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

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AGENCY:

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

ACTION:

Final rule with comment period.

SUMMARY:

This final rule with comment period revises the Medicare hospital outpatient prospective payment system to implement applicable statutory requirements and changes arising from our continuing experience with this system and to implement certain related provisions of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003. In addition, the final rule with comment period describes changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the prospective payment system. This final rule with comment period also changes the requirement for physician oversight of mid-level practitioners in critical access hospitals (CAHs).

In this final rule with comment period, we also are responding to public comments received on the November 15, 2004, final rule with comment period pertaining to the ambulatory payment classification (APC) group assignment of Healthcare Common Procedure Coding System (HCPCS) codes identified in Addendum B of that rule with the new interim (NI) comment indicator. These changes are applicable to services furnished on or after January 1, 2006.

DATES:

Effective Date: This final rule with comment period is effective on January 1, 2006.

Comment Date: We will consider comments on the payment classification assigned to HCPCS codes identified in Addendum B with the NI comment code and other areas specified through the preamble if we receive them at the appropriate address, as provided below, no later than 5 p.m. on January 9, 2006.

ADDRESSES:

In commenting, please refer to file code CMS-1501-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

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

1. Electronically. You may submit electronic comments on specific issues in this final rule with comment period 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-FC, 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-FC, 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.

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.

Requirements for Issuance of Regulations: Section 902 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. 108-173, amended section 1871(a) of the Act and requires the Secretary, in consultation with the Director of the Office of Management and Budget, to establish and publish timelines for the publication of Medicare final regulations based on the previous publication of a Medicare proposed or interim final regulation. Section 902 of Pub. L. 108-173 also states that the timelines for these regulations may vary but shall not exceed 3 years after publication of the preceding proposed or interim final regulation except under exceptional circumstances.

This final rule with comment period finalizes provisions set forth in the CY 2006 OPPA proposed rule (70 FR 42674, July 25, 2005). In addition, this final rule has been published within the 3-year time limit imposed by section 902 of Pub. L. 108-173. This final rule also finalizes the November 15, 2004 final rule with comment period (69 FR 65681) to address public comments pertaining to the APC group assignment of HCPCS codes identified in Addendum B of that rule with the NI comment indicator. Again, we finalized the rule within the 3-year timeframe imposed under section 902 of Pub. L. 108-173. Therefore, we believe that the final rule is in accordance with the Congress' intent to ensure timely publication of final regulations.

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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 centers issues.

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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. Start Printed Page 68517

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

ACEP American College of Emergency Physicians

AHA American Hospital Association

AHIMA American Health Information Management Association

AMA American Medical Association

APC Ambulatory payment classification

AMP Average manufacturer price

ASP Average sales price

ASC Ambulatory surgical center

AWP Average wholesale price

BBA Balanced Budget Act of 1997, 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

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

CNS Clinical nurse specialist

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

DRGY 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

NP Nurse practitioner

OCE Outpatient Code Editor

OMB Office of Management and Budget

OPD (Hospital) Outpatient department

OPPS (Hospital) Outpatient prospective payment system

PA Physician assistant

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 That Will Be Implemented 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 Provisions of the CY 2006 OPPS Proposed Rule

H. Public Comments Received on the CY 2006 OPPS Proposed Rule

I. Public Comments Received on the November 15, 2004 OPPS Final Rule With Comment Period

II. Updates Affecting Payments for CY 2006

A. Recalibration of APC Relative Weights for CY 2006

1. Database Construction

a. Database Source and Methodology

b. Use of Single and Multiple Procedure Claims

2. Calculation of Median Costs for CY 2006

3. Calculation of Scaled OPPS Payment Weights

4. Changes to Packaged Services

a. Background

b. Responses to the APC Panel Recommendations

B. Payment for Partial Hospitalization

1. Background

2. PHP APC Update for CY 2006

3. Separate Threshold for Outlier Payments to CMHCs

C. Conversion Factor Update for CY 2006

D. Wage Index Changes for CY 2006

E. Statewide Average Default Cost-to-Charge Ratios (CCRs)

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

G. Adjustment for Rural Hospitals

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

2. Results

H. Hospital Outpatient Outlier Payments

I. Calculation of the National Unadjusted Medicare Payment

J. Beneficiary Copayments for CY 2006

1. Background

2. Copayment for CY 2006

3. Calculation of the Unadjusted Copayment Amount for CY 2006

III. Ambulatory Payment Classification (APC) Group Policies

A. Introduction

1. Treatment of New HCPCS Codes Discussed in the CY 2006 OPPS Proposed Rule

2. Treatment of New CY 2006 HCPCS Codes

3. Treatment of New Mid-Year Category III CPT Codes

B. Variations within APCs

1. Background

2. Application of the 2 Times Rule

a. APC 0146: Level I Sigmoidoscopy

b. APC 0342: Level I Pathology

c. Other Comments on the Proposed List of APC Assignments to Address 2 Times Violations

