL0.362890.36300
DELAWAREURBAN0.450610.45940
DISTRICT OF COLUMBIAURBAN0.386900.37510
FLORIDARURAL0.317820.24300
FLORIDAURBAN0.283630.22400
GEORGIARURAL0.398290.33820
GEORGIAURBAN0.402620.32100
HAWAIIRURAL0.444200.41020
HAWAIIURBAN0.348150.34470
IDAHORURAL0.496820.46450
IDAHOURBAN0.519420.49170
ILLINOISRURAL0.418250.34060
ILLINOISURBAN0.368250.29960
INDIANARURAL0.445960.36860
INDIANAURBAN0.442050.37230
IOWARURAL0.501660.41990
IOWAURBAN0.469630.38780
KANSASRURAL0.480650.38970
KANSASURBAN0.346980.29270
KENTUCKYRURAL0.369870.31080
KENTUCKYURBAN0.373810.32470
LOUISIANARURAL0.343170.29910
LOUISIANAURBAN0.343570.27730
MAINERURAL0.478570.38800
MAINEURBAN0.540840.44890
MARYLANDRURAL0.703800.36521
MARYLANDURBAN0.681040.32997
MASSACHUSETTSURBAN0.444390.38810
MICHIGANRURAL0.448900.39410
MICHIGANURBAN0.411430.37420
MINNESOTARURAL0.485140.47130
MINNESOTAURBAN0.452590.37410
MISSISSIPPIRURAL0.342640.30290
MISSISSIPPIURBAN0.370970.29320
MISSOURIRURAL0.421870.34160
MISSOURIURBAN0.381280.31080
MONTANARURAL0.511730.47890
MONTANAURBAN0.493960.44810
NEBRASKARURAL0.493860.42370
NEBRASKAURBAN0.420430.33870
NEVADARURAL0.428780.50620
NEVADAURBAN0.228540.22330
NEW HAMPSHIRERURAL0.500830.43580
NEW HAMPSHIREURBAN0.399540.33220
NEW JERSEYURBAN0.490240.34030
NEW MEXICORURAL0.449320.33890
NEW MEXICOURBAN0.508570.43310
NEW YORKRURAL0.520620.43940
NEW YORKURBAN0.546250.42550
NORTH CAROLINARURAL0.377760.35410
NORTH CAROLINAURBAN0.427260.38110
NORTH DAKOTARURAL0.528290.41170
NORTH DAKOTAURBAN0.473410.36740
OHIORURAL0.425620.41160
OHIOURBAN0.427180.32810
OKLAHOMARURAL0.406280.32900
OKLAHOMAURBAN0.362640.29190
OREGONRURAL0.479150.42460
OREGONURBAN0.499580.43760
PENNSYLVANIARURAL0.405820.36010
PENNSYLVANIAURBAN0.338070.28010
PUERTO RICOURBAN0.422080.41370
RHODE ISLANDURBAN0.439300.35100
SOUTH CAROLINARURAL0.359960.29370
SOUTH CAROLINAURBAN0.369610.29160
SOUTH DAKOTARURAL0.495990.39210
SOUTH DAKOTAURBAN0.442590.33940
TENNESSEERURAL0.366630.30290
Start Printed Page 42698
TENNESSEEURBAN0.364640.28310
TEXASRURAL0.417630.33640
TEXASURBAN0.336110.30300
UTAHRURAL0.497480.47090
UTAHURBAN0.467330.45230
VERMONTRURAL0.472780.46750
VERMONTURBAN0.545330.44250
VIRGINIARURAL0.394080.33500
VIRGINIAURBAN0.386040.32550
WASHINGTONRURAL0.542460.43420
WASHINGTONURBAN0.546580.41360
WEST VIRGINIARURAL0.426710.35070
WEST VIRGINIAURBAN0.456160.40700
WISCONSINRURAL0.501260.42300
WISCONSINURBAN0.462680.38480
WYOMINGRURAL0.545960.51580
WYOMINGURBAN0.412650.41080

F. Expiring Hold Harmless Provision for Transitional Corridor Payments for Certain Rural Hospitals

When the OPPS was implemented, every provider was eligible to receive an additional payment adjustment (transitional corridor payment) if the payments it received for covered OPD services under the OPPS were less than the payments it would have received for the same services under the prior reasonable cost-based system (section 1833(t)(7) of the Act). Section 1833(t)(7) of the Act provides that the transitional corridor payments are temporary payments for most providers, with two exceptions, to ease their transition from the prior reasonable cost-based payment system to the OPPS system. Cancer hospitals and children's hospitals receive the transitional corridor payments on a permanent basis. Section 1833(t)(7)(D)(i) of the Act originally provided for transitional corridor payments to rural hospitals with 100 or fewer beds for covered OPD services furnished before January 1, 2004. However, section 411 of Pub. L. 108-173 amended section 1833(t)(7)(D)(i) of the Act to extend these payments through December 31, 2005, for rural hospitals with 100 or fewer beds. Section 411 also extended the transitional corridor payments to sole community hospitals located in rural areas for services furnished during the period that begins with the provider's first cost reporting period beginning on or after January 1, 2004, and ends on December 31, 2005. Accordingly, the authority for making transitional corridor payments under section 1833(t)(7)(D)(i) of the Act, as amended by section 411 of Pub . L. 108-173, will expire for rural hospitals having 100 or fewer beds and sole community hospitals located in rural areas on December 31, 2005. For CY 2006, transitional corridor payments will continue to be available to cancer and children's hospitals. (We note that the succeeding section II.G. of this preamble discusses an additional provision of section 411 of Pub. L. 108-173 that related to a study to determine appropriate adjustment to payments for rural hospitals under the OPPS beginning January 2006.)

G. Proposed Adjustment for Rural Hospitals

(If you choose to comment on issues in this section, please include the caption “Rural Hospital Adjustment” at the beginning of your comment.)

Section 411 of Pub. L. 108-173 added a new paragraph (13) to section 1833(t) of the Act. New section 1833(t)(13)(A) specifically instructs the Secretary to conduct a study to determine if rural hospital outpatient costs exceed urban hospital outpatient costs. Moreover, under new section 1833(t)(13)(B) of the Act, the Secretary is given authorization to provide an appropriate adjustment to rural hospitals by January 1, 2006, if rural hospital costs are determined to be greater than urban hospital costs.

To conduct the study required under section 1833(t)(13)(A), as added by section 411 of Pub. L. 108-173, we believe that a simple comparison of unit costs is insufficient because the costs faced by hospitals, whether urban or rural, will be a function of many factors. These include the local labor supply, and the complexity and volume of services provided. Therefore, we used regression analysis to study differences in the outpatient cost per unit between rural and urban hospitals in order to compare costs after accounting for the influence of these other factors.

Our regression analysis included all 4,077 hospitals billing under OPPS for which we could model accurate cost per unit estimates. For each hospital, total outpatient costs and descriptive information were derived from CY 2004 Medicare claims and the hospital's most recently submitted cost report. The description of claims used, our methodology for creating costs from charges, and a description of the specific hospitals included in our modeling are discussed in section II.A. of this preamble. We excluded separately payable drugs and biologicals, and clinical laboratory services paid on a fee schedule from our analysis. We excluded the 49 hospitals in Puerto Rico because their wage indices and unit costs are so different that they would have skewed results. Finally, we excluded facilities whose unit outpatient costs were outside of 3 standard deviations from the geometric mean unit outpatient cost.

Total unit outpatient cost for each hospital was calculated by dividing total outpatient cost by the total number of APC units discounted for the joint performance of multiple procedures. (See section II.G.2. below for a definition of discounted units.) We modeled both explanatory and payment regression models. In an “explanatory model” approach, all variables that are hypothesized to be important determinants of cost are included in the cost regression, whether or not they are going to be used as payment adjustments. In a “payment model” approach, the only independent variables included in the cost regression are those variables that are used as payment adjustments. The regression Start Printed Page 42699equations for both models were specified in double logarithmetic form. The dependent variable in the explanatory regression equation was unit outpatient cost. The dependent variable in the payment regressions was standardized unit outpatient costs, that is, unit outpatient costs adjusted to reflect payment by dividing through by the provider's service-mix index which was adjusted by the provider's wage index. The service-mix index is a measure of the resource intensity of services provided by each hospital. Both regression equation models included quantitative independent variables transformed into natural logarithms and categorical independent variables. Categorical independent (dummy) variables included hospital characteristics such as rural location or type of hospital (short stay or specialty hospital).

1. Factors Contributing to Unit Cost Differences Between Rural Hospitals and Urban Hospitals

In considering potential independent variables that might explain differences in unit outpatient costs between urban and rural hospitals, we determined that several factors would be important:

  • First, unit outpatient costs are expected to vary directly with the prices of inputs used to produce outpatient services, especially labor. Wage rates tend to be lower in rural areas than in urban areas.
  • Second, there may be economies of scale in producing outpatient services, which imply that unit costs will vary inversely with the volume of outpatient services provided.
  • Third, independent of the volume of outpatient services, hospitals that provide more complex outpatient services are expected to have higher unit costs than hospitals with less complex service-mixes. Typically, greater complexity involves a combination of higher equipment and labor costs. Rural hospitals usually have less volume and perform less complex services than urban hospitals.
  • Fourth, the size of a hospital may influence the volume and service-mix of outpatient services. Large hospitals generally provide a wider range of more complex services than do small hospitals. Large hospitals may also have larger volumes in ancillary departments that are shared between outpatient and inpatient services, and as a result, benefit from greater economies of scale than do small hospitals. Rural hospitals tend to be smaller than urban hospitals. Our primary measure of outpatient volume is units of APCs, which only reflects the volume of Medicare services paid under the outpatient PPS. This measure does not include the inpatient utilization of shared ancillary departments or non-Medicare outpatient services. For all these reasons, it seems appropriate to include a broader measure of facility size in the explanatory regression model. Therefore, as explained below, we used the total number of facility beds to measure facility size. Unit outpatient costs may be positively or negatively related to facility size depending on whether complexity effects or scale economies are more important.

2. Explanatory Variables

We used the hospital wage index as our measure of labor input prices. To reflect the complexity of outpatient services, we used a service-mix index defined as the ratio of the number of discounted units weighted by APC relative weights divided by the number of unweighted discounted units. Discounted units are the total number of units after we adjust for the multiple procedure reduction of 50 percent that applies to payment for surgical services when two surgical procedures are performed during the same operative session and for selected radiology procedures, as proposed (see section XIV. of the preamble). For example, if a procedure is paid at 100 percent of payment 1,000 times and the same procedure is paid at 50 percent of payment 100 times, the discounted units for that procedure equal 1,050 units (the sum of 1,000 units at full payment plus 100 units at 50 percent payment). We then calculate the total weight for that procedure by multiplying the discounted units by the full weight for the procedure. The service-mix index reflects the average APC weight of each facility's outpatient services. Outpatient service volume was measured as the total number of unweighted discounted units. We used the total number of facility beds as the broader measure of facility size. We also included categorical variables to indicate the types of specialty hospitals that participate in OPPS, specifically cancer, children's, long-term care, rehabilitation, and psychiatric hospitals. Finally, we included a categorical variable for rural/urban location to capture variation unexplained by the other independent variables in the model. For all of the rural dummy variables discussed below, urban hospitals are the reference group. Table 4 provides descriptive statistics for the dependent variable and key independent variables by urban and rural status. Without controlling for the other influences on per unit cost, rural hospitals have lower cost per unit than urban hospitals. However, when standardized for the service-mix wage indices, average unit costs are nearly identical between urban and rural hospitals

Table 4.—Means and Standard Deviations (In Parenthesis) for Key Variables by Urban-Rural Location

RuralUrban
Unit Outpatient Cost$163.78$195.54
($65.69)($93.59)
Standardized Unit Outpatient Cost$75.04$75.15
($26.97)($45.00)
Wage Index0.87981.0214
(0.0771)(0.1487)
Service-Mix Index2.41212.7741
(0.8915)(1.4579)
Outpatient Volume18,64535,744
(19,578)(42,626)
Beds76.70198
(55.82)(169)
Number of Hospitals1,2572,820
Start Printed Page 42700

3. Results

Overall, all rural hospitals give some indication of having higher cost per unit, after controlling for labor input prices, service-mix complexity, volume, facility size, and type of hospital. In an explanatory model regressing unit costs on all independent variables discussed above, the coefficient for the rural categorical variable was 0.024 (p=0.058), which suggests that rural hospitals are approximately 2.4 percent more costly than urban hospitals after accounting for the impact of other explanatory variables. The results of this regression appear in Table 5. This regression demonstrated reasonably good explanatory power with an adjusted R2 of 0.53 (rounded). Adjusted R2 is the percentage of variation in the dependent variable explained by the independent variables and is a standard measure of how well the regression model fits the data. The regression coefficients of the key explanatory variables all move in the expected direction: positive for the wage index, indicating that rural hospitals can be expected to have lower unit outpatient costs because they tend to be located in areas with lower wage rates; positive for the outpatient service-mix index, consistent with the hypothesis that rural hospitals' less complex outpatient service-mixes result in lower unit costs than those of the typical urban hospital; negative for outpatient service volume, implying that, on average, rural hospitals' lower service volumes are a source of higher unit cost compared to urban hospitals; and positive for the facility size variable (beds), suggesting that facility size is more reflective of complexity than any economies of scale. The rural dummy variable has a coefficient of 0.02414. If the unit costs of rural hospitals are the same as the unit costs of urban hospitals, the probability of observing a value as extreme as or more extreme than 2.4 percent would be approximately 6 percent or less. This explanatory regression model provides some evidence that outpatient services provided by rural hospitals are more costly than outpatient services provided by urban hospitals, but the evidence is weak. The payment regression that accompanies this explanatory model indicates an adjustment for all rural hospitals of 3.7 percent.

Table 5.—Regression Results for Unit Outpatient Cost: Rural Versus Urban

VariableExplanatoryPayment
Regression coefficientt Value 1p Value 2Regression coefficientt Value 1p Value 2
Intercept4.89665124.65<.00014.240920.00624<0.0001
Wage Index0.6443517.96<.0001
Service-Mix Index0.7581358.51<.0001
Outpatient Volume−0.06532−14.40<.0001
Beds0.044756.17<.0001
Rural0.024141.890.05820.036563.250.0012
Children's Hospital0.064971.330.1824
Psychiatric Hospital−0.44446−15.13<.0001
Long-Term Care Hospital−0.08759−2.77.0.0057
Rehabilitation Hospital−0.25295−7.85<.0001
Cancer Hospital0.308973.450.0006
R20.5285
Note: Coefficients of all quantitative variables are elasticities since both the dependent variable, unit outpatient cost, and all quantitative independent variables were in natural logarithms. To calculate percentage differences for categorical variables, their coefficients must be raised to the power, e, the base of natural logarithms.
1 A t value is an indicator of our degree of confidence that the regression coefficient is different from zero, taking into account the statistical variability of the estimated coefficient.
2 A p value is the probability of observing the specific t value when the estimated coefficient is zero. The t values greater than 2 and less than −2 indicate a probability less than 5 percent, p-value<0.05, that the estimated coefficient is zero.

In order to assess whether the small difference in costs was uniform across rural hospitals or whether all of the variation was attributable to a specific class of rural hospitals, we included more specific categories of rural hospitals in our explanatory regression analysis. We divided rural hospitals into rural SCHs, rural hospitals with less than 100 beds that are not rural sole community hospitals, and other rural hospitals. The first two categories of rural hospitals are currently eligible for payments under the expiring hold-harmless provision. Because it appears that rural SCHs are responsible for the variation in rural hospital costs, we then collapsed the last remaining categories in an “all other” rural hospital category.

We found that rural SCHs demonstrated significantly higher cost per unit than urban hospitals after controlling for labor input prices, service-mix complexity, volume, facility size, and type of hospital. The results of this regression appear in Table 6. With the exception of the new rural variables, the independent variables have the same sign and significance as in Table 5. Rural SCHs have a positive and significant coefficient; all other rural hospitals do not. The rural SCH “dummy” variable has an explanatory regression coefficient of 0.05668 and an observed probability that the coefficient is zero of less than 0.001. If the unit costs of rural SCHs are the same as those of urban hospitals, the probability of observing a value as extreme or more extreme than 5.8 percent would be less than 0.1 percent. Accordingly, we have determined that rural SCHs are more costly than urban hospitals, holding all other variables constant. Notably, we observed no significant difference between all other rural hospitals and urban hospitals.Start Printed Page 42701

Table 6.—Regression Results for Unit Outpatient Cost: Rural Sole Community Hospitals

VariableExplanatoryPayment
Regression coefficientt Value 1pValue 2Regression coefficientt Value 1pValue 2
Intercept4.89444124.70<.00014.24474768.57<.0001
Wage Index0.6402217.85<.0001
Service-Mix Index0.7579858.56<.0001
Outpatient Volume−0.06538−14.43<.0001
Beds0.045336.26<.0001
Rural SCH0.056683.420.00060.063543.94<.0001
All Other Rural0.004150.290.7715
Children's Hospital0.064751.330.1835
Psychiatric Hospital−0.44345−15.11<.0001
Long-Term Care Hospital−0.08644−2.730.0063
Rehabilitation Hospital−0.25234−7.83<.0001
Cancer Hospital0.309573.460.0005
R20.5295
Note: Coefficients of all quantitative variables are elasticities since both the dependent variables, unit outpatient cost, and all quantitative independent variables were in natural logarithms. To calculate percentage differences for categorical variables, their coefficients must be raised to the power, e, the base of natural logarithms.
1 A t value is an indicator of our degree of confidence that the regression coefficient is different from zero, taking into account the statistical variability of the estimated coefficient.
2 A p value is the probability of observing the specific t value when the estimated coefficient is zero. The t values greater than 2 and less than −2 indicate a probability less than 5 percent, p-value <0.05, that the estimated coefficient is zero.

Based on the above analysis and as noted in the explanatory regression in Table 6, we believe that a payment adjustment for rural SCHs is warranted. The accompanying payment regression, also appearing in Table 6, indicates a cost impact of 6.6 percent. Thus, in accordance with the authority provided in section 1833(t)(13)(B) of the Act, as added by section 411 of Pub. L. 108-173, we are proposing a 6.6 percent payment increase for rural SCHs for CY 2006. This adjustment would apply to all services and procedures paid under the OPPS, excluding drugs and biologicals. We note that this adjustment would be budget neutral, and would be applied before calculating outliers and coinsurance. We may revisit this adjustment in the future.

Additional descriptive statistics are available on the CMS Web site.

H. Proposed Hospital Outpatient Outlier Payments

(If you choose to comment on issues in this section, please include the caption “Outlier Payments” at the beginning of your comment.)

Currently, the OPPS pays outlier payments on a service-by-service basis. For CY 2005, the outlier threshold is met when the cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $1,175 fixed dollar threshold. We introduced a fixed dollar threshold in CY 2005 in addition to the traditional multiple threshold to better target outliers to those high cost and complex procedures where a very costly case could present a hospital with significant financial loss. If a provider meets both of these conditions, the multiple threshold and the fixed dollar threshold, the outlier payment is calculated as 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment rate. For CMHCs, the outlier threshold is met when the cost of furnishing a service or procedure by a CMHC exceeds 3.5 times the APC payment rate. If a CMHC provider meets this condition, the outlier payment is calculated as 50 percent of the amount by which the cost exceeds 3.5 times the APC payment rate.

As explained in our CY 2005 final rule (69 FR 65844), we set our projected target for aggregate outlier payments at 2.0 percent of aggregate total payments under OPPS. Our outlier thresholds were set so that estimated CY 2005 aggregate outlier payments would equal 2.0 percent of aggregate total payments under OPPS.

For CY 2006, we are proposing to set our projected target for aggregate outlier payments at 1.0 percent of aggregate total payments under OPPS. A portion of that 1.0 percent, an amount equal to .006 percent of aggregate total payments under OPPS, would be allocated to CMHCs for partial hospitalization program service outliers. In its March 2004 Report, MedPAC recommended that Congress should eliminate the outlier policy under the outpatient prospective payment system. While this would require a statutory change, many of the reasons cited by MedPAC for the elimination of the outlier policy are equally applicable to any reduction in the size of the percentage of total payments dedicated to outlier payments, including the following: the narrow definition of many of the services provided in hospital outpatient departments suggests that variability in costs should not be great; the distribution of outlier payments benefits some hospital groups more than others; the outlier policy is susceptible to “gaming” through charge inflation; and, the OPPS is the only ambulatory payment system with an outlier policy.

In order to ensure that estimated CY 2006 aggregate outlier payments would equal 1.0 percent of estimated aggregate total payments under OPPS, we are proposing that the outlier threshold be modified so that outlier payments are triggered when the cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $1,575 fixed dollar threshold. We choose to modify the fixed dollar threshold to target 1.0 percent of estimated aggregate total payment under OPPS and not modify the current 1.75 multiple to further our policy of targeting outlier payments to complex and expensive procedures with sufficient variability to pose a financial risk for hospitals. Modifying the multiple would do less to target outlier payments to complex and expensive procedures. For example, if we were to establish a multiple of 2.00 rather than 1.75, then an APC with a payment rate of $20,000 would see the outlier threshold associated with the multiple increase from $35,000 to $40,000. Raising the fixed dollar threshold to Start Printed Page 42702$1,575 only increases the threshold for expensive procedures by $400. For this reason, we believe it is more appropriate to focus the modification necessary to target 1.0 percent of aggregate OPPS payments on the fixed dollar threshold and increase it from $1,175 in CY 2005 to our proposed $1,575 in CY 2006 and have the multiple threshold remain at 1.75.

For CY 2006, the outlier threshold for CMHCs is met when the cost of furnishing a service or procedure by a CMHC exceeds 3.45 times the APC payment rate. If a CMHC provider meets this condition, the outlier payment is calculated as 50 percent of the amount by which the cost exceeds 3.45 times the APC payment rate.

The following is an example of an outlier calculation for CY 2006 under our proposed policy. A hospital charges $26,000 for a procedure. The APC payment for the procedure is $3,000, including a rural adjustment, if applicable. Using the provider's cost-to-charge ratio of 0.30, the estimated cost to the hospital is $7,800. To determine whether this provider is eligible for outlier payments for this procedure, the provider must determine whether the cost for the service exceeds both the APC outlier cost threshold (1.75 × APC payment) and the fixed dollar threshold ($1,575 + APC payment). In this example, the provider meets both criteria:

(1) $7,800 exceeds $5,250 (1.75 × $3,000)

(2) $7,800 exceeds $4,575 ($1,575 + $3,000)

To calculate the outlier payment, which is 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC rate, subtract $5,250 (1.75 × $3,000) from $7,800 (resulting in $2,550). The provider is eligible for 50 percent of the difference, in this case $1,275 ($2,550/2). The formula is (cost −(1.75 × APC payment rate))/2.

I. Calculation of the Proposed National Unadjusted Medicare Payment

(If you choose to comment on issues in this section, please include the caption “Payment Rate for APCs” at the beginning of your comment.)

The basic methodology for determining prospective payment rates for OPD services under the OPPS is set forth in existing regulations at § 419.31 and § 419.32. The payment rate for services and procedures for which payment is made under the OPPS is the product of the conversion factor calculated in accordance with section II.C. of this proposed rule, and the relative weight determined under section II.A. of this proposed rule. Therefore, the national unadjusted payment rate for APCs contained in Addendum A to this proposed rule and for payable HCPCS codes in Addendum B to this proposed rule (Addendum B is provided as a convenience for readers) was calculated by multiplying the proposed CY 2006 scaled weight for the APC by the proposed CY 2006 conversion factor.

However, to determine the payment that would be made in a calendar year under the OPPS to a specific hospital for an APC for a service other than a drug, in a circumstance in which the multiple procedure discount does not apply, we take the following steps:

Step 1. Calculate 60 percent (the labor-related portion) of the national unadjusted payment rate. Since initial implementation of the OPPS, we have used 60 percent to represent our estimate of that portion of costs attributable, on average, to labor. (Refer to the April 7, 2000 final rule with comment period (65 FR 18496 through 18497), for a detailed discussion of how we derived this percentage.)

Step 2. Determine the wage index area in which the hospital is located and identify the wage index level that applies to the specific hospital. The wage index values assigned to each area reflect the new geographic statistical areas as a result of revised OMB standards (urban and rural) to which hospitals would be assigned for FY 2006 under the IPPS, reclassifications through the Medicare Classification Geographic Review Board, section 1866(d)(8)(B) “Lugar” hospitals, and section 401 of Pub. L. 108-173, and the reclassifications of hospitals under the one-time appeals process under section 508 of Pub. L. 108-173. Assess whether the previous MSA-based wage index is higher than the CBSA-based wage index, and, if higher, apply a 50/50 blend. The wage index values include the occupational mix adjustment described in section II.D. of this proposed rule that was developed for the IPPS.

Step 3. Adjust the wage index of hospitals located in certain qualifying counties that have a relatively high percentage of hospital employees who reside in the county, but who work in a different county with a higher wage index, in accordance with section 505 of Pub. L. 108-173. Addendum K contains the qualifying counties and the proposed wage index increase developed for the IPPS. This step is to be followed only if the hospital has chosen not to accept reclassification under Step 2 above.

Step 4. Multiply the applicable wage index determined under Steps 2 and 3 by the amount determined under Step 1 that represents the labor-related portion of the national unadjusted payment rate.

Step 5. Calculate 40 percent (the nonlabor-related portion) of the national unadjusted payment rate and add that amount to the resulting product of Step 4. The result is the wage index adjusted payment rate for the relevant wage index area.

Step 6. If a provider is a sole community hospital, as defined in § 419.92, and located in a rural area, as defined in § 412.63(b) or is treated as being located in a rural area under section 1886(d)(8)(E) of the Act, multiply the wage index adjusted payment rate by 1.066 to calculate the total payment.

J. Proposed Beneficiary Copayments for CY 2006

(If you choose to comment on issues in this section, please include the caption “Beneficiary Copayment” at the beginning of your comment.)

1. Background

Section 1833(t)(3)(B) of the Act requires the Secretary to set rules for determining copayment amounts to be paid by beneficiaries for covered OPD services. Section 1833(t)(8)(C)(ii) of the Act specifies that the Secretary must reduce the national unadjusted copayment amount for a covered OPD service (or group of such services) furnished in a year in a manner so that the effective copayment rate (determined on a national unadjusted basis) for that service in the year does not exceed specified percentages. For all services paid under the OPPS in CY 2006, and in calendar years thereafter, the specified percentage is 40 percent of the APC payment rate. Section 1833(t)(3)(B)(ii) of the Act provides that, for a covered OPD service (or group of such services) furnished in a year, the national unadjusted coinsurance amount cannot be less than 20 percent of the OPD fee schedule amount.

2. Proposed Copayment for CY 2006

For CY 2006, we are proposing to determine copayment amounts for new and revised APCs using the same methodology that we implemented for CY 2004 (see the November 7, 2003 OPPS final rule with comment period, 68 FR 63458). The proposed unadjusted copayment amounts for services payable under the OPPS that would be effective January 1, 2006, are shown in Addendum A and Addendum B of this proposed rule.Start Printed Page 42703

3. Calculation of the Proposed Unadjusted Copayment Amount for CY 2006

To calculate the unadjusted copayment amount for an APC group, take the following steps:

Step 1. Calculate the beneficiary payment percentage for the APC by dividing the APC's national unadjusted copayment by its payment rate. For example, using APC 0001, $9.95 is 40 percent of $24.89.

Step 2. Calculate the wage adjusted payment rate for the APC, for the provider in question, as indicated in section II.I. above.

Step 3. Multiply the percentage calculated in Step 1 by the payment rate calculated in Step 2. The result is the wage adjusted copayment amount for the APC.

III. Proposed Ambulatory Payment Classification (APC) Group Policies

A. Background

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 HCPCS codes and descriptors to identify and group the services within each APC. The APCs are organized such that each group is homogeneous both clinically and in terms of resource use. Using this classification system, we have established distinct groups of surgical, diagnostic, and partial hospitalization services, and medical visits. 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 do 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 II.A. of this proposed rule.

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 (the APC Panel recommendations for CY 2006 OPPS and our responses to them are discussed in sections III.B. and III.C.4. of this preamble).

Finally, as discussed earlier, 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.

B. Proposed Changes—Variations Within APCs

(If you choose to comment on issues in this section, please include the caption “2 Times Rule” at the beginning of your comment.)

1. Application of the 2 Times Rule

In accordance with section 1833(t)(2) of the Act and § 419.31 of the regulations, we annually review the items and services within an APC group to determine with respect to comparability of the use of resources if the median 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 (“2 times rule”). We make exceptions to this limit on the variation of costs within each APC group in unusual cases such as low-volume items and services. The statute provides no exception 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 because these drugs are assigned to individual APC's.

During the APC Panel's February 2005 meeting, we presented median cost and utilization data for the period of January 1, 2004, through September 30, 2004, concerning a number of APCs that violate the 2 times rule and asked the APC Panel for its recommendation. After carefully considering the information and data we presented, the APC Panel recommended moving a total of 65 HCPCS codes from their currently assigned APC to a different APC to resolve the 2 times rule violations. Of the 65 HCPCS code reassignments recommended by the APC Panel, we concur with 58 of the recommended reassignments. Therefore, we are proposing to reassign these HCPCS codes as shown in Table 7.

Table 7.—Proposed Movement of HCPCS Codes Among APCs Based on the APC Panel's Recommendations for CY 2006

HCPCS codeDescriptionCY 2005 APCProposed CY 2006 APC
45307Proctosigmoidoscopy fb01460428
45320Proctosigmoidoscopy ablate01470428
45321Proctosigmoidoscopy volvul01470428
Start Printed Page 42704
45335Sigmoidoscopy w/submuc inj01470146
45337Sigmoidoscopy & decompress01470146
46606Anoscopy and biopsy01470146
46610Anoscopy, remove lesion01470428
46612Anoscopy, remove lesions01470428
46614Anoscopy, control bleeding01470146
46615Anoscopy01470428
56405I & D of vulva/perineum01920189
57155Insert uteri tandems/ovoids01930192
65265Remove foreign body from eye02360237
65285Repair of eye wound02360672
66220Repair eye lesion02360672
67025Replace eye fluid02360237
67027Implant eye drug system02370672
67036Removal of inner eye fluid02370672
67038Strip retinal membrane02370672
67039Laser treatment of retina02370672
67121Remove eye implant material02360237
75790Visualize A-V shunt02810279
75820Vein x-ray, arm/leg02810668
75822Vein x-ray, arms/legs02810668
75831Vein x-ray, kidney02870279
75840Vein x-ray, adrenal gland02870280
75842Vein x-ray, adrenal glands02870280
75860Vein x-ray, neck02870668
75870Vein x-ray, skull02870668
75872Vein x-ray, skull02870279
75880Vein x-ray, eye socket02870668
86077Physician blood bank service03430433
86079Physician blood bank service03430433
88104Cytopathology, fluids03430433
88107Cytopathology, fluids03430433
88160Cytopath smear, other source03420433
88161Cytopath smear, other source03430433
88162Cytopath smear, other source03420433
88184Flowcytometry/tc, 1 marker03420344
88185Flowcytometry/tc, add-on03420343
88187Flowcytometry/read, 2-803420433
88188Flowcytometry/read, 9-1503420433
88189Flowcytometry/read, 16 & >03440343
88312Special stains03420433
88313Special stains03420433
88318Chemical histochemistry03420433
88323Microslide consultation03440343
88329Path consult introp03420433
88332Path consult intraop, add'l03420433
88342Immunohistochemistry03440343
88346Immunofluorescent study03440343
88347Immunofluorescent study03440343
88355Analysis, skeletal muscle03440343
89230Collect sweat for test03430433
92004Eye exam, new patient06020601
92014Eye exam & treatment06020601

The seven HCPCS code movements that the APC Panel recommended, but upon further review we are proposing not to accept, are discussed below. We include in our discussion our proposal specific to each of them to resolve the 2 times rule violations.

a. APC 0146: Level I Sigmoidoscopy, APC 0147: Level II Sigmoidoscopy, APC 0428: Level III Sigmoidoscopy.

APCs 0146 and 0147 were exceptions to the 2 times rule in CY 2005. Our analysis of these two APCs based on the most current CY 2004 data revealed greater violations of the 2 times rule and changing relative frequencies of simple and complex procedures in these two APCs. Thus, for CY 2006, the APC Panel assisted us in reconfiguring these two APCs into three related APCs to resolve the two times violations and improve their clinical and resource homogeneity based on the most current hospital claims data and to remove these APCs from the list of exceptions. The APC Panel recommended moving CPT codes 45303 (Proctosigmoidoscopy dilate) and 45305 (Proctosigmoidoscopy w/bx) from APC 0147 to APC 0146 because the median cost for these codes appeared too high, and was likely based primarily on aberrant CY 2004 claims. In addition, the APC Panel recommended that CMS move CPT code 45309 (Proctosigmoidoscopy removal) from APC 0147 to a new proposed APC 0428. Start Printed Page 42705Based on the results of our review of several years of claims data and our study of hospital resource homogeneity, we disagree that these claims data are aberrant. We are proposing to move CPT codes 45303 and 45305 to APC 0147 and to keep CPT 45309 in APC 0147, to resolve the 2 times rule violation.

b. APC 0342: Level I Pathology, APC 0433: Level II Pathology, APC 0343: Level III Pathology.

To resolve a 2 times rule violation, the APC Panel recommended moving CPT codes 88108 (Cytopath, concentrate tech) and 88112 (Cytopath, cell enhance tech) from APC 0343 to a proposed new APC 0433. The APC Panel also recommended moving CPT codes 88319 (Enzyme histochemistry) and 88321 (Microslide consultation) from APC 0342 to a proposed new APC 0433. Based on the results of our review of several years of claims data and the study of hospital resource homogeneity, we are proposing a different way to resolve the 2 times rule violation: We are proposing to place CPT codes 88319 and 88112 in APC 0343 and to place CPT codes 88108 and 88321 in APC 0433.

2. Proposed Exceptions to the 2 Times Rule

As discussed earlier, we may 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 are proposing for CY 2006 based on the APC Panel recommendations discussed in section III.B.1. of this preamble and the use of CY 2004 claims data to calculate the median cost of procedures classified in the APCs, we reviewed 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).

Table 8 below contains the APCs that we are proposing to exempt 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 are proposing for CY 2006. The median cost for hospital outpatient services for these and all other APCs can be found on the CMS Web site: http//www.cms.hhs.gov.

Table 8.—Proposed APC Exceptions to the 2 Times Rule For CY 2006

APCAPC description
0004Level I Needle Biopsy/ Aspiration Except Bone Marrow
0005Level II Needle Biopsy/Aspiration Except Bone Marrow
0019Level I Excision/ Biopsy
0024Level I Skin Repair
0040Level I Implantation of Neurostimulator Electrodes
0043Closed Treatment Fracture Finger/Toe/Trunk
0046Open/Percutaneous Treatment Fracture or Dislocation
0060Manipulation Therapy
0080Diagnostic Cardiac Catheterization
0081Non-Coronary Angioplasty or Atherectomy
0093Vascular Reconstruction/Fistula Repair without Device
0099Electrocardiograms
0105Revision/Removal of Pacemakers, AICD, or Vascular
0120Infusion Therapy Except Chemotherapy
0140Esophageal Dilation without Endoscopy
0141Level I Upper GI Procedures
0148Level I Anal/Rectal Procedures
0164Level I Urinary and Anal Procedures
0191Level I Female Reproductive Proc
0204Level I Nerve Injections
0209Extended EEG Studies and Sleep Studies, Level II
0235Level I Posterior Segment Eye Procedures
0251Level I ENT Procedures
0252Level II ENT Procedures
0262Plain Film of Teeth
0274Myelography
0297Level II Therapeutic Radiologic Procedures
0303Treatment Device Construction
0312Radioelement Applications
0325Group Psychotherapy
0330Dental Procedures
0341Skin Tests
0353Level II Injections
0373Neuropsychological Testing
0397Vascular Imaging
0409Red Blood Cell Tests
0432Health and Behavior Services
0600Low Level Clinic Visits
0688Revision/Removal of Neurostimulator Pulse Generator Receiver
0004Level I Needle Biopsy/ Aspiration Except Bone Marrow
0005Level II Needle Biopsy/Aspiration Except Bone Marrow
Start Printed Page 42706
0019Level I Excision/ Biopsy

C. New Technology APCs

(If you choose to comment on issues in this section, please include the caption “New Technology APCs” at the beginning of your comment.)

1. Background

In the November 30, 2001 final rule (66 FR 59903), we finalized changes to the time period a service was eligible for payment under a New Technology APC. Beginning in CY 2002, we retain services within New Technology APC groups until we gather sufficient claims 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.

2. Proposed Refinement of New Technology Cost Bands

In the November 7, 2003 final rule with comment period, we last restructured the New Technology APC groups to make the cost intervals more consistent across payment levels (68 FR 63416). We established payment levels in $50, $100, and $500 intervals and expanded the number of New Technology APCs. We also retained two parallel sets of New Technology APCs, one set with a status indicator of “S” (Significant Procedure, Not Discounted When Multiple) and the other set with a status indicator of “T” (Significant Procedures, Multiple Reduction Applies). We did this restructuring because the number of procedures assigned to New Technology APCs had increased, and narrower cost bands were necessary to avoid significant payment inaccuracies for New Technology services. Therefore, we dedicated two new series of APCs to the restructured New Technology APCs, which allowed us to narrow the cost bands and afforded us the flexibility to create additional bands as future needs dictated.