3. Exceptions to the 2 Times Rule

C. New Technology APCs

1. Introduction

2. Refinement of New Technology Cost Bands

3. Requirements for Assigning Services to New Technology APCs

4. New Technology Services

a. Ablation of Bone Tumors

b. Breast Brachytherapy

c. Enteryx Procedure

d. Extracorporeal Shock Wave Treatment

e. GreenLight Laser

f. Magnetoencephalography (MEG)

g. Positron Emission Tomography (PET) Scans

h. Proton Beam Treatment

i. Smoking Cessation Counseling

j. Stereoscopic Kv X-ray

k. Stereotactic Radiosurgery (SRS)

D. APC-Specific Policies

1. Cardiac and Vascular Procedures

a. Acoustic Heart Sound Recording and Analysis Start Printed Page 68518

b. Cardiac Electrophysiologic Services (APC 0087)

c. Cardioverter-Defibrillator Implantation (APCs 0107 and 0108)

d. Endovenous Ablation (APC 0092)

e. External Counterpulsation Therapy (APC 0678)

f. Intracardiac Echocardiography (APC 0670)

g. Percutaneous Thrombectomy and Thrombolysis (APC 0676)

h. Coronary Flow Reserve (APCs 0416 and 0670)

i. Vascular Access Procedures (APCs 0621, 0622, and 0623)

2. Radiology, Radiation Oncology, and Nuclear Medicine

a. Angiography and Venography (APCs 0279, 0280, and 0668)

b. Brachytherapy (APCs 0312, 0313, and0651)

c. Computed Tomography (APCs 0283 and 0333)

d. Computed Tomographic Angiography (APC 0333)

e. Computed Tomographic Guidance (APC 0332)

f. Computerized Reconstruction (APC 0417)

g. Diagnostic Computed Tomographic Colonography (APC 0333)

h. Intensity Modulated Radiation Therapy (IMRT) (APCs 0310 and 0412)

i. Kidney Imaging (APC 0267)

j. Magnetic Resonance Guided Focused Ultrasound Ablation (APC 0193)

k. Non-Imaging Nuclear Medicine Studies (APC 0389)

l. Therapeutic Radiation Treatment (APC 0304)

m. Urinary Bladder Study (APC 0340)

3. Gastrointestinal and Genitourinary Procedures

a. Cystourethroscopy with Lithotripsy (APC 0163)

b. GI Stenting (APC 0384)

c. Insertion of Uterine Tandems and/or Vaginal Ovoids for Clinical Brachytherapy (APC 0192)

d. Laparoscopic Ablation Procedures (APC 0131)

e. Plicator Procedure (APC 0422)

f. Prostate Cryosurgery (APC 0674)

g. Stretta Procedure (APC 0422)

h. Urological Stenting Procedures (APCs 0163 and 0164)

4. Other Surgical Services

a. Excision-Malignant Lesions (APCs 0019 and 0020)

b. External Fixation (APCs 0046 and 0050)

c. Intradiscal Annuloplasty (APC 0203)

d. Kyphoplasty (APC 0051)

e. Neurostimulator Electrode Implantation (APCs 0040 and 0225)

f. Neurostimulator Generator Implantation (APC 0222)

g. Thoracentesis/Lavage (APC 0070)

5. Other Services

a. Allergy Testing (APC 0370)

b. Apheresis (APC 0112)

c. Audiology (APCs 0364, 0365, and 0366)

d. Bone Marrow Harvesting (APC 0111)

e. Computer Assisted Navigational Procedures

f. Hyperbaric Oxygen Therapy (APC 0659)

g. Ophthalmology Examinations (APC 0601)

h. Pathology Services

i. Photodynamic Therapy of the Skin (APC 0013)

j. Wound Care

IV. Payment Changes for Devices

A. Device-Dependent APCs

1. Public Comments and Our Responses on the November 15, 2004 Final Rule With Comment Period

2. CY 2006 Proposal, APC Panel Recommendations, and Responses to Public Comments Received

a. APC Panel Recommendations

b. Public Comments Received and Our Responses

(1) Adjustment of Median Costs

(2) Effects of Inconsistent Markup of Charges

(3) Effects of Multiple Procedure Reduction

(4) Impact of Proposed Rates on Access to Care

(5) Addition of Other APCs as Device-Dependent APCs

(6) Instructions on Reporting Device Charges

(7) Application of Wage Index to Package Containing Device

(8) Recalls of High Cost Devices

(9) Separate Payment for High Cost Devices

B. Pass-Through Payments for Devices

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

2. Proposed and Final Policy for CY 2006

C. 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. Policy for CY 2006

2. Criteria for Establishing New Pass-Through Device Categories

a. Surgical Insertion and Implantation Criterion

(1) Public Comments Received on November 15, 2004 OPPS Final Rule with Comment Period and Our Responses

(2) Public Comments Received on the CY 2006 OPPS Proposed Rule and Our Responses

b. Existing Device Category Criterion

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

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

1. Background

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

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

B. Payment for Drugs, Biologicals, and Radiopharmaceutical Agents Without Pass-Through Status

1. Background

2. Criteria for Packaging Payment for Drugs, Biologicals, and Radiopharmaceutical Agents

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

a. Payment for Specified Covered Outpatient Drugs

(1) Background

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

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

(4) CY 2006 Payment Policy for Radiopharmaceutical Agents

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

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

C. Coding and Billing Changes for Specified Covered Outpatient Drugs

1. Background

2. CY 2006 Payment Policy

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

1. Background

2. CY 2006 Payment Policy

E. Payment for Vaccines

F. 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. Brachytherapy Payment Changes

A. Background

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

C. CY 2006 Payment Policy

VIII. Coding and Payment for Drug Administration

A. Background

B. Policy Changes for Drug Administration for CY 2006

C. Policy Changes for Vaccine Administration for CY 2006

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

X. Payment for Blood and Blood Products

A. Background

B. Policy Changes for CY 2006

XI. Payment for Observation Services

A. Background

B. CY 2006 Coding Changes for Observation Services and Direct Admission to Observation

C. Criteria for Separate Payment for Direct Admission to Observation

D. Criteria for Separately Payable Observation Services (APC 0339)

1. Diagnosis Requirements

2. Observation Time

3. Additional Hospital Services

4. Physician Evaluation

XII. Procedures That Will Be Paid Only as Inpatient Procedures

A. Background

B. Policy Changes to the Inpatient List

C. Ancillary Outpatient Services When Patient Expires

XIII. Indicator Assignments

A. Status Indicator Assignments

B. Comment Indicators for the CY 2006 OPPS Final Rule

XIV. Nonrecurring Policy Changes

A. Payment for Multiple Diagnostic Imaging Procedures

B. Interrupted Procedure Payment Policies (Modifiers -52, -73, and -74) Start Printed Page 68519

XV. OPPS Policy and Payment Recommendations

A. MedPAC Recommendations

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

2. Report to the Congress: Issues in a Modernized Medicare Program—Payment for Pharmacy Handling Costs in Hospitals

B. APC Panel Recommendations

C. GAO Recommendations

XVI. Physician Oversight of Nonphysician Practitioners in Critical Access Hospitals

A. Background

B. Proposed Policy Change in Proposed Rule

C. Public Comments Received on Proposed Rule and Our Responses

D. Final Policy

XVII. Files Available to the Public via the Internet

XVIII. Collection of Information Requirements

XIX. 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 Changes in this Final Rule with Comment Period

C. Alternatives Considered

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

2. Payment Adjustment for Rural SCHs

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

D. Limitations of Our Analysis

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

F. Estimated Impact of the Change in Outlier Policy

G. Accounting Statement

H. Estimated Impacts of this Final Rule with Comment Period on Beneficiaries

XX. Waiver of Proposed Rulemaking

Regulation Text

Addenda

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

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

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 L-Out-Migration Wage Adjustment for CY 2006