As the number of procedures that qualify for placement in the New Technology APCs has continued to increase over the past 2 years, the $0 to $50 cost band represented by “S” status APC 1501 (New Technology, Level I, $0-$50) and “T” status APC 1538 (New Technology, Level I, $0-$50) spans too broad of a cost interval to accurately represent the lower costs of an ever-increasing number of procedures that qualify for New Technology payment. Therefore, we are proposing to refine this cost band to five $10 increments, resulting in the creation of an additional 10 New Technology APCs to accommodate the two parallel sets of New Technology APCs, one set with a status indicator of “S” and the other set with a status indicator of “T.” We are also proposing to eliminate the two $0 to $50 cost band New Technology APCs 1501 and 1538, so that the cost bands of all New Technology APCs would continue to be mutually exclusive. Table 9 contains a listing of the 10 additional New Technology APCs that we are proposing for CY 2006.

Table 9.—Proposed New Technology APCs for CY 2006

APCDescriptorStatus indicatorProposed CY 2006 payment rate
1491New Technology—Level IA ($0-$10)S$5
1492New Technology—Level IB ($10-$20)S15
1493New Technology—Level IC ($20-$30)S25
1494New Technology—Level ID ($30-$40)S35
1495New Technology—Level IE ($40-$50)S45
1496New Technology—Level IA ($0-$10)T5
1497New Technology—Level B ($10-$20)T15
1498New Technology—Level IC ($20-$30)T25
1499New Technology—Level D ($30-$40)T35
1500New Technology—Level E ($40-$50)T45

As we explained in the November 30, 2001 final rule (66 FR 59897), we generally keep a procedure in the New Technology APC to which it is initially assigned until we have collected data sufficient to enable us to move the procedure to a clinically appropriate APC. However, in cases where we find that our original New Technology APC assignment was based on inaccurate or inadequate information, or where the New Technology APCs are restructured, we may, based on more recent resource utilization information (including claims data) or the availability of refined New Technology APC bands, reassign the procedure or service to a different New Technology APC that most appropriately reflects its cost. Therefore, we are proposing to discontinue New Technology APCs 1501 and 1538, and reassign the procedures currently assigned to them to proposed New Technology APCs 1491 through 1500. Table 10 summarizes these proposed New Technology APC reassignments. Start Printed Page 42707

Table 10.—Proposed Movement of HCPCS Codes From New Technology APCS 1501 and 1538 to New Technology APCs 1491 Through 1500 for CY 2006

HCPCS/CPT codeDescriptorCY 2005 new technology APC assignmentCY 2006 proposed new technology APC reassignment
0003TCervicography15011492
90473Immunization Admin, one vaccine by intranasal or oralN/A1491
90474Immunization Admin, each additional vaccine by intranasal or oralN/A1491
G0375Smoking and tobacco-use cessation counseling visit; intermediate, greater than 3 minutes up to 10 minutes15011491
G0376Smoking and tobacco-use cessation counseling visit; intensive, greater than 10 minutes15011492

3. Proposed Requirements for Assigning Services to New Technology APCs

In the April 7, 2000 final rule (65 FR 18477), we created a set of New Technology APCs to pay for certain new technology services under the OPPS. We described a group of criteria for use in determining whether a service is eligible for assignment to a New Technology APC. We subsequently modified this set of criteria in our November 30, 2001 final rule (66 FR 59897 to 59901), effective January 1, 2002. These modifications were based on changes in the data (we were no longer required to use 1996 data to set payment rates) and on our continuing experience with the assignment of services to New Technology APCs.

Based on our history of reviewing applications for New Technology APC assignments under the OPPS, we have encountered situations where there is extremely limited clinical experience with new technology services regarding their use and efficacy in the typical Medicare population. In some cases, there may be ambiguity regarding how the new technology services fit within the standard coding framework for established procedures, and there may be no specific coding available for the new technology services in other settings or for use by other payers. Nevertheless, applicants requesting assignment of services to New Technology APCs request that we provide billing and payment mechanisms under the OPPS for the new technology services through the establishment of codes, descriptors, and payment rates. As stated in section I.F. of this preamble, we remain committed to the overarching goal of ensuring that Medicare beneficiaries have timely access to the most effective new medical treatments and technologies in clinically appropriate settings. We believe that our current New Technology APC assignment process helps to assure such access, and that an enhancement to the New Technology service application process may further encourage appropriate dissemination of and Medicare beneficiary access to new technology services.

We are interested in promoting review of the coding, clinical use, and efficacy of new technology services by the greater medical community through our New Technology service application and review process for the OPPS. Therefore, in addition to our current information requirements at the time of application, we are proposing to require that an application for a code for a new technology service be submitted to the American Medical Association's (AMA's) CPT Editorial Panel before we accept a New Technology APC application for review. This will not change our current criteria for assignment of a service to a New Technology APC. This requirement will encourage timely review by the wider medical community as CMS is reviewing the service for possible new coding and assignment to a New Technology APC under the OPPS. There is only one CPT code application that is used by applicants requesting consideration for either Category I or III codes. We would accept either a Category I or Category III code application to the CPT Editorial Panel. The application requests relevant clinical information regarding new services, including their appropriate use and the patient populations expected to benefit from the services which will provide us with useful additional information. CPT code applications are reviewed by the CPT Editorial Panel, whose members bring diverse clinical expertise to that review. We believe that consideration by the CPT Editorial Panel may facilitate appropriate dissemination of the new technology services across delivery settings and may bring to light other needed coding changes or clarifications. We are further proposing that a copy of the submitted CPT application be filed with us as part of the application for a New Technology APC assignment under the OPPS, along with CPT's letter acknowledging or accepting the coding application. We remind the public that we do not consider an application complete until all informational requirements are provided. In addition, we remind the public that when we assign a new service a HCPCS code and provide for payment under the OPPS, these actions do not imply coverage by the Medicare program, but indicate only how the procedure or service may be paid if covered by the program. Fiscal intermediaries must determine whether a service meets all program requirements for coverage, for example, that it is reasonable and necessary to treat the beneficiary's condition and whether it is excluded from payment. CMS may also make National Coverage Determinations (NCDs) on new technology procedures.

4. Proposed Movement of Procedures From New Technology APCs to Clinical APCs

The procedures discussed below represent New Technology services for which we believe we have sufficient data to reassign to a clinically appropriate APC.

a. Proton Beam Therapy

(If you choose to comment on issues in this section, please include the caption “Proton Beam Therapy” at the beginning of your comment.)

In the August 16, 2004 proposed rule (69 FR 50467), we proposed to reassign CPT codes 77523 (Proton treatment delivery, intermediate) and 77525 (Proton treatment delivery, complex) from New Technology APC 1511 (New Technology, Level XI, $900-$1,000) to clinical APC 0419 (Proton Beam Therapy, Level II). In response to this proposal, we received numerous comments urging that we maintain CPT codes 77523 and 77525 in New Technology APC 1511 at a payment rate of $950 for CY 2005, arguing that the proposed payment rate of $678.31 for Start Printed Page 42708CY 2005 would halt diffusion of this technology and negatively impact patient access to this cancer treatment. Commenters explained that the low volume of claims submitted by only two facilities provided volatile and insufficient data for movement into the proposed clinical APC 0419. They further explained that the extraordinary capital expense of between $70 and $125 million and high operating costs of a proton beam facility necessitate adequate payment for this service to protect the financial viability of this emerging technology.

In the November 15, 2004 final rule with comment period (69 FR 65719 through 65720), we considered the concerns expressed by numerous commenters that patient access to proton beam therapy might be impeded by a significant reduction in OPPS payment. Therefore, we set the CY 2005 payment rate for CPT codes 77523 and 77525 by calculating a 50/50 blend of the median cost for intermediate and complex proton beam therapies of $690.45 derived from CY 2003 claims and the CY 2004 New Technology payment rate of $950. We used the result of this calculation ($820) to assign intermediate and complex proton beam therapies (CPT codes 77523 and 77525) to New Technology APC 1510 (New Technology—Level X ($800-$900) for a blended payment rate of $850 for CY 2005.

Our examination of the CY 2004 claims data has revealed a second year of a stable, albeit modest, number of claims on which to set the CY 2006 payment rates for CPT codes 77523 and 77525. However, unlike the median of $690.45 for the CY 2005 Level II proton beam radiation therapy clinical APC containing CPT codes 77523 and 77525 derived from the CY 2003 claims data, the median for a comparable Level II proton beam radiation therapy clinical APC is $934.46 derived from CY 2004 claims data. This more recent median appears to more accurately reflect the significant capital expense and high operating costs of a proton beam therapy facility, and supports patient access to proton beam therapy. Therefore, we are proposing to move CPT codes 77523 and 77525 from New Technology APC 1510 to clinical APC 0667 (Level II Proton Beam Radiation Therapy) based on a median cost of $934.46 for CY 2006.

b. Stereotactic Radiosurgery

(If you choose to comment on issues in this section, please include the caption “Stereotactic Radiosurgery” at the beginning of your comment.)

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 (Cobalt 60-based stereotactic radiosurgery planning) and G0243 (Cobalt 60-based stereotactic radiosurgery delivery) into a single procedure code in order to capture the costs of this treatment in single procedure claims 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 represented 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 into a single procedure code, for CY 2004 we created a planning code for linear accelerator-based stereotactic radiosurgery (HCPCS code G0338) to distinguish this service 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, consistent with the use of the 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 stereotactic radiosurgery (SRS). We indicated that we intended to maintain these new codes in their current New Technology APCs until we had sufficient hospital claims data reflecting the costs of the services to consider moving them to clinical APCs.

During the February 2005 APC Panel meeting, the APC Panel discussed the clinical and resource cost similarities between planning for Cobalt 60-based and linear accelerator-based SRS. The APC Panel also discussed the use of CPT codes instead of specific G-codes to describe the services involved in SRS planning, noting the clinical similarities in radiation treatment planning regardless of the mode of treatment delivery. Acknowledging the possible need for CMS to separately track planning for SRS, the APC Panel eventually recommended that we create a single HCPCS code to encompass both Cobalt 60-based and linear accelerator-based SRS planning. However, a hospital association and other presenters at the APC Panel meeting urged that we discontinue the use of G-codes for SRS planning, and instead, recognize the current CPT codes that describe the specific component services involved in SRS planning to reduce the burden on hospitals of maintaining duplicative codes for the same services to accommodate different payers. Lastly, one presenter urged that we combine HCPCS codes G0242 (Cobalt 60-based stereotactic radiosurgery planning) and G0243 (Cobalt 60-based stereotactic radiosurgery delivery) into a single procedure code to reflect that the majority of patients receive the planning and delivery of this treatment on the same day as a single fully integrated service.

The APC Panel recommended that we make no changes to the coding or APC placement of SRS delivery codes G0173, G0243, G0251, G0339, and G0340 for CY 2006. We first established the above full group of delivery codes in 2004, so we have only one year of hospital claims data reflecting costs of the services. In addition, presenters to the APC Panel described current ongoing deliberations amongst interested professional societies around the descriptions and coding for SRS. The APC Panel and presenters suggested that we wait for the outcome of these deliberations prior to making any significant changes to SRS delivery coding or payment rates.

In an effort to balance the recommendations of the APC Panel with the recommendations of presenters at the APC Panel meeting, in accordance with the APC Panel recommendations, we are proposing to make no changes to the APC placement of the following SRS treatment delivery codes for CY 2006: HCPCS codes G0173, G0243, G0251, G0339, and G0340.

We recognize concerns expressed by some presenters urging that we discontinue the use of the G-codes for SRS planning, and instead, recognize the current CPT codes that describe the specific component services involved in SRS planning to reduce the burden on hospitals of maintaining duplicative codes for the same services to accommodate different payers. In addition, we have no need to separately track SRS planning services, which share clinical and resource homogeneity with other radiation treatment planning Start Printed Page 42709services described by current CPT codes.

When HCPCS code G0242 was established for SRS planning, several radiology planning services were considered in determining its APC placement. In the November 30, 2001 final rule, in which we described our determination of the total cost for SRS planning based on our claims experience, we added the median costs of the following CPT codes that we found to be regularly billed with SRS delivery (CPT code 61793 in the available hospital data): 77295, 77300, 77370, and 77315. Our examination of the costs from the CY 2004 claims data for the above-mentioned CPT codes closely approximates the CY 2004 median costs reported for HCPCS codes G0242 and G0338. The APC median costs for the above-mentioned CPT codes based on the CY 2004 claims data total $1,297, while the median cost for HCPCS code G0242 is $1,366 and the median cost for HCPCS code G0338 is $1,100 based on the CY 2004 claims data. In addition, three of the above-mentioned CPT codes are included on the proposed bypass list for CY 2006, so we would not anticipate that the billing of these codes on the same day as an SRS treatment service would cause significant problems with multiple bills for SRS services. Therefore, we are proposing to discontinue HCPCS codes G0242 and G0338 for the reporting of charges for SRS planning under the OPPS, and to instruct hospitals to bill charges for SRS planning using all of the available CPT codes that most accurately reflect the services provided.

We acknowledge one APC Panel presenter's concern that the coding structure of Cobalt 60-based SRS, using either the current SRS planning G code or the appropriate CPT codes for planning services as we are proposing for CY 2006, may not necessarily reflect the same day, integrated Cobalt 60-based SRS service furnished to the majority of patients receiving Cobalt 60-based SRS. Thus, we are seeking public comment on the clinical, administrative, or other concerns that could arise if we were to bundle Cobalt 60-based SRS planning services, currently reported using HCPCS code G0242 and proposed for CY 2006 to be billed using the appropriate CPT codes for planning services, into the Cobalt 60-based SRS treatment service, currently reported under the OPPS using HCPCS code G0243. Under such a scenario, the SRS treatment service described by HCPCS code G0243 would be placed in a higher paying New Technology APC to reflect payment for the costs of the SRS planning and delivery as an integrated service. Hospitals would be prohibited from billing other radiation planning services along with the Cobalt 60-based SRS treatment delivery code. In contrast to Cobalt 60-based SRS coding, we would not consider bundling the planning for linear accelerator-based SRS with the treatment delivery services, given the various timeframes for planning that may occur with linear accelerator-based SRS.

c. Other Services in New Technology APCs

(If you choose to comment on issues in this section, please include the caption “Other New Technology Services” at the beginning of your comment.)

Other than proton beam and stereotactic radiosurgery services, there are 10 procedures currently assigned to New Technology APCs for which we have data adequate to support their assignment to clinical APCs. We are proposing to reassign these procedures to clinically appropriate APCs, using CY 2004 claims data to establish median costs on which payments would be based. These procedures and their proposed APC assignments are displayed below in Table 11.

Table 11.—Proposed APC Reassignment of New Technology Procedures Into Clinical APCs for CY 2006

HCPCSDescriptorCY 2005 APCCY 2005 status indicatorProposed CY 2006 APCProposed CY 2006 status indicatorCY 2005 payment amountProposed CY 2006 payment amount
0027TEndoscopic epidural lysis1547T0220T$850$1,025.57
33225L ventric pacing lead add-on1525S0418T3,7506,457.83
61623Endovasc tempory vessel occl1555T0081T1,6502,035.19
92974Cath place, cardio brachytx1559T0103T2,250869.34
93580Transcath closure of asd1559T0434T2,2505,363.85
93581Transcath closure of vsd1559T0434T2,2505,363.85
95965Meg, spontaneous1528S0430T5,250673.76
95966Meg, evoked, single1516S0430T1,450673.76
95967Meg, evoked, each add'l1511S0430T950673.76
C9713Non-contact laser vap prosta1525S0429T3,7502,500.01

We are proposing to move these 10 procedures to new or established clinical APCs that contain services that exhibit clinical and resource homogeneity. HCPCS code C9713 (Noncontact laser vaporization of prostate, including coagulation control of intraoperative and post-operative bleeding) is similar to CPT code 52647 (Noncontact laser coagulation of prostate, including control of postoperative bleeding, complete (vasectomy, meatotomy, cystourethroscopy, urethral calibration and/or dilation, and internal urethrotomy are included)) and CPT code 52648 (Contact laser vaporization with or without transurethral resection of prostate, including control of postoperative bleeding, complete (vasectomy, meatotomy, cystourethroscopy, urethral calibration and/or dilation, and internal urethrotomy are included)) with respect to their clinical characteristics and hospital resource utilization. However, instead of mapping HCPCS code C9713 to APC 163 (Level IV Cystourethroscopy and other Genitourinary Procedures), where CPT codes 52647 and 52648 are currently mapped for CY 2005, we are proposing to create a Level V APC for Cystourethroscopy and Other Genitourinary Procedures. These codes are more clinically sound in this new Level V APC. We are also proposing to map CPT codes 52647 and 52648 to this new Level V APC. In addition, we are proposing to move CPT codes 50080 and 50081 from APC 0163 to this new Level V APC, since they are similar clinically and use similar hospital resources. We believe that this configuration would improve homogeneity as well as result in a Start Printed Page 42710clinically coherent Level V APC, where the procedures utilize similar hospital resources.

D. Proposed APC-Specific Policies

1. Hyperbaric Oxygen Therapy (APC 0659)

(If you choose to comment on issues in this section, please include the caption “Hyperbaric Oxygen” at the beginning of your comment.)

When hyperbaric oxygen therapy (HBOT) is prescribed for promoting the healing of chronic wounds, it typically is prescribed on average for 90 minutes, which would be billed using 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). The OPPS recognizes HCPCS code C1300 (Hyperbaric oxygen under pressure, full body chamber, per 30 minute interval) for HBOT provided in the hospital outpatient setting.

We explained in the August 16, 2004 proposed rule (69 FR 50495) that our CY 2003 claims data revealed that many providers were improperly reporting charges for 90 to 120 minutes under only one unit rather than three or four units of HBOT. This inaccurate coding resulted in an inflated median cost of $177.96 for HBOT, derived using single service claims and “pseudo” single service claims. Because of these single claims coding anomalies, we proposed to calculate a “per unit” median cost for APC 0659, using only multiple units or multiple occurrences of HBOT, excluding claims with only one unit of HBOT and excluding packaged costs. To convert HBOT charges to costs, we used the CCR from the respiratory therapy cost center when available; otherwise, we used the hospital's overall CCR. Using this “per unit” methodology, we proposed a median cost for APC 0659 of $82.91 for CY 2005.

In the November 15, 2004 final rule with comment period (69 FR 65758), we agreed with commenters that there was sufficient evidence that the CCR for HBOT was not reflected solely in the respiratory therapy cost center; rather, the CCR for HBOT was reflected in a variety of cost centers. Therefore, we calculated a “per unit” median of $93.26 for HBOT, using only multiple units or multiple occurrences of HBOT and each hospital's overall CCR.

Our examination of the CY 2004 single procedure claims filed for HCPCS code C1300 revealed similar coding anomalies to those encountered in the CY 2003 single procedure claims data. Therefore, for CY 2006 ratesetting, we recalculated a “per unit” median cost for HCPCS code C1300 using only multiple units or multiple occurrences of HBOT and each hospital's overall CCR, which is the same methodology we used for setting the CY 2005 payment rate for HBOT. Excluding claims with only one unit of HBOT, we used a total of 26,556 claims to calculate the median for APC 0659 for CY 2006. Applying the methodology described above, we are proposing a median cost for APC 0659 of $93.71 for CY 2006.

2. Allergy Testing (APC 0370)

(If you choose to comment on issues in this section, please include the caption “Allergy Testing” at the beginning of your comment.)

A number of providers have expressed confusion related to the reporting of units for allergy testing described by CPT codes 95004 through 95078. Most of the CPT codes in the code range are assigned to APC 0370 (Allergy Tests) for the CY 2005 OPPS. Nine of these CPT codes assigned to APC 0370 instruct providers to specify the number of tests or use the singular word “test” in their descriptors, while five of these CPT codes assigned to APC 0370 do not contain such an instruction or do not contain “tests” or “testing” in their descriptors. Some providers have stated that the lack of clarity related to the reporting of units has resulted in erroneous reporting of charges for multiple allergy tests under one unit (that is, “per visit”) for the CPT codes that instruct providers to specify the number of tests.

In light of the variable hospital billing that may be inconsistent with the CPT code descriptors, we have examined carefully the CY 2004 single and multiple procedure claims data for the allergy test codes that reside in APC 0370 to set the CY 2006 payment rates. Our examination of the CY 2004 claims data revealed that many of the services for which providers billed multiple units of an allergy test reported a consistent charge for each unit. Conversely, some providers that billed only a single unit of an allergy test reported a charge many times greater than the “per test” charge reported by providers billing multiple units of an allergy test.

Our analysis of the claims data appears to validate reports made by a number of providers that the charges reported on many of the single procedure claims represent a “per visit” charge, rather than a “per test” charge, including claims for the allergy test codes that instruct providers to specify the number of tests. Because the OPPS relies only on these single procedure claims in establishing payment rates, we believe this inaccurate coding would have resulted in an inflated CY 2006 median cost of $66.44 for services that are in the CY 2005 configuration of APC 0370.

Therefore, we are proposing to move the allergy test CPT codes that instruct providers to specify the number of tests or use the singular word “test” in their descriptors from APC 0370 (Allergy Tests) to proposed APC 0381 (Single Allergy Tests) for CY 2006. We are proposing to calculate a “per unit” median cost for proposed APC 0381 using a total of 306 claims containing multiple units or multiple occurrences of a single CPT code. Packaging on the claims was allocated equally to each unit of the CPT code. Using this “per unit” methodology, we are proposing a median cost for APC 0381 of $11.37 for CY 2006. Because we believe the single procedure claims for the codes remaining in APC 0370 reflect accurate coding of these services, we are proposing to use the standard OPPS methodology to calculate the median for APC 0370. Table 12 below lists the proposed assignment of CPT codes to APC 0370 and proposed APC 0381 for CY 2006.

Table 12.—Proposed Assignment of CPT Codes to APC 0370 and Proposed APC 0381 for CY 2006

APC 0370Proposed APC 0381
95056, Photosensitivity tests95004, Percut allergy skin tests.
95060, Eye allergy tests95010, Percut allergy titrate test.
95078, Provoactive testing95015, ld allergy titrate-drug/bug.
95180, Rapid desensitization95024, ld allergy test, drug/bug.
95199U, Unlisted allergy/clinical immunologic service or procedure95027, ld allergy titrate-airborne.
95028, ld allergy test-delayed type.
Start Printed Page 42711
95044, Allergy patch tests.
95052, Photo patch test.
95065, Nose allergy test.

3. Stretta Procedure (APC 0322)

(If you choose to comment on issues in this section, please include the caption “Stretta” at the beginning of your comment.)

CPT code 43257, effective January 1, 2005, is used for esophagoscopy with delivery of thermal energy to the muscle of the lower esophageal sphincter and/or gastric cardia for the treatment of gastresophageal reflux disease. This code describes the Stretta procedure, including use of the Stretta System and all endoscopies associated with the Stretta procedure. Prior to CY 2005, the Stretta procedure was recognized under HCPCS code C9701 in the OPPS. For the CY 2005 OPPS, C9701 was deleted and CPT code 43257 was utilized for the Stretta procedure. In CY 2005, the Stretta procedure was transitioned from a New Technology APC to clinical APC 0422 (Level II Upper GI Procedures) based on several years of hospital cost data. Procedures within APC 0422 were similar to the Stretta procedure in terms of clinical characteristics and resource use.

For CY 2006, we are proposing to use both CY 2004 single claims for C9701 and multiple procedure claims containing one unit of HCPCS code C9701 and one unit of either CPT code 43234 or CPT code 43235 to calculate the Stretta procedure's contribution to the median for APC 0422. Claims reporting one endoscopy code (43234 or 43235) along with HCPCS code C9701 are included in the proposed median calculation because, in CY 2002, CMS authorized the separate and additional billing of a single endoscopy code with HCPCS code C9701, while CPT code 43257 now includes all endoscopies performed during the procedure.

Using this proposed methodology, we calculated a median for CPT code 43257 (HCPCS code C9701 in the CY 2004 claims data) of $1669.43. Using these claims in the calculation of the median cost for APC 0422, we calculated a median cost of $1385.77. We are proposing to use this methodology, applied to the more complete final rule claims set, to calculate the final CY 2006 OPPS median cost for APC 0422.

4. Vascular Access Procedures (APCs 0032, 0109, 0115, 0119, 0124, and 0187)

(If you choose to comment on issues in this section, please include the caption “Vascular Access Procedures” at the beginning of your comment.)

Many of the codes that currently describe vascular access procedures were new in the 2004 version of CPT and were assigned into APC groups by crosswalking the newly created CPT codes to the deleted codes' APC assignments. Although the new codes were implemented in January 2004, because of the delay between a bill being submitted to Medicare and when the bill data are viable for analysis, we did not have cost and utilization data for the new codes available for analysis until this year in preparation for the CY 2006 OPPS.

Since those original APC assignments were made, we have received requests from the public for specific APC assignment changes. We were reluctant to make changes without data to support reassignments and, therefore, made few changes to those original APC assignments.

As an outcome of an analysis of procedure-specific median costs and 2 times rule violations in preparation for the CY 2006 update of the OPPS, we developed a new APC configuration for vascular access procedure codes and several other related codes. The proposed new assignments are supported by CY 2004 hospital claims data and are based on median cost and clinical considerations.

Thus, for CY 2006, we are proposing to reassign many of the CPT codes that are currently in the following APCs:

  • APC 0032 (Insertion of Central Venous/Arterial Catheter).
  • APC 0109 (Removal of Implanted Devices).
  • APC 0115 (Cannula/Access Device Procedures).
  • APC 0119 (Implantation of Infusion Pump).
  • APC 0124 (Revision of Implanted Infusion Pump).
  • APC 0187 (Miscellaneous Placement/Repositioning).

The configuration that we are proposing places all of the procedures currently assigned to APC 0187 into more clinically appropriate APCs. We are also proposing to reassign all of the vascular access procedure codes currently assigned to any of the identified APCs to existing or newly reconfigured clinical APCs to create more clinical and median cost homogeneity. As a result of the proposed reassignments, those APCs are comprised of a different mix of codes than is currently the case for the CY 2005 OPPS. There are no codes assigned to APC 0187 because the only procedures that remained in APC 0187 after reassigning the vascular access procedures as we are proposing were CPT code 75940 (X-ray placement of vein filter) and CPT code 76095 (Stereotactic breast biopsy), which we reassigned to more clinically appropriate APCs. We are proposing to reassign CPT code 75940 to APC 0297 (Level II Therapeutic Radiologic Procedures) and CPT code 76095 to APC 0264 (Level II Miscellaneous Radiology Procedures).

We are proposing to create three new APCs, APC 0621 (Level I Vascular Access Codes), APC 0622 (Level II Vascular Access Codes), and APC 0623 (Level III Vascular Access Codes) and assign procedures to each of these based on median cost and clinical homogeneity. We are also proposing to rename APCs 0109 and 0115 as follows: APC 0109 (Removal of Implanted Devices); and APC 0115 (Cannula/Access Device Procedures). Table 13 displays the procedures and their current and the CY 2006 proposed APC assignments. Start Printed Page 42712

Table 13.—Current and Proposed APC Assignments for Vascular Access Procedures and Related Procedures for CY 2006

CPT codeDescriptorCY 2005 APCProposed CY 2006 APC
APC 0621—Level I Vascular Access Procedure
36555Insertion non-tunneled cv cath01870621
36556Insertion non-tunneled cv cath01870621
36568Insert tunneled cv cath01870621
36569Insert tunneled cv cath01870621
36575Repair tunneled cv cath01870621
36576Repair tunneled cv cath01870621
36580Replace tunneled cv cath01870621
36584Replace tunneled cv cath01870621
36589Remove tunneled cv cath01090621
36590Remove tunneled cv cath01870621
36596Mech removal tunneled cv cath01870621
36597Reposition venous catheter01870621
APC 0622—Level II Vascular Access Procedures
36557Insert tunneled cv cath00320622
36558Insert tunneled cv cath00320622
36578Replace tunneled cv cath01870622
36581Replace tunneled cv cath00320622
36585Replace tunneled cv cath00320622
36570Insert tunneled cv cath00320622
36571Insert tunneled cv cath00320622
36595Mech removal tunneled cv cath01870622
36262Removal intra-arterial inf. Pump01240622
APC 0623—Level III Vascular Access Procedures
36560Insert tunneled cv cath01150623
36561Insert tunneled cv cath01150623
36563Insert tunneled cv cath01190623
36565Insert tunneled cv cath01150623
36582Replace tunneled cv cath01150623
36583Insertion of access device01190623
36640Insertion catheter, artery00320623
36260Insertion of infusion pump01190623
36261Revision of infusion pump01240623
APC 0115—Cannula/Access Device Procedures
36835Artery to vein shunt01150115
35903Excision, graft, extremity01150115
36815Insertion of cannula01150115
36861Cannula declotting01150115
35761Exploration of artery/vein01150115
49419Insert abdominal cath for chemo01150115
36800Insertion of cannula01150115
37204Transcatheter occlusion01150115
36810Insertion of cannula01150115
APC 0109—Removal of Implanted Devices
33284Remove pt-activated heart recorder01090109
63746Removal of spinal shunt01090109

We presented this proposal to the APC Panel at its February, 2005 meeting. The APC Panel was supportive of the proposed reassignments and recommended that we make these changes. Therefore, for the stated reasons, we are proposing the APC modifications for CY 2006 OPPS as summarized in Table 13 above.

E. Proposed Addition of New Procedure Codes

(If you choose to comment on issues in this section, please include the caption “New Procedure Codes” at the beginning of your comment.)

During the second quarter of CY 2005, we created 11 HCPCS codes that were not addressed in the November 15, 2004 final rule with comment period that updated the CY 2005 OPPS. We have designated the payment status of those codes and added them to the April update of the CY 2005 OPPS (Transmittal 514). The codes are shown in Table 14 below. In this proposed rule, we are soliciting comment on the APC assignment of these services.

Further, consistent with our annual APC updating policy, we are proposing to assign the new HCPCS codes for CY 2006 to the appropriate APC's and Start Printed Page 42713would incorporate them into our final rule for CY 2006.

Table 14.—New HCPCS Codes Implemented in April 2005

HCPCS codeDescription
C9127Injection, paclitaxel protein-bound particles, per 1 mg.
C9128Injection, pegaptamib sodium, per 0.3 mg.
C9223Injection, adenosine for therapeutic or diagnostic use, 6 mg (not to be used to report any adenosine phosphate compounds, instead use A9270).
C9440Vinorelbine tartrate, brand name, per 10 mg.
C9723Dynamic infrared blood perfusion imaging (DIRI).
C9724Endoscopic full-thickness plication in the gastric cardia using endoscopic plication system (EPS); includes endoscopy.
Q4079Injection, natalizumab, 1 mg.
Q9941Injection, Immune Globulin, Intravenous, Lyophilized, 1g.
Q9942Injection, Immune Globulin, Intravenous, Lyophilized, 10 mg.
Q9943Injection, Immune Globulin, Intravenous, Non-Lyophilized, 1g.
Q9944Injection, Immune Globulin, Intravenous, Non-Lyophilized, 10 mg.

IV. Proposed Payment Changes for Devices

A. Device-Dependent APCs

(If you choose to comment on issues in this section, please include the caption “Device-Dependent APCs” at the beginning of your comment.)

Device-dependent APCs are populated by HCPCS codes that usually, but not always, require that a device be implanted or used to perform the procedure. For the CY 2002 OPPS, we used external data, in part, to establish the device-dependent APC medians used for weight setting. At that time, many devices were eligible for pass-through payment. For the CY 2002 OPPS, 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 and information furnished on applications for pass-through payment, into the median cost for the device-dependent APCs associated with these pass-through devices. The remaining 25 percent of the cost was considered to be pass-through payment.

In the CY 2003 OPPS, we determined APC medians for device-dependent APCs using a three pronged approach. First, we used only claims with device codes on the claim to set the medians for these APCs. Second, we used external data, in part, to set the medians for selected device-dependent APCs by blending that external data with claims data to establish the APC medians. Finally, we also adjusted the median for any APC (whether device-dependent or not) that declined more than 15 percent. In addition, in the CY 2003 OPPS, we deleted the device codes (“C” codes) from the HCPCS file in the belief that hospitals would include the charges for the devices on their claims, notwithstanding the absence of specific codes for devices used.

In the CY 2004 OPPS, we used only claims containing device codes to set the medians for device-dependent APCs and again used external data in a 50-percent blend with claims data to adjust medians for a few device-dependent codes when it appeared that the adjustments were important to ensure access to care. However, hospital device code reporting was optional.

In the CY 2005 OPPS, which was based on CY 2003 claims data, there were no device codes on the claims and, therefore, we could not use device-coded claims in median calculations as a proxy for completeness of the coding and charges on the claims. For the CY 2005 OPPS, we adjusted device-dependent APC medians for those device-dependent APCs for which the CY 2005 OPPS payment median was less than 95 percent of the CY 2004 OPPS payment median. In these cases, the CY 2005 OPPS payment median was adjusted to 95 percent of the CY 2004 OPPS payment median. We also reinstated the device codes and made the use of the device codes mandatory where an appropriate code exists to describe a device utilized in a procedure and also implemented HCPCS code edits to facilitate complete reporting of the charges for the devices used in the procedures assigned to the device-dependent APCs.

We are proposing to base the CY 2006 OPPS device-dependent APC medians on CY 2004 claims, the most current data available. In CY 2004, the use of device codes was optional. Thus, for the CY 2006 OPPS, we calculated median costs for these APCs using all single bills without regard to whether there was a device code on the claim. We calculated median costs for this set of APCs using the standard median calculation methodology. This methodology uses single procedure claims to set the median costs for the APC. We then compared these unadjusted median costs to the adjusted median costs that we used to set the payment rates for the CY 2005 OPPS. We found that 21 APCs experienced increases in median cost compared to the CY 2005 OPPS adjusted median costs, 1 APC median was unchanged, 16 APCs experienced decreases in median costs, and 8 APCs are proposed to be reconfigured in such a way that no valid comparison was possible. Table 15 shows the comparison of these median costs.

As we stated previously, in CY 2004, CMS reissued HCPCS codes for devices and asked that hospitals voluntarily code devices utilized to provide services. As part of our development of the proposed medians for this proposed rule, we examined CY 2004 claims that contained device codes that met our device edits, as posted on the OPPS Web site at http://www.cms.hhs.gov/​providers/​hopps/​default.asp. We found that, in many cases, the number of claims that passed the device edits was quite small. To use these claims to set medians for the CY 2006 OPPS would mean that the medians for some of these APCs would be set based on very small numbers of claims, reflecting the fact that in CY 2004 when device coding was optional under the OPPS relatively few hospitals chose to code for devices. For example, if we used only claims that passed the device code edits, the median for APC 0089 (Insertion/Replacement of Permanent Pacemaker and Electrodes), would be based on 34 claims that passed the device edits (0.78 percent of all claims), rather than on 1,934 single bills out of 4,424 total bills (43.72 percent of all claims). Median Start Printed Page 42714costs for insertion/replacement of a permanent pacemaker and electrodes developed based upon these 34 claims from a small subset of hospitals are unlikely to be representative of the resource costs of most hospitals that provided the service. Moreover, there are a few procedures for which no device codes are required although the procedures require a device to be used. For this set of services, subsetting the claims to those that pass the device edits does not change the group of single bills available for median calculation. For these reasons, we decided not to use only claims that passed the device edits to set the median costs for device-dependent APCs for the CY 2006 OPPS.

When we considered whether to base the weights for these APCs on the unadjusted median costs, we found that for 10 of the 38 APCs for which the APC composition is stable, basing the payment weight on the unadjusted median cost would result in a reduction of more than 15 percent in the median cost for the CY 2006 OPPS compared to the CY 2005 OPPS.

We fully expect to use the unadjusted median costs for device-dependent APCs as the basis of their payment weights for the CY 2007 OPPS because device coding is required for CY 2005 and device editing is being implemented in CY 2005, so that all CY 2005 claims should reflect the costs of devices used to provide services. Nevertheless we recognize that a payment reduction of more than 15 percent from the CY 2005 OPPS to the CY 2006 OPPS may be problematic for hospitals that provide the services contained in these APCs. Therefore, for the CY 2006 OPPS, as we have consistently done for device-dependent APCs, we are proposing to adjust the median costs for the device-dependent APCs listed in Table 15 for which comparisons with prior years are valid to the higher of the CY 2006 unadjusted APC median or 85 percent of the adjusted median on which payment was based for the CY 2005 OPPS. This would result in the use of adjusted medians for 10 device-dependent APCs. We view this as a transitional step from the adjusted medians of past years to the use of unadjusted medians based solely on hospital claims data with device codes in future years.

We expect that this would be the last year in which we would make an across the board adjustment to the median costs for these device-dependent APCs based on comparisons to the prior year's payment medians. We believe that mandatory reporting of device codes for services furnished in CY 2005, combined with the editing of claims for the presence of device codes, where such codes are appropriate, would result in claims data that more fully reflect the relative costs of these services and that across the board adjustments to median costs for these APCs would no longer be appropriate.

We recognize that the APC Panel recommended that CMS set a corridor of median costs for device-dependent APCs at no less than 90 percent of the CY 2005 payment median nor more than 110 percent of the CY 2005 payment median for purposes of setting the payment rate for the CY 2006 OPPS for these APCs. We do not believe that setting a corridor to control both increases and decreases in median costs is consistent with the use of adjusted medians as a means of transitioning hospitals to the use of the unadjusted claims data. The purpose of the transition is to moderate the rate of decline in payments so that hospitals can determine how to best adjust to payments based on unadjusted claims data. Limiting the rate of increase in payments based on such claims data would be inconsistent with that purpose. Therefore, we are proposing to adjust median costs to the greater of the median from claims data or 85 percent of the CY 2005 median used to set the payment rate in CY 2005 and not to impose a limit on the extent to which a median cost can increase.

Table 15.—Proposed Median Cost Adjustments for Device-Dependent APCs for CY 2006

APCDescriptionStatus indicatorAdjusted final CY 2005 OPPS median cost (percent)Proposed unadjusted CY 2006 APC median costChange from CY 2005 adjusted to CY 2006 unadjusted median cost (percent)Proposed CY 2006 OPPS adjusted median costCY 2006 single frequency (CY 2004 claims)CY 2006 total frequency (CY 2004 claims)
0039Implantation of NeurostimulatorS$12,878.01$9,905.38−23$10,946.318091,809
0040Level II Implantation of Neurostimulator ElectrodesS2,885.373,338.79163,338.792,61511,986
0080Diagnostic Cardiac CatheterizationT2,123.652,240.9262,240.92267,077393,166
0081Non-Coronary Angioplasty or AtherectomyT1,918.042,078.6782,078.672,046130,737
0082Coronary AtherectomyT6,035.254,819.40−205,129.9627359
0083Coronary Angioplasty and Percutaneous ValvuloplastyT3,241.853,071.03−53,071.035395,492
0085Level II Electrophysiologic EvaluationT2,034.822,123.4642,123.463,08820,401
0086Ablate Heart Dysrhythm FocusT2,637.962,670.7812,670.789199,160
0087Cardiac Electrophysiologic Recording/MappingT2,180.19853.76−611,853.1633012,969
0089Insertion/Replacement of Permanent Pacemaker and ElectrodesT6,416.906,373.13−16,373.131,9344,424
0090Insertion/Replacement of Pacemaker Pulse GeneratorT5,301.995,380.0715,380.077406,412
Start Printed Page 42715
0104Transcatheter Placement of Intracoronary StentsT4,750.064,767.7004,767.701,1038,137
0106Insertion/Replacement/Repair of Pacemaker and/or ElectrodesT3,229.101,908.38−412,744.734893,938
0107Insertion of Cardioverter-DefibrillatorT18,460.1015,166.64−1815,691.084458,073
0108Insertion/Replacement/Repair of Cardioverter-Defibrillator LeadsT24,788.2618,165.78−2721,070.025206,003
0115Cannula/device access proceduresT1,502.711,899.17261,899.173,02210,115
0202Level X Female Reproductive ProcT2,322.832,437.0752,437.077,95115,303
0222Implantation of Neurological DeviceT12,714.609,742.78−2310,807.411,6785,629
0225Level I Implementation of Neurostimulator ElectrodesS12,327.5214,162.161514,162.16185939
0227Implantation of Drug Infusion DeviceT8,806.848,236.41−68,236.414422,776
0229Transcatherter Placement of Intravascular ShuntsT3,638.523,889.4173,889.4177846,625
0259Level VI ENT ProceduresT26,006.7421,424.48−1822,105.73554964
0315Level II Implantation of NeurostimulatorT20,633.7012,170.26−4117,538.65229327
0384GI Procedures with StentsT1,585.921,287.07−191,348.036,26820,711
0385Level I Prosthetic Urological ProceduresS4,080.564,564.66124,564.66553783
0386Level II Prosthetic Urological ProceduresS6,674.537,251.4497,251.443,2134,549
0418Left ventricular leadT4,363.376,595.80516,595.802024,712
0425Level II Arthroplasty with prosthesisT5,715.976,046.7766,046.77375882
0648Breast Reconstruction with ProsthesisT2,957.763,044.0833,044.083981,320
0652Insertion of Intraperitoneal CathetersT1,626.291,743.6171,743.613,0674,986
0653Vascular Reconstruction/Fistula Repair with DeviceT1,644.531,842.52121,842.5280028,788
0654Insertion/Replacement of a permanent dual chamber pacemakerT6,170.836,090.43−16,090.431,80720,809
0655Insertion/Replacement/Conversion of a permanent dual chamber pacemakerT7,913.858,072.5628,072.567,35313,991
0656Transcatheter Placement of Intracoronary Drug Eluting StentsT6,156.146,633.1886,633.182,39419,898
0670Intravenous and Intracardiac UltrasoundS1,779.081,533.52−141,533.521117,041
0674Prostate CryoablationT6,569.335,780.04−125,780.041,2482,080
0680Insertion of Patient Activated Event RecordersS3,744.693,796.1013,796.101,4002,226
0681Knee ArthroplastyT5,374.988,276.89548,276.89492683
No adjustment; major HCPCS migration:
0122Level II Tube changes and RepositioningT485.26420.72420.725,13814,701
0427Level III Tube changes and Repositioning (new for 2006)T615.37615.372,4855,376
Start Printed Page 42716
0166Level I Urethral procedures (contains part of deleted DD APC 167)T1,040.531,066.531,066.537782,282
0167Urethral procedures (deleted APC; codes moved to 167 and 168 for '06)T1,664.80NANANANA
0168Level II Urethral procedures (contains part of deleted DD APC 167)T1,801.961,705.821,705.827,68410,018
0621Level I VADTnew in 06500.77500.7760,115113,720
0622Level II VADTnew in 061,283.331,283.3321,79254,816
0623Level III VADTnew in 061,635.941,635.9423,96362,538

B. APC Panel Recommendations Pertaining to APC 0107 and APC 0108

The median costs for APC 0107 (Implantation of Cardioverter-Defibrillator) and APC 0108 (Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads and Insertion of Cardioverter-Defibrillator) have been adjusted each year since CY 2003 when pass-through payment expired for cardioverter-defibrillators, because the unadjusted medians have differed significantly from the prior year's payment medians. Moreover, because we use single procedure claims to set the median costs, the median costs for these APCs have always been set on a relatively small number of claims as compared to the total frequency of claims for the services under the OPPS. For example, for this CY 2006 OPPS proposed rule, the unadjusted median cost for APC 0107 was set based on 445 single procedure claims, which is 5.5 percent of the 8,073 claims on which a procedure code in the APC was billed. Similarly, the unadjusted median cost for APC 0108 was set based on 520 single procedure claims, which is 8.7 percent of the 6,003 claims on which a procedure code in the APC was billed. Commenters have frequently told us that using the single procedure median costs for these APCs does not accurately reflect the costs of the procedures because claims from typical clinical circumstances involving multiple procedures are not used to establish the medians.

At the February 2005 APC Panel meeting, the APC Panel recommended that CMS package CPT codes 93640 and 93641 (electrophysiologic evaluation at time of initial implantation or replacement of cardioverter-defibrillator leads). The APC Panel recommended that we always package the costs for these codes because the definitions of the codes state that these evaluations are done at the time of lead implantation. Therefore, CPT codes 93640 and 93641 would never be correctly reported without a code in APC 0107 or APC 0108 also being reported. In addition, when a service assigned to APC 0107 or APC 0108 is provided, we would expect that CPT codes 93640 or 93641 for electrophysiologic evaluation and testing would also be performed frequently, and CY 2004 claims data for services in APC 0107 and APC 0108 confirm this. The APC Panel believed that packaging the costs of CPT codes 93640 and 93641 would result in more single bills available for setting the median costs for APC 0107 and APC 0108, and thus would likely yield more appropriate median costs for those APCs. Those medians would then include the costs of the electrophysiologic testing commonly performed at the time of the implantable cardioverter-defibrillator (ICD) insertion.

The APC Panel further recommended that CMS treat CPT code 33241 (Subcutaneous removal of cardioverter-defibrillator) as a bypass code when the code appeared on the same claims with services assigned to APC 0107 or APC 0108. The APC Panel recommended bypassing charges for this code only when it appeared on the same claim with codes in APC 0107 or APC 0108, because when a cardioverter defibrillator (ICD) is removed and replaced in the same operative session, it is appropriate to attribute all of the packaged costs on the claim to the implantation of the device rather than to the removal of the device. The line costs for CPT code 33241 that are removed from the claims in this case would be discarded and would not be used to set the median for APC 0105 (the APC in which the code is located).

We modeled the median costs that would be calculated for APCs 0107 and 0108, if we were to make the changes recommended by the APC Panel for these APCs, under four possible scenarios: (1) The cardioverter-defibrillator device is inserted without removal or testing; (2) the device is inserted and tested with no removal; (3) the device is removed and inserted but not tested; and (4) the device is removed, inserted, and tested. We then compared the sum of the unadjusted median costs, the sum of the proposed adjusted median costs and the sum of the costs that we modeled using the APC Panel recommendations. These results are shown in Table 16 below. Start Printed Page 42717

Table 16.—Total Median Costs for APCs 0107 and 0108

APC 0107 Using unadjusted median costAPC 0107 Using adjusted median costAPC 0107 With panel changesAPC 0108 Using unadjusted median costAPC 0108 Using adjusted median costAPC 0108 With panel changes
(1)(2)(3)(4)(5)(6)
Median for codes in APC$15,166.64$15,691.08$15,961.14$18,165.78$21,070.02$21,517.00
50% of median for APC 0105 (CPT code 33241; removal); multiple procedure discount674.90674.90674.90674.90674.90674.90
Proposed median for APC 0084 (CPT code 93640/93641; testing)604.67604.67(1)604.67604.67(1)
(A) Median total if device is inserted only (neither removal nor testing)15,166.6415,691.0815,961.1418,165.7821,070.0221,517.00
(B) Median total if device is inserted and tested (no removal)15,771.3116,295.7515,961.1418,770.4521,674.6921,517.00
(C) Median total if device is removed and inserted (no testing)15,841.5416,365.9816,636.0418,840.6821,744.9222,191.90
(D) Median total if device is removed, inserted and tested16,446.2116,970.6516,636.0419,445.3522,349.5922,191.90
1 NA (testing is packaged).

We also found that if we were to adopt the APC Panel recommendations for APCs 0107 and 0108 for the CY 2006 OPPS, the number of single bills that would be available for use in median setting would increase significantly, as shown in Table 17.

Table 17.—Single Bills for APC 0107 and APC 0108

Single bills without recommended changesSingle bills with recommended changesTotal frequency
APC 010744545008073
APC 010852014476003

In general, we believe that the recommendations of the APC Panel show great potential for providing a far more robust set of single bills for use in setting medians for APCs 0107 and 0108 and, therefore, for improving the accuracy of the median costs acquired from the claims data. However, for the CY 2006 OPPS, adopting the APC Panel recommendations would result in higher total payments for services related to cardioverter-defibrillator insertion for some possible clinical scenarios than under the proposed adjustment methodology but would result in lower total payments in other cases. Moreover, the effects are not identical for both APCs. Both APCs require the insertion of an ICD, but the codes in APC 0108 also require the repair, revision or insertion of leads. Because the APCs are so closely related clinically and both APCs include payments for expensive implanted cardioverter-defibrillators, we are proposing to apply the same payment policy to both APC 0107 and APC 0108. We would like to receive input from the APC Panel and from the affected parties regarding the results of modeling the methodology before we decide whether to implement this multiple procedure claim strategy for both of these APCs.

Specifically, we are proposing to set the medians for these APCs at 85 percent of their CY 2005 payment medians and have based our modeling of the scaler and the impact analysis on that proposal, although we believe that the APC Panel recommendations have significant merit, particularly when we move to complete reliance on claims data in updating the OPPS for CY 2007. Although we are proposing to adjust the median costs for these APCs in the same manner as other device-dependent APCs, we will consider, based on the public comments, whether it would be appropriate to apply the multiple procedure claims methodology to these APCs for the CY 2006 OPPS. We look forward to specifically receiving public comments on the APC Panel recommendations regarding packaging and bypassing services frequently performed with procedures assigned to APC 0107 and APC 0108, with the goal of increasing single bills available for ratesetting in order to improve the accuracy of median costs based upon hospital claims.

C. Pass-Through Payments for Devices

(If you choose to comment on issues in this section, please include the caption “Transitional Pass-Through Payments for Devices” at the beginning of your comment.)

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 15, 2004 final rule with comment period (69 FR 65773), we specified three device categories currently in effect that would cease to be eligible for pass-through payment effective January 1, 2006.

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 97 category codes that were established as of April 1, 2001, have Start Printed Page 42718expired; 95 categories expired after CY 2002 and 2 categories expired after CY 2003. All of the categories listed in Table 18, 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 Table 18 on the date on which a category was first eligible for pass-through payment.

There are three categories for devices that would have been eligible for pass-through payments for at least 2 years as of December 31, 2005. In the November 15, 2004 final rule with comment period, we finalized the December 31, 2005 expiration dates for these three categories—C1814 (Retinal tamponade device, silicone oil), C1818 (Integrated keratoprosthesis), and C1819 (Tissue localization excision device). Each category includes devices for which pass-through payment was first made under the OPPS in CY 2003 or CY 2004.

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 2005, we continued to apply this policy, the same as we did in CY 2003 and 2004, to categories of devices that expired on December 31, 2004.

2. Proposed Policy for CY 2006

For CY 2006, we are proposing to implement the final decision we made in the November 15, 2004 final rule with comment period that finalizes the expiration date for pass-through status for device categories C1814, C1818, and C1819. Therefore, as of January 1, 2006, we will discontinue pass-through payment for C1814, C1818, and C1819. In accordance with our established policy, we are proposing to package the costs of the devices assigned to these three categories into the costs of the procedures with which the devices were billed in CY 2004, the year of hospital claims data used for this proposed OPPS update.

Table 18.—List of Current Pass-Through Device Categories By Expiration Date

HCPCS codesCategory long descriptorDate(s) populatedExpiration date
C1814Retinal tamponade device, silicone oil4/1/0312/31/05
C1818Integrated keratoprosthesis7/1/0312/31/05
C1819Tissue localization excision device1/1/0412/31/05

D. Other Policy Issues Relating To Pass-Through Device Categories

(If you choose to comment on issues in this section, please include the caption “Pass-Through Device Categories” at the beginning of your comment.)

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

a. Background

In the November 30, 2001 final rule, we explained the methodology we used to estimate the portion of each APC payment 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 quarterly 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 interim final rule with comment period, 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 payment rate that could reasonably be attributed to the cost of an associated device eligible for pass-through payment, we used claims data from the period used for recalibration of the APC rates. That is, for CY 2002 OPPS updating, we used CY 2000 claims data and for CY 2003 OPPS updating, we used CY 2001 claims data. For CY 2002, we used median cost claims data based on specific revenue centers used for device related costs because C-code cost data were not available until CY 2003. For CY 2003, 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.

The offset list that we have published 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 residing in certain APCs may be billed with new device categories. Therefore, an offset amount is applied only when a new device category is billed with a HCPCS procedure code that is assigned to an APC appearing on the offset list. The list of potential offsets for CY 2005 is currently published on the CMS Web site: http://www.cms.hhs.gov, as “Device-Related Portions of Ambulatory Payment Classification Costs for 2005.”

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 earlier. 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 the CY 2004 OPPS update. For the CY 2005 update to the OPPS, our data consisted of CY 2003 claims that did not contain device codes and, therefore, for CY 2005 we utilized the device percentages as developed for CY 2004. In the CY 2004 OPPS update, we reviewed the device categories eligible Start Printed Page 42719for 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 device 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. We continued this policy of setting offsets to $0 for the device categories that continued to receive pass-through payment in CY 2005.

For the CY 2006 OPPS update, CY 2004 hospital claims are available for analysis. Hospitals billed device C-codes in CY 2004 on a voluntary basis. We have reviewed our CY 2004 data, examining hospital claims for services that included device C-codes and utilizing the methodology for calculating device offsets noted above. The numbers of claims for services in many of the APCs for which we calculated device percentages using CY 2004 data were quite small. Many of these APCs already had relatively few single claims available for median calculations compared with the total bill frequencies because of our inability to use many multiple bills in establishing median costs for all APCs, and subsetting the single claims to only those including C-codes often reduced those single bills by 80 percent or more. Our claims demonstrate that relatively few hospitals specifically coded for devices utilized in CY 2004. Thus, we do not feel confident that CY 2004 claims reporting C-codes represent the typical costs of all hospitals providing the services. Therefore, we do not propose to use CY 2004 claims with device coding to propose CY 2006 device offset amounts at this time. In addition, we do not propose to use CY 2005's methodology, for which we utilized the device percentages as developed for CY 2004. Two years have passed since we developed the device offsets for CY 2004, and the device offsets originally calculated from CY 2002 hospitals' claims data may not appropriately reflect the contributions of device costs to procedural costs in the current outpatient hospital environment. In addition, a number of the APCs on the CY 2004 and CY 2005 device offset percentage lists are either no longer in existence or have been so significantly reconfigured that the past device offsets likely do not apply.

b. Proposed Policy for CY 2006

For CY 2006, we are proposing to continue to review each new device category on a case-by-case basis as we have done in CY 2004 and CY 2005, to determine whether device costs associated with the new category are packaged into the existing APC structure. If we do not determine that for any new device category that device costs associated with the new category are packaged into existing APCs, we are proposing to continue our current policy of setting the offset for the new category to $0 for CY 2006. There are currently no established categories that would continue for pass-through payment in CY 2006. However, we may establish new categories in any quarter. If we create a new device category and determine that our data contain a sufficient number of claims with identifiable costs associated with the devices in any APC, we would adjust the APC payment if the offset is greater than $0. If we determine that a device offset greater than $0 is appropriate for any new category that we create, we are proposing to announce the offset amounts in the program transmittal that announces the new category.

For CY 2006, we are proposing to use available partial year or full year CY 2005 hospital claims data to calculate device percentages and potential offsets for CY 2006 applications for new device categories. Effective January 1, 2005, we require hospitals to report device C-codes and their costs when hospitals bill for services which utilize devices described by the existing C-codes. In addition, during CY 2005 we are implementing device edits for many services which require devices and for which appropriate device C-codes exist. Therefore, we expect that the number of claims including device codes and their respective costs will be much more robust and representative for CY 2005 than for CY 2004. We also note that offsets would not be used for any existing categories at this time. If a new device category is created for payment, for CY 2006 we are proposing to examine the available CY 2005 claims data, including device costs, to determine whether device costs associated with the new category are already packaged into the existing APC structure, as indicated earlier. If we conclude that some related device costs are packaged into existing APCs, we are proposing to utilize the methodology described earlier and first used for the CY 2003 OPPS to determine an appropriate device offset percentage for those APCs with which the new category would be reported.

Our proposal not to publish a list of APCs with device percentages at this time would be a transitional policy for CY 2006 because of the previously discussed limitations of the CY 2004 OPPS data with respect to device costs associated with procedures. We expect that we will reexamine our previous methodology for calculating the device percentages and offset amounts for the CY 2007 OPPS update, which will be based on CY 2005 hospitals claims data where device C-code reporting is required.

2. Criteria for Establishing New Pass-Through Device Categories

a. Surgical Insertion and Implantation Criterion

One of our criteria, as set forth in § 419.66(b)(3) of the regulations, for establishing a new category of devices for pass-through payment is that the item be surgically inserted or implanted. The criterion that a device be surgically inserted or implanted is one of our original criteria adopted when we implemented the BBRA requirement that we establish pass-through payment for devices. This criterion helps us define whether an item is a device, as distinguished from other items, such as materials and supplies. We further clarified our definition of the surgical insertion and implantation criterion in the November 13, 2000 final rule (65 FR 67805). In that rule we stated that we consider a device to be surgically inserted or implanted if it is introduced into the human body through a surgically created incision. We also stated that we do not consider an item used to cut or otherwise create a surgical opening to be a device that is surgically inserted or implanted.

In our November 15, 2004 final rule with comment period, we responded to comments received on our August 16, 2004 proposed rule, which requested that we revisit our surgical insertion and implantation criterion for establishing a new device category. 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 Start Printed Page 42720recommended 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.

In responding to the commenters, we stated in the November 15, 2004 final rule with comment period (69 FR 65774) that we were 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 were 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 solicited additional comments on this topic within the 60-day comment period for the November 15, 2004 final rule with comment period (69 FR 65774 through 65775). In framing their comments, we asked that commenters consider the following questions specific to devices introduced into the body through natural orifices:

1. Whether orifices include those 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 existing 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?

b. Public Comments Received and Our Responses

Below is a summary of the public comments we received on the four stated surgical insertion and implantation device criterion questions and our response to them.

Comment: Most commenters generally framed their responses to the four questions listed above. Commenters were generally in favor of modifying our surgical insertion and implantation criterion so that devices that are placed into patients without the need for a surgical incision would not be ineligible for pass-through payment, claiming that devices that are inserted through a natural orifice offer important benefits to Medicare beneficiaries, such as avoidance of more costly and more invasive surgery. One commenter stated that procedures that could be performed with minimal morbidity and on an outpatient basis are the trend for surgery and should be encouraged. Another commenter believed that our criterion of surgical insertion or implantation through a surgically created incision was ineffective as a clear and comprehensive description of surgical procedures, including endoscopic and laparoscopic procedures.

Regarding the first specific question we posed, whether devices introduced into the body through natural orifices includes orifices that are either naturally or surgically created, commenters generally stated we should include devices as potentially eligible for pass-through categories whether they are introduced through orifices that are either naturally or surgically created, as in the case of ostomies, if the devices meet other cost and clinical criteria, in order to encourage the development of new technologies.

Regarding the second question restated above, which asked how the public would define “new” with respect to time and to predecessor technology, some commenters stated that they believed the current clinical and cost criteria are sufficient and that no additional criteria or characteristics are needed. Several commenters indicated that the timeframe for what we consider “new” could be clarified if the device in question was not FDA approved or in use in the OPD during the year that hospital claims are used for that calendar year's OPPS update, that is, it should be considered “new.” Some commenters elaborated by example. They stated that if we change the surgical insertion or implantation requirement to include devices inserted through natural orifices in 2005, devices approved by the FDA and in use in the OPD in 2003 or previously would not be eligible, while devices approved by FDA in 2004 or later and used in the OPD settings would be eligible for pass-through consideration. Another commenter stated that the definition of “new” device should include those devices that require only an FDA investigational device exemption (IDE) clearance. The commenter further stated that these devices should be granted “new” status at the time of FDA release as an IDE. The commenter stated that if FDA required a premarket approval (PMA) for the device, a determination of newness should be made on a case by case basis.

Regarding the question of what characteristics distinguish a device that might be eligible for a pass-through category even if inserted through an existing orifice from materials and supplies that are used incident to a service or procedure, some commenters generally stated their belief that the current clinical and cost criteria are sufficient to distinguish devices that might be eligible from materials and supplies. Other commenters stated that the device must be an integral part of the procedure or that it should include the characteristic of having a diagnostic or therapeutic purpose, without which the procedure could not be performed. Thus, according to these commenters, the device must function for a specific procedure, while supplies may be used for many procedures. One commenter pointed out that many devices are now implanted through the use of naturally occurring orifices or without significant incisions. This commenter indicated that the requirement of a “traditional incision” no longer serves the purpose of distinguishing between devices that are and are not implanted, or between devices and supplies and instruments. The commenter stated that retaining the requirement of a traditional incision could create incentives to use more invasive technology, if that is the technology that is eligible for pass-through payments and less invasive technology is not. This commenter suggested excluding tools and disposable supplies by excluding any item that is used primarily for the purpose of cutting or delivering an implantable device. However, the commenter recommended not reducing payment when delivery systems are packaged with the device. The commenter further recommended that the term incision be clearly defined to include all procedures involving the cutting, breaking or puncturing of tissue or skin, regardless of how small that cut is, provided that the device is attached to or inserted into the body via this cut or puncture or break. Another commenter stated that there are items included in a surgical kit that have significant cost and are single use, for example, guide wires, implying that it is sometimes difficult to determine what a supply is.

Regarding our question about whether there are 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, Start Printed Page 42721commenters believed that the definitions of supplies and eligible devices are independent of the use of a scope during a procedure, and stated there were no distinguishing features of supplies or equipment. A commenter reiterated that the current clinical and cost criteria are sufficient to distinguish eligible devices (that is, those with “a specific therapeutic use”) from materials and supplies. Commenters believed that the use of a scope should not be a factor in the distinction between devices and supplies.

One commenter urged us to consider the points that the surgical incision requirement is not mandated by statute and that CMS's criterion to limit devices to only those that are surgically inserted or implanted may have been based upon concern that less restrictive criteria would cause spending on pass-though items to exceed the pool of money set to fund the pass-though payments. This commenter indicated that this concern would no longer be valid, given the relatively few items currently paid on a pass-through basis.

Response: As we stated in the November 15, 2004 final rule, we share the view that it is important to ensure 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 beginning of the OPPS, there have been beneficial advances in technologies and services for many conditions, which have both markedly altered the courses of medical care and ultimately improved the health outcomes of many beneficiaries.

We carefully considered the comments and are proposing to maintain our current criterion that a device must be surgically inserted or implanted, but are also proposing to modify the way we currently interpret this criterion under § 419.66(b)(3) of the regulations. We are proposing to consider eligible those items that are surgically inserted or implanted either through a natural orifice or a surgically created orifice (such as through an ostomy), as well as those that are inserted or implanted through a surgically created incision. We will maintain all of our other criteria in § 419.66 of the regulations, as elaborated in our various rules, such as the November 1, 2002 final rule (67 FR 66781 through 66787). Specifically, the clarification made at the time we clarified the surgically inserted or implanted criterion in our August 3, 2000 interim final rule with comment period, namely, that we do not consider an item used to cut or otherwise create a surgical opening to be a device that is surgically implanted or inserted (65 FR 67805).

With this revision of our definition of devices that are surgically inserted or implanted, we remind the public that device category eligibility for transitional pass-through payment continues to depend on meeting our substantial clinical improvement criterion, where we compare the clinical outcomes of treatment options using the device to currently available treatments, including treatments using devices in existing or previously established pass-through device categories. We expect that requested new pass-through device categories that successfully demonstrate substantial clinical improvement for Medicare beneficiaries would describe new devices, where the additional device costs would not be reflected in the hospital claims data providing the costs of treatments available during the time period used for the most recent OPPS update.

c. Existing Device Category Criterion

One of our criteria, as set forth in § 419.66(c)(1) of the regulations, to establish a new device category for pass-through payment, is that the devices that would populate the category not be described by any existing or previously existing category. Commenters to our various proposed rules, as well as applicants for new device categories, have expressed concern that some of our existing and previously existing device category descriptors are overly broad, and that the category descriptors as they are currently written may preclude some new technologies from qualifying for establishment of a new device category for pass-through payment. Such parties have recommended that we consider modifying the descriptors for existing device categories, especially when a device would otherwise meet all the other criteria for establishing a new device category to qualify for pass-through payment.

We agree that implementation of the requirement that a new device category not be described by an existing or previously existing category merits review. Beginning with CY 2006, 3 years will have elapsed since 95 of the 97 initial device categories we established on April 1, 2001 will have expired: 95 categories expired after December 31, 2002, and 2 categories expired after December 31, 2003. Several additional years will have passed since those categories were first populated in CY 2000 or CY 2001. Thus, while some of the initial device category descriptors sufficed at the time they were first created, further clarification as to the types of devices that they are meant to describe is indicated. Therefore, we are proposing to create an additional category for devices that meet all of the criteria required to establish a new category for pass-through payment in instances where we believe that an existing or previously existing category descriptor does not appropriately describe the new type of device. This may entail the need to clarify or refine the short or long descriptors of the previous category. We would evaluate each situation on a case by case basis. We are proposing that any such clarification would be made prospectively from the date the new category would be made effective.

We are also proposing to revise § 419.66(c)(1) of the regulations, accordingly, to reflect as one of the criteria for establishing a device category our determination that a device is not appropriately described by any of the existing categories or by any category previously in effect. In order to determine if a “new” device is appropriately described by an existing or previously existing category of devices, we are proposing to apply two tests based upon our evaluation of information provided to us in the device category application. First, we will expect an applicant for a new device category to show that their device is not similar to devices (including related predicate devices) whose costs are reflected in our OPPS claims data in the most recent OPPS update. Second, we will require an applicant for a new device category to demonstrate that utilization of their device provides a substantial clinical improvement for Medicare beneficiaries compared with currently available treatments, including procedures utilizing devices in existing or previously existing device categories. We would consider a new device that meets both of these tests not to be appropriately described by one of the existing or previously existing pass-through device categories.

V. Proposed Payment Changes for Drugs, Biologicals, and Radiopharmaceutical Agents

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

(If you choose to comment on issues in this section, please include the caption “Pass-Through” at the beginning of your comment.)

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 Start Printed Page 42722provision 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 proposed rule, 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 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 biologicals application processes is generally posted on the OPPS Web site at: http://www.cms.hhs.gov/​providers/​hopps.

2. Expiration in CY 2005 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, 2005, meet that criterion. Table 19 below lists the 10 drugs and biologicals for which we are proposing that pass-through status would expire on December 31, 2005.

Table 19.—Proposed List of Drugs and Biologicals for Which Pass-Through Status Expires December 31, 2005

HCPCSAPCShort descriptor
C91239123Transcyte, per 247 sq cm.
C92059205Oxaliplatin.
C92119211Inj, alefacept, IV.
C92129212Inj, alefacept, IM.
J01809208Agalsidase beta injection.
J19319209Laronidase injection.
J24699210Palonosetron HCl.
J34869204Ziprasidone mesylate.
J90419207Bortezomib injection.
Q99559203Inj perflexane lip micros, ml.

3. Drugs and Biologicals With Proposed Pass-Through Status in CY 2006

We are proposing to continue pass-through status in CY 2006 for 14 drugs and biologicals. These items, which are listed in Table 20 below, were given pass-through status as of April 1, 2005. The APCs and HCPCS codes for drugs and biologicals that we are proposing to continue with pass-through status in CY 2006 are assigned status indicator “G” in Addendum A and Addendum B of this proposed rule.

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. We note that this section of the Act also states that if a drug or biological is covered under a competitive acquisition contract under section 1847(B), then the payment rate be equal to the average price for the drug or biological for all competitive acquisition areas and year established as calculated and adjusted by the Secretary. The competitive acquisition program has not yet been implemented as of the development of this proposed rule; therefore, we do not have payment rates for certain drugs and biologicals that would be covered under this program at this time. Section 1847(A) of the Act, as added by section 303(c) of Pub. L. 108-173, establishes the use of the average sales price (ASP) methodology as the basis for payment of drugs and biologicals described in section 1842(o)(1)(C) of the Act and furnished on or after January 1, 2005. This payment methodology is set forth in § 419.64 of the regulations. Similar to the payment policy established for pass-through drugs and biologicals in CY 2005, we are proposing to pay under the OPPS for drugs and biologicals with pass-through status in CY 2006 consistent with the provisions of section 1842(o) of the Act, as amended by section 621 of Pub. L. 108-173, at a rate that is equivalent to the payment these drugs and biologicals would receive in the physician office setting.

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.

As we explain in section V.B. of this proposed rule, we are proposing to continue to make separate payment in CY 2006 for new drugs and biologicals with a HCPCS code consistent with the provisions of section 1842(o) of the Act, as amended by section 621 of 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, in CY 2006, the pass-through payment amount would equal zero for those new drugs and biologicals that we determine have pass-through status. 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 section 621 of 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 amended by section 621 of Pub. L. 108-173, the resulting difference is equal to zero.

We are proposing to use payment rates based on the ASP data from the fourth quarter of 2004 for budget neutrality estimates, impact analyses, and to complete Addenda A and B of this proposed rule because these are the most recent numbers available to us during the development of this proposed rule. These payment rates were also the basis for drug payments in the physician office setting effective April 1, 2005. To be consistent with the ASP-based payments that would be made when these drugs and biologicals are furnished in physician offices, we plan to make any appropriate adjustments to the amounts shown in Addenda A and B of this proposed rule when we publish our final rule and also on a quarterly basis on our Web site during CY 2006 if later quarter ASP submissions indicate that adjustments to the payment rates for these pass-Start Printed Page 42723through drugs and biologicals are necessary.

Table 20 lists the drugs and biologicals for which we are proposing that pass-through status continue in CY 2006. We assigned pass-through status to these drugs and biologicals as of April 1, 2005. We also have included in Addenda A and B to this proposed rule the proposed CY 2006 APC payment rates for these pass-through drugs and biologicals.

Table 20.—Proposed List of Drugs and Biologicals With Pass-Through Status in CY 2006

HCPCS codeAPCShort descriptor
C92209220Sodium hyaluronate.
C92219221Graftjacket Reg Matrix.
C92229222Graftjacket SftTis.
J01289216Abarelix injection.
J08789124Daptomycin injection.
J23579300Omalizumab injection.
J27830738Rasburicase.
J27949125Risperidone, long acting.
J75189219Mycophenolic acid.
J85010868Oral aprepitant.
J90359214Bevacizumab injection.
J90559215Cetuximab injection.
J93059213Pemetrexed injection.
Q40799126Injection, Natalizumab, 1 MG.

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

(If you choose to comment on issues in this section, please include the caption “NonPass-Throughs” at the beginning of your comment.)

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 procedure 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.

Section 1833(t)(16)(B) of the Act, as added by section 621(a)(1) 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. For CY 2005, we finalized our policy to continue 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. For CY 2005, we also adopted an exception policy to our packaging rule for one particular class of drugs, the oral and injectible 5HT3 forms of anti-emetic treatments (69 FR 65779 through 65780).

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

For CY 2006, the threshold for establishing separate APCs for drugs and biologicals is required to be set at $50 per administration according to section 1833(t)(16)(B) of the Act. Therefore, we are proposing to continue our existing policy of paying separately for drugs, biologicals, and radiopharmaceuticals whose per day cost exceeds $50 and packaging the cost of drugs, biologicals, and radiopharmaceuticals whose per day cost is less than $50 into the procedures with which they are billed. We are also proposing to continue our policy of exempting the oral and injectible 5HT3 anti-emetic products from our packaging rule (Table 21), thereby making separate payment for all of the 5HT3 anti-emetic products. As stated in our CY 2005 final rule with comment period (69 FR 65779 through 65780), 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 want to continue to ensure that our payment rules do 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.

Table 21.—Proposed Anti-Emetics To Exempt From $50 Packaging Requirement

HCPCS codeShort description
J2405Ondansetron HCl injection.
Q0179Ondansetron HCl 8 mg oral.
Q0180Dolasetron mesylate oral.
J1260Dolasetron mesylate.
J1626Granisetron HCl injection.
Q0166Granisetron HCl 1 mg oral.
J2469Palonosetron HCl.

For the CY 2006 proposed payment rates, we calculated the per day cost of all drugs, biologicals, and radiopharmaceuticals that had a HCPCS code in CY 2004 and were paid (via packaged or separate payment) under the OPPS using claims data from January 1, 2004, to December 31, 2004. In CY 2004, multisource drugs and radiopharmaceuticals had two HCPCS codes that distinguished the innovator multisource (brand) drug or radiopharmaceutical from the noninnovator multisource (generic) drug or radiopharmaceutical. We aggregated claims for both the brand and generic HCPCS codes in our packaging analysis of these multisource products. Items such as single indication orphan drugs, certain vaccines, and blood and blood products were excluded from these calculations and our treatment of these items is discussed separately in sections V.F., E., and I., respectively, of this preamble.

In order to calculate the per day cost for drugs, biologicals, and radiopharmaceuticals to determine their packaging status in CY 2006, we are proposing several changes in 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). For CY 2006, to calculate the per day cost of the drugs, biologicals, and radiopharmaceuticals, we took the following steps:Start Printed Page 42724

Step 1. After application of the cost-to-charge ratios, we aggregated all line-items for a single date of service on a single claim for each product. This resulted in creation of a single line-item with the total number of units and the total cost of a drug or radiopharmaceutical given to a patient in a single day.

Step 2. We then created a separate record for each drug or radiopharmaceutical by date of service, regardless of the number of lines on which the drug or radiopharmaceutical was billed on each claim. For example, “drug X” is billed on a claim with two different dates of service, and for each date of service, the drug is billed on two line-items with a cost of $10 and 5 units for each line-item. In this case, the computer program would create two records for this drug, and each record would have a total cost of $20 and 10 units of the product.

Step 3. We trimmed records with unit counts per day greater or less than 3 standard deviations from the geometric mean (This is a new step in the methodology we are proposing for CY 2006).