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 II.C., II.F., II.G., and V.B.3.a.(2) of this final rule with comment period.) 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 assigned. We use Healthcare Common Procedure Coding System (HCPCS) codes (which include certain Current Procedural Terminology (CPT) codes) and descriptors to identify and group the services within each APC group. The OPPS includes payment for most hospital outpatient services, except those identified in section I.B. of this final rule with comment period. Section 1833(t)(1)(B)(ii) of the Act provides for Medicare payment under the OPPS for certain services designated by the Secretary that are furnished to inpatients who have exhausted their Part A benefits or who are otherwise not in a covered Part A stay. 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-Start Printed Page 68520language 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; services and procedures that require an inpatient stay that are paid under the hospital inpatient prospective payment system (IPPS); and certain services furnished to inpatients of hospitals that do not submit claims for outpatient services under Medicare Part B. 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 NI comment indicator; 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 comment 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 may be composed of up to 15 representatives of hospitals and other Medicare providers subject to the OPPS (currently employed full-time and in their respective areas of expertise), reviews and advises CMS about the clinical integrity of the APC groups and their weights. For purposes of this Panel, consultants or independent contractors are not considered to be full-time employees. 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 1, 2004. The renewed charter indicates that the APC Panel continues to be technical in nature; is governed by the provisions of FACA with a Designated Federal Official (DFO) 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 four APC Panel members' terms of office expired 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. Consequently, 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). From a total of 26 nominees from the two notices, we Start Printed Page 68521chose 6 new members who were announced in the Federal Register on August 26, 2005 (70 FR 50358). 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 seven subsequent meetings. The most recent meeting took place on August 17 and 18, 2005, which was announced in the meeting notice published on July 8, 2005 (70 FR 39514). 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), December 30, 2004 (69 FR 78464), and July 8, 2005 (70 FR 39514).

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, February 11, 2005, and August 15, 2005. The Observation Subcommittee, which was established on June 24, 2003, and reestablished with new members on March 8, 2004, February 11, 2005, and August 15, 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, and August 15, 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 and August 2005 meetings 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 That Will Be Implemented 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 final rule with comment period. Moreover, in this final rule with comment period, we finalize our proposal 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 31, 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 proposed 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. In accordance with these provisions, effective January 1, 2006, as we proposed, we are implementing an adjustment for rural sole community hospitals (SCHs), as discussed below.

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 Start Printed Page 685221833(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

As we indicated in the CY 2006 proposed rule, 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 or technologies, or both, 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 the CY 2006 OPPS proposed rule, we proposed enhancements to both the OPPS pass-through payment criteria for devices as discussed in section IV.D.2. of that rule and the qualifying process for assignment of new services to New Technology APCs or regular clinical APCs discussed in section III.C.3. of that rule. In the CY 2006 OPPS proposed rule, we proposed to make device pass-through eligibility available to a broader range of qualifying devices. We also proposed 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.

We received a large number of public comments generally supporting our commitment to new technologies. Many of these comments in support of this commitment were stated in the context of our proposals to enhance the OPPS pass-through payment criteria for devices or the application requirements for assignment of a service to a New Technology APC. Specific comments are addressed in those respective sections.

G. Summary of the Provisions of the CY 2006 OPPS Proposed Rule

On July 25, 2005, we published a proposed rule in the Federal Register (70 FR 42674) that set forth proposed changes to the Medicare hospital OPPS for CY 2006 to implement statutory requirements and changes arising from our continuing experience with the system, to implement provisions of Pub. L. 108-173 specified in sections II.C., II.F., II.G., and V.B.3.a.(2) of this preamble, and to change the requirement for physician oversight of nonphysician practitioners in CAHs that will be effective for services furnished on or after January 1, 2006. Subsequent to publishing the proposed rule, we published a correction of the proposed rule on August 26, 2005 (70 FR 50679) that corrected technical errors that appeared in the proposed rule. The following is a summary of the major changes included in the CY 2006 OPPS proposed rule that we proposed to make:

1. Updates to Payments for CY 2006

In the proposed rule, 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 CMHCs.
  • 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 SCHs for CY 2006.
  • 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. Ambulatory Payment Classification (APC) Group Policies

In the proposed rule, we discussed establishing a number of new APCs and making 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 discussed 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. Payment Changes for Devices

In the proposed rule, we discussed proposed changes to the device-dependent APCs, to related regulations under §§ 419.66(b)(3) and 419.66(c)(1), and to the pass-through payment for three categories of devices.

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

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

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

In the proposed rule, we discussed 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. Start Printed Page 68523

6. Brachytherapy Payment Changes

In the proposed rule, we included a discussion of our proposal concerning coding and payment for the sources of brachytherapy.