Step 4. For each remaining record for a drug or radiopharmaceutical, we calculated the cost per unit of the drug. If the HCPCS descriptor for “drug X” is “per 1 mg” and one record was created for a total of 10 mg (as indicated by the total number of units for the drug on the claim for each unique date of service), then the computer program divided the total cost for the record by 10 to give a per unit cost. We then weighted this unit cost by the total number of units in the record. We did this by generating a number of line-items equivalent to the number of units in that particular claim. Thus, a claim with 100 units of “drug X” and a total cost of $200 would be given 100 line-items, each with a cost of $2, while a claim of 50 units with a cost of $50 would be given 50 line items, each with a cost of $1.

Step 5. We then trimmed the unit records with cost per unit greater or less than 3 standard deviations from the geometric mean.

Step 6. We aggregated the remaining unit records to determine the mean cost per unit of the drug or radiopharmaceutical.

Step 7. Using only the records that remained after records with unit counts per day greater or less than 3 standard deviations from the geometric mean were trimmed (step 3), the total number of units billed for each item and the total number of unique per-day records for each item were determined. We divided the count of the total number of units by the total number of unique per-day records for each item to calculate an average number of units per day.

Step 8. Instead of using median cost as done in previous years, we used the payment rate for each drug and biological effective April 1, 2005 furnished in the physician office setting, which was calculated using the ASP methodology, and multiplied the payment rate by the average number of units per day for each drug or biological to arrive at its per day cost. For items that did not have an ASP-based payment rate, we used their mean unit cost derived from the CY 2004 hospital claims data to determine their per day cost. Our reasoning for using these cost data is discussed in section V.B.3.a. of this preamble.

Step 9. We then packaged the items with per day cost based on the ASP methodology or mean cost less than $50 and made items with per day cost greater than $50 separately payable.

In the past, many commenters have alleged that hospitals do not accurately bill the number of units for drugs and radiopharmaceuticals. We have consistently decided not to identify which hospital claims contain correctly coded units because we do not believe we should be identifying when a dosage is clinically appropriate from hospital claims information. Variations among patients with respect to appropriate doses, the variety of indications with different dosing regimens for some agents, and the possibility of off-label uses make it difficult to know when units are incorrect. However, we do believe that trimming the units would improve the accuracy of estimates by removing those records with the most extreme units, without requiring us to speculate about clinically appropriate dosing. Therefore, we believe that trimming the records with unit counts greater or less than 3 standard deviations from the geometric mean will eliminate claims from our analysis that may not appropriately represent the actual number of units of a drug or radiopharmaceutical furnished by a hospital to a patient during a specific clinical encounter. Because it reduces extreme variation, trimming on greater or less than 3 standard deviations from the geometric mean makes this trim more conservative and removes fewer records. This change in methodology gives us even greater confidence in the cost estimates we use for our packaging decisions. We are seeking comments on the changes that we are proposing in our methodology for packaging drugs and radiopharmaceuticals.

Section 1833(t)(16)(B) of the Act that requires the threshold for establishing separate APCs for drugs and biologicals to be set at $50 per administration will expire at the end of CY 2006. Therefore, we will be evaluating other packaging thresholds for these products for the CY 2007 OPPS update. We are specifically requesting comments on the use of alternative thresholds for packaging drugs and radiopharmaceuticals in CY 2007.

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

a. Proposed Payment for Specified Covered Outpatient Drugs

(1) Background

Section 1833(t)(14) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, requires special classification of certain separately paid radiopharmaceutical agents, drugs, and biologicals and mandates specific payments for these items. Under section 1833(t)(14)(B)(i) of the Act, 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 included 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)(F) of the Act defines the categories of 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 (includes a biological product or a single source drug),” “innovator multiple source drugs,” and “noninnovator multiple source drugs.” The definitions of these specified categories for drugs, biologicals, and radiopharmaceutical agents 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 Start Printed Page 42725of 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. We announced these changes to the public on February 27, 2004, Transmittal 112, Change Request 3144. We also implemented additional classification changes through Transmittals 132 (Change Request 3154, released March 30, 2004) and Transmittal 194 (Change Request 3322, released June 4, 2004).

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 for CYs 2004 and 2005 is to be based on its “reference average wholesale price.” Section 1833(t)(14)(G) of the Act) defines reference AWP as the AWP determined under section 1842(o) of the Act as of May 1, 2003. Section 1833(t)(14)(A)(ii) of the Act, as added by section 621(a) of Pub. L. 108-173 requires that in CY 2005—

  • A sole source drug must be paid no less than 83 percent and no more than 95 percent of the reference AWP.
  • An innovator multiple source drug must be paid no more than 68 percent of the reference AWP.
  • A noninnovator multiple source drug must 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) the Act 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 finalized our policy 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 to the AWP percentages specified in section 1833(t)(14)(A)(ii) of the Act.

(2) Proposed Changes for CY 2006 Related to Pub. L. 108-173

Section 1833(t)(14)(A)(iii) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, requires that payment for specified covered outpatient drugs in CY 2006 be equal to the average acquisition cost for the drug for that year as determined by the Secretary but subject to any adjustment for overhead costs and taking into account the hospital acquisition cost survey data collected by the GAO in 2004 and 2005. If hospital acquisition cost data are not available, then the law requires that payment be equal to payment rates established under the methodology described in section 1842(o), section 1847(A), or section 1847(B) of the Act as calculated and adjusted by the Secretary as necessary.

(3) Data Sources Available for Setting CY 2006 Payment Rates

Section 1833(t)(14)(D) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, outlines the provisions of the hospital outpatient drug acquisition cost survey mandated for the GAO. This provision directs the GAO to collect data on hospital acquisition costs of specified covered outpatient drugs and to provide information based on these data that can be taken into consideration for setting CY 2006 payment rates for these products under the OPPS. Accordingly, the GAO conducted a survey of 1,400 acute care, Medicare-certified hospitals requesting hospitals to provide purchase prices for specified covered outpatient drugs purchased from July 1, 2003 to June 30, 2004. The survey yielded a response rate of 83 percent where 1,157 hospitals provided usable information. To ensure that its methodology for data collection and analysis were sound, the GAO consulted an advisory panel of experts in pharmaceutical economics, pharmacy, medicine, survey sampling and Medicare payment.

The GAO reported the average and median purchase prices for 55 specified covered outpatient drug categories for the period July 1, 2003 to June 30, 2004. These items represented 86 percent of the Medicare spending for specified covered outpatient drugs during the first 9 months of 2004. The initial GAO data did not include any radiopharmaceuticals. The report noted that the purchase price information accounted for volume and other discounts provided at the time of purchase, but excluded subsequent rebates from manufacturers and payments from group purchasing organizations.

Another source of drug pricing information that we have is the ASP data from the fourth quarter of 2004, which were used to set payment rates for drugs and biologicals in the physician office setting effective April 1, 2005. We have ASP-based prices for approximately 475 drugs and biologicals (including contrast agents) payable under the OPPS; however, we currently do not have any ASP data on radiopharmaceuticals. Payments for most of the drugs and biologicals paid in the physician office setting are based on the ASP+6 percent. Payments for items with no reported ASP are based on wholesale acquisition cost (WAC).

Lastly, the third source of cost data we have for drugs, biologicals, and radiopharmaceuticals are the mean and median costs derived from the CY 2004 hospital claims data. In our data analysis, we compared the payment rates for drugs and biologicals using data from all three sources described above. As section 1833(t)(14)(A)(iii) of the Act clearly specifies that payment for specified covered outpatient drugs in CY 2006 be equal to the “average” acquisition cost for the drug, we limited our analysis to the mean costs of drugs determined using the GAO acquisition cost survey and the hospital claims data, instead of using median costs.

We estimated aggregate expenditures for all drugs and biologicals (excluding radiopharmaceuticals) that would be separately payable in CY 2006 and for the 55 drugs and biologicals reported by the GAO using mean cost from the claims data, the GAO mean purchase price, and the ASP-based payment amount (ASP+6 percent in most cases), and then calculated the equivalent average ASP-based payment rate under each of the three payment methodologies. The results are presented in Table 22 below.

Table 22.—Comparison of Relative Pricing for OPPS Drugs and Biologicals Under Various Payment Methodologies

Type of pricing dataTime period of pricing dataASP equivalent (55 GAO drugs only) (percent)ASP equivalent (all separately billable drugs)
GAO mean purchase price12 months ending June 2004ASP+3N/A
ASP+6%4th quarter of 2004ASP+6ASP+6%
Start Printed Page 42726
Mean cost from claims data1st 9 months of 2004ASP+8ASP+8%

Prior to any adjustments for the differing time periods of the pricing data, the results indicated that using the GAO mean purchase prices as the basis for paying the 55 drugs and biologicals would be equivalent to paying for those drugs and biologicals, on average, at ASP+3 percent. Additionally, using mean unit cost to set the payment rates for the drugs and biologicals that would be separately payable in CY 2006 would be equivalent to basing their payment rates, on average, at ASP+8 percent.

In determining the payment rates for drugs and biologicals in CY 2006, we are not proposing to use the GAO mean purchase prices for the 55 drugs and biologicals because the GAO data reflect hospital acquisition costs from a less recent period of time. The survey was conducted from July 1, 2003 to June 30, 2004; thus, the purchase prices are generally reflective of the time that is the midpoint of this period, which is January 1, 2004. The hospital purchase price data also does not fully account for rebates from manufacturers or payments from group purchasing organizations made to hospitals. We also note that it would be difficult to update the GAO mean purchase prices during CY 2006 and in future years.

We are also not proposing, in general, to use mean costs from CY 2004 hospital claims data to set payment rates for drugs and biologicals in CY 2006. In previous OPPS rules, we stated that pharmacy overhead costs are captured in the pharmacy revenue cost centers and reflected in the median cost of drug administration APCs, and the payment rate we established for a drug, biological, or radiopharmaceutical APC was intended to pay only for the cost of acquiring the item (66 FR 59896 and 67 FR 66769). However, findings from a MedPAC survey of hospital charging practices indicated that hospitals set charges for drugs, biologicals, and radiopharmaceuticals high enough to reflect their handling costs as well as their acquisition costs; therefore, the mean costs calculated using charges from hospital claims data converted to costs are representative of hospital acquisition costs for these products, as well as their overhead costs. For CY 2006, the statute specifies that payments for specified covered outpatient drugs are required to be equal to the “average” acquisition cost for the drug. Payments based on mean costs would represent the products' acquisition costs plus overhead costs, instead of acquisition costs only. Therefore, we believe that it is appropriate for us to use a source of cost information other than the CY 2004 hospital claims data to set the payment rates for most drugs and biologicals in CY 2006.

We are proposing to pay ASP+6 percent for separately payable drugs and biologicals in CY 2006. Given the data as described above, we believe this is our best estimate of average acquisition costs for CY 2006. We note that the comparison between the GAO purchase price data and the ASP data indicated that the GAO data on average were equivalent to ASP+3 percent. However, as noted earlier, this comparison is problematic for two reasons. First, there are differences in the time periods for two sources of data. The GAO data are from the 12 months ending June 2004 and the ASP data are from the fourth quarter of 2004. It could be argued that prices increased in the intervening time period. However, we do not have a source of reliable information on specific price changes for this time period for the drugs studied by the GAO. In the future, we will have better information on price trends for Medicare Part B drugs as more quarters of pricing information are reported under the ASP system.

We also note the comparison between the GAO data and the ASP data is problematic as the ASP data include rebates and other price concessions and the GAO data do not. Inclusion of these rebates and price concession in the GAO data would decrease the GAO prices relative to the ASP prices, suggesting that ASP+6 percent may be an overestimate of hospitals' average acquisition costs. Unfornately, we do not have a source of information on the magnitude of the rebates and price concessions for the specific drugs in the GAO data at this time.

At the present time, therefore, it is difficult to adjust the GAO prices for inflation, rebates, and price concessions to make the comparison with ASP more precise. We will continue to examine new data to improve our future estimates of acquisition costs. In future years, our proposed pricing will be modified as appropriate to reflect the most recent data and analyses available. We also note that, in addition to the importance of making accurate estimates of acquisition costs for drug pricing, there are important implications for prices of other services due to the required budget neutrality of the OPPS. For example, drugs and biological prices set at ASP+3 percent instead of ASP+6 percent would have made available approximately an additional $60 million for other items and services under the OPPS.

We note that ASP data are unavailable for some drugs and biologicals. For the few drugs and biologicals, other than radiopharmaceuticals as discussed later, where ASP data are unavailable, we are proposing to use the mean costs from the CY 2004 hospital claims data to determine their packaging status for ratesetting. Until we receive ASP data for these items, payment will be based on their mean cost.

Our proposal uses payment rates based on ASP data from the fourth quarter of 2004 because these are the most recent numbers available to us during the development of this proposed rule. To be consistent with the ASP-based payments that would be made when these drugs and biologicals are furnished in physician offices, we plan to make any appropriate adjustments to the amounts shown in Addenda A and B to this proposed rule for these items based on more recent ASP data from the second quarter of 2005, which will be the basis for setting payment rates for drugs and biologicals in the physician office setting effective October 1, 2005, prior to our publication of the CY 2006 OPPS final rule and also on a quarterly basis on our Web site during CY 2006. We note that we would determine the packaging status of each drug or biological only once during the year during the update process; however, for the separately payable drugs and biologicals, we would update their ASP-based payment rates on a quarterly basis. Start Printed Page 42727

We intend for the quarterly updates of the ASP-based payment rates for separately payable drugs and biologicals to function as future surveys of hospital acquisition cost data, as section 1833(t)(14)(D)(ii) of the Act instructs us to conduct periodic subsequent surveys to determine hospital acquisition cost for each specified covered outpatient drug.

We are specifically requesting comments on our proposal to pay for drugs and biologicals (including contrast agents) under the OPPS using the ASP-based methodology that is also used to set the payment rates for drugs and biologicals furnished in physician offices and the adequacy of the payment rates to account for acquisition costs of the drugs and biologicals.

In CY 2005, we applied an equitable adjustment to determine the payment rate for darbepoetin alfa (Q0137) pursuant to section 1833(t)(2)(E) of the Act. However, for CY 2006, we are proposing to establish the payment rate for this biological using the ASP methodology. The ASP data represents market prices for this biological; therefore, we believe it is appropriate to use the ASP methodology to establish payment rates for darbepoetin alfa because this method will permit market forces to determine the appropriate payment for this biological. We are seeking comments on the proposed payment policy for this biological.

Effective April 1, 2005, several HCPCS codes were created to describe various concentrations of low osmolar contrast material (LOCM). These new codes are Q9945 through Q9951. However, in Transmittal 514 (April 2005 Update of the OPPS), we instructed hospitals to continue reporting LOCM in CY 2005 using the existing HCPCS codes A4644, A4645, and A4646 and made Q9945 through Q9951 not payable under the OPPS. For CY 2006, we are proposing to activate the new Q-codes for hospitals and discontinue the use of HCPCS codes A4644 through A4646 for billing LOCM products. We have CY 2004 hospital claims data for HCPCS codes A4644 through A4646, which show that the mean costs per day for these products are greater than $50. Because we do not have CY 2004 hospital claims data for HCPCS codes Q9945 through Q9951, we crosswalked the cost data for the HCPCS A-codes to the new Q-codes. There is no predecessor code which crosswalks to HCPCS code Q9951 for LOCM with a concentration of 400 or greater mg/ml of iodine. Therefore, our general payment policy of paying separately for new codes while hospital data are being collected applies to HCPCS code Q9951. As our historical hospital mean per day costs for the three A codes exceed the packaging threshold and our payment policy for new codes without predecessors applies to one of the new codes, we are proposing to pay for the HCPCS codes Q9945 through Q9951 separately in CY 2006 at payment rates calculated using the ASP methodology. We note that because the new Q-codes describing LOCM are more descriptively discriminating and have different units than the previous A-codes for LOCM as well as widely varying ASPs, we expect that the packaging status of these Q-codes may change in future years when we have specific OPPS claims data for these new codes. We are seeking comments specifically on our proposed policy to pay separately for LOCM described by HCPCS codes Q9945 through Q9951 in CY 2006.

(4) CY 2006 Proposed Payment Policy for Radiopharmaceutical Agents

We do not have ASP data for radiopharmaceuticals. Therefore, for CY 2006, we are proposing to calculate per day costs of radiopharmaceuticals using mean unit cost from the CY 2004 hospital claims data to determine the items' packaging status similar to the drugs and biologicals with no ASP data. In a separate report, the GAO provided CMS with hospital purchase price information for nine radiopharmaceutical agents. As part of the GAO survey described earlier, the GAO surveyed 1,400 acute-care, Medicare-certified hospitals requesting hospitals to provide purchase prices for radiopharmaceuticals from July 1, 2003 to June 30, 2004. The radiopharmaceutical part of the survey yielded a response rate of 61 percent, where 808 hospitals provided usable information. The GAO reported the average and median purchase prices for nine radiopharmaceuticals for the period July 1, 2003 to June 30, 2004. These items represented 9 percent of the Medicare spending for specified covered outpatient drugs during the first 9 months of 2004. The report noted that the purchase price information accounted for volume and other discounts provided at the time of purchase, but excluded subsequent rebates from manufacturers and payments from group purchasing organizations.

When we examined differences between the CY 2005 payment rates for these nine radiopharmaceutical agents and their GAO mean purchase prices, we saw that the GAO purchase prices were substantially lower for several of these agents. We also saw similar patterns when we compared the CY 2005 payment rates for radiopharmaceutical agents with their CY 2004 median and mean costs from hospital claims data. Our intent is to maintain consistency, whenever possible between the payment rates for these agents from CY 2005 to CY 2006, because such rapid reductions could adversely affect beneficiary access to services utilizing radiopharmaceuticals.

As we do not have ASPs for radiopharmaceuticals that best represent market prices, we are proposing as a temporary 1-year policy for CY 2006 to pay for radiopharmaceutical agents that are separately payable in CY 2006 based on the hospital's charge for each radiopharmaceutical agent adjusted to cost. As MedPAC has indicated that hospitals currently include the charge for pharmacy overhead costs in their charge for the radiopharmaceutical, if we pay for these items using charges converted to cost, we believe that payment at cost would be the best available proxy for the average acquisition cost of the radiopharmaceutical along with its handling cost until we receive ASP information and overhead information on these agents. We expect that hospitals' different purchasing and preparation and handling practices for radiopharmaceuticals would be reflected in their charges, which would be converted to costs using hospital-specific cost-to-charge ratios. To better identify the separately payable radiopharmaceutical agents to which this policy would apply, we propose to assign them to status indicator “H” in Addendum B of this rule. Should ASP data be unavailable for radiopharmaceuticals for CY 2007, it is not apparent to us what methodology we could use to establish payment rates for these items in CY 2007 other than the hospital CY 2006 claims-based methodology. We are seeking comments specifically on the proposed payment policy for separately payable radiopharmaceutical agents in CY 2006.

Section 303(h) of Pub. L. 108-173 exempted radiopharmaceuticals from ASP pricing in the physician office setting where the fewer numbers (relative to the hospital outpatient setting) of radiopharmaceuticals are priced locally by Medicare contractors. However, radiopharmaceuticals are subject to ASP reporting. We currently do not require reporting for radiopharmaceuticals because we do not pay for any of the radiopharmaceuticals using the ASP methodology. However, for CY 2006, we are proposing to begin collecting ASP data on all radiopharmaceutical agents for purposes of ASP-based payment of Start Printed Page 42728radiopharmaceuticals beginning in CY 2007.

We recognize that there are significant complex issues surrounding the reporting of ASPs for radiopharmaceutical agents. Most radiopharmaceuticals must be compounded from a “cold kit” containing necessary nonradioactive materials for the final product to which a radioisotope is added. There are critical timing issues, given the short half-lives of many radioisotopes used for diagnostic or therapeutic purposes. Significant variations in practices exist with respect to what entity purchases the constituents and who then compounds the radiopharmaceutical to develop a final product for administration to a patient. For example, manufacturers may sell the components of a radiopharmaceutical to independent radiopharmacies. These radiopharmacies may then sell unit or multi-doses to many hospitals; however, some hospitals also may purchase the components of the radiopharmaceutical and prepare the radiopharmaceutical themselves. In some cases, hospitals may generate the radioisotope on-site, rather than purchasing it. The costs associated with acquiring the radiopharmaceutical in these instances may significantly vary. Also, there may only be manufacturer pricing for the components; however, the price set by the manufacturer for one component of a radiopharmaceutical may not directly translate into the acquisition cost of the ”complete” radiopharmaceutical, which may result from the combination of several components. In general, for drugs other than radiopharmaceuticals, the products sold by manufacturers with National Drug Codes (NDCs) correspond directly with the HCPCS codes for the products administered to patients so ASPs may be directly calculated for the HCPCS codes. In the case of radiopharmaceuticals this 1:1 relationship may not hold, potentially making the calculation of ASPs for radiopharmaceuticals more complex. In addition, some hospitals may generate their own radioisotopes, which they then use for radiopharmaceutical compounding, and they may sell these complete products to other sites. The costs associated with this practice could be difficult to capture through ASP reporting. We seek very specific comments on these and all other relevant issues surrounding implementation of ASP reporting for radiopharmaceuticals. We discuss in section V.B.3.a.(5) of this preamble under the MedPAC report on APC payment rate adjustments, our CY 2006 proposed payment policies for overhead costs of drugs, biologicals, and radiopharmaceuticals.

In section V.D. of the preamble we discuss the methodology that we are proposing to use to determine the CY 2006 payment rates for new drugs, biologicals, and radiopharmaceuticals.

While payments for drugs, biologicals and radiopharmaceuticals are taken into account when calculating budget neutrality, we note that we are proposing to pay for drugs, biologicals and radiopharmaceuticals without scaling these payment amounts. We believe that these payment amounts are the best proxies we have for the average acquisition costs of drugs, biologicals, and radiopharmaceuticals for CY 2006; therefore, Congress would not have intended for us to scale these payment rates. In section V.B.3.a.(5) of this preamble, we also discuss that we propose to add 2 percent of the ASP to the payment rates for drugs and biologicals with rates based on the ASP methodology to provide payment to hospitals for pharmacy overhead costs associated with furnishing these products. We are proposing to scale these additional payment amounts for pharmacy overhead costs. We are seeking comments on whether it is appropriate to exempt payment rates for drugs, biologicals, and radiopharmaceuticals from scaling and scale the additional payment amount for pharmacy overhead costs.

We note that further discussion of the budget neutrality implications of the various drug payment proposals that we considered is included in section XIV.C. of this preamble.

(5) MedPAC Report on APC Payment Rate Adjustment of Specified Covered Outpatient Drugs

Section 1833(t)(14)(E) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, requires MedPAC to submit a report to the Secretary, not later than July 1, 2005, on adjusting the APC rates for specified covered outpatient drugs to take into account overhead and related expenses, such as pharmacy services and handling costs. This provision also requires that the MedPAC report include the following: A description and analysis of the data available for adjusting such overhead expenses; recommendation as to whether a payment adjustment should be made; and the methodology for adjusting payment, if an adjustment is recommended. Section 1833(t)(14)(E)(ii) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, authorizes the Secretary to adjust the APC weights for specified covered outpatient drugs to reflect the MedPAC recommendation.

The statute mandates MedPAC to report on whether drug APC payments under the OPPS should be adjusted to account for pharmacy overhead and nuclear medicine handling costs associated with providing specified covered outpatient drugs. In creating its framework for analysis, MedPAC interviewed stakeholders, analyzed cost report data, conducted four individual hospital case studies, and received technical advice on grouping items with similar handling costs from a team of experts in hospital pharmacy, hospital finance, cost accounting, and nuclear medicine.

MedPAC concluded that the handling costs for drugs, biologicals, and radiopharmaceuticals delivered in the hospital outpatient department are not insignificant, as medications typically administered in outpatient departments generally require greater pharmacy preparation time than do those provided to inpatients. MedPAC found that little information is currently available about the magnitude of these costs. According to the MedPAC analysis, hospitals historically set charges for drugs, biologicals, and radiopharmaceuticals at levels that reflected their respective handling costs, and payments covered both drug acquisition and handling. Moreover, hospitals vary considerably in their likelihood of providing services which utilize drugs, biologicals, or radiopharmaceuticals with different handling costs.

MedPAC developed seven drug categories for pharmacy and nuclear medicine handling costs, according to the level of resources used to prepare the products (Table 23). Characteristics associated with the level of handling resources required included radioactivity, toxicity, mode of administration, and the need for special handling. Groupings ranged from dispensing an oral medication on the low end of relative cost to providing radiopharmaceuticals on the high end. MedPAC collected cost data from four hospitals that were then used to develop relative median costs for all categories but radiopharmaceuticals (Category 7+). The case study facilities were not able to provide sufficient cost information regarding the handling of outpatient radiopharmaceuticals to develop a cost relative for Category 7+. The MedPAC study classified about 230 different drugs, biologicals, and radiopharmaceuticals into the seven categories based on input from their expert panel and each case study facility. Start Printed Page 42729

Table 23.—MedPAC Recommended Drug Categories and Median Cost Relatives

Drug categoryDescriptionMedian cost relative
Category 1Orals (oral tablets, capsules, solutions)0.36
Category 2Injection/Sterile Preparation (draw up a drug for administration)1.00
Category 3Single IV Solution/Sterile Preparation (adding a drug or drugs to a sterile IV solution) or Controlled Substances1.28
Category 4Compounded/Reconstituted IV Preparations (requiring calculations performed correctly and then compounded correctly)1.61
Category 5Specialty IV or Agents requiring special handling in order to preserve their therapeutic value or Cytotoxic Agents, oral (chemotherapeutic, teratogenic, or toxic) requiring PPE2.70
Category 6Cytotoxic Agents (chemotherapeutic, teratogenic, or toxic) in all formulations except oral requiring personal protective equipment (PPE)5.33
Category 7+Radiopharmaceuticals: Basic and Complex Diagnostic Agents, PET Agents, Therapeutic Agents, and Radioimmunoconjugates(1)
1 Not available.

In its report, MedPAC recommended the following:

(1) Establish separate, budget neutral payments to cover the costs hospitals incur for handling separately payable drugs, biologicals, and radiopharmaceuticals; and

(2) Define a set of handling fee APCs that group drugs, biologicals, and radiopharmaceuticals based on attributes of the products that affect handling costs; instruct hospitals to submit charges for these APCs; and base payment rates for the handling fee APCs on submitted charges reduced to costs.

MedPAC found some differences in the categorizations of drug and radiopharmaceutical products by different experts and across the case study sites. In the majority of cases where groupings disagreed, hospitals used different forms of the products which were coded with the same HCPCS code. For example, a drug may be purchased as a prepackaged liquid or as a powder requiring reconstitution. Such a drug would vary in the handling resources required for its preparation and would fall into a different drug category depending on its form. In addition, the handling cost groupings may vary depending on the intended method of drug delivery, such as via intravenous push or intravenous infusion. For a number of commonly used drugs, MedPAC provided two categories in their final consensus categorizations, with the categories 2 and 3 reported as the most frequent combination. For example, MedPAC placed HCPCS codes J1260 (Injection, dolasetron mesylate, 10 mg) and J2020 (Injection, linezolid, 200 mg) in consensus categories 2 and 3, acknowledging that the appropriate categorization could vary depending on the clinical preparation and use of the drug. We note that we have no information regarding hospitals' frequencies of use of various forms of drugs provided in the outpatient department under the OPPS, as the case studies only included four facilities and the technical advisory committee was similarly small. Thus, in many cases it is impossible to exclusively and appropriately assign a drug to a certain overhead category that would apply to all hospital outpatient uses of the drug because of the different handling resources required to prepare different forms of the drugs.

There are over 100 separately payable drugs, biologicals, and radiopharmaceuticals that are separately payable under the OPPS but for which MedPAC provided no consensus categorizations in its seven drug groups. We independently examined these products and considered the handling cost categories that could be appropriately assigned to each product as described by an individual HCPCS code. As discussed above, many of the drugs had several forms which would place them in different handling cost groupings depending on the specific form of the drug prepared by the hospital pharmacy for a patient's treatment. Additionally, we believe that hospitals may have difficulty discriminating among the seven categories for some drugs, because the applicability of a given category description to a specific clinical situation may be ambiguous. Indeed, in the MedPAC study, initially only about 80 percent of the case study pharmacists agreed with the expert panel category assignments; however, concurrence increased that percentage to almost 90 percent after discussion and review. Nevertheless, there remained a number of drugs for which differences in categorization by the case study facilities and the expert panel persisted.

In light of our concerns over our ability to appropriately assign drugs to the seven MedPAC drug categories so that the categories accurately describe the drugs' attributes in all of the OPPS hospitals and the MedPAC recommendations, for CY 2006 we are proposing to establish three distinct HCPCS C-codes and three corresponding APCs for drug handling categories to differentiate overhead costs for drugs and biologicals, by combining several of the categories identified in the MedPAC report. We collapsed the MedPAC categories 2, 3, and 4 into a single category described by HCPCS code CXXXX, and MedPAC categories 5 and 6 into another category described by HCPCS code CYYYY, while maintaining MedPAC category 1 as described by HCPCS code CWWWW. Our rationale for not creating an overhead payment category for radiopharmaceuticals is discussed below. We believe that merging categories in this way generally resolves the categorization dilemmas resulting from the most common scenarios where drugs may fall into more than one grouping and minimizes the administrative burden on hospitals to determine which category applies to the handling of a drug in a specific clinical situation. In addition, these broader handling cost groupings minimize any undesirable payment policy incentives to utilize particular forms of drugs or specific preparation methods. We have only collapsed those categories whose MedPAC relative weights differ by less than a factor of two, consistent with the principle outlined in section 1833(t)(2) of the Act that provides that items and services within an APC group cannot be considered comparable with respect to the use of resources if the median 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.

As noted previously, we believe that pharmacy overhead costs are captured in the pharmacy revenue cost centers and reflected in the median cost of drug Start Printed Page 42730administration APCs, and the payment rate we established for a drug, biological, or radiopharmaceutical APC was intended to pay only for the cost of acquiring the item (66 FR 59896 and 67 FR 66769). As a MedPAC survey of hospital charging practices indicated that hospitals' charges for drugs, biologicals, and radiopharmaceuticals reflect their handling costs as well as their acquisition costs, we believe pharmacy overhead costs would be incorporated into the OPPS payment rates for drugs, biologicals, and radiopharmaceuticals if the rates are based on hospital claims data. However, in light of our proposal to establish three distinct C-codes for drug handling categories, we are proposing to instruct hospitals to charge the appropriate pharmacy overhead C-code for overhead costs associated with each administration of each separately payable drug and biological based on the code description which best reflects the service the hospital provides to prepare the product for administration to a patient. We would then collect hospital charges for these C-codes for 2 years, and consider basing payment for the corresponding drug handling APCs on the charges reduced to costs in CY 2008, similar to the payment methodology for other procedural APCs. Median hospital costs for the drug handling APCs should reflect the CY 2006 practice patterns across all OPPS hospitals of handling drugs whose preparation is described by each of the C-codes, reflecting the differential utilization of various forms of drugs and alternative methods of preparation and delivery through hospitals' billing and charges for the C-codes. Table 24 contains the drug handling categories, C-codes, and APCs we are proposing for CY 2006.

Table 24.—Proposed CY 2006 Drug Handling Categories, C-Codes, and APCs

Drug handling categoryC codeDrug candling APCDescription
Category 1CWWWWWWWW• Orals (oral tablets, capsules, solutions).
Category 2CXXXXXXXX• Injection/Sterile Preparation (draw up a drug for administration).
• Single IV Solution/Sterile Preparation (adding a drug or drugs to a sterile IV solution) or Controlled Substances.
• Compounded/Reconstituted IV Preparations (requiring calculations performed correctly and then compounded correctly).
Category 3CYYYYYYYY• Specialty IV or Agents requiring special handling in order to preserve their therapeutic value or Cytotoxic Agents, oral (chemotherapeutic, teratogenic, or toxic) requiring PPE.
• Cytotoxic Agents (chemotherapeutic, teratogenic, or toxic) in all formulations except oral requiring personal protective equipment (PPE).

We believe that these three categories are sufficiently distinct and reflective of the resources necessary for drug handling to permit appropriate hospital billing and to capture the varying overhead costs of the drugs and biologicals separately payable under the OPPS. We are not proposing to adopt the median cost relatives reported for MedPAC's six categories (excluding radiopharmaceuticals). It is very difficult to accurately crosswalk the cost relatives for the six categories to the three categories we are proposing. In addition, we are not confident that the cost relatives that were based on cost data from four hospitals appropriately reflect the median relative resource costs of all hospitals that would bill these drug handling services under the OPPS. Instead, we believe it is most appropriate to collect hospital charges for the drug handling services based on attributes of the products that affect the hospital resources required for their handling, and consider making future payments under the OPPS using the proposed C-codes based on the medians of charges converted to costs for the drug handling APC associated with each administration of a separately payable drug or biological.

For CY 2006, pursuant to section 1833(t)(14)(E)(ii) of the Act, we propose an adjustment to cover the costs hospitals incur for handling separately payable drugs and biologicals. As we do not currently have separate hospital charge data on pharmacy overhead, we are proposing for CY 2006 to pay for drug and biological overhead costs based on 2 percent of the ASP. As described earlier, we estimated aggregate expenditure for all separately payable OPPS drugs and biologicals (excluding radiopharmaceuticals) using mean costs from the claims data and then determined the equivalent average ASP-based rates. Our calculations indicated that using mean unit costs to set the payment rates for all separately payable drugs and biologicals would be equivalent to basing their payment rates on the ASP+8 percent. As noted previously, because pharmacy overhead costs are already built into the charges for drugs, biologicals, and radiopharmaceuticals as indicated by the MedPAC study described above, we believe that payment for drugs and biologicals and overhead at a combined ASP+8 percent would serve as a proxy for representing both the acquisition cost and overhead cost of each of these products. Moreover, as we are proposing to pay for all separately payable drugs and biologicals using the ASP methodology, where payment rates for most of these items are set at the ASP+6 percent, we believe that an additional 2 percent of the ASP would provide adequate additional payment for the overhead cost of these products and be consistent with historical hospital costs for drug acquisition and handling. Even though we are not proposing to scale the payment rates for drugs and biologicals based on the ASP methodology, we are proposing to scale the additional payment amount of 2 percent of the ASP for pharmacy overhead costs. Therefore, for CY 2006, we are proposing to pay an additional 2 percent of the ASP scaled for budget neutrality for overhead costs associated with separately payable drugs and biologicals, along with paying ASP+6 percent for the acquisition costs of the drugs and biologicals. The payment rate for a separately payable drug or biological shown in Addenda A and B to this proposed rule represents the payment rate for the drug or biological in addition to payment for its overhead costs. We are specifically seeking comments on this proposed policy for paying for pharmacy overhead costs in CY 2006 and on the proposed policy regarding hospital billing of drug handling charges associated with each administration of each separately payable drug or biological using the proposed C-codes.

As discussed earlier, we are proposing to pay for separately payable radiopharmaceutical agents based on their charges in the claims submitted by hospitals converted to costs. MedPAC found that the handling resource costs Start Printed Page 42731associated with radiopharmaceuticals were especially difficult to study because of the varying resource requirements for handling them in a variety of hospital outpatient settings for different clinical uses. These various methods of preparation of radiopharmaceuticals, and the individual radiopharmaceuticals themselves, differ significantly in the costs of their handling, with substantial variation in such factors as site of preparation, personnel time, shielding, transportation, equipment, waste disposal, and regulatory compliance requirements. However, as MedPAC also found that handling costs for drugs, biologicals, and radiopharmaceuticals were built into hospitals' charges for the products themselves, we believe that the charges from hospital claims converted to costs are representative of hospital acquisition costs for these agents, as well as their overhead costs. These costs would appropriately reflect each hospital's potentially diverse patterns of acquisition or production of radiopharmaceuticals for use in the outpatient hospital setting and their related handling costs that vary across radiopharmaceutical products and the circumstances of their production and use. Therefore, we are not proposing to create separate handling categories for radiopharmaceutical agents for CY 2006.

However, because we are proposing to collect ASP information for radiopharmaceuticals in CY 2006, we are seeking specific comments on appropriate categories for potentially capturing radiopharmaceutical handling costs. We believe that these handling costs may vary depending on many factors. The handling cost categories should exclude any resources covered by specific diagnostic procedures or administration codes for patient services that utilize the radiopharmaceuticals. However, the handling cost categories should include all aspects of radiopharmaceutical handling and preparation, including transportation, storage, compounding, required shielding, inventory management, revision of dosages based on patient conditions, documentation, disposal, and regulatory compliance. The MedPAC study contractor suggested a variety of discriminating factors which may be related to the magnitude of radiopharmaceutical handling costs, including the complexity of the calculations and manipulations involved with compounding, the intended use of the product for diagnostic or therapeutic purposes, the item's status as a radioimmunoconjugate or non-radioimmunoconjugate, short-lived agents produced in-house, and preparation of the radiopharmaceutical in-house versus production in a commercial radiopharmacy. We are seeking comments on the construction of radiopharmaceutical handling cost categories that would meaningfully reflect differences in the levels of necessary hospital resources and that could easily be understood and applied by hospitals characterizing their preparation of radiopharmaceuticals.

b. Proposed CY 2006 Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital Claims Data

Pub. L. 108-173 does not address the OPPS payment in CY 2005 and after for new drugs, biologicals, and radiopharmaceuticals 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 dictated payment for such drugs and biologicals in CY 2005, and because we had no hospital claims data to use in establishing a payment rate for them, we investigated several payment options for CY 2005 and discussed them in detail in the CY 2005 OPPS final rule with comment period (69 FR 65797 through 65799).