7. Coding and Payment for Drug Administration

In the proposed rule, we discussed our proposed coding and payment changes for drug administration services.

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

In the proposed rule, we discussed our proposal for developing coding guidelines for evaluation and management services.

9. Payment for Blood and Blood Products

In the proposed rule, we discussed our proposed payment changes for blood and blood products.

10. Payment for Observation Services

In the proposed rule, we discussed our proposed criteria and coding changes for observation services.

11. Procedures That Will Be Paid Only as Inpatient Services

In the proposed rule, we discussed the procedures that we proposed to remove from the inpatient list and assign to APCs.

12. Indicator Assignments

In the proposed rule, we discussed proposed changes to the list of status indicators assigned to APCs and presented our comment indicators that we proposed to use in this final rule with comment period.

13. Nonrecurring Policy Changes

In the proposed rule, we discussed proposed changes in payments for multiple diagnostic imaging procedures and proposed changes in payment policy for interrupted procedures.

14. OPPS Policy and Payment Recommendations

In the proposed rule, we addressed recommendations made by MedPAC, the APC Panel, and the GAO regarding the OPPS for CY 2006.

15. Physician Oversight in Critical Access Hospitals

In the proposed rule, we discussed physician oversight for services provided by nonphysician practitioners such as physician assistants, nurse practitioners, and clinical nurse specialists in CAHs.

H. Public Comments Received on the CY 2006 OPPS Proposed Rule

We received over 1,000 timely pieces of correspondence containing multiple comments on the CY 2006 OPPS proposed rule. Summaries of the public comments and our responses to those comments are set forth in the various sections under the appropriate headings.

Comment: One commenter objected to the short time between the end of the comment period and the effective date of the final rule. The commenter stated that the brief time period gives inadequate time for systems and software changes. The commenter asked that the proposed rule be published July 1 and that the final rule be published no later than October 1 of each year. The commenter indicated that hospitals need the extra month to implement the OPPS because it is much more complex for hospitals to implement than the IPPS.

Response: We understand the commenter's concern about the difficulty of implementing the annual OPPS update in 60 days. We do our best to issue the proposed rule and the final rule as promptly as possible and to make all of the supporting documentation available on the CMS Web site as soon as we can. However, factors such as the use of the most recent claims data and cost report data on which we base the proposed and final rates delay the issuance of the proposed rule and the final rule. Hospital delays in submission of hospital bills are an important factor in timing of the OPPS updates as well, because we want to use as many claims as possible in setting the OPPS rates. Moreover, we cannot issue the final rule until the HCPCS code files for the forthcoming year are final because we assign a stataus indicator to each HCPCS code in the OPPS OCE. The HCPCS files are not final until they are published in October.

Comment: Commenters asked that CMS include an indirect medical education adjustment in the OPPS because it is the only major Medicare payment system that does not include a teaching adjustment. One commenter asked that CMS conduct a study to determine the special roles and costs related to medical education and the appropriateness of including a teaching hospital adjustment.

Response: We have not developed an indirect medical education add-on payment made under the OPPS because the statute does not provide for this adjustment, and we are not convinced that it would be appropriate in a budget-neutral payment system where such changes would result in reduced payments to all other hospitals. Moreover, in the final rule, we have developed payment weights that we believe resolve many of the public concerns regarding appropriate payments for new technology services and device-dependent procedures, which we believe are furnished largely by teaching hospitals. In addition, the application of the wage index adjustment to 60 percent of the APC payment package (especially for APCs into which expensive devices are packaged) tends to benefit teaching hospitals, which are predominantly located in hgh-cost areas. These and other payment changes should help ensure equitable payment for all hospitals within the constraints of the statute.

I. Public Comments Received on the November 15, 2004 Final Rule With Comment Period

We received approximately 55 timely pieces of correspondence on the November 5, 2004 final rule with comment period, some of which contained multiple comments on the APC assignment of HCPCS codes identified with the NI comment indicator in Addendum B of that final rule with comment period and on the surgical insertion and implantation device criterion. Summaries of those public comments and our responses to those comments are set forth in the various sections under the appropriate headings.

II. Updates Affecting Payments for CY 2006

A. Recalibration of APC Relative Weights for CY 2006

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).

In the CY 2005 OPPS proposed rule (70 FR 42680), we proposed to use the same basic methodology that we described in the April 7, 2000 final rule to recalibrate the APC relative payment Start Printed Page 68524weights 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 proposed 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 137 million final action claims for hospital OPD services furnished on or after January 1, 2004, and before January 1, 2005. Of the 137 million final action claims for services provided in hospital outpatient settings, 109 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 109 million claims, we were able to use 52.7 million whole claims to set the proposed OPPS APC relative weights for CY 2006 OPPS. From the 52.7 million whole claims, we created 87.9 million single records, of which 54.9 million were “pseudo” single claims (created from multiple procedure claims using the process we discuss in this section).

As we proposed, the final APC relative weights and payments for CY 2006 in Addenda A and B to this final rule with comment period were calculated using claims from this period that had been processed before June 30, 2005, and continue to be based on the median hospital costs for services in the APC groups. 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 received numerous public comments concerning our proposed data source and methodology for recalibrating the APC relative weights for CY 2006. A summary of the comments and our responses are discussed below.

Comment: Commenters stated that many APC rates fluctuate dramatically, and the instability in the system makes it very hard for hospitals to budget and plan services from year to year. Among the services identified as issues of specific concern were clinic visits, application of brachytherapy sources, drugs and biologicals, and device-intensive APCs. Some commenters recommended that CMS limit increases and decreases for all APCs to no more than a 5-percent shift (increase or decrease) from one year to another. Commenters emphasized that fluctuations in payment rates for device-dependent procedures from year to year impact manufacturers' abilities to contract effectively with hospitals to provide a stable purchasing environment and, thereby, impede innovation and adversely impact beneficiaries.

Response: We understand the commenters' concerns about the need for sufficient stability in the OPPS so that hospitals can plan and budget. We have given this issue much consideration. We recognize that reliance on single procedure claims may result in fewer claims for some services than for others. For example, median costs for services such as office visits, for which the volume of single bills is very high, would generally be more stable than the median costs for services for which we have very few single procedure claims. We will continue to explore changes we could effectuate to enable us to use even more claims on the premise that using more claims data will enhance stability.

However, we note that the statutory design of the OPPS and the rapid evolution in the delivery of outpatient hospital services include many elements that may be responsible for some of the fluctuation in rates from year to year. For example, the “2 times rule” imposed by the law requires the movement of some procedures from one APC to another each year. Moreover, the OPPS is based on procedure coding for which there are hundreds of changes each year. In addition, the entry of new technology into a budget neutral payment system results in a shift of funds away from previously existing services to provide payments for new services. These systemic factors are valid reflections of the changes in services in the outpatient department, and shifts in payment legitimately mirror those changes.

Comment: Commenters stated that the entire OPPS is underfunded because it pays only 87 percent of the costs of services to Medicare beneficiaries. One commenter indicated that the underfunding of services to Medicare patients is particularly severe for disproportionate share hospitals and hospitals with level I trauma centers and, therefore, will inhibit access to care for Medicare beneficiaries and other individuals.

Response: Our early analyses indicated that the OPPS was, in its inception, based on payment that was less than cost due to statutory reductions in payment for hospital outpatient costs prior to the enactment of the BBA, which authorized the current OPPS. Certain fundamental statutory features of the OPPS dictate such a finding. For example, the base amounts upon which the OPPS was established, the rules concerning budget neutrality, and subsequent out-year adjustments such as annual reductions in coinsurance and adjustments to outlier and pass-through payment allocations are established in statute and, as such, would require legislation to amend.

Comment: Commenters supported use of the most recent claims data for recalibrating the APC relative weights but in many cases wanted CMS to adjust the claims data for particular services of interest to them in ways that will result in higher payment for those specified services. Other commenters supported use of proprietary, confidential external data in lieu of claims data to set the median costs on which the rates are based for selected services because they believe that the use of claims data results in median costs that are less than the costs of the services being furnished. Some commenters asked CMS to establish a representative sample of hospitals from which data would be collected for use in place of claims data or to validate the data derived from claims.

Response: We believe that, in a budget neutral relative payment system such as the OPPS, it is important that the relative weights be based on a uniform source of data processed in a standardized way. We believe that Medicare claims data are the most uniform data source available to us. Moreover, the weights derived from such a system are the vehicles for distributing Medicare payments for outpatient hospital services fairly among all hospitals that furnish outpatient hospital services to Medicare beneficiaries. We are committed to using claims data in a uniform manner, to the maximum extent possible, to develop the relative weights from which payment rates are calculated. We do not see a compelling need to use external data to set or adjust median costs for device-dependent APCs for the CY 2006 OPPS. Therefore, for the CY 2006 OPPS, we have not substituted external data for Medicare claims data for the purpose of setting the median costs on which the relative weights are based.