For CY 2006, we are proposing to use the same methodology that we used in CY 2005. That is, we are proposing 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 ASP methodology described in the CY 2005 Medicare Physician Fee Schedule final rule (69 FR 66299). As discussed in the OPPS CY 2005 final rule (69 FR 65797), new drugs, biologicals, and radiopharmaceuticals may be expensive and we are concerned that packaging these new items may jeopardize beneficiary access to them. In addition, we do not want to delay separate payment for these items solely because a pass-through application was not submitted. We note that this payment methodology is the same as the methodology that would be used to calculate the OPPS payment amount that pass-through drugs and biologicals would be paid in CY 2006 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 are proposing to continue to treat new drugs, biologicals, and radiopharmaceuticals with established HCPCS codes the same, irrespective of whether pass-through status has been determined. We are also proposing to assign status indicator “K” to HCPCS codes for new drugs and biologicals for which we have not received a pass-through application.

There are several drugs, biologicals, and radiopharmaceuticals that were payable during CY 2004 or their HCPCS codes were created effective January 1, 2005 for which we do not have any CY 2004 hospital claims data. In order to determine the packaging status of these items for CY 2006, we calculated an estimate of per day cost of each of these items by multiplying the payment rate for each product as determined using the ASP methodology by an estimated average number of units of each product that would be furnished to a patient during one administration. We are proposing to package items for which we estimated the per administration cost to be less than $50 and pay separately for items with estimated per administration cost greater than $50. Payment for the separately payable items would be based on rates determined using the ASP methodology established in the physician office setting. There are two codes 90393 (Vaccina ig, im) and Q9953 (Inj Fe-based MR contrast, ml) for which we were not able to determine payment rates based on the ASP methodology. Because we are unable to estimate the per administration cost of these items, we are proposing to package them in CY 2006. We are specifically seeking comments on our proposed policy for determining per administration cost of these drugs, biologicals, and radiopharmaceuticals that are payable under the OPPS, but do not have any CY 2004 claims data.Start Printed Page 42732

Table 25.—Proposed CY ASP Payment Rate for Drugs, Biologicals, and Radiopharmaceuticals Without CY 2004 Claims Data

HCPCS codeDescriptionAPCASP-based payment rateEst. average number of units per administrationProposed 2006 status indicator
C1093TC99M fanolesomab1093$1,197.001H
C9206Integra, per cm292069.0619K
J0135Adalimumab injection1083294.632K
J0288Ampho b cholesteryl sulfate073512.0035K
J0395Arbutamine HCl injection9031160.001K
J1180Dyphylline injection91667.598.4K
J1457Gallium nitrate injection10851.28340K
J3315Triptorelin pamoate9122363.241K
J7350Injectable human tissue90553.4733K
J9357Valrubicin, 200 mg9167369.604K
Q2012Pegademase bovine, 25 iu9168158.0556K
Q2018Urofollitropin, 75 iu703743.872K
90581Anthrax vaccine, sc9169126.461K
J0200Alatrofloxacin mesylate14.752.5N
J7674Methacholine chloride, neb0.408.875N
J0190Inj biperiden lactate/5 mg3.161N
J3530Nasal vaccine inhalation15.001N

C. Proposed Coding and Billing Changes for Specified Covered Outpatient Drugs

(If you choose to comment on issues in this section, please include the caption “Drug Coding and Billing” at the beginning of your comment.)

1. Background

As discussed in the January 6, 2004 interim final rule with comment period (69 FR 826), we instructed hospitals to bill for sole source drugs using the existing HCPCS codes, which were priced in accordance with the provisions of 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. We also instructed providers to continue to use the existing HCPCS codes to bill for noninnovator multiple source drugs to receive payment in accordance with section 1833(t)(14)(A)(i)(III) of the Act. These coding policies allowed hospitals to appropriately code for drugs, biologicals, and radiopharmaceuticals based on their classification and to be paid accordingly. We continued this coding practice in CY 2005 with payment made in accordance with section 1833(t)(14)(A)(ii) of the Act.

2. Proposed Policy for CY 2006

For CY 2006, we are proposing to base the payment rates for drugs and biologicals and their pharmacy overhead costs on the ASP methodology that is used to set payment rates for these items in the physician office setting. Under this methodology, a single payment rate for the drug is calculated by considering the prices for both the innovator multiple source (brand) and noninnovator multiple source (generic) forms of the drug. Therefore, under the OPPS, we believe that there is no longer a need to differentiate between the brand and generic forms of a drug. Thus, we are proposing to discontinue use of the C-codes that were created to represent the innovator multiple source drugs. In CY 2006, hospitals would use the HCPCS codes for noninnovator multiple source (generic) drugs to bill for both the brand and generic forms of a drug as they did prior to implementation of section 1833(t)(14)(A) in Pub. L. 108-173. We are specifically requesting comments on this proposed policy.

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

(If you choose to comment on issues in this section, please include the caption “HCPCS Codes” at the beginning of your comment.)

1. Background

Historically, hospitals have used a HCPCS 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 OPPS 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 a 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, a temporary C-code assigned for billing purposes, and an APC payment amount to be determined. 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.

2. Proposed Policy for CY 2006

Section 1833(t)(15) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, provides 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 Start Printed Page 42733biological that is furnished as part of the 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 made under the OPPS on or after January 1, 2004.

We initially adopted the methodology for determining payment under section 1833(t)(15) of the Act on an interim basis on May 28, 2004, via Transmittal 188, Change Request 3287, and finalized the methodology for CY 2005 in our CY 2005 OPPS final rule with comment period. In that final rule with comment period, we also expanded the methodology to include payment for new radiopharmaceuticals to which a HCPCS code is not assigned (69 FR 65804 through 65807). We instructed hospitals to bill for a drug or biological that is newly approved by the FDA by reporting the NDC for the product along with a new HCPCS code, C9399 (Unclassified drug or biological). When HCPCS code 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 the 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, biological, or radiopharmaceutical concurrent with its approval by the FDA. The hospital does not have to wait for the next OPPS quarterly release or for approval of a product-specific HCPCS code to receive payment for a newly approved drug, biological, or radiopharmaceutical. In addition, the hospital does not have to resubmit claims for adjustment. Hospitals would discontinue billing HCPCS code C9399 and the NDC upon implementation of a HCPCS code, status indicator, and appropriate payment amount with the next OPPS quarterly update.

For CY 2006, we are proposing to continue the same methodology for paying for new drugs, biologicals, and radiopharmaceuticals without HCPCS codes.

E. Proposed Payment for Vaccines

(If you choose to comment on issues in this section, please include the caption “Vaccines” at the beginning of your comment.)

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 costs 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.

Influenza, pneumococcal, and hepatitis B vaccines and their administration are specifically covered by Medicare under section 1861(s)(10) of the Act. We are proposing to continue to pay influenza and pneumococcal vaccines at reasonable cost in CY 2006. However, hepatitis B vaccines so far have been paid under clinical APCs that also include other vaccines. For CY 2006, we are proposing to pay for all hepatitis B vaccines at reasonable cost, consistent with the payment methodology for influenza and pneumococcal vaccines. Influenza and pneumococcal vaccines are exempt from coinsurance and deductible payments under sections 1833(a)(3) and 1833(b) of the Act and have been assigned to status indicator “L”. However, hepatitis B vaccines have no similar coinsurance or deductible exemption. Therefore, we are proposing to assign these items to status indicator “F”.

Previously, under the OPPS, separately payable vaccines other than influenza and pneumococcal were grouped into clinical APCs 355 and 356 for payment purposes. Payment rates for these APCs were based on the APCs' median costs, calculated from the costs of all of the vaccines grouped within the APCs. For CY 2006, we are proposing to pay for each separately payable vaccine under its own APC, consistent with our policy for separately payable drugs other than vaccines, instead of aggregating them into clinical APCs with other vaccines. We believe this policy would allow us to more appropriately establish a payment rate for each separately payable vaccine based on the ASP methodology. We are specifically requesting comments on our proposed vaccine policies for CY 2006. Proposed policy changes to coding and payments for the administration of these vaccines are discussed in section VIII. of this preamble.

F. Proposed Changes in Payment for Single Indication Orphan Drugs

(If you choose to comment on issues in this section, please include the caption “Orphan Drugs” at the beginning of your comment.)

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 costs 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 costs of this special type of drug. Therefore, we are proposing to continue paying for them separately.

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 condition(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 cost 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 Start Printed Page 42734that showed that our payment rate did not reflect the price that was widely available to the hospital market. For CY 2004, Ceredase (alglucerase) and Cerezyme (imiglucerase) were paid at 94 percent of the AWP because external data submitted by commenters on the August 12, 2003 proposed rule caused us to believe that payment at 88 percent of the 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, 1 mg) to our list of single indication orphan drugs. In the November 15, 2004 final rule with comment period (69 FR 65807), we retained the same criteria for identifying single indication orphan drugs and added two HCPCS codes to our list—C9218 (Injection, Azactidine, per 1 mg) and J9010 (Alemtuzumab, 10 mg) (69 FR 65808). As of CY 2005, the following are the 14 orphan drugs that we have identified as meeting our criteria: C9218 (Injection, Azactidine, per 1 mg); J0205 (Injection, Alglucerase, per 10 units); J0256 (Injection, Alpha 1-proteinase inhibitor, 10 mg); J9300 (Gemtuzumab ozogamicin, 5mg); J1785 (Injection, Imiglucerase, per unit); J2355 (Injection, Oprelvekin, 5 mg); J3240 (Injection, Thyrotropin alpha, 0.9 mg); J7513 (Daclizumab, parenteral, 25 mg); J9010 (Alemtuzumab, 10 mg); J9015 (Aldesleukin, per single use vial); J9017 (Arsenic trioxide, 1 mg); J9160 (Denileukin diftitox, 300 mcg); J9216 (Interferon, gamma 1-b, 3 million units); and Q2019 (Injection, Basiliximab, 20 mg).

In the November 15, 2004 final rule with comment period (69 FR 65808), we stated that had we not classified these drugs as single indication orphan drugs for payment under the OPPS, they would have met the definition of single source specified covered outpatient drugs and received lower payments, which could have impeded 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 set payment for all 14 single indication orphan drugs at the higher of 88 percent of the AWP or the ASP+6 percent. For CY 2005, we also updated on a quarterly basis the payment rates through comparison of the most current ASP and AWP information available to us. Given that CY 2005 was the first year of mandatory ASP reporting by manufacturers, we did not want potential significant fluctuations in the ASPs to affect payments to hospitals furnishing these drugs, which in turn might cause access problems for beneficiaries. Therefore, in the November 15, 2004 final rule, we did not implement the proposed 95 percent AWP cap on payments for single indication orphan drugs which was described in the August 16, 2004 proposed rule (69 FR 50518), as we intended to monitor the impact of our payment policy and consider the need for a cap in future OPPS updates if appropriate (69 FR 65809).

As a part of the GAO study on hospital acquisition costs of specified covered outpatient drugs, the GAO provided the average hospital purchase prices for four orphan drugs: J0256 (Injection, Alpha 1-proteinase inhibitor, 10 mg), J1785 (Injection, Imiglucerase, per unit), J9160 (Denileukin difitox, 300 mcg), and J9010 (Alemtuzumab, 10 mg).

For alpha 1-proteinase inhibitor (J0256), the hospitals in the study sample represented only about 14 percent of the estimated total number of hospitals purchasing the drug. The mean hospital purchase price was about 73 percent of the payment rate based on ASP+6 percent rate and about 63 percent of the CY 2005 payment rate updated in April 2005. We believe the GAO acquisition data for alpha 1-proteinase inhibitor are likely not representative of hospital acquisition costs for the drug because the number of hospitals providing data was so small compared to the total number of hospitals expected to utilize the drug. Furthermore, we recognize that the GAO data on hospital drug acquisition costs do not reflect the current acquisition costs experienced by hospitals but instead, rely on past cost data from late CY 2003 through early CY 2004. On the other hand, the ASP data are more current and thus are likely more reflective of present hospital acquisition costs for alpha 1-proteinase inhibitor.

In contrast to the GAO data for alpha 1-proteinase inhibitor, the GAO data for imiglucerase (J1785) reflect hospital purchase prices from about 69 percent of the hospitals expected to utilize the drug. For this drug, the mean hospital purchase price was about 93 percent of the CY 2005 payment rate for imiglucerase updated in April 2005, which was based on ASP+6 percent rate. Thus, the ASP-based payment rate also would appear to be appropriately reflective of hospital acquisition costs for imiglucerase, and to be consistent with the GAO mean purchase price.

For denileukin difitox (J9160) and alemtuzumab (J9010), the GAO data for these drugs reflect hospital purchase prices from about 77 percent and 66 percent of the hospitals expected to acquire these drugs, respectively. The mean hospital purchase price for denileukin difitox was about 94 percent of the payment rate based on the ASP+6 percent rate and about 79 percent of the CY 2005 payment rate. As for alemtuzumab, the mean hospital purchase price was about 95 percent of the payment rate based on the ASP+6 percent rate and about 89 percent of the CY 2005 payment rate. For both of these drugs, the ASP-based payment rates also appear to be appropriately reflective of their hospital acquisition costs, based on confirmation by the GAO average purchase price data from over two-thirds of the hospitals expected to acquire the drugs.

During the quarterly updates to payment rates for single indication orphan drugs for CY 2005, we observed significant improvement in the accuracy and consistency of manufacturers' reporting of the ASPs for these orphan drugs. Overall, we found that the ASPs as compared to the AWPs were less likely to experience dramatic fluctuations in prices from quarter to quarter. We expect that as the ASP system continues to mature, manufacturers will further refine their quarterly reporting, leading to even greater stability and accuracy in their reporting of sales prices. As the ASPs reflect the average sales prices to all purchasers, the ASP data also include drug sales to hospitals. Past commenters have indicated to us that some orphan drugs are administered principally in hospitals, and to the extent that this is true their ASPs should predominantly be based upon the sales of drugs used by hospitals. For three of the orphan drugs for which the GAO provided average purchase prices from a large percentage of hospitals expected to acquire the drugs, the GAO data were very consistent with the ASP+6 percent. For the fourth drug, the GAO mean was significantly lower than the ASP+6 percent and the confidence interval around that mean was quite tight, although only a small proportion of hospitals expected to acquire the drug reported their purchase prices. Thus, we believe that proposing to pay for orphan drugs based on an ASP methodology is appropriate for the CY 2006 OPPS and should assure patients' continued access to these orphan drugs in the hospital outpatient department. Therefore, for CY 2006, we are proposing to pay for single indication orphan drugs at the ASP+6 percent. We believe that paying for orphan drugs using the ASP methodology is consistent with our proposed general drug payment policy for other separately payable drugs and Start Printed Page 42735biologicals in the CY 2006 and reflects our general view that ASP-based payment rates serve as the best proxy for the average acquisition cost for these items as described in this section V. of the preamble. In addition, we are proposing to pay an additional 2 percent of the ASP scaled for budget neutrality to cover the handling costs of these drugs, also consistent with our proposed general pharmacy overhead payment policy for handling costs associated with separately payable drugs and biologicals. We believe that the ASPs plus 6 percent for orphan drugs will provide appropriate payment for hospital acquisition costs for these drugs that are administered by a relatively small number of providers, so that patients will continue to have access to orphan drugs in the hospital outpatient setting. Hospitals will also receive additional payments for costs associated with their storage, handling, and preparation of orphan drugs. Payment rates will be updated on a quarterly basis to reflect the most current ASPs available to us. Appropriate adjustments to the payment amounts shown in Addendum A and B would be made if the ASP submissions in a later quarter indicate that adjustments to the payment rates are necessary. These changes to the Addenda would be announced in our program instructions released on a quarterly basis and posted on our Web site at http://www.cms.hhs.gov. We are specifically requesting comments on our proposed payment policy for orphan drugs in CY 2006.

VI. Estimate of Transitional Pass-Through Spending in CY 2006 for Drugs, Biologicals, and Devices

(If you choose to comment on issues in this section, please include the caption “Estimated Transitional Pass-Through Spending” at the beginning of your comment.)

A. Total Allowed Pass-Through Spending

Section 1833(t)(6)(E) of the Act limits the total projected amount of transitional pass-through payments for drugs, biologicals, radiopharmaceuticals, and categories of devices for a given year to an “applicable percentage” of projected total Medicare and beneficiary payments under the hospital OPPS. For a year before CY 2004, the applicable percentage was 2.5 percent; for CY 2005 and subsequent years, we specify the applicable percentage up to 2.0 percent.

If we estimate before the beginning of the calendar year that the total amount of pass-through payments in that year would exceed the applicable percentage, section 1833(t)(6)(E)(iii) of the Act requires a uniform reduction in the amount of each of the transitional pass-through payments made in that year to ensure that the limit is not exceeded. We make an estimate of pass-through spending to determine not only whether payments exceed the applicable percentage, but also to determine the appropriate reduction to the conversion factor for the projected level of pass-through spending in the following year.

For devices, making an estimate of pass-through spending in CY 2006 entails estimating spending for two groups of items. The first group consists of those items for which we have claims data for procedures that we believe used devices that were eligible for pass-through status in CY 2004 and CY 2005 and that would continue to be eligible for pass-through payment in CY 2006. The second group consists of those items for which we have no direct claims data, that is, items that became, or would become, eligible in CY 2005 and would retain pass-through status in CY 2006, as well as items that would be newly eligible for pass-through payment beginning in CY 2006.

B. Estimate of Pass-Through Spending for CY 2006

We are proposing to set the applicable percentage cap at 2.0 percent of the total OPPS projected payments for CY 2006. As we discuss in section IV.C. of this preamble, the three remaining device categories receiving pass-through payment in CY 2005 will expire on December 31, 2005. Therefore, we estimate pass-through spending attributable to the first group of items described above to equal zero.

To estimate CY 2006 pass-through spending for device categories in the second group, that is, items for which we have no direct claims data, we are proposing to use the following approach: For additional device categories that are approved for pass-through status after July 1, 2005, but before January 1, 2006, we are proposing to use price information from manufacturers and volume estimates based on claims for procedures that would most likely use the devices in question because we would have no CY 2004 claims data upon which to base a spending estimate. We are proposing to project these data forward to CY 2006 using inflation and utilization factors based on total growth in OPPS services as projected by CMS' Office of the Actuary (OACT) to estimate CY 2006 pass-through spending for this group of device categories. For device categories that become eligible for pass-through status in CY 2006, we are proposing to use the same methodology. We anticipate that any new categories for January 1, 2006, would be announced after the publication of this proposed rule, but before publication of the final rule. Therefore, the estimate of pass-through spending in the CY 2006 OPPS final rule would incorporate any pass-through spending for device categories made effective January 1, 2006, and during subsequent quarters of CY 2006.

With respect to CY 2006 pass-through spending for drugs and biologicals, as we explain in section V.A.3. of this proposed rule, the pass-through payment amount for new drugs and biologicals that we determine have pass-through status would equal zero. Therefore, our estimate of pass-through spending for drugs and biologicals with pass-through status in CY 2006 equals zero.

In accordance with the methodology described above and the methodology for estimating pass-through spending discussed in the August 16, 2004 proposed rule (69 FR 50526), we estimate that total pass-through spending for device categories that first become eligible for pass-through status after publication of this proposed rule for which pass-through payment continues in CY 2006 or become eligible during CY 2006 would equal approximately $12.5 million, which represents 0.05 percent of total OPPS projected payments for CY 2006. This figure includes estimates for the current device categories continuing into CY 2006, which equals zero, in addition to projections for categories that first become eligible during the second half of CY 2005 or in CY 2006.

This estimate of total pass-through spending for CY 2006 is significantly lower than previous years' estimates both because of the method we are proposing in section V.A.3. of this preamble for determining the amount of pass-through payment for drugs and biologicals with pass-through status, and the fact that there are no CY 2005 pass-through device categories that are being carried over to CY 2006.

Because we estimate pass-through spending in CY 2006 would not amount to 2.0 percent of total projected OPPS CY 2006 spending, we are proposing to return 1.95 percent of the pass-through pool to adjust the conversion factor, as we discuss in section II.C. of this preamble. Start Printed Page 42736

VII. Proposed Brachytherapy Payment Changes

(If you choose to comment on issues in this section, please include the caption “Brachytherapy” at the beginning of your comment.)

A. Background

Section 1833(t)(16)(C) and section 1833(t)(2)(H) of the Act, as added by sections 621(b)(1) and (b)(2) of Pub. L. 108-173, respectively, establish separate payment for devices of brachytherapy consisting of a seed or seeds (or radioactive source) based on a hospital's charges for the service, adjusted to cost. Charges for the brachytherapy devices may not be used in determining any outlier payments under the OPPS. In addition, consistent with our practice under the OPPS to exclude items paid at cost from budget neutrality consideration, these items must be excluded from budget neutrality as well. The period of payment under this provision is for brachytherapy sources furnished from January 1, 2004, through December 31, 2006.

Section 621(b)(3) of Pub. L. 108-173 requires the Government Accountability Office (GAO) to conduct a study to determine appropriate payment amounts for devices of brachytherapy, and to submit a report on its study to the Congress and the Secretary, including recommendations. We are awaiting the report and any recommendations on the payment of brachytherapy, which would pertain to brachytherapy payments after December 31, 2006.

In the OPPS interim final rule with comment period published on January 6, 2004 (69 FR 827), we implemented sections 621(b)(1) and (b)(2)(C) of Pub. L. 108-173. In that rule, we stated that we will pay for the brachytherapy sources listed in Table 4 of the interim final rule with comment period (69 FR 828) on a cost basis, as required by the statute. The status indicator for brachytherapy sources was changed to “H.” The definition of status indicator “H” was for pass-through payment only for devices, but the brachytherapy sources affected by sections 1833(t)(16)(C) and 1833(t)(2)(H) of the Act are not pass-through device categories. Therefore, we also changed, for CY 2004, the definition of payment status indicator “H” to include nonpass-through brachytherapy sources paid on a cost basis. This use of status indicator “H” was a pragmatic decision that allowed us to pay for brachytherapy sources in accordance with section 1833(t)(16)(C) of the Act, effective January 1, 2004, without having to modify our claims processing systems. We stated in the January 6, 2004 interim final rule with comment period that we would revisit the use and definition of status indicator “H” for this purpose in the OPPS update for CY 2005. In the November 15, 2004 final rule with comment period, we finalized this policy for CY 2005 (69 FR 65838).

As we indicated in the January 6, 2004 interim final rule with comment period, we began payment for the brachytherapy source in HCPCS code C1717 (Brachytx source, HCR lr-192) based on the hospital's charge adjusted to cost beginning January 1, 2004. Prior to enactment of Pub. L. 108-173, these sources were paid as packaged services in APC 0313. As a result of the requirement under Pub. L. 108-173 to pay for HCPCS code C1717 separately, we adjusted the payment rate for APC 0313, Brachytherapy, to reflect the unpackaging of the brachytherapy source. We finalized this payment methodology in our November 15, 2004 final rule with comment period (69 FR 65839).

Section 1833(t)(2)(H) of the Act, as added by section 621(b)(2)(C) of Pub. L. 108-173, mandated the creation of separate groups of covered OPD services that classify brachytherapy devices separately from other services or groups of services. The additional groups must be created in a manner that reflects the number, isotope, and radioactive intensity of the devices of brachytherapy furnished, including separate groups for Palladium-103 and Iodine-125 devices. At its meetings in February 2004, the APC Panel heard from parties that recommended the addition of two new codes to describe brachtherapy sources in a manner that reflects the number, radioisostope, and radioactive intensity of the sources. The presenters recommended two new brachytherapy HCPCS codes and APCs for high activity Iodine-125 and high activity Palladium-103. The APC Panel, in turn, recommended that CMS establish new HCPCS codes and new APCs, on a per source basis, for these two brachytherapy sources.

We considered this recommendation and agreed with the APC Panel. Therefore, in the November 15, 2004 final rule with comment period, we established the following two new brachytherapy source codes for CY 2005:

C2634 Brachytherapy source, High Activity Iodine-125, greater than 1.01 mCi (NIST), per source

C2635 Brachytherapy source, High Activity Palladium-103, greater than 2.2 mCi (NIST), per source

In addition, we believed the APC Panel's recommendation to establish new HCPCS codes that would distinguish high activity Iodine-125 from high activity Palladium-103 on a per source basis should have been implemented for other brachytherapy code descriptors, as well. Therefore, beginning January 1, 2005, we included “per source” in the HCPCS code descriptors for all those brachytherapy source descriptors for which units of payment were not already delineated. Table 40 published in the November 15, 2004 final rule with comment period included a complete listing of the HCPCS codes, long descriptors, APC assignments, and status indicators that we used for brachytherapy sources paid under the OPPS in CY 2005 (69 FR 65840 through 65841).

Further, for CY 2005, we added the following code of linear source Palladium-103 to be paid at cost: C2636 Brachytherapy linear source, Palladium-103, per 1 mm. We had indicated in our August 16, 2004 proposed rule that we were aware of a new linear source Palladium-103, which came to our attention in CY 2003 through an application for a new device category for pass-through payment. We stated that, while we decided not to create a new category for pass-through payment, we believed that the new linear source fell under the provisions of Pub. L. 108-173. Therefore, we made final our proposal to add HCPCS code C2636 as a new brachytherapy source to be paid at cost in CY 2005.

B. Proposed Changes Related to Pub. L. 108-173

We have consistently invited the public to submit recommendations for new codes to describe brachytherapy sources in a manner reflecting the number, radioisotope, and radioactivity intensity of the sources. We requested that commenters provide a detailed rationale to support recommended new codes and to send recommendations to us. We stated that we would endeavor to add new brachytherapy source codes and descriptors to our systems for payment on a quarterly basis. We have only very recently received one such request for coding and payment of a new brachytherapy source since we added separate APC payment beginning in CY 2005 for the three brachytherapy sources discussed above. We will evaluate this source prior to our final rule for CY 2006. Therefore, we are not proposing any coding changes to the sources of brachytherapy for CY 2006 at this time. Table 26 below includes a list of the separately payable brachytherapy Start Printed Page 42737sources that we are proposing to continue for CY 2006.

Table 26.—Proposed Separately Payable Brachytherapy Sources for CY 2006

HCPCSLong descriptorAPCAPC titleNew status indicator
C1716Brachytherapy source, Gold 198, per source1716Brachytx source, Gold 198H
C1717Brachytherapy source, High Dose Rate Iridium 192, per source1717Brachytx source, HDR Ir-192H
C1718Brachytherapy source, Iodine 125, per source1718Brachytx source, Iodine 125H
C1719Brachytherapy source, Non-High Dose Rate Iridium 192, per source1719Brachytx source, Non-HDR Ir-192H
C1720Brachytherapy source, Palladium 103, per source1720Brachytx source, Palladium 103H
C2616Brachytherapy source, Yttrium-90, per source2616Brachytx source, Yttrium-90H
C2632Brachytherapy solution, Iodine 125, per mCi2632Brachytx sol, I-125, per mCiH
C2633Brachytherapy source, Cesium-131, per source2633Brachytx source, Cesium-131H
C2634Brachytherapy source, High Activity, Iodine-125, greater than 1.01 mCi (NIST), per source2634Brachytx source, HA, I-125H
C2635Brachytherapy source, High Activity, Palladium-103, greater than 2.2 mCi (NIST), per source2635Brachytx source, HA, P-103H

VIII. Proposed Coding and Payment for Drug Administration

(If you choose to comment on issues in this section, please include the caption “Drug Administration” at the beginning of your comment.)

A. Background

From the start of the OPPS until the end of CY 2004, three HCPCS codes were used to bill drug administration services provided in the hospital outpatient department:

  • Q0081 (Infusion therapy, using other than chemotherapeutic drugs, per visit)
  • Q0083 (Chemotherapy administration by other than infusion technique only, per visit)
  • Q0084 (Chemotherapy administration by infusion technique only, per visit) A fourth OPPS drug administration HCPCS code, Q0085 (Administration of chemotherapy by both infusion and another route, per visit) was active from the beginning of the OPPS through the end of CY 2003.

Each of these four HCPCS codes mapped to an APC (that is, Q0081 mapped to APC 0120, Q0083 mapped to APC 0116, Q0084 mapped to APC 0117, and Q0085 mapped to APC 0118), and APC payment rates for these codes were made on a per-visit basis. The per-visit payment included payment for all hospital resources (except separately payable drugs) associated with the drug administration procedures. For CY 2004, we discontinued using HCPCS code Q0085 to identify drug administration services, moving to a combination of HCPCS codes Q0083 and Q0084 that allowed more accurate calculations when determining OPPS payment rates.

In response to comments we received concerning the available opportunities to gather additional drug administration data (and subsequently facilitate development of more accurate payment rates for drug administration services in future years) and to reduce hospital administrative burden, we proposed for the CY 2005 OPPS to change our coding and payment methodologies related to drug administration services.

After examining comments and suggestions, including recommendations of the APC Panel, we adopted a crosswalk for the CY 2005 OPPS that identified all active CPT drug administration codes and the corresponding Q-codes, which hospitals had previously used to report their charges for the procedures. Hospitals were instructed to begin billing CPT codes for drug administration services in the hospital outpatient department effective January 1, 2005.

Payment rates for CY 2005 drug administration services were set using CY 2003 claims data. These data reflected per-visit costs associated with the four Q-codes listed above. To allow for the time necessary to collect data at the more specific CPT code level and to continue accurate payments based on available claims data, we used the Q-code crosswalk to map CPT drug administration codes to existing drug administration APCs. While hospitals were instructed to bill all relevant CPT codes that describe the services provided, the Outpatient Code Editor (OCE) collapsed payments for drug administration services attributed to the same APC and paid a single APC amount for those services for each visit, unless a modifier was used to identify drug administration services provided more than once in a separate encounter on the same day.

B. Proposed Changes for CY 2006

In 2004, the CPT Editorial Panel approved several new drug administration codes and revised several existing codes for use beginning in 2006. For use in the physician office setting in CY 2005, we established HCPCS G-codes that correspond with the expected new CPT codes that will become active in 2006.

For CY 2006 OPPS billing purposes, we are proposing to continue our policy of using CPT codes to bill for drug administration services provided in the hospital outpatient department. We anticipate that the current CPT codes will no longer be effective in CY 2006, and, therefore, we are proposing a CY 2006 crosswalk that maps current CPT codes to the CPT drug administration codes approved by the CPT Editorial Panel in 2004, which correspond to the G-codes used in the physician office setting for CY 2005 and which we expect to become active CPT codes for 2006.

The OPPS drug administration payment rates that we are proposing for CY 2006 are dependent on CY 2004 data Start Printed Page 42738containing per-visit charges for HCPCS codes Q0081, Q0083, and Q0084. While HCPCS code Q0085 was used to inform payment rates for drug administration APCs for CY 2005, there are no data from this code to develop payment rates for drug administration APCs for CY 2006 because this code was not used in CY 2004. We are proposing to map the new CPT codes to existing drug administration APC groups (APC 0116, APC 0117, and APC 0120) as we did in CY 2005. Again, hospitals would be expected to bill all relevant CPT codes for services provided, but payment for services within the same APC group would be collapsed by the OCE into a single per-visit APC payment, unless a modifier is used to identify drug administration services provided more than once in a separate encounter on the same day.

Table 27 shows the crosswalk from the CY 2005 CPT codes to the expected CY 2006 CPT codes (indicated by definition and 2005 HCPCS G-code) and includes the proposed CY 2006 status indicators and APC payment groups for these services. At its February 2005 meeting, the APC Panel recommended that this crosswalk be used to establish drug administration payments for the CY 2006 OPPS. Therefore, we are proposing to use the crosswalk as illustrated in Table 27 to assign drug administration services to APC payment groups for CY 2006 OPPS.

Table 27.—Proposed Crosswalk From Expected CY 2006 Drug Administration CPT Codes to Drug Administration APCs

[Note: G-codes are only for use in the physician office setting in CY 2005]

2005 CPT code2005 HCPCS codeDescriptionCY 2006 Proposed status indicatorAPCOCE maximum APC units without modifier 59OCE maximum APC units with modifier 59
90780G0345Intravenous Infusion, Hydration; Initial, up to one hourS012014
90781G0346Intravenous Infusion, Hydration; each additional hour, up to eight (8) hoursN00
90780G0347Intravenous Infusion, for Therapeutic/Diagnostic; Initial, up to one hourS012014
90781G0348Intravenous Infusion, for Therapeutic/Diagnostic; each additional hour, up to eight (8) hoursN00
G0349Intravenous Infusion, for Therapeutic/Diagnostic; additional sequential infusion, up to one hourN00
G0350Intravenous Infusion, for Therapeutic/Diagnostic; concurrent infusionN00
90782G0351Therapeutic or Diagnostic Injection; subcutaneous or intramuscularX0353N/AN/A
90784G0353Intravenous Push; single or initial substance/drugX0359N/AN/A
90784G0354Intravenous Push; each additional sequential intravenous pushX0359N/AN/A
9078390783Injection, iaX0359N/AN/A
9078890788Injection of antibioticX0359N/AN/A
9654996549Chemotherapy, unspecifiedS011612
96400G0355Chemotherapy Administration, subcutaneous or intramuscular non-hormonal antineoplasticS011612
96400G0356Chemotherapy Administration, subcutaneous or intramuscular hormonal antineoplasticS011612
9654296542Chemotherapy injectionS011612
9640596405Intralesional chemo adminS011612
9640696406Intralesional chemo adminS011612
96408G0357Intravenous, push technique, single or initial substance/drugS011612
96408G0358Intravenous, push technique, each additional substance/drugS011612
9642096420Chemotherapy, push techniqueS011612
9644096440Chemotherapy, intracavitaryS011612
9644596445Chemotherapy, intracavitaryS011612
9645096450Chemotherapy, into CNSS011612
96410G0359Chemotherapy Administration, Intravenous Infusion Technique; up to one hour, single or initial substance/drugS011712
96412G0360Chemotherapy Administration, Intravenous Infusion Technique; Each additional hour, one to eight (8) hoursN00
G0362Chemotherapy Administration, Intravenous Infusion Technique; Each additional sequential infusion (different substance/drug), up to one hourN00
96414G0361Initiation of prolonged chemotherapy infusion (more than eight hours), requiring use of a portable or implantable pumpS011712
9642296422Chemotherapy, infusion methodS011712
Start Printed Page 42739
9642396423Chemo, infuse method add-onN00
9642596425Chemotherapy, infusion methodS011712
G0363Irrigation of Implanted Venous Access Device for Drug Delivery SystemsN00
9652096520Port pump refill & mainT0125N/AN/A
9653096530Syst pump refill & mainT0125N/AN/A

C. Proposed Changes to Vaccine Administration

Hospitals currently use three HCPCS G-codes to indicate the administration of the following vaccines that have specific statutory coverage:

  • G0008—Administration of Influenza Virus Vaccine
  • G0009—Administration of Pneumococcal Vaccine
  • G0010—Administration of Hepatitis B Vaccine

HCPCS codes G0008 and G0009 are exempt from beneficiary coinsurance and deductible applications and, as such, payment has been made outside of the OPPS since CY 2003 based on reasonable cost. We have made payment for HCPCS code G0010 through a clinical APC (that is, APC 0355) that included vaccines along with this vaccine administration code. Additional vaccine administration codes have been packaged or not paid under the OPPS.

We believe that HCPCS codes G0008, G0009 and G0010 are clinically similar and comparable in resource use to one another and to the administration of other immunizations and other therapeutic, prophylactic, or diagnostic injections. The appropriate APC assignment for these vaccine administration services is newly reconfigured APC 0353 (“Injection, Level II”). However, because of their statutory exemption regarding beneficiary deductible and coinsurance, for operational reasons we are unable to include HCPCS codes G0008 and G0009 in an APC with codes that do not share this exemption.

Therefore, for CY 2006, we are proposing to map HCPCS codes G0008 and G0009 to new APC 0350 (Administration of flu and PPV vaccines). As dictated by statute, HCPCS codes G0008 and G0009 will continue to be exempt from beneficiary coinsurance and deductible.

We are also proposing to change the status indicator for HCPCS code G0010 from “K” (Separate APC Payment) to “B” (Not paid under OPPS; Alternate code may be available), and to change the status indicators for vaccine administration codes 90471 and 90472 from “N” (Packaged) to “X” (Separate APC Payment), in agreement with the recommendation of the APC Panel to unpackage these services. Hospitals would code for hepatitis B vaccine administration using codes 96471 or 96472 (as appropriate), and payment would be mapped to reconfigured APC 0353 (“Injection, Level II”) that will include other injection services that are clinically similar and comparable in resource use.