After carefully considering all comments received, we are finalizing our data source and methodology for the recalibration of CY 2006 APC relative weights as proposed without modification.

b. Use of Single and Multiple Procedure Claims. For CY 2006, we proposed 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 Start Printed Page 68525comment 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 costs for those APCs. 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 identified 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 proposed 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 proposed for CY 2006 OPPS resulted in our being able to use some part of 90 percent of the total claims that are eligible for use in OPPS rate-setting and modeling in developing this final rule with comment period. This process enabled us to use, for CY 2006, 88 million single bills for rate-setting: 55 million “pseudo” singles and 34 million “natural” single bills (bills that were submitted containing only one separately payable major HCPCS code). (These numbers do not sum to 88 million because more than 800,000 single bills were removed when we trimmed at the HCPCS level at +/−3 standard deviations from the geometric mean.)

We proposed to bypass the 404 codes identified in Table 1 of the proposed rule (70 FR 42682) 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 that list, 385 were used for bypass in CY 2005. For CY 2006, we proposed to continue the use of the codes on the CY 2005 OPPS bypass list and expand it by adding those codes that, using data presented to the APC Panel at its February 2005 meeting, met 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.

As we proposed, in this final rule with comment period, we used the following empirical criteria that 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.

As stated in the proposed rule (70 FR 42681), 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 codes 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 recommended 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 policy to pay these services separately. We added these codes to the bypass list because changing them from packaged to separately paid would result in a reduction of the number of single bills on which we could base median costs Start Printed Page 68526for other major separately paid procedures that 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.

As explained in the CY 2006 proposed rule (70 FR 42682), we examined the packaging on the single procedure claims in the CY 2004 data for these codes. We found that none of these three 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 proposed to pay separately for these codes and to add them to the bypass list for the CY 2006 OPPS.

In the CY 2006 proposed rule, we specifically invited public comments on the proposed “pseudo” single process, including the bypass list and the criteria. A summary of the many comments we received and our responses follow:

Comment: Some commenters supported use of multiple procedure claims through application of the bypass list and date of service stratification. Other commenters stated that these processes may result in more claims but not necessarily better data for rate-setting. Many commenters objected to the use of single procedure claims as the basis for setting the relative weights because they believed that using single procedure claims limits the claims data to the simplest and least costly cases. They proposed CPT code or APC specific strategies for using multiple procedure claims in ways that would apply only to the services of interest to them that could not be generalized across multiple procedure claims for all services. The commenters indicated that the use of single procedure claims greatly limits the number of claims that are used for setting median costs and weights, and that the OPPS relative weights would be greatly improved if we could use all of the claims data. They indicated that the use of single procedure claims causes medians to be set based on incorrectly coded claims for the many add-on codes that can only be billed properly when they are billed with the base code to which they are attached. In addition, they indicated that many services are so routinely furnished in combination with other services that use of single procedure claims will never result in appropriate median costs for these procedures.

Response: We share the commenters' desire to use as much claims data as possible to set the relative weights for the OPPS services. We continue to explore ways to use more data from multiple procedure claims. Specifically, we are looking at the extent to which the many add-on codes (codes that are reported for services furnished only as an adjunct to another service) can be packaged to create more single claims. We are also exploring strategies for using data from correctly coded multiple procedure claims containing both base and add-on codes to ascertain the incremental costs of the add-on services. We also expect to explore other generally applicable strategies, such as apportioning packaging based on submitted charges that would enable us to use multiple procedure claims.

We are disinclined to focus on service-specific strategies for using multiple procedure claims because those that have been suggested to us are not generally applicable to multiple procedure claims across all services, but rather are focused on increasing the median costs of particular services to the exclusion of all other services. As we indicated above, we believe that it is important in a relative weight system that, to the maximum extent possible, the same claims and the same processing rules apply to all services so that the resulting relative weights are uniformly created and serve all hospitals fairly.

Comment: One commenter asked why only some of the office visit and consultation services are included in the bypass list (for example, CPT codes 99213 and 99214 are on the list) but CPT codes 99211, 99212 and 99215 are not. The commenter believed that the cited unlisted codes should also be on the list. Other commenters did not believe that CPT codes 99213 and 99214 met the criteria for inclusion as bypass codes and believed that they should be removed from the list.