Additionally, in order to pay appropriately for services that we believe are clinically similar and comparable in resource use and, barring technical restrictions, would otherwise be assigned to the same APC, we are proposing to calculate a combined median cost for all services assigned to APC 0350 and APC 0353 that would then serve as the median cost for both APCs. This combined median would be calculated using charges converted to costs from claims for services in both APCs and would have the effect of making the OPPS payment rates for APC 0350 and APC 0353 identical, although beneficiary copayment and deductible would not be applied to services in APC 0350.

In addition, we are proposing to change the status indicators for vaccine administration codes 90473 and 90474 from “E” (Not paid under OPPS) to “S” (Paid under OPPS) and make payments for these services when they are covered through proposed APC 1491 (New Technology—Level IA ($0-$10)). Finally, we are proposing to change the status indicators for the four remaining vaccine administration codes involving physician counseling (90465, 90466, 90467 and 90468) from “N” (Packaged) to “B” (Not paid under OPPS; Alternate code may be available). Hospitals providing immunization services with physician counseling would use the vaccine administration codes 90471, 90472, 90473, and 90473 to report such services, as we do not believe the provision of physician counseling significantly affects the hospital resources required for administration of immunizations. Table 28 displays the changes that we are proposing for CY 2006.

Table 28.—Proposed CY 2006 Vaccine Administration Codes and APC Median Cost

HCPCSDescriptionCY 2005CY 2006
SIAPCSIAPCMedian
G0008Influenza Vaccine AdministrationLReasonable CostX0350$24.00
G0009Pneumococcal Vaccine AdministrationLReasonable CostX035024.00
G0010Hepatitis B Vaccine AdministrationK0355B
90465Immunization Admin, under 8 yrs old, with counseling; first injectionNB
90466Immunization Admin, under 8 yrs old, with counseling; each additional injectionNB
Start Printed Page 42740
90467Immunization Admin, under 8 yrs old, with counseling; first intranasal or oralNB
90468Immunization Admin, under 8 yrs old, with counseling; each additional intranasal or oralNB
90471Immunization Admin, one vaccine injectionNX035324.00
90472Immunization Admin, each additional vaccine injectionNX035324.00
90473Immunization Admin, one vaccine by intranasal or oralES14915.00
90474Immunization Admin, each additional vaccine by intranasal or oralES14915.00

IX. Hospital Coding for Evaluation and Management (E/M) Services

(If you choose to comment on issues in this section, please include the caption “E/M Services” at the beginning of your comment.)

In the November 15, 2004 final rule with comment period (69 FR 65838), we noted our primary concerns and direction for developing the proposed coding guidelines for emergency department and clinic visits. We intend to make available for public comment the proposed coding guidelines that we are considering through the CMS OPPS Web site as soon as we have completed them. We will notify the public through our listserve when these proposed guidelines become available. To subscribe to this listserve, please go to the following CMS Web site: http://www.cms.hhs.gov/​medlearn/​listserv.asp and follow the directions to the OPPS listserve. We will provide ample opportunity for the public to comment on the proposal.

We will continue to be considerate of the time necessary to educate clinicians and coders on the use of the new codes and guidelines and for hospitals to modify their systems. We anticipate providing a minimum notice of between 6 and 12 months prior to implementation of the new evaluation and management codes and guidelines. We will continue developing and testing the new codes even though we have not yet made plans for their implementation.

X. Proposed Payment for Blood and Blood Products

(If you choose to comment on issues in this section, please include the caption “Blood and Blood Products” at the beginning of your comment.)

A. Background

Since the implementation of the OPPS in August 2000, separate payments have been made for blood and blood products through APCs rather than packaging them into payments for the procedures with which they were administered. Hospital payments for the costs of blood and blood products, as well as the costs of collecting, processing, and storing blood and blood products, are made through the OPPS payments for specific blood product APCs. On April 12, 2001, CMS issued the original billing guidance for blood products to hospitals (Program Transmittal A-01-50). In response to requests for clarification of these instructions, CMS issued Transmittal 496 on March 4, 2005. The comprehensive billing guidelines in the Transmittal also addressed specific concerns and issues related to billing for blood-related services, which the public had brought to our attention.

In CY 2000, payments for blood and blood products were established based on external data provided by commenters due to limited Medicare claims data. From CY 2000 to CY 2002, payment rates for blood and blood products were updated for inflation. For CY 2003, as described in the November 1, 2002 final rule with comment period (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 as we studied concerns raised by commenters and presenters at the August 2003 and February 2004 APC Panel meetings.

For CY 2005, we established new APCs that allowed each blood product to be assigned to its own separate APC, as several of the previous blood product APCs contained multiple blood products with no clinical homogeneity or whose product-specific median costs may not have been similar. Some of the blood product HCPCS codes were reassigned to the new APCs (Table 34 of the November 15, 2004 final rule with comment period (69 FR 65819)).

We also noted in the November 15, 2004 final rule with comment period that public comments to previous OPPS rules had stated that the CCRs that were used to adjust charges to costs for blood products in past years were too low. Past commenters indicated that this approach resulted in an underestimation of the true hospital costs for blood and blood products. In response to these comments and APC Panel recommendations from their February 2004 and September 2004 meetings, we conducted a thorough analysis of the OPPS CY 2003 claims (used to calculate the CY 2005 APC payment rates) to compare CCRs between those hospitals reporting a blood-specific cost center and those hospitals defaulting to the overall hospital CCR in the conversion of their blood product charges to costs. As a result of this analysis, 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 hospital blood-specific CCRs were almost two times the median overall hospital CCR. As discussed in the November 15, 2004 final rule with comment period, we applied a methodology for hospitals not reporting a blood-specific cost center, which simulated a blood-specific CCR for each hospital that we then used to convert charges to costs for blood products. Thus, we developed simulated medians for all blood and blood products based on CY 2003 hospital claims data (69 FR 65816).Start Printed Page 42741

For CY 2005, we also identified a subset of blood products that had less than 1,000 units billed in CY 2003. For these low-volume blood products, we based the CY 2005 payment rate on a 50/50 blend of CY 2004 product-specific OPPS median costs and the CY 2005 simulated medians based on the application of blood-specific CCRs to all claims. We were concerned that, given the low frequency in which these products were billed, a few occurrences of coding or billing errors may have led to significant variability in the median calculation. The claims data may not have captured the complete costs of these products to hospitals as fully as possible. This low-volume adjustment methodology also allowed us to further study the issues raised by commenters and by presenters at the September 2004 APC Panel meeting, without putting beneficiary access to these low-volume blood products at risk.

B. Proposed Changes for CY 2006

For CY 2006, we are proposing to continue to make separate payments for blood and blood products under the OPPS through individual APCs for each product. We are also proposing to establish payment rates for these blood and blood products by using the same simulation methodology described in the November 15, 2004 final rule with comment period (69 FR 65816), which utilized hospital-specific actual or simulated CCRs for blood cost centers to convert hospital charges to costs, with an adjustment applied to some products. We continue to believe that using blood-specific CCRs applied to hospital claims data will result in reasonably accurate payments that more fully reflect hospitals' true costs of providing blood and blood products than our general methodology of defaulting to the overall hospital CCR when more specific CCRs are unavailable.

For blood and blood products whose CY 2006 simulated medians experienced a decrease of more than 10 percent in comparison to their CY 2005 payment medians, we are proposing to limit the decrease in medians to 10 percent. Therefore, overall we are proposing to base median costs for blood and blood products in CY 2006 on the greater of: (1) Simulated medians calculated using CY 2004 claims data; or (2) 90 percent of the APC payment median for CY 2005 for such products. We recognize that possible errors in hospital billing or coding for blood products in CY 2004 may have contributed to these decreases in medians. In particular, hospitals may have been uncertain about which of their many different costs for providing blood and blood products should be captured in their charges for the products, based on variations in the specific circumstances of the services they provided. In addition, the six products affected by the proposed CY 2006 adjustment policy all were relatively low volume with fewer than 7,000 units billed in CY 2004. Three of these products were affected by the low-volume payment adjustment for CY 2005 because there were less than 1,000 units billed, and their CY 2005 payment medians would have decreased without the adjustment. In the interim, as hospitals become more familiar with the comprehensive billing guidelines for blood and blood products that are described in Program Transmittal 496, (Change Request 3681 dated March 4, 2005), we acknowledge the need to protect beneficiaries' access to a safe blood supply and are proposing to do so by limiting significant decreases in payment rates for blood and blood products from CY 2005 to CY 2006. We expect that our billing guidance will assist hospitals in more fully including all appropriate costs for providing blood and blood products in their charges for those products, so that our data for CY 2005, which will be used to set median costs for blood and blood products in the CY 2007 OPPS, should more accurately capture the hospital costs associated with each different blood product.

Displayed in Table 29 is the list of blood product HCPCS codes with their proposed CY 2006 payment medians. Overall, medians from CY 2005 and CY 2006 were relatively stable, and we expect that as hospitals improve their billing and coding practices, medians based on historical hospital claims data should continue to become more consistent and reflective of all hospital costs. For blood and blood products whose CY 2006 simulated median would have experienced a decrease from CY 2005 to CY 2006 of greater than 10 percent, the adjusted median is shown.

Therefore, for CY 2006, we are proposing to establish payment rates for blood and blood products under the OPPS by using the same simulation methodology described in the November 15, 2004 final rule with comment period (69 FR 65816). For blood and blood products whose 2006 medians would have otherwise experienced a decrease of more than 10 percent in comparison with their CY 2005 payment rates, we are proposing to adjust the simulated medians by limiting their decrease to 10 percent.

Table 29.—Proposed CY 2006 Payment Medians for Blood and Blood Products by HCPCS/APC Codes

HCPCSAPCCY 2004 unitsDescriptionCY 2005 payment medianProposed CY 2006 median, (limited if applicable)
P90160954609026RBC leukocytes reduced$170.28$165.16
P90210959158964Red blood cells unit116.42122.50
P9040096946732RBC leukoreduced irradiated211.28219.96
P9035950137199Platelet pheres leukoreduced486.18491.77
P9019095737079Platelets, each unit49.5050.19
P9017950836807Plasma 1 donor frz w/in 8 hr65.1072.64
P9031101321899Platelets leukocytes reduced88.7896.69
P9037101913873Plate pheres leukoredu irrad603.62574.05
P9034950710419Platelets, pheresis449.86416.30
P903309686031Platelets leukoreduced irrad158.50*142.65
P904410095635Cryoprecipitate reduced plasma63.2078.82
P901209525264Cryoprecipitate each unit49.58*44.62
P905510174546Plt, aph/pher, l/r, cmv-neg489.46518.94
P905610183759Blood, l/r, irradiated187.76*168.98
P903895053149RBC irradiated122.09144.08
P901009503012Whole blood for transfusion115.97121.43
Start Printed Page 42742
P905110102854Blood, l/r, cmv-neg172.35179.17
P902209602086Washed red blood cells unit199.18*179.26
P905909551863Plasma, frz between 8-24 hour76.2878.05
P905210111603Platelets, hla-m, l/r, unit583.87661.91
P903695021166Platelet pheresis irradiated343.02313.15
P905810221081RBC, l/r, cmv-neg, irrad280.94258.88
P903295001080Platelets, irradiated91.11*82.00
P90200958944Plaelet rich plasma unit155.53312.67
P90399504862RBC deglycerolized305.13388.09
P90509506793Granulocytes, pheresis unit1,046.99*942.29
P90230949776Frozen plasma, pooled, sd80.16*72.14
P90541016681Blood, l/r, froz/degly/wash275.72317.59
P90531020549Plt, pher, l/r cmv-neg, irr573.06612.79
P90480966524Plasmaprotein fract, 5%, 250 ml332.32*299.09
P90609503488Fr frz plasma donor retested76.8698.00
P9043095643Plasma protein fract, 5%, 50 ml68.6267.74
P9057102127RBC, frz/deg/wsh, l/r, irrad327.11*294.40
* Indicates adjusted median.

In addition, we are proposing to change the status indicator for CPT code 85060 (Blood smear, peripheral, interpretation by physician with written report) from “X” (separately paid under the OPPS) to “B” (not paid under the OPPS). When a hospital provides a physician interpretation of an abnormal peripheral blood smear interpretation for a hospital outpatient, the charge for the facility resources associated with the interpretation should be bundled into the charge reported for the ordered hematology lab service, such as, CPT code 85007 (Blood count; blood smear, microscopic examination with manual differential WBC count) or CPT code 85008 (Blood count; blood smear, microscopic examination without manual differential WBC count), which are paid under the Clinical Laboratory Fee Schedule (CLFS). A physician interpretation of an abnormal peripheral blood smear is considered a routine part of the ordered hematology lab service, such as CPT codes 85007 and 85008 paid under the CLFS, so hospitals would receive duplicate payment for the facility resources associated with a physician's blood smear interpretation if we were to continue to pay separately for CPT code 85060 under the OPPS for hospital outpatients. Therefore, for CY 2006, we are proposing to discontinue payment under the OPPS for CPT code 85060 by changing its status indicator from “X” to “B.”

XI. Proposed Payment for Observation Services

(If you choose to comment on issues in this section, please include the caption “Observation Services” at the beginning of your comment.)

A. Background

Observation care is a well-defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment, and reassessment, before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation status is commonly assigned to patients with unexpectedly prolonged recovery after surgery and to patients who present to the emergency department and who then require a significant period of treatment or monitoring before a decision is made concerning their next placement. For a detailed discussion of the clinical and payment history of observation services, refer to the November 1, 2002 final rule with comment period (67 FR 66794).

Before the implementation of the OPPS in CY 2000, payment for observation care was made on a reasonable cost basis. With the initiation of the OPPS, costs for observation services were packaged into payments for the services with which the observation care was associated but no separate payment for observation services was implemented.

For CY 2002, we implemented separate payment for observation services (APC 0339) under the OPPS for three medical conditions (chest pain, congestive heart failure, and asthma). Additional criteria, such as the billing of select diagnosis codes, an evaluation and management service, a minimum and maximum number of observation hours, and provision of certain condition-specific diagnostic tests, along with documentation of the physician's determination that the patient would benefit from observation care, were also required in order for hospitals to receive the separate APC payment (APC 0339) for observation services.

Taking into account numerous comments from providers about the increased administrative burden caused by reporting requirements associated with payment for APC 0339 and after reviewing comments and recommendations by the APC Panel, we removed the mandated diagnostic testing requirements beginning in CY 2005 (Transmittal 514, Change Request 3756, released March 30, 2005). Hospitals were instructed to rely on clinical judgment in combination with internal and external quality review processes to ensure that appropriate diagnostic testing is provided for patients receiving high quality, medically necessary observation care. In an effort to further reduce administrative burden related to accurate billing and in response to suggestions from hospitals and the APC Panel, effective January 1, 2005, we clarified our instructions for counting time in observation care to end at the time the outpatient is actually discharged from the hospital or admitted as an inpatient. Our expectation was that specific, medically necessary observation services were being provided to the patient up until Start Printed Page 42743the time of discharge. However, we did not expect reported observation time to include the time patients remain in the observation area after treatment is finished for reasons such as waiting for transportation home.

In updating the CY 2005 OPPS, we also looked at CY 2003 claims data for all packaged visit-related observation care for all medical conditions in order to determine whether or not there were other diagnoses that would be candidates for separately payable observation services. This year, we again reviewed the most recent claims data (CY 2004) for packaged and unpackaged observation services to assess the current appropriateness of the three medical conditions for separately payable observation services and to determine if the list of diagnosis codes was complete for those conditions. The APC Panel recommended at the February 2005 APC Panel meeting that CMS expand the list of diagnoses eligible for separate observation payments.

The diagnoses currently associated with the three medical conditions continue to be frequently reported on OPPS visit-related claims with packaged observation services, and there are a large number of claims for separately payable observation care for the three medical conditions. At this time, our data show almost 80,000 claims from CY 2004 for separately payable observation services, compared with 67,182 for CY 2003 hospital claims. We have also explored other diagnoses that appeared in hospital claims data with packaged observation services. However, the data on packaged observation services continue to be incomplete and unreliable, reported using a number of different CPT codes with “per day” in their code descriptors. Some hospitals appear to be reporting observation services per day, while others appear to be reporting each hour of observation care as one unit, as we instructed them to do when reporting HCPCS code G0244 for separately payable observation. As described in section XI.B. of this preamble, we are proposing to make changes to hospital coding for all observation services for CY 2006, both separately payable and packaged. We are currently not convinced that there are other conditions for which there is a well-defined set of hospital services that are distinct from the services provided during a clinic or emergency visit. Moreover, hospital data from CY 2004 do not reflect our CY 2005 changes in separately payable observation policy. We also seek to gain additional experience with more consistent hospital billing for observation services, both packaged and separately payable, to guide our future analyses of observation care. Thus, we believe it is premature to expand the conditions for which we would separately pay for visit-related observation services.

B. Proposed CY 2006 Coding Changes for Observation Services

In response to comments received regarding the continuing administrative burden on hospitals when attempting to differentiate between packaged and separately payable observation services for purposes of billing correctly, and recommendations put forward by the APC Panel and participants at the February 2005 APC Panel meeting, we are proposing two changes in payment policy for observation services in CY 2006. First, we are proposing to discontinue HCPCS codes G0244 (Observation care by facility to patient), G0263 (Direct admission with CHF, CP, asthma), and G0264 (Assessment other than CHF, CP, asthma) and to create two new HCPCS codes to be used by hospitals to report all observation services whether separately payable or packaged, and direct admission for observation care:

  • GXXXX—Hospital observation services, per hour
  • GYYYY—Direct admission of patient for hospital observation care

Second, we are proposing to shift determination of whether or not observation services are separately payable under APC 0339 from the hospital billing department to the OPPS claims processing logic. That is, hospitals would bill GXXXX when observation services are provided to any patient admitted to “observation status,” regardless of the patient's status as an inpatient or outpatient. Hospitals would additionally bill GYYYY when observation services are the result of a direct admission to “observation status” without an associated emergency room visit, hospital outpatient clinic visit, or critical care service on the day of or day before the observation services. Both of these new HCPCS codes would be assigned a new status indicator that would trigger OCE logic during the processing of the claim to determine if the observation service is packaged with the other separately payable hospital services provided or if a separate APC payment for observation services is appropriate in accordance with the criteria discussed below in section XI.C. of this preamble. In addition, we are proposing to change the status indicator for CPT codes 99217 through 99220 and 99234 through 99236 from “N” (packaged) to “B” (code not recognized by OPPS). We will expect hospitals to utilize GXXXX to accurately report all observation services provided to beneficiaries, whether the observation would be packaged or separately payable, to assist us in developing consistent and complete hospital claims data regarding the utilization and costs of observation services. The units of service reported with GXXXX would equal the number of hours the patient is in observation status.

C. Proposed Criteria for Separately Payable Observation Services (APC 0339)

For CY 2006, we are proposing to continue applying the existing CY 2005 criteria (69 FR 65830), which determine if hospitals may receive separate payment for medically necessary observation care provided to a patient with congestive heart failure, chest pain, or asthma. In addition, we are proposing to continue our policy of packaging payment for all other observation services into the payments for the separately payable services with which the observation service is reported. As explained previously in section XI.B. of this section, the only changes we are proposing are related to the codes hospitals would use to report observation services, and the point at which a payment determination is made. Rather than requiring the hospital to determine prior to claims submission whether patient condition and the services furnished meet the criteria for payment of APC 0339, that determination would shift to the claims processing modules installed by the fiscal intermediaries to process all OPPS bills, thereby reducing the administrative burden on hospitals.

Criteria for separate observation service payments include documentation of specific ICD-9-CM diagnostic codes (International Classification of Diseases, Ninth Edition, Clinical Modification); the length of time a patient is in observation status; hospital services provided before, during, and after the patient receives observation care; and ongoing physician evaluation of the patient's status.

As we stated in Transmittal A-02-129, released in January 2003, we will continue to update any changes in the list of ICD-9-CM codes required for payment of HCPCS code GXXXX resulting from the October 1 annual update of ICD-9-CM in the October quarterly update of the OPPS. In addition, changes to the ICD-9-CM codes, which are listed in Table 30 below, would be included in the OPPS CY 2006 final rule. Start Printed Page 42744

Below are the criteria that we are proposing to continue using in CY 2006 to determine if hospitals may receive separate OPPS payment for medically necessary observation care provided to a patient with congestive heart failure, chest pain, or asthma.

1. Diagnosis Requirements

a. The beneficiary must have one of three medical conditions: Congestive heart failure, chest pain, or asthma.

b. The hospital bill must report as the reason for visit or principal diagnosis an appropriate ICD-9-CM code (as shown in Table 30 below) to reflect the condition.

c. The qualifying ICD-9-CM diagnosis code must be reported in Form Locator (FL) 76, Patient Reason for Visit, or FL 67, principal diagnosis, or both, in order for the hospital to receive separate payment for APC 0339. If a qualifying ICD-9-CM diagnosis code(s) is reported in the secondary diagnosis field but is not reported in either the Patient Reason for Visit field (FL 76) or in the principal diagnosis field (FL 67), separate payment for APC 0339 will not be allowed.

Table 30.—CY 2006 Eligible Diagnosis Codes for Billing Observation Services

Required diagnosis forEligible ICD-9-CM codeCode descriptor
Chest pain411.0Postmyocardial infarction syndrome.
411.1Intermediate coronary syndrome.
411.81Coronary occlusion without myocardial infarction.
411.89Other acute ischemic heart disease.
413.0Angina decubitus.
413.1Prinzmetal angina.
413.9Other and unspecified angina pectoris.
786.05Shortness of breath.
786.50Chest pain, unspecified.
786.51Precordial pain.
786.52Painful respiration.
786.59Other chest pain.
Asthma493.01Extrinsic asthma with status asthmaticus.
493.02Extrinsic asthma with acute exacerbation.
493.11Intrinsic asthma with status asthmaticus.
493.12Intrinsic asthma with acute exacerbation.
493.21Chronic obstructive asthma with status asthmaticus.
493.22Chronic obstructive asthma with acute exacerbation.
493.91Asthma, unspecified with status asthmaticus.
493.92Asthma, unspecified with acute exacerbation.
Heart Failure391.8Other acute rheumatic heart disease.
398.91Rheumatic heart failure (congestive).
402.01Malignant hypertensive heart disease with congestive heart failure.
402.11Benign hypertensive heart disease with congestive heart failure.
402.91Unspecified hypertensive heart disease with congestive heart failure.
404.01Malignant hypertensive heart and renal disease with congestive heart failure.
404.03Malignant hypertensive heart and renal disease with congestive heart and renal failure.
404.11Benign hypertensive heart and renal disease with congestive heart failure.
404.13Benign hypertensive heart and renal disease with congestive heart and renal failure.
404.91Unspecified hypertensive heart and renal disease with congestive heart failure.
404.93Unspecified hypertensive heart and renal disease with heart and renal failure.
428.0Congestive heart failure.
428.1Left heart failure.
428.20Unspecified systolic heart failure.
428.21Acute systolic heart failure.
428.22Chronic systolic heart failure.
428.23Acute on chronic systolic heart failure.
428.30Unspecified diastolic heart failure.
428.31Acute diastolic heart failure.
428.32Chronic diastolic heart failure.
428.33Acute on chronic diastolic heart failure.
428.40Unspecified combined systolic and diastolic heart failure.
428.41Acute combined systolic and diastolic heart failure.
428.42Chronic combined systolic and diastolic heart failure.
428.43Acute on chronic combined systolic and diastolic heart failure.
428.9Heart failure, unspecified.

2. Observation Time

a. Observation time must be documented in the medical record.

b. A beneficiary's time in observation (and hospital billing) begins with the beneficiary's admission to an observation bed.

c. A beneficiary's time in observation (and hospital billing) ends when all clinical or medical interventions have been completed, including followup care furnished by hospital staff and physicians that may take place after a physician has ordered the patient be released or admitted as an inpatient.

d. The number of units reported with HCPCS code GXXXX must equal or exceed 8 hours.

3. Additional Hospital Services

a. The hospital must provide on the same day or the day before and report on the bill: Start Printed Page 42745

  • An emergency department visit (APC 0610, 0611, or 0612),
  • A clinic visit (APC 0600, 0601, or 0602), or
  • Critical care (APC 0620).

b. No procedure with a “T” status indicator can be reported on the same day or day before observation care is provided.

4. Physician Evaluation

a. The beneficiary must be in the care of a physician during the period of observation, as documented in the medical record by admission, discharge, and other appropriate progress notes that are timed, written, and signed by the physician.

b. The medical record must include documentation that the physician explicitly assessed patient risk to determine that the beneficiary would benefit from observation care.

D. Separate Payment for Direct Admission to Observation Care (APC 0600)

For CY 2006, we are proposing to continue paying for direct admission to observation at a rate equal to that of a Level I Clinic Visit when a Medicare beneficiary is directly admitted into a hospital outpatient department for observation care that does not qualify for separate payment under APC 0339. In order to receive separate payment for a direct admission into observation (APC 0600), the claim must show:

1. Both HCPCS codes GXXXX (Hourly Observation) and GYYYY (Direct Admit to Observation) with the same date of service.

2. That no services with a status indicator “T” or “V” were provided on the same day of service as HCPCS code GYYYY.

XII. Procedures That Will Be Paid Only as Inpatient Procedures

(If you choose to comment on issues in this section, please include the caption “Inpatient Procedures” at the beginning of your comment.)

A. Background

Section 1833(t)(B)(i) of the Act gives the Secretary broad authority to determine the services to be covered and paid for under the OPPS. Before implementation of the OPPS in August 2000, Medicare paid reasonable costs for services provided in the outpatient department. The claims submitted were subject to medical review by the fiscal intermediaries to determine the appropriateness of providing certain services in the outpatient setting. We did not specify in regulations those services that were appropriate to provide only in the inpatient setting and that, therefore, should be payable only when provided in that setting.

In the April 7, 2000 final rule with comment period, we identified procedures that are typically provided only in an inpatient setting and, therefore, would not be paid by Medicare under the OPPS (65 FR 18455). These procedures comprise what is referred to as the “inpatient list.” The inpatient list specifies those services that are only paid when provided in an inpatient setting because of the nature of the procedure, the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged, or the underlying physical condition of the patient. As we discussed in the April 7, 2000 final rule with comment period (65 FR 18455) and the November 30, 2001 final rule (66 FR 59856), we use the following criteria when reviewing procedures to determine whether or not they should be moved from the inpatient list and assigned to an APC group for payment under the OPPS:

  • Most outpatient departments are equipped to provide the services to the Medicare population.
  • The simplest procedure described by the code may be performed in most outpatient departments.
  • The procedure is related to codes that we have already removed from the inpatient list.

In the November 1, 2002 final rule with comment period (67 FR 66792), we removed 43 procedures from the inpatient list for payment under OPPS. We also added the following criteria for use in reviewing procedures to determine whether they should be removed from the inpatient list and assigned to an APC group for payment under the OPPS:

  • We have determined that the procedure is being performed in multiple hospitals on an outpatient basis; or
  • We have determined that the procedure can be appropriately and safely performed in an ambulatory surgical center (ASC) and is on the list of approved ASC procedures or proposed by us for addition to the ASC list.

We believe that these additional criteria help us to identify procedures that are appropriate for removal from the inpatient list.

In the November 7, 2003 final rule with comment period (68 FR 63465), no significant changes were made to the inpatient list. In the November 15, 2004 final rule 5with comment period (69 FR 65834), we removed 22 procedures from the inpatient list, effective for services furnished on or after January 1, 2005.

B. Proposed Changes to the Inpatient List

We used the same methodology as described in the November 15, 2004 final rule with comment period (69 FR 65837) to identify a subset of procedures currently on the inpatient list that were being widely performed on an outpatient basis. These procedures were then clinically reviewed for possible removal from the inpatient list. We solicited input from the APC Panel on the appropriateness of the removal of 26 procedures from the inpatient list at the February 2005 APC Panel meeting. The APC Panel recommended that these 26 procedures be removed from the list and further recommended that CMS consider CPT code 37183 (Remove hepatic shunt (TIPS)) for removal. We agree with the APC Panel's recommendation that CPT code 37183 be removed from the inpatient list for CY 2006 and we are proposing to remove it from the inpatient list.

However, subsequent to the APC Panel's February 2005 meeting, we conducted further clinical evaluations of three procedures (CPT codes 33420, 65273, and 59856) included among the 26 procedures that the APC Panel recommended for removal from the inpatient list. Upon further clinical evaluation of CPT code 33420 (Valvotomy, mitral valve; closed heart), we believe that the utilization data suggesting that this procedure is an office-based procedure were errant. Additional sources of utilization data suggest that this procedure is predominately performed on an inpatient basis. Concomitant with not meeting our criteria of being performed on an outpatient basis in multiple hospitals and not appearing on the ASC list of approved procedures, we are not compelled to support the removal of this procedure from the inpatient list. For this reason, we are proposing to retain CPT code 33420 on the inpatient list for CY 2006.

CPT codes 65273 and 59856 were similarly reevaluated because of our concern with the HCPCS long descriptors for these two codes. The long descriptors for these codes are as follows: CPT code 65273 (Repair of laceration; conjunctiva, by mobilization and rearrangement, with hospitalization) and CPT code 59856 (Induced abortion, by one or more vaginal suppositories (eg, prostaglandin) with or without cervical dilation (eg, laminaria), including hospital admission and visits, delivery of fetus and secundines; with dilation and Start Printed Page 42746curettage and/or evacuation). The long descriptors indicate that hospital admission or hospitalization is included in the codes for these two procedures, which leads us to believe that these two procedures do not meet the established criteria for removal from the inpatient list. The same code descriptor for CPT code 65273, but without hospitalization, is assigned to CPT code 65272, which is already separately payable under the OPPS. Therefore, we are proposing to retain CPT codes 65273 and 59856 on the inpatient list for CY 2006.

In addition, we are proposing to remove CPT code 62160 (Neuroendoscopy) from the inpatient list. Questions about this service have been raised to us by the hospital community because CPT code 62160 is an add-on CPT code (that is, a code that is commonly performed as an “additional or supplemental” procedure to the primary procedure). Two of the separately coded services that CPT indicates are to be used with the add-on code are currently payable under the OPPS. Further clinical evaluation of this add-on procedure and its use in various sites of service leads us to believe it is appropriate for removal from the inpatient list.

Therefore, for CY 2006, we are proposing to remove 25 procedures from the inpatient list and to assign 23 of these procedures to clinically appropriate APCs, as shown below in Table 31. We are not proposing to assign two of these procedures to APC groups, that is, CPT codes 00634 (Anesthesia for procedures in lumbar region; chemonucleoysis) and 01190 (Anesthesia for obturator neurectomy; intrapelvic) because they are anesthesia procedures for which a separate payment is not made under the OPPS. Payment for these two procedures would be packaged into the procedures with which they are billed. The proposed changes to the inpatient list would be effective for services furnished on or after January 1, 2006.

Table 31.—Proposed Procedure Codes to Remove From Inpatient List and Proposed APC Assignment, Effective January 1, 2006

HCPCSLong descriptorNew APC assignmentOld status indicatorNew status indicator
00634ANESTHESIA FOR PROCEDURES IN LUMBAR REGION; CHEMONUCLEOLYSISn/aCN
01190ANESTHESIA FOR OBTURATOR NEURECTOMY; INTRAPELVICn/aCN
20662APPLICATION OF HALO, INCLUDING REMOVAL; PELVIC0049CT
20663APPLICATION OF HALO, INCLUDING REMOVAL; FEMORAL0049CT
20822REPLANTATION, DIGIT, EXCLUDING THUMB (INCLUDES DISTAL TIP TO SUBLIMIS TENDON INSERTION), COMPLETE AMPUTATION0054CT
20972FREE OSTEOCUTANEOUS FLAP WITH MICROVASCULAR ANASTOMOSIS; METATARSAL0056CT
20973FREE OSTEOCUTANEOUS FLAP WITH MICROVASCULAR ANASTOMOSIS; GREAT TOE WITH WEB SPACE0056CT
21150RECONSTRUCTION MIDFACE, LEFORT II; ANTERIOR INTRUSION (EG, TREACHER-COLLINS SYNDROME)0256CT
21175RECONSTRUCTION, BIFRONTAL, SUPERIOR-LATERAL ORBITAL RIMS AND LOWER FOREHEAD, ADVANCEMENT OR ALTERATION (EG, PLAGIOCEPHALY, TRIGONOCEPHALY, BRACHYCEPHALY), WITH OR WITHOUT GRAFTS (INCLUDES OBTAINING AUTOGRAFTS)0256CT
21195RECONSTRUCTION OF MANDIBULAR RAMI AND/OR BODY, SAGITTAL SPLIT; WITHOUT INTERNAL RIGID FIXATION0256CT
21408OPEN TREATMENT OF FRACTURE OF ORBIT, EXCEPT BLOWOUT; WITH BONE GRAFTING (INCLUDES OBTAINING GRAFT)0256CT
21495OPEN TREATMENT OF HYOID FRACTURE0253CT
27475ARREST, EPIPHYSEAL, ANY METHOD (EG, EPIPHYSIODESIS); DISTAL FEMUR0050CT
31293NASAL/SINUS ENDOSCOPY, SURGICAL; WITH MEDIAL ORBITAL WALL AND INFERIOR ORBITAL WALL DECOMPRESSION0075CT
31294NASAL/SINUS ENDOSCOPY, SURGICAL; WITH OPTIC NERVE DECOMPRESSION0075CT
36510CATHETERIZATION OF UMBILICAL VEIN FOR DIAGNOSIS OR THERAPY, NEWBORNn/aCT
37183REMOVE HEPATIC SHUNT (TIPS)0229CT
37195THROMBOLYSIS, CEREBRAL, BY INTRAVENOUS INFUSION0676CT
54560EXPLORATION FOR UNDESCENDED TESTIS WITH ABDOMINAL EXPLORATION0183CT
55600VESICULOTOMY0183CT
59100HYSTEROTOMY, ABDOMINAL (EG, FOR HYDATIDIFORM MOLE, ABORTION)0195CT
61334EXPLORATION OF ORBIT (TRANSCRANIAL APPROACH); WITH REMOVAL OF FOREIGN BODY0256CT
62160NEUROENDOSCOPY0122CT
64763TRANSECTION OR AVULSION OF OBTURATOR NERVE, EXTRAPELVIC, WITH OR WITHOUT ADDUCTOR TENOTOMY0220CT
64766TRANSECTION OR AVULSION OF OBTURATOR NERVE, INTRAPELVIC, WITH OR WITHOUT ADDUCTOR TENOTOMY0221CT
Start Printed Page 42747

C. Ancillary Outpatient Services When Patient Expires (-CA Modifier)

(If you choose to comment on issues in this section, please include the caption “Ancillary Outpatient Services” at the beginning of your comment.)

In the November 1, 2002 final rule with comment period (67 FR 66798), we discussed the creation of a new HCPCS modifier -CA to address situations where a procedure on the OPPS inpatient list must be performed to resuscitate or stabilize a patient (whose status is that of an outpatient) with an emergent, life-threatening condition, and the patient dies before being admitted as an inpatient. In Transmittal A-02-129, issued on January 3, 2003, we instructed hospitals on the use of this modifier when submitting a claim on bill type 13x for a procedure that is on the inpatient list and assigned the payment status indicator (SI) “C.” Conditions to be met for hospital payment for a claim reporting a service billed with modifier -CA include a patient with an emergent, life-threatening condition on whom a procedure on the inpatient list is performed on an emergency basis to resuscitate or stabilize the patient. For CY 2003, a single payment for otherwise payable outpatient services billed on a claim with a procedure appended with this new -CA modifier was made under APC 0977 (New Technology Level VIII, $1,000-$1,250), due to the lack of available claims data to establish a payment rate based on historical hospital costs.

As discussed in the November 7, 2003 final rule with comment period, we created APC 0375 to pay for services furnished on the same date as a procedure with SI “C” and billed with the modifier -CA (68 FR 63467) because we were concerned that payment under a New Technology APC would not result in an appropriate payment. Payment under a New Technology APC is a fixed amount that does not have a relative payment weight and, therefore, is not subject to recalibration based on hospital costs. In the absence of hospital claims data to determine costs, the clinical APC 0375 payment rate for CY 2004 was set at of $1,150, which was the payment amount for the newly structured New Technology APC that replaced APC 0977.

For CY 2005, payment for otherwise payable outpatient services furnished on the same date of service that a procedure with SI “C” was performed on an emergent basis on an outpatient who died before inpatient admission and where modifier -CA was appended to the inpatient procedure continued to be made under APC 0375 (Ancillary Outpatient Services When Patient Expires) at a payment rate of $3,217.47. As discussed in the November 15, 2004 final rule with comment period (69 FR 65841), the payment median was set in accordance with the same methodology we followed to set payment rates for the other procedural APCs in CY 2005, based on the relative payment weight calculated for APC 0375. A review of the 18 hospital claims utilized for ratesetting revealed a reasonable mix of outpatient services that a hospital could be expected to furnish during an encounter with a patient with an emergency condition requiring immediate medical intervention, as well as a wide range of costs.

For CY 2006, we are not proposing any changes to our payment policy for services billed on the same date as a “C” status procedure appended with modifier -CA. We are proposing to continue to make one payment under APC 0375 for the services that meet the specific conditions discussed in previous rules for using modifier -CA, based on calculation of the relative payment weight for APC 0375, using charge data from CY 2004 claims for line items with a HCPCS code and status indicator “V,” “S,” “T,” “X,” “N,” “K,” “G,” and “H,” in addition to charges for revenue codes without a HCPCS code.

In accordance with this methodology, for CY 2006, we calculated a median cost of $2,528.61 for APC 0375 for the aggregated otherwise payable outpatient hospital services based on 300 CY 2004 hospital claims reporting modifier -CA with an inpatient procedure. These 300 claims were billed by 218 different hospital providers, each submitting between 1 and 10 claims with modifier -CA appended to a “C” status procedure. This median cost for APC 0375 is relatively consistent with the median calculated for the CY 2005 OPPS update, and, as expected, the hospital claims once again show a wide range of costs. Nevertheless, we are concerned with the very large increase in the volume of hospital claims billed with the -CA modifier from CY 2003 to CY 2004, growing from 18 to 300 claims over that 1-year time period. We acknowledge that modifier -CA was first introduced quite recently in CY 2003, and in CY 2003 and CY 2004 hospitals may have been experiencing a learning curve with respect to its appropriate use on claims for services payable under the OPPS.

However, our clinical review of the 300 claims reporting modifier -CA lends some support to our early concerns regarding the increased CY 2004 modifier volume and hospitals' possible incorrect use of the modifier for services that do not meet the payment conditions we established. Hospitals should be using this modifier only under circumstances described in section VI. of Transmittal A-02-129, which provided specific billing guidance for the use of modifier -CA. In addition to expected use of the -CA modifier for exploratory laparotomies and insertions of intra-aortic balloon assist devices, other unanticipated examples of “C” status procedures reported with the -CA modifier by hospitals in CY 2004 include knee arthroplasty, thyroidectomy, repair of nonunion or malunion of the femur, and thromboendarterectomy of the carotid, vertebral, or subclavian arteries. Moreover, few of the claims also include a clinic or emergency room visit on the same date of service as the procedure appended with modifier -CA, as might be expected for some patients presenting to a hospital with serious medical conditions which require urgent interventions with inpatient procedures. We are concerned that some procedures reported by hospitals with the -CA modifier in CY 2004 may not have been provided to patients with emergent, life-threatening conditions, where the inpatient procedure was performed on an emergency basis to resuscitate or stabilize the patient. Instead, those procedures may have been provided to hospital outpatients as scheduled inpatient procedures that were not emergency interventions for patients in critical or unstable condition and such circumstances would have been inconsistent with our billing and payment rules regarding correct use of the -CA modifier to receive payment for APC 0375. In light of these claims findings and our current analysis, we will continue to closely monitor hospital use of modifier -CA, following changes in the claims volume, noting inpatient procedures to which the -CA modifier is appended, examining other services billed on the same date as the inpatient procedure, and analyzing specific hospital patterns of billing for services with modifier -CA appended, to assess whether a proposal to change our policies regarding payment for APC 0375 would be warranted in the future or whether hospitals require further education regarding correct use of the modifier -CA.

XIII. Proposed Indicator Assignments

A. Proposed Status Indicator Assignments

(If you choose to comment on issues in the section, please include the caption “Status Start Printed Page 42748Indicator” at the beginning of your comment.)

The payment status indicators (SIs) that we assign to HCPCS codes and APCs under the OPPS play an important role in determining payment for services under the OPPS because they indicate whether a service represented by a HCPCS code is payable under the OPPS or another payment system and also whether particular OPPS policies apply to the code. For CY 2006, we are providing our proposed status indicator assignments for APCs in Addendum A, for the HCPCS codes in Addendum B, and the definitions of the status indicators in Addendum D1 to this proposed rule.

Payment under the OPPS is based on HCPCS codes for medical and other health services. These codes are used for a wide variety of payment systems under Medicare, including, but not limited to, the Medicare fee schedule for physician services, the Medicare fee schedule for durable medical equipment and prosthetic devices, and the Medicare clinical laboratory fee schedule. For purposes of making payment under the OPPS, we must be able to signal the claims processing system through the OCE software as to HCPCS codes that are paid under the OPPS and those codes to which particular OPPS payment policies apply. We accomplish this identification in the OPPS through the establishment of a system of status indicators with specific meanings. Addendum D1 contains the proposed definitions of each status indicator for purposes of the OPPS for CY 2006.

We assign one and only one status indicator to each APC and to each HCPCS code. Each HCPCS code that is assigned to an APC has the same status indicator as the APC to which it is assigned.

Specifically, for CY 2006, we are proposing to use the following status indicators in the specified manner:

  • “A” to indicate services that are billable to fiscal intermediaries but are paid under some payment method other than OPPS, such as under the durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) fee schedule or the Medicare Physician Fee Schedule. Some, but not all, of these other payment systems are identified in Addendum D1 to this proposed rule.
  • “B” to indicate the services that are billable to fiscal intermediaries but are not payable under the OPPS when submitted on an outpatient hospital Part B bill type, but that may be payable by fiscal intermediaries to other provider types when submitted on an appropriate bill type.
  • “C” to indicate inpatient services that are not payable under the OPPS.
  • “D” to indicate a code that is discontinued, effective January 1, 2006.
  • “E” to indicate items or services that are not covered by Medicare or codes that are not recognized by Medicare.
  • “F” to indicate acquisition of corneal tissue which is paid on a reasonable cost basis, certain CRNA services, and hepatitis B vaccines that are paid on a reasonable cost basis.
  • “G” to indicate drugs and biologicals that are paid under the OPPS transitional pass-through rules.
  • “H” to indicate pass-through devices, brachytherapy sources, and separately payable radiopharmaceuticals that are paid on a cost basis.
  • “K” to indicate drugs and biologicals (including blood and blood products) and radiopharmaceutical agents that are paid in separate APCs under the OPPS, but that are not paid under the OPPS transitional pass-through rules.
  • “L” to indicate flu and pneumococcal immunizations that are paid at reasonable cost but to which no coinsurance or copayment apply.
  • “M” to indicate services that are only billable to carriers and not to fiscal intermediaries and that are not payable under the OPPS.
  • “N” to indicate services that are paid under the OPPS, but for which payment is packaged into another service or APC group.
  • “P” to indicate services that are paid under the OPPS, but only in partial hospitalization programs.
  • “Q” to indicate packaged services subject to separate payment under OPPS payment criteria.
  • “S” to indicate significant services subject to separate payment under the OPPS.
  • “T” to indicate significant services that are paid under the OPPS and to which the multiple procedure payment discount under the OPPS applies.
  • “V” to indicate medical visits (including emergency department or clinic visits) that are paid under the OPPS.
  • “X” to indicate ancillary services that are paid under the OPPS.
  • “Y” to indicate nonimplantable durable medical equipment that must be billed directly to the durable medical equipment regional carrier rather than to the fiscal intermediary.

We are proposing the payment status indicators identified above, of which indicators “M” and “Q” are new for CY 2006, for each HCPCS code and each APC listed in Addenda A and B and are requesting comments on the appropriateness of the indicators we have assigned.

B. Proposed Comment Indicators for the CY 2006 OPPS Final Rule

(If you choose to comment on issues in the section, please include the caption “Comment Indicator” at the beginning of your comment.)

We are proposing to continue our use of the two comment indicators finalized in the November 15, 2004 final rule with comment period (69 FR 65827 and 65828) to identify in the CY 2006 OPPS final rule the assignment status of a specific HCPCS code to an APC and the timeframe when comments on the HCPCS APC assignment will be accepted. The two comment indicators are listed below, and in Addendum D2 of this proposed rule:

  • “NF”—New code, final APC assignment; Comments were accepted on a proposed APC assignment in the Proposed Rule; APC assignment is no longer open to comment.
  • “NI”—New code, interim APC assignment; Comments will be accepted on the interim APC assignment for the new code.

XIV. Proposed Nonrecurring Policy Changes

A. Proposed Payments for Multiple Diagnostic Imaging Procedures

(If you choose to comment on issues in this section, please include the caption “Multiple Diagnostic Imaging Procedures” at the beginning of your comment.)

Currently, under the OPPS, hospitals billing for diagnostic imaging procedures receive full APC payments for each service on a claim, regardless of how many procedures are performed using a single imaging modality and whether or not contiguous areas of the body are studied in the same session. In its March 2005 Report to Congress, MedPAC recommended that the Secretary should improve Medicare coding edits that detect unbundled diagnostic imaging services and reduce the technical component payment for multiple imaging services when they are performed on contiguous areas of the body (Recommendation 3-B). MedPAC pointed out that Medicare's payment rates are based on each service being provided independently and that the rates do not account for efficiencies that may be gained when multiple studies using the same imaging modality are performed in the same session. Those efficiencies are especially likely when contiguous body areas are the focus of the imaging because the patient and Start Printed Page 42749equipment have already been prepared for the second and subsequent procedures, potentially yielding resource savings in areas such as clerical time, technical preparation, and supplies, elements of hospital costs for imaging procedures that are reflected in APC payment rates under the OPPS.

Under the OPPS, we have a longstanding policy of reducing payment for multiple surgical procedures performed on the same patient in the same operative session (§ 419.44(a) of the regulations). In such cases, full payment is made for the procedure with the highest APC payment rate, and each subsequent procedure is paid at 50 percent of its respective APC payment rate. We believe that a similar policy for payment of diagnostic imaging services would be more appropriate than our current policy because it would lead to more appropriate payment for multiple imaging procedures of contiguous body areas that are performed during the same session.

In our efforts to determine whether or not such a policy would improve the accuracy of OPPS payments, we identified 11 “families” of imaging procedures by imaging modality (ultrasound, computerized tomography (CT) and computerized tomography angiography (CTA), magnetic resonance imaging (MRI) and magnetic resonance angiography (MRA)) and contiguous body area (for example, CT and CTA of Chest/Thorax/Abdomen/Pelvis), as displayed in Table 32. Using those Families of procedures, we examined OPPS bills for CY 2004 and found that there were numerous claims reporting more than one imaging procedure within the same Family provided to a beneficiary by a hospital on the same day. For instance, of the approximately 2.7 million OPPS claims billed for services within Family 2 (CT and CTA of the Chest/Thorax/Abdomen/Pelvis), approximately 1.1 million were claims for multiple procedures within Family 2. In particular, there were 288,200 claims for the combination of CPT codes 72192 (CT of the pelvis without dye) and 74150 (CT of the abdomen without dye).

Table 32.—Multiple Imaging Procedures Families by Imaging Modality and Contiguous Body Area

FamilyImaging modality/contiguous body area
Family 1—Ultrasound (Chest/Abdomen/Pelvis—Non-Obstetrical):
76604Us exam, chest, b-scan.
76645Us exam, breast(s).
76700Us exam, abdom, complete.
76705Echo exam of abdomen.
76770Us exam abdo back wall, comp.
76775Us exam abdo back wall, lim.
76778Us exam kidney transplant.
76830Transvaginal us, non-ob.
76831Echo exam, uterus.
76856Us exam, pelvic, complete.
76857Us exam, pelvic, limited.
Family 2—CT and CTA (Chest/Thorax/Abd/Pelvis):
71250Ct thorax w/o dye.
71260Ct thorax w/ dye.
71270Ct thorax w/o & w/ dye.
72192Ct pelvis w/o dye.
72193Ct pelvis w/ dye.
72194Ct pelvis w/o & w/ dye.
74150Ct abdomen w/o dye.
74160Ct abdomen w/ dye.
74170Ct abdomen w/o & w/ dye.
71275Ct angiography, chest.
72191Ct angiography, pelv w/o & w/ dye.
74175Ct angiography, abdom w/o & w/ dye.
75635Ct angio abdominal arteries.
0067TCt colonography; dx.
Family 3—CT and CTA (Head/Brain/Orbit/Maxillofacial/Neck):
70450Ct head/brain w/o dye.
70460Ct head/brain w/ dye.
70470Ct head/brain w/o & w/ dye.
70480Ct orbit/ear/fossa w/o dye.
70481Ct orbit/ear/fossa w/ dye.
70482Ct orbit/ear/fossa w/o & w/ dye.
70486Ct maxillofacial w/o dye.
70487Ct maxillofacial w/ dye.
70488Ct maxillofacial w/o & w/ dye.
70490Ct soft tissue neck w/o dye.
70491Ct soft tissue neck w/ dye.
70492Ct soft tissue neck w/o & w/ dye.
70496Ct angiography, head.
70498Ct angiography, neck.
Family 4—MRI and MRA (Chest/Abd/Pelvis):
71550Mri chest w/o dye.
71551Mri chest w/ dye.
71552Mri chest w/o & w/ dye.
72195Mri pelvis w/o dye.
72196Mri pelvis w/ dye.
72197Mri pelvis w/o &w/ dye.
74181Mri abdomen w/o dye.
Start Printed Page 42750
74182Mri abdomen w/ dye.
74183Mri abdomen w/o and w/ dye.
C8900MRA w/contrast, abdomen.
C8901MRA w/o contrast, abdomen.
C8902MRA w/o fol w/contrast, abd.
C8903MRI w/contrast, breast, unilateral.
C8904MRI w/o contrast, breast, unilateral.
C8905MRI w/o fol w/contrast, breast, uni.
C8906MRI w/contrast, breast, bilateral.
C8907MRI w/o contrast, breast, bilateral.
C8908MRI w/o fol w/contrast, breast, bilat.
C8909MRA w/contrast, chest.
C8910MRA w/o contrast, chest.
C8911MRA w/o fol w/contrast, chest.
C8918MRA w/contrast, pelvis.
C8919MRA w/o contrast, pelvis.
C8920MRA w/o fol w/contrast, pelvis.
Family 5—MRI and MRA (Head/Brain/Neck):
70540Mri orbit/face/neck w/o dye.
70542Mri orbit/face/neck w/ dye.
70543Mri orbit/face/neck w/o & w/dye.
70551Mri brain w/o dye.
70552Mri brain w/dye.
70553Mri brain w/o & w/dye.
70544Mr angiography head w/o dye.
70545Mr angiography head w/dye.
70546Mr angiography head w/o & w/dye.
70547Mr angiography neck w/o dye.
70548Mr angiography neck w/dye.
70549Mr angiography neck w/o & w/dye.
Family 6—MRI and MRA (Spine):
72141Mri neck spine w/o dye.
72142Mri neck spine w/dye.
72146Mri chest spine w/o dye.
72147Mri chest spine w/dye.
72148Mri lumbar spine w/o dye.
72149Mri lumbar spine w/dye.
72156Mri neck spine w/o & w/dye.
72157Mri chest spine w/o & w/dye.
72158Mri lumbar spine w/o & w/dye.
Family 7—CT (Spine):
72125CT neck spine w/o dye.
72126Ct neck spine w/dye.
72127Ct neck spine w/o & w/dye.
72128Ct chest spine w/o dye.
72129Ct chest spine w/dye.
72130Ct chest spine w/o & w/dye.
72131Ct lumbar spine w/o dye.
72132Ct lumbar spine w/dye.
72133Ct lumbar spine w/o & w/dye.
Family 8—MRI and MRA (Lower Extremities):
73718Mri lower extremity w/o dye.
73719Mri lower extremity w/dye.
73720Mri lower ext w/ & w/o dye.
73721Mri joint of lwr extre w/o dye.
73722Mri joint of lwr extr w/dye.
73723Mri joint of lwr extr w/o & w/dye.
C8912MRA w/contrast, lwr extremity.
C8913MRA w/o contrast, lwr extremity.
C8914MRA w/o fol w/contrast, lwr extremity.
Family 9—CT and CTA (Lower Extremities):
73700Ct lower extremity w/o dye.
73701Ct lower extremity w/dye.
73702Ct lower extremity w/o & w/dye.
73706Ct angio lower ext w/o & w/dye.
Family 10—Mr and MRI (Upper Extremities and Joints):
73218Mri upper extr w/o dye.
73219Mri upper extr w/dye.
73220Mri upper extremity w/o & w/dye.
73221Mri joint upper extr w/o dye.
73222Mri joint upper extr w/dye.
Start Printed Page 42751
73223Mri joint upper extr w/o & w/dye.
Family 11—CT and CTA (Upper Extremities):
73200Ct upper extremity w/o dye.
73201Ct upper extremity w/dye.
73202Ct upper extremity w/o & w/dye.
73206Ct angio upper extr w/o & w/dye.

The imaging procedures described by CPT codes 72192 and 74150 study two adjacent body regions. Appropriate diagnostic evaluation of many constellations of patients' signs and symptoms and potentially affected organ systems may involve assessment of pathology in both the abdomen and pelvis, body areas that are anatomically and functionally closely related. Therefore, both studies are frequently performed in the same session to provide the necessary clinical information to diagnose and treat a patient. Although each procedure, by itself, entails the use of hospital resources, including certain staff, equipment, and supplies, some of those resource costs are not incurred twice when the procedures are performed in the same session and thus, should not be paid as if they were. Beginning with the beneficiary's arrival in the outpatient department, costs are incurred only once for registering the patient, taking the patient to the procedure room, positioning the patient on the table for the CT scan, among others. We believe it is clear that reducing the payment for the second and subsequent procedures within the identified families would result in more accurate payments with respect to the hospital resources utilized for multiple imaging procedures performed in the same session.

OPPS bills do not contain detailed information on the hospitals' costs that are incurred in furnishing imaging procedures. Much of the costs are packaged and included in the overall charges for the procedures. Even if bundled costs are reported with charges on separate lines either with HCPCS codes or with revenue codes, when there are multiple procedures on the claims, it is impossible for us to accurately attribute bundled costs to each procedure. However, our analysis of CY 2004 hospital claims convinced us that some discounting of multiple imaging procedures is warranted. In order to determine the level of adjustment that would be appropriate for the second and subsequent procedures performed within a family in the same session, we used the MPFS methodology and data.

Under the resource-based practice expense methodology used for Medicare payments to physicians, specific practice expense inputs of clinical labor, supplies and equipment are used to calculate “relative value units” on which physician payments are based. When multiple images are acquired in a single session, most of the clinical labor activities are not performed twice and many of the supplies are not furnished twice. Specifically, we consider that the following clinical labor activities included in the “technical component” (TC) of the MPFS are not duplicated for subsequent procedures: Greeting, positioning and escorting the patient; providing education and obtaining consent; retrieving prior exams; setting up the IV; and preparing and cleaning the room. In addition, we consider that supplies, with the exception of film, are not duplicated for subsequent procedures. Equipment time and indirect costs are allocated based on clinical labor time in the physician payment methodology and, therefore, these inputs should be reduced accordingly.

We performed analyses and found that excluding those practice expense inputs, along with the corresponding portion of equipment time and indirect costs, supports a 50-percent reduction in the payment for the TC portion of subsequent procedures. The items and services that make up hospitals' facility costs are generally very similar to those that are counted in the TC portion of the MPFS for diagnostic imaging procedures. We believe that the analytic justification for a 50-percent reduction of the TC for the second and subsequent imaging procedures using the MPFS input data also provides a basis for a similar relative reduction to payments for multiple imaging procedures performed in the hospital outpatient department. Therefore, we are proposing to make a 50-percent reduction in the OPPS payments for some second and subsequent imaging procedures performed in the same session, similar to our policy of reducing payments for some second and subsequent surgical procedures.

We are proposing to apply the multiple imaging procedure reduction only to individual services described by codes within one Family, not across Families. Reductions would apply when more than one procedure within the Family is performed in the same session. For example, no reduction would apply to an MRI of the brain (CPT code 70552) in code Family 5, when performed in the same session as an MRI of the spinal canal and contents (CPT code 72142) in code Family 6. We are proposing to make full payment for the procedure with the highest APC payment rate, and payment at 50 percent of the applicable APC payment rate for every additional procedure, when performed in the same session.

B. Interrupted Procedure Payment Policies (Modifiers -52, -73, and -74)

(If you choose to comment on issues in this section, please include the caption “Interrupted Procedures” at the beginning of your comment.)

Since implementation of the OPPS in 2000, we have required hospitals to report modifiers -52, -73, and -74 to indicate procedures that were terminated before their completion. Modifier -52 indicates partial reduction or discontinuation of services that do not require anesthesia, while modifiers -73 and -74 are used for procedures requiring anesthesia, where the patient was taken to the treatment room and the procedure was discontinued before anesthesia administration or after anesthesia administration/procedure initiation respectively. The elective cancellation of procedures is not reported. Hospitals are paid 50 percent of the APC payment for services with -73 appended and 100 percent for procedures with modifier -52 or -74 reported, in accordance with § 419.44(b) of the regulations. In January 2005, we clarified in Program Transmittal 442 the definition of anesthesia for purposes of billing for services furnished in the hospital outpatient department in the context of reporting modifiers -73 and -74. The APC Panel considered the Start Printed Page 42752current OPPS payment policies for interrupted procedures at its February 2005 meeting and made a number of recommendations that are addressed in the following discussion.

Current OPPS policy requires providers to use modifier -52 to indicate that a service that did not require anesthesia was partially reduced or discontinued at the physician's discretion. The physician may discontinue or cancel a procedure that is not completed in its entirety due to a number of circumstances, such as adverse patient reaction or medical judgment that completion of the full study is unnecessary. Based on an analysis of CY 2004 hospital claims data, in the outpatient hospital setting modifier -52 is used infrequently. The modifier is reported most often to identify interrupted or reduced radiological and imaging procedures, and our current policy is to make full payment for procedures with a -52 modifier.

We are now reconsidering our payment policy for interrupted or reduced services not requiring anesthesia and reported with a -52 modifier. At its February 2005 meeting, the APC Panel recommended continuing current OPPS payment policy at 100 percent of the APC payment for reduced services reported with modifier -52, although the Panel members acknowledged their limited familiarity with the specific outpatient hospital services and their clinical circumstances that would warrant the reporting of modifier -52. We have examined our data to determine the appropriateness of our current policy regarding payment for services that are reduced, and although some hospital resources are used to provide even an incomplete service, such as a radiology service, we are skeptical that it is accurate to pay the full rate for a discontinued or reduced radiological service. Compared to surgical procedures that require anesthesia, a number of general and procedure-specific supplies, and reserved procedure rooms that must be cleaned and prepared prior to performance of each specific procedure, the costs to the hospital outpatient department for the rooms and supplies typically associated with procedures not requiring anesthesia are much more limited. For example, the scheduling maintained for radiological services not requiring anesthesia generally exhibits greater flexibility than that for surgical procedures, and the procedure rooms are used for many unscheduled services that are fit in, when possible, between those that are scheduled. Consequently, we believe that the loss of revenue that may result from a surgical procedure being discontinued prior to its initiation in the procedure room is usually more substantial than that lost as the result of a discontinued service not requiring anesthesia, such as a radiology procedure. Nonetheless, under our current policy, Medicare makes the full APC payment for discontinued or reduced radiological procedures and only 50 percent of the APC payment for surgical procedures that are discontinued prior to initiation of the procedure or the administration of anesthesia.

Therefore, we are proposing to pay 50 percent of the APC payment amount for a discontinued procedure that does not require anesthesia where modifier -52 is reported. We believe that this proposed payment would appropriately recognize the hospital's costs involved with the delivery of a typical reduced service, similar to our payment policies for interrupted procedures that require anesthesia.

When a procedure requiring anesthesia is discontinued after the beneficiary was prepared for the procedure and taken to the room where it was to be performed but before the administration of anesthesia, hospitals currently report modifier -73 and receive 50 percent of the APC payment for the planned service. The APC Panel recommended that we make full APC payment for services with modifier -73 reported, because significant hospital resources were expended to prepare the patient and the treatment room or operating room for the procedure. Although the circumstances that require use of modifier -73 occur infrequently, we continue to believe that hospitals realize significant savings when procedures are discontinued prior to initiation but after the beneficiary is taken to the procedure room. We believe savings are recognized for treatment/operating room time, single use devices, drugs, equipment, supplies, and recovery room time. Thus, we believe our policy of paying 50 percent of the procedure's APC payment when modifier -73 is reported remains appropriate.

Further, we are exploring the possibility of applying a payment reduction for interrupted procedures in which anesthesia was to be used (and may have been administered) and the procedure was initiated. Currently, those cases are reported using modifier -74, and we make the full APC payment for the planned service. We are now reviewing that policy and are soliciting comments that include information regarding what costs are incurred by providers in these cases.

The payment policy for interrupted procedures reported with modifier -74 was originally adopted because we believed that the facility costs incurred for discontinued procedures that were initiated to some degree were as significant to the hospital provider as for a completed procedure, including resources for patient preparation, operating room use, and recovery room care. However, we have come to question that underlying assumption, especially as many surgical procedures have come to require specialized and costly devices and equipment, and our APC payments include the costs for those devices and equipment. We now believe that there are costs that are not incurred in the event of a procedure's discontinuation, if a hospital is managing its use of devices, supplies, and equipment efficiently and conservatively. For example, the patient's recovery time may be less than the recovery time would have been for the planned procedure, because less extensive surgery was performed or costly devices planned for the procedure may not be used.

The APC Panel recommended that we continue to pay 100 percent of the procedural APC payment when modifier -74 is appended to the surgical service because, in its opinion, procedures may frequently be terminated prior to completion because the patient is experiencing adverse effects from the surgical service or the anesthesia. The Panel speculated that, in fact, significant additional resources could be expended in such a situation to stabilize and treat the patient if a procedure were discontinued because of patient complications. However, we believe that many of such additional services, including critical care, drugs, blood and blood products, and x-rays that may be necessary to manage and treat such patients, are separately payable under the OPPS and thus the hospital's costs need not be paid through the APC payment for the planned procedure. Because the OPPS is paying for the time in the operating room, recovery room, outpatient department staff, and supplies related to the typical procedure, it would seem that those costs may be lower in those infrequent cases when the procedure is initiated but not completed. We acknowledge that the costs on claims reporting a service with modifier -74 may be particularly diverse, depending upon the point in the procedure the service is interrupted. Thus, we are seeking comment on the clinical circumstances in which modifier -74 is used in the Start Printed Page 42753hospital outpatient department, and the degree to which hospitals may experience cost savings in such situations where procedures are not completed. We are specifically interested in comments regarding the disposition of devices and specialized equipment that are not used because a procedure is discontinued after its initiation. In particular, we are interested in obtaining information about when during the procedure the decision to discontinue is made.

XV. OPPS Policy and Payment Recommendations

A. MedPAC Recommendations

1. Report to the Congress: Medicare Payment Policy (March 2005)

The Medicare Payment Advisory Commission (MedPAC) submits reports to Congress in March and June that summarize payment policy recommendations. The March 2005 MedPAC report included the following two recommendations relating specifically to the hospital OPPS:

a. Recommendation 1: The Congress should increase payment rates for the outpatient prospective payment system by the projected increase in the hospital market basket index less 0.4 percent for calendar year 2006. A discussion regarding hospital update payments, and the effect of the market basket update in relation to other factors influencing OPPS proposed payment rates, is included in section II.C. (“Proposed Conversion Factor Update for CY 2006”) of this preamble.

b. Recommendation 2: The Congress should extend hold-harmless payments under the outpatient prospective payment system for rural sole community hospitals and other rural hospitals with 100 or fewer beds through calendar year 2006. A discussion of the expiration of the hold-harmless provision is included in section II.F. of this preamble. See also section II.G. (“Proposed Adjustment for Rural Hospitals”) of this preamble for a discussion of section 411 of Pub. L. 108-173.

2. Report to the Congress: Issues in a Modernized Medicare Program—Payment for Pharmacy Handling Costs in Hospital Outpatient Departments (June 2005)

A discussion of the MedPAC recommendations relating to pharmacy overhead payments in the hospital outpatient department can be found in section V. of the preamble of this proposed rule.

B. APC Panel Recommendations

Recommendations made by the APC Panel are discussed in sections of this preamble that correspond to topics addressed by the APC Panel. Minutes of the APC Panel's February 2005 meeting are available online at http://www.cms.hhs.gov/​faca/​apc/​default.asp.

C. GAO Hospital Outpatient Drug Acquisition Cost Survey

A discussion of the June 30, 2005 GAO report entitled “Medicare: Drug Purchase Prices for CMS Consideration in Hospital Outpatient Rate-Setting” and section 621(a)(1) of the MMA is included in section V. of the preamble of this proposed rule.

XVI. Physician Oversight of Mid-Level Practitioners in Critical Access Hospitals

(If you choose to comment on issues in this section, please include the caption “Physician Oversight of Nonphysician Practitioners” at the beginning of your comment.)

A. Background

Section 1820 of the Act, as amended by section 4201 of the Balanced Budget Act of 1997, Pub. L. 105-33, provides for the establishment of Medicare Rural Hospital Flexibility Programs (MRHFPs), under which individual States may designate certain facilities as critical access hospitals (CAHs). Facilities that are so designated and meet the CAH conditions of participations (COPs) under 42 CFR Part 485, Subpart F, will be certified as CAHs by CMS. The MRHFP replaced the Essential Access Community Hospital (EACH)/ Rural Primary Care Hospital (RPCH) program.

B. Proposed Policy Change

Under the former EACH/RPCH program, physician oversight was required for services provided by nonphysician practitioners such as physician assistants (PAs), nurse practitioners (NPs), and clinical nurse specialists (CNSs) in a CAH. Under the MRHFP, the statute likewise required a physician oversight provision for nonphysician practitioners.

We note that under the EACH/RPCH program, we allowed for situations when the RPCH had an unusually high volume of outpatients (100 or more during a 2-week period) that were treated by nonphysician practitioners. We stated that it would be sufficient for a physician to review and sign a 25-percent sample of medical records for patients cared for by a mid-level practitioner unless State practice and laws require higher standards for physician oversight for mid-level practitioners.

However, the current regulation does not distinguish between inpatient and outpatient physician oversight. Although the CAH CoPs at § 485.631(b)(iv) provide that a doctor of medicine or osteopathy periodically reviews and signs the records of patients cared for by NPs, CNSs, or PAs, section 1820(c)(2)(B)(iv)(III) of the Act states that CAH inpatient care provided by a PA or NP is subject to the oversight of a physician. The review of outpatient records is not addressed in the statute. Presently, for patients cared for by nonphysician practitioners, the interpretative guidelines set forth in Appendix W of the State Operations Manual (CMS Publication 107) set parameters for inpatient and outpatient physician reviews. To maintain consistency from the EACH/RPCH program to the CAH program, we indicated that CAHs with a high volume of outpatients need to have a physician review and sign a random sample of 25 percent outpatient medical records. Therefore, the interpretative guidelines allow a physician to review and sign a 25-percent sample of outpatient records for patients under the care of a nonphysician practitioner.

Nonphysician practitioners recently brought to our attention their concerns regarding their ability to practice under their State laws governing scope of practice. Particularly, the nonphysician practitioners believe the current regulations and guidelines impede their ability to practice in CAHs. Certified nurse midwives, NPs, and CNSs disagree with the need for a physician to review records of patients that have been in their care when State law permits them to practice independently.

MedPAC, in its June 2002 Report to the Congress, stated that certified nurse midwives, NPs, CNSs, and PAs are health care practitioners who furnish many of the same health care services traditionally provided by physicians, such as diagnosing illnesses, performing physical examinations, ordering and interpreting laboratory tests, and providing preventive health services. In many States, advance practice nurses are permitted to practice independently or in collaboration with a physician. MedPAC reported that NPs have independent practice authority in 21 States, and CNSs have independent practice authority in 20 States. PAs, by law, must work under the supervision of a physician. Based on the American Medical Association's guidelines for PAs, the definition of supervision varies by State. Generally, the physician assistant is a representative of the Start Printed Page 42754physician, treating the patient in the style and manner developed and directed by the supervising physician.

MedPAC further reported that several studies have shown comparable patient outcomes for the services provided by physician and nonphysician practitioners. MedPAC reported that research conducted by Mundinger et al.[2] in 2000, Brown and Grimes [3] in 1993, Ryan in 1993,[4] and the Office of Technology Assessment [5] in 1986 has shown that nonphysician practitioners can perform about 80 percent of the services provided by primary care physicians with comparable quality. A randomized trial of physicians and nurse practitioners providing care in ambulatory care settings who had the same authority, responsibilities, productivity, and administrative requirements were shown to have comparable patient outcomes (see pages 5 and 11 of the June 2002 MedPAC report). Nonphysician practitioners are trained with the expectation that they will exercise a certain degree of autonomy when providing patient care. About 90 percent of nurse practitioners and 50 percent of physician assistants provide primary care.

We believe sufficient control and oversight of these nonphysician practitioners is generated by State laws which allow independent practice authority. Moreover, it further appears that quality is not impaired by such nonphysician practitioners. We remain concerned, however, that in those States without independent practice laws we have a responsibility to continue to ensure the safety and quality of services provided to Medicare beneficiaries.

Therefore, we are proposing to revise the regulation at § 485.631(b)(iv) to defer to State law regarding the review of records for outpatients cared for by nonphysician practitioners. We are proposing that if State law allows these practitioners to practice independently, we would not require physicians to review and sign medical records of outpatients cared for by nonphysician practitioners. However, for those States that do not allow independent practice of nonphysician practitioners, we would continue to maintain that periodic review is performed by the physician on outpatient records under the care of a nonphysician practitioner. We believe a review of at least every 2 weeks provides a sufficient time period without unduly imposing an administrative burden on the physician or the CAH. In addition, we would allow the CAH to determine the sample size of the reviewed records in accordance with current standards of practice to allow the CAH flexibility in adapting the review to its particular circumstances. Specifically, we are proposing that the physician periodically (that is, at least once every 2 weeks) reviews and signs a sample of the outpatient records of nonphysician practitioners according to the facility policy and current standards of practice. We would still require periodic review and oversight of all inpatient records by physicians.

XVII. Files Available to the Public Via the Internet

The data referenced for Addendum C and Addendum P to this proposed rule are available on the following CMS Web site via Internet only: http://www.cms.hhs.gov/​providers/​hopps/​. We are not republishing the data represented in these Addenda to this proposed rule because of their volume. For additional assistance, contact Rebecca Kane, at (410) 786-0378.

Addendum C—Healthcare Common Procedure Coding System (HCPCS) Codes by Ambulatory Payment Classification (APC)

This file contains the HCPCS codes sorted by the APCs into which they are assigned for payment under the OPPS. The file also includes the APC status indicators, relative weights, and OPPS payment amounts.

XVIII. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995 (PRA), we are required to provide 60-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to evaluate fairly whether an information collection should be approved by OMB, section 35006(c)(2)(A) of the PRA requires that we solicit comment on the following issues:

  • The need for the information collection and its usefulness in carrying out the proper functions of the agency.
  • The accuracy of our estimates of the information collection burden,
  • The quality, utility, and clarity of the information to be collected.
  • Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

We are soliciting public comments on each of these issues for the information requirement discussed below.

The following information collection requirements in this proposed rule and the associated burdens are subject to the PRA:

Proposed § 485.631(b)(1)(iv), (b)(1)(v), and (b)(1)(vi)—Condition of Participation: Staffing and Staff Responsibilities

Existing § 485.631(b)(1)(iv) requires, as a condition of participation for a CAH, that a doctor of medicine or osteopathy to periodically review and sign the records of patients cared for by nurse practitioners, clinical specialists, or physician assistants. This proposed rule would amend those requirements to require that a doctor of medicine or osteopathy (1) periodically review and sign the records of all inpatients cared for by nurse practitioners, clinical nurse specialists, certified nurse midwives, or physician assistants; and (2) periodically, but not less than every 2 weeks, review and sign a sample of outpatient records of patients cared for by nurse practitioners, clinical nurse specialists, certified nurse midwives, or physician assistants according to the policy and standard practice of the CAH when State law does not allow these nonphysician practitioners to practice independently. In addition, the proposed rule would provide that a doctor of medicine or osteopathy is not required to review and sign outpatient records of patients cared for by nurse practitioners, clinical nurse specialists, certified nurse midwives, or physician assistants when State law allows these nonphysician practitioners to practice independently.

The information collection requirements associated with these provisions are subject to the PRA. However, the collection requirement is currently approved under OMB control number 0938-0328 with an expiration date of January 31, 2008.

We have submitted a copy of this proposed rule to OMB for its review of the information collection requirements described above. These requirements are Start Printed Page 42755not effective until they have been approved by OMB.

If you comment on any of these information collection and record keeping requirements, please mail copies directly to the following:

Centers for Medicare & Medicaid Services, Office of Strategic Operations and Regulatory Affairs, Regulations Development and Issuances Group, Attn: James Wickliffe, CMS-1501-P, 7500 Security Boulevard, Baltimore, MD 21244-1850; and

Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503, Attn: Christopher Martin, CMS Desk Officer.

Comments submitted to OMB may also be e-mailed to the following address: Christopher_Martin@omb.eop.gov, or faxed at (202) 395-6974.

XIX. Response to Comments

Because of the large number of items of correspondence we normally receive on a proposed rule, we are not able to acknowledge or respond to them individually. However, in preparing the final rule, we will consider all comments concerning the provisions of this proposed rule that we receive by the date and time specified in the DATES section of this preamble, and when we proceed with a subsequent document, we will respond to the comments in the preamble to that document.

XX. Regulatory Impact Analysis

(If you choose to comment on issues in this section, please include the caption “Impact” at the beginning of your comment.)

A. OPPS: General

We have examined the impacts of this proposed rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

1. Executive Order 12866

Executive Order 12866 (as amended by Executive Order 13258, which merely reassigns responsibility of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year).

We estimate the effects of the provisions that would be implemented by this proposed rule would result in expenditures exceeding $100 million in any 1 year. We estimate the total increase (from changes in this proposed rule as well as enrollment, utilization, and case-mix changes) in expenditures under the OPPS for CY 2006 compared to CY 2005 to be approximately $1.4 billion. Therefore, this proposed rule is an economically significant rule under Executive Order 12866, and a major rule under 5 U.S.C. 804(2).

2. Regulatory Flexibility Act (RFA)

The RFA requires agencies to determine whether a rule would have a significant economic impact on a substantial number of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and government agencies. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6 million to $29 million in any 1 year (65 FR 69432).

For purposes of the RFA, we have determined that approximately 37 percent of hospitals would be considered small entities according to the Small Business Administration (SBA) size standards. We do not have data available to calculate the percentages of entities in the pharmaceutical preparation manufacturing, biological products, or medical instrument industries that would be considered to be small entities according to the SBA size standards. For the pharmaceutical preparation manufacturing industry (NAICS 325412), the size standard is 750 or fewer employees and $67.6 billion in annual sales (1997 business census). For biological products (except diagnostic) (NAICS 325414), with $5.7 billion in annual sales, and medical instruments (NAICS 339112), with $18.5 billion in annual sales, the standard is 50 or fewer employees (see the standards Web site at http://www.sba.gov/​regulations/​siccodes/​). Individuals and States are not included in the definition of a small entity.

3. Small Rural Hospitals

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. With the exception of hospitals located in certain New England counties, for purposes of section 1102(b) of the Act, we previously defined a small rural hospital as a hospital with fewer than 100 beds that is located outside of a Metropolitan Statistical Area (MSA) (or New England County Metropolitan Area (NECMA)). However, under the new labor market definitions that we are adopted in the November 15, 2004 final rule with comment period, for CY 2005, (consistent with the FY 2005 IPPS final rule), we no longer employ NECMAs to define urban areas in New England. Therefore, we now define a small rural hospital as a hospital with fewer than 100 beds that is located outside of an MSA. Section 601(g) of the Social Security Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain New England counties as belonging to the adjacent NECMA. Thus, for purposes of the OPPS, we classify these hospitals as urban hospitals. We believe that the changes in this proposed rule would affect both a substantial number of rural hospitals as well as other classes of hospitals and that the effects on some may be significant. Therefore, we conclude that this proposed rule would have a significant impact on a substantial number of small entities.

4. Unfunded Mandates

Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) also requires that agencies assess anticipated costs and benefits before issuing any rule that may result in an expenditure in any 1 year by State, local, or tribal governments, in the aggregate, or by the private sector, of $110 million. This proposed rule does not mandate any requirements for State, local, or tribal governments. This proposed rule also does not impose unfunded mandates on the private sector of more than $110 million dollars.

5. Federalism

Executive Order 13132 establishes certain requirements that an agency must meet when it publishes any rule (proposed or final rule) that imposes substantial direct costs on State and local governments, preempts State law, or otherwise has Federalism implications.

We have examined this proposed rule in accordance with Executive Order 13132, Federalism, and have determined that it would not have an impact on the rights, roles, and responsibilities of State, local or tribal Start Printed Page 42756governments. The impact analysis (refer to Table 33) shows that payments to governmental hospitals (including State, local, and tribal governmental hospitals) would increase by 1.8 percent under this proposed rule.

B. Impact of Proposed Changes in This Proposed Rule

We are proposing several changes to the OPPS that are required by the statute. We are required under section 1833(t)(3)(C)(ii) of the Act to update annually the conversion factor used to determine the APC payment rates. We are also required under section 1833(t)(9)(A) of the Act to revise, not less often than annually, the wage index and other adjustments. In addition, we must review the clinical integrity of payment groups and weights at least annually. Accordingly, in this proposed rule, we are proposing to update the conversion factor and the wage index adjustment for hospital outpatient services furnished beginning January 1, 2006, as we discuss in sections II.C. and II.D., respectively, of this proposed rule. We also are proposing to revise the relative APC payment weights using claims data from January 1, 2004, through December 31, 2004. In response to a provision in Pub. L. 108-173 that we analyze the cost of outpatient services in rural hospitals relative to urban hospitals, we are proposing to increase payments to rural sole community hospitals. Refer to section II.G. of the preamble to this proposed rule for greater detail on this adjustment. Finally, we are proposing to remove 3 device categories from pass-through payment status. In particular, refer to section IV.C.1 of the preamble of this proposed rule with regard to the expiration of pass-through status for devices.

Under this proposed rule, the update change to the conversion factor as provided by statute would increase total OPPS payments by 3.2 percent in CY 2006. The inclusion in CY 2006 of payment for specific covered outpatient drugs within budget neutrality, and the expiration of additional drug payment outside budget neutrality, which were authorized by Pub. L. 108-173 result in a net increase of 1.9 percent. The changes to the APC weights, the introduction of a multiple procedure discount for diagnostic imaging, changes to the wage index, and the introduction of a payment adjustment for rural sole community hospitals would not increase OPPS payments because these changes to the OPPS are budget neutral. However, these updates do change the distribution of payments within the budget neutral system as shown in Table 33 and described in more detail in this section.

C. Alternatives Considered

Alternatives to the changes we are making and the reasons that we have chosen the options we have are discussed throughout this proposed rule. Some of the major issues discussed in this proposed rule and the options considered are discussed below.

1. Option Considered for Proposed Payment Policy for Separately Payable Drugs and Biologicals

As discussed in detail in section V.B.3 of the preamble of this proposed rule, section 1833(t)(14)(A)(iii) of the Act requires that payment for specified covered outpatient drugs in CY 2006, as adjusted for pharmacy overhead costs, be equal to the average acquisition cost for the drug for that year as determined by the Secretary and taking into account the hospital acquisition cost survey data collected by the GAO in 2004 and 2005. If hospital acquisition cost data are not available, then the law requires that payment be equal to payment rates established under the methodology described in section 1842(o), section 1847(A), or section 1847(B) of the Act as calculated and adjusted by the Secretary as necessary.

The payment policy that we are proposing for CY 2006 is to pay for all separately payable drugs and biologicals at the payment rates effective in the physician office setting as determined using the manufacturer's average sales price (ASP) methodology. Our proposal uses payment rates based on ASP data from the fourth quarter of 2004, which were used to set payment rates for drugs and biologicals in the physician office setting effective April 1, 2005, as these are the most recent numbers available to us during the development of this proposed rule. For the few drugs and biologicals, other than radiopharmaceuticals as discussed earlier, where ASP data are unavailable, we are proposing to use the mean costs from the CY 2004 hospital claims data to determine their packaging status and for ratesetting. We believe that the ASP-based payment rates serve as the best proxy for the average acquisition cost for the drug or biological because the rates calculated using the ASP methodology are based on the manufacturers' sales prices from the fourth quarter of 2004 and take into consideration information on sales prices to hospitals. Furthermore, payments for drugs and biologicals using the ASP methodology would allow for consistency of drug pricing between the physician offices and hospital outpatient departments.

An alternative payment option for separately payable drugs and biologicals (before payment for pharmacy overhead) we considered was using ASP+3 percent based on the average relationship between the GAO mean purchase prices and ASP. A second payment option we considered using was ASP+8 percent (again before payment for pharmacy overhead) based on the average relationship between the mean costs from hospital claims data and ASP.

We are not proposing to set payment rates for separately payable drugs and biologcals at ASP+3 percent because the GAO data reflect hospital acquisition costs from a less recent period of time as the midpoint of the time period when the survey was conducted is January 1, 2004, and it would be difficult to update the GAO mean purchase prices during CY 2006 and in future years. Because the changes in drug payments are required to be budget neutral by law, we note that paying for separately payable drugs and biologicals at ASP+3 percent relative to ASP+6 percent would have made available approximately an additional $60 million for other items and services paid under the OPPS.

We are also not proposing to use ASP+8 percent to set payment rates for drugs and biologicals in CY 2006. The statute specifies that CY 2006 payments for specified covered outpatient drugs are required to be equal to the “average” acquisition cost for the drug. Payment at ASP+8 percent for drugs or biologicals, which represents the average relationship between the mean cost from hospital claims data and ASP, would reflect the product's acquisition cost plus overhead cost, instead of acquisition cost only. Therefore, we believe that it would not be appropriate for us to use ASP+8 percent to set the payment rates for drugs and biologicals in CY 2006. Using ASP+8 percent to set payments for separately payable drugs and biologicals relative to ASP+6 percent would have reduced payments for other items and services paid under the OPPS by approximately $40 million as the law requires that changes in drug payments be made in a budget neutral manner.

2. Payment Adjustment for Rural Sole Community Hospitals

In section II.G. of the preamble of this proposed rule, we propose a 6.6 percent payment adjustment increase to rural sole community hospitals. Section 1833(t)(13)(A) of the Act instructs the Secretary to conduct a study to determine if rural hospital outpatient costs exceed urban hospital outpatient Start Printed Page 42757costs. In addition, under new section 1833(t)(13)(B) of the Act, the Secretary is given authorization to provide an appropriate adjustment to rural hospitals, by January 1, 2006, if rural hospital costs are determined to be greater than urban hospital costs.

To conduct the study, we believe that a simple comparison of unit costs is insufficient because the costs faced by hospitals, whether urban or rural, will be a function of many factors. These include the local labor supply, and the complexity and volume of services provided. (We note that without controlling for the other influences on per unit cost, rural hospitals have lower cost per unit than urban hospitals.) Therefore, we rejected the option of using a simple comparison of unit costs and instead used regression analysis to analyze the differences in the outpatient cost per unit between rural and urban hospitals in order to compare costs after accounting for the influence of these other factors.

Our initial regression analysis found that all rural hospitals give some indication of having higher cost per unit, after controlling for labor input prices, service-mix complexity, volume, facility size, and type of hospital. Initially, we planned a small adjustment to all rural hospitals. However, in order to assess whether the small difference in costs was uniform across rural hospitals or whether all of the variation was attributable to a specific class of rural hospitals, we included more specific categories of rural hospitals in our explanatory regression analysis. Further analysis revealed that only rural sole community hospitals are more costly than urban hospitals holding all other variables constant. Notably, we observed no significant difference between all other rural hospitals and urban hospitals. Therefore, we propose not to pay a small adjustment increase to all rural hospitals, but to instead pay a 6.6 percent payment increase to rural sole community hospitals.

3. Change in the Percentage of Total OPPS Payments Dedicated to Outlier Payments

In section II.H. of the preamble of this proposed rule, we are proposing to change the percentage of total OPPS payments dedicated to outlier payments to 1.0 percent in CY 2006 from the current policy of 2.0 percent. We also are proposing to continue using a fixed-dollar threshold in addition to the threshold based on a multiple of the APC amount that we have applied since the beginning of the OPPS. In response to findings reported by the MedPAC in their March 2004 Report to Congress that the OPPS outlier policy did not provide sufficient insurance against large financial loses for certain complex procedures that ultimately could impact beneficiary access to services, we implemented the fixed-dollar threshold in the CY 2005 OPPS. Our decision to reduce the percentage of total payments dedicated to outlier payments continues to refine our outlier policy to improve its appropriateness for OPPS. Because OPPS pays by service, rather than by case, hospitals are already paid for every increased service associated with a costly case. A reduction in the size of the outlier pool combined with the fixed dollar threshold continues to target outlier payments to those services where one costly occurrence could pose a financial risk for hospitals, but limits these payments to the most complex and costly services. At the same time, reducing the outlier pool increases overall payments for all services by 1.0 percent.

Alternatives to this policy are either to remain at 2.0 percent or to increase the percentage of payments dedicated to outliers to the statutory limit of 3.0 percent. Increasing the percentage of payments dedicated to outliers could target more payment to outliers, but is at odds with OPPS payment by service rather than case. It is not possible to eliminate outlier payments entirely without a statutory change.

D. Limitations of Our Analysis

The distributional impacts presented here are the projected effects of the policy changes, as well as the statutory changes that would be effective for CY 2006, on various hospital groups. We estimate the effects of individual policy changes by estimating payments per service while holding all other payment policies constant. We use the best data available but do not attempt to predict behavioral responses to our policy changes. In addition, we are not proposing to make adjustments for future changes in variables such as service volume, service-mix, or number of encounters. As we have done in previous proposed rules, we are soliciting comments and information about the anticipated effects of these proposed changes on hospitals and our methodology for estimating them.

E. Estimated Impacts of This Proposed Rule on Hospitals

The estimated increase in the total payments made under OPPS is limited by the increase to the conversion factor set under the methodology in the statute. The distributional impacts presented do not include assumptions about changes in volume and service-mix. However, total payments actually made under the system also may be influenced by changes in volume and service-mix, which CMS cannot forecast. The enactment of Pub. L. 108-173 on December 8, 2003, provided for the payment of additional dollars in CY 2004 and CY 2005 to providers of OPPS services outside of the budget neutrality requirements for specified covered outpatient drugs. These provisions expire CY 2006, as noted in this proposed rule. Pub. L. 108-173 also provided for additional payment for wage indexes for specific hospitals reclassified under section 508 through 2007. Table 33 shows the estimated redistribution of hospital payments among providers as a result of a new APC structure, multiple procedure discount for diagnostic imaging, wage indices, and rural adjustment, which are budget neutral; the estimated distribution of increased payments in CY 2006 resulting from the combined impact of proposed APC recalibration, proposed wage effects, the proposed rural sole community hospital adjustment, and the proposed market basket update to the conversion factor; and, finally, estimated payments considering all proposed payments for CY 2006 relative to all payments for CY 2005 including the expiration of the provision in Pub. L. 108-173 that required payment for specified covered outpatient drugs outside budget neutrality and the proposed change in the percentage of total payments dedicated to outlier payments. The expiration of the requirement that payment for specified covered outpatient drugs need not be budget neutral, leaves most classes of hospitals with a positive update that is lower than the proposed market basket. We also estimate that a few classes of hospitals may receive less payment in CY 2006. Because updates to the conversion factor, including the market basket, any reintroduction of transitional pass-through dollars, and change in the percentage of total payments dedicated to outlier payments are applied uniformly, observed redistributions of payments in the impact table largely depends on the mix of services furnished by a hospital (for example, how the APCs for the hospital's most frequently furnished services would change) and the impact of the wage index changes on the hospital. However, the extent to which this proposed rule redistributes money during implementation would also depend on changes in volume, practice patterns, and case-mix of services billed between CY 2005 and CY 2006. Overall, the Start Printed Page 42758proposed OPPS rates for CY 2006 would have a positive effect for all hospitals paid under OPPS. Proposed changes would result in a 1.9 percent increase in Medicare payments to all hospitals, exclusive of transitional pass-through payments.

To illustrate the impact of the proposed CY 2006 changes, our analysis begins with a baseline simulation model that uses the final CY 2005 weights, the FY 2005 final post-reclassification IPPS wage indices, as subsequently corrected, without changes in wage indices resulting from section 508 reclassifications, and the final CY 2005 conversion factor. Columns 2, 3, and 4 in Table 33 reflect the independent effects of the proposed changes in the APC reclassification and recalibration changes, the proposed multiple procedure discount for diagnostic imaging, the proposed wage indices, and the proposed adjustment for rural sole community hospitals respectively. These effects are budget neutral, which is apparent in the overall zero impact in payment for all hospitals in the top row. Column 2 shows the independent effect of changes resulting from the proposed reclassification of HCPCS codes among APC groups and the proposed recalibration of APC weights based on a complete year of CY 2004 hospital OPPS claims data. This column also shows the impact of incorporating drug payment at 106 percent of ASP plus overhead and, for radiopharmaceuticals, at cost, within budget neutrality. This column also includes the impact of a multiple procedure discount for diagnostic imaging services. We modeled the independent effect of APC recalibration by varying only the weights, the final CY 2005 weights versus the proposed CY 2006 weights, in our baseline model, and calculating the percent difference in payments. Column 3 shows the impact of updating the wage indices used to calculate payment by applying the proposed FY 2006 IPPS wage indices. The OPPS wage indices used in Column 3 do not include changes to the wage indices for hospitals reclassified under section 508 of Pub. L. 108-173. We modeled the independent effect of introducing the new wage indices by varying only the wage index, using the proposed CY 2006 scaled weights, and a CY 2005 conversion factor that included a budget neutrality adjustment for changes in wage effects between CY 2005 and CY 2006. Column 4 shows the budget neutral impact of adding a proposed 6.6 percent adjustment to payment for services other than drugs and biologicals to rural sole community hospitals. We modeled the independent effect of the proposed payment adjustment for rural sole community hospitals by varying only the presence of the rural adjustment, using CY 2006 scaled weights, FY 2006 wage index, and a CY 2005 conversion factor with the wage and rural budget neutrality adjustments.

Column 5 demonstrates the combined “budget neutral” impact of proposed APC recalibration and wage index updates on various classes of hospitals, as well as the impact of updating the conversion factor with the market basket. We modeled the independent effect of proposed budget neutrality adjustments and the market basket update by using the weights and wage indices for each year to model CY 2006 requirements, and using a CY 2005 conversion factor that included a budget neutrality adjustment for differences in wages, the proposed adjustment for rural sole community hospitals, and the market basket increase.

Finally, Column 6 depicts the full impact of the proposed CY 2006 policy on each hospital group by including the effect of all the changes for CY 2006 and comparing them to the full effect of all payments in CY 2005, including those required by Pub. L. 108-173. Column 6 shows the combined budget neutral effects of Columns 2 through 5, as well as the impact of changing the percentage of total payments dedicated to outlier payments to 1.0 percent, changing the percentage of total payments dedicated to transitional pass-through payments to 0.05 percent, the effects of expiring monies added to OPPS in CY 2005 as a result of Pub. L. 108-173, and the continued presence of payment for wage indices reclassified under section 508 of Pub. L. 108-173.

We modeled the independent effect of all changes in column 6 using the final weights for CY 2005 with additional money for drugs required by section 621 of Pub. L. 108-173 and the proposed weights for CY 2006. The wage indices in each year include wage index increases for hospitals eligible for reclassification under section 508 of Pub. L. 108-173. We used the final conversion factor for CY 2005 and the proposed CY 2006 conversion factor of $59.35. Column 6 also contains simulated outlier payments for each year. We used the charge inflation factor used in the proposed FY 2006 IPPS rule of 8.65 percent to increase individual costs on the CY 2004 claims to reflect CY 2005 and CY 2006 dollars respectively. Using the CY 2004 claims and an 8.65 percent charge inflation factor, we currently estimate that actual outlier payments for CY 2005, using a multiple threshold of 1.75 and a fixed dollar threshold of $1,175 will be 1.0 percent of total payments, which is 1.0 percent lower than the 2.0 percent that we projected in setting outlier policies for CY 2005. Outlier payments of only 1.0 percent appear in the CY 2005 comparison in Column 6. We used the same set of claims and a charge inflation factor of 18.04 percent to model the proposed CY 2006 outliers at 1.0 percent of total payments using a multiple threshold of 1.75 and a fixed dollar threshold of $1,575.

Column 1: Total Number of Hospitals

Column 1 in Table 33 shows the total number of hospital providers (4,212) for which we were able to use CY 2004 hospital outpatient claims to model CY 2005 and CY 2006 payments by classes of hospitals. We excluded all hospitals for which we could not accurately estimate CY 2005 or CY 2006 payment and entities that are not paid under the OPPS. The latter include critical access hospitals, all-inclusive hospitals, and hospitals located in Guam, the U.S. Virgin Islands, and the State of Maryland. This process is discussed in greater detail in section II.A. of this proposed rule. At this time we are unable to calculate a disproportionate share (DSH) variable for hospitals not participating in the IPPS. Hospitals for whom we do not have a DSH variable are grouped separately. Finally, because section 1833(t)(7)(D) of the Act permanently holds harmless cancer hospitals and children's hospitals, that is, these hospitals cannot receive less payment in CY 2006 than they did in the CY 2005, we removed these hospitals from our impact analyses.

Column 2: APC Recalibration

The combined effect of proposed APC reclassification and recalibration, including the proposal to pay for drugs and biologicals as 106 percent of ASP plus 2 percent of ASP for overhead, and the introduction of a proposed multiple procedure discount for diagnostic imaging resulted in larger changes in Column 2 than are typically observed for APC recalibration. In general, these changes have a greater negative impact on some classes of urban hospitals than on rural hospitals. APC changes effect the distribution of hospital payments by increasing payments to specific subsets of urban hospitals while decreasing payments made to large urban hospitals and rural hospitals.

Overall, these changes have no impact on all urban hospitals, which show no projected change in payments, although some classes of urban hospitals experience large decreases in payments. However, changes to the APC structure Start Printed Page 42759for CY 2006 tend to favor, slightly, urban hospitals that are not located in large urban areas. Large urban hospitals experience a decline of 0.8 percent, while “other” urban hospitals experience an increase of 1.0 percent. Urban hospitals with between 100 and 199 beds and between 300 and 499 beds experienced decreases, while the largest urban hospitals, those with beds greater than 500, and moderately sized urban hospitals, those with beds between 200 and 299 beds report increases of at least 0.2 percent. The smallest urban hospitals do not appear to be impacted by changes to the APC structure. With regard to volume, all urban hospitals except those with the highest volume, experience a decrease in payments. The lowest volume hospitals experience the largest decrease of 5.8 percent. Urban hospitals providing the highest volume of services demonstrate a projected increase of 0.2 percent as a result of APC recalibration. Decreases for urban hospitals are also concentrated in some regions, specifically, New England, Pacific, South Atlantic, West South Central, and Mountain, with the first two experiencing the largest decreases of 1.2 and 1.8 percent respectively. On the other hand, a few regions experience moderate increases. Hospitals in the East South Central and West North Central regions experience increases of 1.5 and 2.6 percent respectively.

Overall, rural hospitals show a modest 0.1 percent decrease as a result of changes to the APC structure, and this 0.1 percent decrease appears to be concentrated in rural hospitals that are not rural sole community hospitals. Notwithstanding a modest overall decline, there is substantial variation among classes of rural hospitals. Specifically, rural hospitals with less than 100 beds and between 150 and 199 beds experience decreases, with hospitals having less than 50 beds experiencing the largest decrease of 0.9 percent. Rural hospitals with greater than 100 and less than 150 beds experience the largest increase of 1.4 percent. With regard to volume, all rural hospitals except those with the highest volume, experience a decrease in payments. The lowest volume hospitals experience the largest decrease of 2.9 percent. Rural hospitals providing the highest volume of services demonstrate a projected increase of 0.7 percent as a result of APC recalibration. Decreases for rural hospitals occur in every region except West North Central and the Middle Atlantic. The largest decreases are observed in West South Central and Mountain regions. On the other hand, hospitals in the Middle Atlantic and West North Central experience increases of 1.9 and 1.8 percent respectively.

Among other classes of hospitals, the largest observed impacts resulting from APC recalibration include declines of 0.4 percent for non-teaching hospitals and increases of 0.5 percent for major teaching hospitals. Hospitals without a valid DSH variable, most of which are TEFRA hospitals, experience decreases of 0.9 percent, and of these, those in urban areas experience a decline of 1.4 percent. Hospitals treating the most low-income patients (high DSH percentage) demonstrate declines of 0.3 percent, where as all other hospitals treating DSH patients appear to experience slight increases of 0.1 percent. Hospitals that are treating DSH patients and are also teaching hospitals experience increases of 0.4 percent. Classifying hospitals by type of ownership suggests that proprietary hospitals will lose 1.3 percent and voluntary and government hospitals will gain at least 0.1 percent.

Column 3: New Wage Index

Changes introduced by the proposed FY 2006 IPPS wage indices would have a modest impact in CY 2006, increasing payments to rural hospitals slightly and reducing payments to specific classes of urban hospitals. We estimate that rural hospitals, and specifically rural hospitals that are not sole community hospitals, will experience an increase in payments of 0.1 percent. With respect to facility size, only rural hospitals with between 150 and 199 beds experience a decrease in payments of 0.2 percent. Similarly, moderate rural volume hospitals experience a decrease of 0.1 percent. For both facility size and volume, no category of rural hospitals experiences an increase greater than 0.2 percent. Examining hospitals by region reveals slightly greater variability. We estimate that rural hospitals in several regions will experience decreases in payment up to 0.4 percent due to wage changes, including the Middle Atlantic, South Atlantic, West North Central, West South Central. However, rural hospitals in the remaining regions experience increases. We estimate that the Pacific region will see the largest increase of 1.8 percent.

Overall, urban hospitals experience no change in payments as a result of the new wage indices. With respect to facility size, we estimate that urban hospitals with between 300 and 499 beds will experience a decrease in payments of 0.1 percent. Urban hospitals with less than 99 beds experience the largest increase of 0.2 percent. When categorized by volume, no class of urban hospitals experience a decrease in payment as a result of changes to the wage index. We estimate that urban hospitals in all but the Pacific and East South Central region will experience modest decreases due to wage changes of no more than 0.4 percent. Urban hospitals in the Pacific region will experience an increase of 1.1 percent, and urban hospitals in the East South Central region will experience no change in payments.

Looking across other categories of hospitals, we estimate that updating the wage index will lead major teaching hospitals to lose 0.2 percent and hospitals without graduate medical education programs are estimated to gain 0.1 percent. Hospitals serving between 0.0 and 0.10 percent of low-income patients and between 0.23 and 0.35 percent of low-income patients lose up to 0.2 percent and 0.1 percent respectively, whereas hospitals serving other percentages of low-income patients gain by up to 0.1 percent or experience no change. Government hospitals will experience an increase of 0.1 percent.

Column 4: New Adjustment for Rural Sole Community Hospitals

As discussed in section II.G. of the preamble of this proposed rule, we have proposed to increase payments for all services except drugs and biologicals to rural sole community hospitals by 6.6 percent. This resulted in an adjustment to the conversion factor of 0.997. Targeting payments to these rural hospitals uniformly reduces payments to all other hospitals by 0.3 percent. The uniform reduction for all urban and other rural hospitals is evident in Column 4. The observed increase of 5.2 percent for rural sole community hospitals is lower than 6.6 percent because drugs and biologicals do not receive the proposed payment adjustment. The remaining classes of rural hospitals show variable increases that reflect the distribution of rural sole community hospitals. The largest increases are observed among rural hospitals with small numbers of beds, with moderate volume, and regions in the western half of the country.

Column 5: All Budget Neutrality Changes and Market Basket Update

With the exception of urban hospitals with the lowest volume of services, the addition of the market basket update alleviates any negative impacts on payments for CY 2006 created by the budget neutrality adjustments made in Columns 2, 3, and 4. In many instances, and especially among rural hospitals, the redistribution of payments created by proposed APC recalibration offset those introduced by updating the wage Start Printed Page 42760indices. In some instances, especially for urban hospitals, APC recalibration changes compound the impact of updating the wage index. In addition, all urban and other rural hospitals experience a decrease in payment of 0.3 percent as a result of the proposed payment adjustment for rural sole community hospitals.

We estimate that the cumulative impact of proposed budget neutrality adjustments and the addition of the market basket would result in an increase in payments for urban hospitals of 2.8 percent, which is less than the market basket update of 3.2 percent. Large urban hospitals would experience an increase of 2.0 percent and other urban hospitals would experience an increase of 3.8 percent. This trend of updates lower than the market basket holds for most other classes of urban hospitals. For example, of all classes of urban hospitals, urban hospitals with the lowest volume are the only group to experience a negative market basket update, which is largely a function of the 5.8 percent decrease in payments attributable to proposed changes to the APC structure. Urban hospitals with moderate volume would also lose the bulk of the market basket update as a result of a −2.8 percent change resulting from proposed APC recalibration and the addition of the proposed payment adjustment for rural sole community hospitals. The same compounding effect holds true for urban hospitals in New England as well. Urban hospitals in New England would experience a 1.2 percent loss due to changes in APC structure, a 0.1 percent loss for changes to the wage index and a 0.3 percent loss for the new rural adjustment, reducing their increase to 1.5 percent. Urban hospitals in a few regions experience increases in payment for CY 2006 above the market basket, including the East South Central, Middle Atlantic, and West North Central regions.

We estimate that the cumulative impact of budget neutrality adjustments and the market basket update will result in an overall increase for rural hospitals of 5.0 percent, with rural sole community hospitals experiencing an update of 8.6 percent and other rural hospitals experiencing an update of 2.8 percent. In general, rural hospitals with more than 100 beds and high volume rural hospitals experience increases of more than 5.0 percent, which generally results from the combined impact of increases in payment from APC recalibration, wage changes, and the new adjustment for rural sole community hospitals. Rural hospitals also demonstrate large increases by region, with Middle Atlantic, West North Central, Mountain, and Pacific regions experiencing large increases. For these regions, in aggregate, the payment adjustment for rural sole community hospitals compensates for observed loses in the APC recalibration column.

The changes across columns for other classes of hospitals are fairly moderate and most show updates relatively close to the market basket. TEFRA hospitals that are not paid under OPPS show payment updates much lower than the market basket as a result of negative payment changes for proposed APC recalibration and the proposed adjustment for rural sole community hospitals. Proprietary hospitals also show an increase much less than the market basket as a result of negative payments under APC recalibration.

Column 6: All Proposed Changes for CY 2006

Column 6 compares all proposed changes for CY 2006 to final payment for CY 2005 and includes any additional dollars resulting from provisions in Pub. L. 108-173 in both years, changes in outlier payment percentages and proposed thresholds, and the difference in pass-through estimates. Overall, we estimate that hospitals would gain 1.9 percent under this proposed rule in CY 2006 relative to total spending in CY 2005, which included Pub. L. 108-173 dollars for drugs and wage indices. While hospitals receive the 3.2 percent increase due to the market basket appearing in Column 5 and the additional 1.0 percent in outlier payments that we estimate as not being paid in CY 2005, we estimate that hospitals also experience an overall 2.3 percent loss due to the expiration of additional payment for drugs in CY 2005. That is, without the additional 1.0 percent increase in outlier payments due to lower than expected payment for outliers in CY 2005, hospitals would receive a positive increase in payments of 0.9 percent. Paying the additional 1.0 percent in outlier payments in CY 2006 increases overall gains to 1.9 percent, which is lower than the market basket. Overall, the change in the outlier thresholds has a minimal redistributive impact by class of hospital and the vast majority of redistributive impacts observed between Columns 5 and 6 can be attributed to the loss of additional payment for drugs outside budget neutrality required by Pub. L. 108-173.

In general, urban hospitals appear to experience the largest negative impacts from the loss of additional payments for drugs because of the combined effects of decreases in payment from the proposed payment adjustment for rural sole community hospitals and, frequently, negative changes in payments due to APC recalibration. We estimate that hospitals in large urban areas will gain 0.8 percent in CY 2006 and hospitals in other urban areas will gain 2.6 percent. We estimate that some urban hospitals will experience a decrease in total payments between CY 2005 and CY 2006. Specifically, low volume urban hospitals will experience a decrease in payments of 2.1 percent, which includes the cumulative effect of negative payments from APC recalibration, a negative impact of the payment adjustment for rural sole community hospitals, and a loss of payments outside budget neutrality for drugs. We estimate that urban hospitals in New England would experience a loss of 0.2 percent in CY 2006. The reason for this is the same as that for low volume urban hospitals, except that the urban hospitals in New England also experience a decrease in payments from updating the wage index. Other classes of urban hospitals generally show increases between 1.0 and 3.0 percent. Urban hospitals in the East South Central and West North Central experience the largest increases for urban hospitals of 3.4 and 3.7 percent, respectively.

Overall, rural hospitals experience larger increases than those observed for urban hospitals because the proposed payment adjustment for rural sole community hospitals tends to buffer the loss of payments for drugs from Pub. L. 108-173. However, this adjustment is only for rural sole community hospitals. Overall, we estimate that rural hospitals will experience an increase in payments of 3.4 percent. But, we also estimate that rural sole community hospitals will experience an increase of 6.4 percent and that other rural hospitals will only experience an increase of 1.6 percent. No rural hospital experiences a decrease in payments between CY 2005 and CY 2006 and some classes of rural hospitals show increases comparable to the market basket. For example rural hospitals with more than 100 beds experience increases of at least 3.1 percent. Rural hospitals with moderate to high volume experience increases comparable to the market basket. Across the regions, rural hospitals in the Middle Atlantic, South Atlantic, West North Central, West South Central, Mountain, and Pacific all experience increases in payments greater than 3 percent. Low volume rural hospitals and rural hospitals in New England experience the lowest updates of only 1.0 percent.

Among other classes of hospitals, we estimate that TEFRA hospitals not paid Start Printed Page 42761under IPPS would experience decreases in payments between CY 2005 and CY 2006 of 1.9 percent and that TEFRA hospitals in urban areas will experience a decrease in payments between CY 2005 and CY 2006 of 2.6 percent. Factoring in expiring payments for drugs through Pub. L. 108-173, we estimate that major teaching hospitals would only experience an increase of 0.8 percent.

G. Estimated Impacts of This Proposed Rule on Beneficiaries

For services for which the beneficiary pays a copayment of 20 percent of the payment rate, the beneficiary share of payment will increase for services for which OPPS payments will rise and will decrease for services for which OPPS payments will fall. For example, for a mid-level office visit (APC 0601), the minimum unadjusted copayment in CY 2005 was $11.22. In this proposed rule, the minimum unadjusted copayment for APC 601 is $11.86 because the OPPS payment for the service will increase under this proposed rule. In another example, for a Level IV Needle Biopsy (APC 0037), the minimum unadjusted copayment in CY 2005 was $234.20. In this proposed rule, the minimum unadjusted copayment for APC 0037 is $223.91 because the minimum unadjusted copayment is limited to 40 percent of the APC payment rate for CY 2006, as discussed in section II. of the preamble to this proposed rule. However, in all cases, the statute limits beneficiary liability for copayment for a service to the inpatient hospital deductible for the applicable year.

In order to better understand the impact of changes in copayment on beneficiaries we modeled the percent change in total copayment liability using CY 2004 claims. We estimate that total beneficiary liability for copayments will decline as an overall percentage of total payments from 32 percent in CY 2005 to 30 percent in CY 2006.

Conclusion

The changes in this proposed rule would affect all classes of hospitals. Some hospitals experience significant gains and others less significant gains, but all hospitals would experience positive updates in OPPS payments in CY 2006. Table 33 demonstrates the estimated distributional impact of the OPPS budget neutrality requirements and an additional 1.9 percent increase in payments for CY 2006, after considering the expiring provision for additional drug payment under Pub. L. 108-173 and a change in the percentage of total payments dedicated to outliers and transitional pass-through payments, exclusive of transitional pass-through payments, across various classes of hospitals. The accompanying discussion, in combination with the rest of this proposed rule constitutes a regulatory impact analysis.

Table 33.—Impact of Proposed Changes for CY 2006 Hospital Outpatient Prospective Payment System

Hospital category(1) Number of hospitals(2) APC changes(3) New wage index(4) New adj for rural sole community hospitals(5) Cumulative (cols 2,3,4) with market basket update(6) All changes
ALL HOSPITALS42120.00.00.03.21.9
URBAN HOSPITALS29490.00.0−0.32.81.6
LARGE URBAN1624−0.80.0−0.32.00.8
OTHER URBAN13251.00.0−0.33.82.6
RURAL HOSPITALS1263−0.10.11.85.03.4
SOLE COMMUNITY4780.00.05.28.66.4
OTHER RURAL785−0.10.1−0.32.81.6
BEDS (URBAN):
0-99 BEDS9170.00.2−0.33.02.1
100-199 BEDS964−0.40.0−0.32.41.4
200-299 BEDS5030.20.1−0.33.12.3
300-499 BEDS402−0.1−0.1−0.32.61.5
500 + BEDS1630.50.0−0.33.31.2
BEDS (RURAL):
0—49 BEDS551−0.90.22.04.53.0
50-100 BEDS419−0.80.22.24.82.9
101-149 BEDS1801.40.01.15.84.7
150-199 BEDS62−0.3−0.21.74.53.5
200 + BEDS510.20.01.75.13.1
VOLUME (URBAN):
LT 5,000 claim lines600−5.80.5−0.3−2.7−2.1
5,000-10,999180−2.80.2−0.30.20.2
11,000-20,999299−0.80.2−0.32.22.3
21,000-42,999575−0.80.1−0.32.21.8
GT 42,99912950.20.0−0.33.01.6
VOLUME (RURAL):
LT 5,000 claim lines119−2.90.01.31.61.3
5,000—10,999195−2.10.02.13.22.2
11,000—20,999325−1.0−0.12.04.13.3
21,000—42,999364−0.90.21.94.42.9
GT 42,9992600.70.01.65.73.8
REGION (URBAN):
NEW ENGLAND166−1.2−0.1−0.31.5−0.2
MIDDLE ATLANTIC3930.7−0.1−0.33.52.2
SOUTH ATLANTIC453−0.4−0.4−0.32.01.0
EAST NORTH CENT4660.5−0.1−0.33.21.7