Response: We have included below data calculated from the APC Panel data for use in setting the bypass list for the CY 2006 proposed rule and this final rule with comment period. These data show that CPT codes 99213 and 99214 meet the criteria for inclusion as bypass codes, and that CPT codes 99211, 99212 and 99215 exceed the 5-percent limit for single bills containing packaging:

HCPCSShort descriptorMedian amount of packaging on single billsPercent of single bills for the code containing packaging
99211Office/outpatient visit, est$11.986.15
99212Office/outpatient visit, est10.885.43
99213Office/outpatient visit, est11.723.87
99214Office/outpatient visit, est12.763.63
00215Office/outpatient visit, est12.768.62

Comment: Commenters supported the use of the bypass list but were concerned that the inclusion of services on the bypass list may systematically result in lower costs for the procedures that are included on the list than if they had not been included on the list.

Response: We established the bypass list criteria for the purpose of limiting any potential adverse impact on the medians for the services on the bypass list. We believe that the requirement that a code cannot be placed on the bypass list if more than 5 percent of the single bills for that code contain packaging or if the median packaging for the code exceeds $50, is a strong deterrent to systematic reduction of medians for services on the bypass list. We have received no comments on the appropriateness or inappropriateness of the bypass criteria, and thus, we have not changed them for the CY 2006 OPPS.

Comment: Commenters asked CMS to carefully consider the impact of add-on codes on the creation of multiple Start Printed Page 68527procedure claims and urged CMS to not disqualify a claim because of the presence of an add-on code that is packaged. In the case of add-on codes that are separately paid, one commenter urged CMS to apportion the packaged charges between the base code and the add-on code so that the data from the multiple procedure claim can be used. Some commenters asked CMS to place all add-on codes, both packaged and separately paid, on the bypass list to create more single procedure claims.

Response: The presence of an add-on code with a status indicator of “N” because it is a packaged service does not currently disqualify the claim as a multiple procedure claim. The claim is considered to be a single procedure claim and the cost of the packaged add-on code is treated like any other packaged drug, device, or supply or other packaged cost. However, the presence of an add-on code that is separately paid but not on the bypass list does currently cause the claim to be a multiple procedure claim that is not used because of the difficulties in determining how to apportion the packaging on the claim between the two separately paid procedure codes.

We disagree that all add-on codes could safely be added to the bypass list. Many add-on codes use significant resources that are reported as packaged charges in support of the add-on code. For example, CPT code 33225 (Left ventricular lead add-on) requires more than an hour of additional operating room time and also requires a device with significant cost when the service is furnished in conjunction with a base service. If we were to include CPT code 33225 on the bypass list, only the line-item charge for the CPT code would be attributed to the procedure code. Neither the device cost (which is packaged), nor the share of other costs attributable to the service (for example, drugs, supplies, and extended operating room time) would be attributed to CPT code 33225. They would both be packaged into the base code. The single procedure claims for CPT code 33225 would not reflect the costs of the device or extended operating room time. In addition, the single procedure claims for the base code would reflect packaging that is not properly associated with that procedure.

However, we recognize that the add-on codes present a significant data problem because they can never be correctly billed unless they are also billed on the same claim with a base code to which they add services. We are undertaking a study of add-on codes to determine whether there are add-on codes that are now separately paid that should become packaged, and thus would provide more single procedure claims. With respect to the add-on codes for which packaging is not appropriate, we will be exploring methods that would enable us to systematically calculate valid median costs for the add-on codes from multiple procedure claims and thus create a more robust set of valid claims for rate-setting. We anticipate working with the APC Panel members on this issue.

Comment: Commenters asked CMS to assign a flag to claims that became pseudo singles in the claims included in the public use files so that it would be easier for commenters to model future proposed policies.

Response: The public use files (the limited data set and the beneficiary encrypted data set) contain claims as submitted to CMS. Therefore, to flag the pseudo single claims in the public use file is not possible because the pseudo single claims may be part, but not all, of the submitted claim. Even if we did flag the claim, the user would still have to replicate the process to create pseudo single claims. We note that we have greatly increased the information we issued regarding how we process the claims to acquire the median costs, and we understand that outside replication of our medians has improved.

Comment: Commenters asked whether CMS disregards line item charges for drugs, biologicals, and radiopharmaceutical agents and items with status indicators “K” and “G” for purposes of creating pseudo singles claims.

Response: The presence on a claim of a code and charge for a drug, biological, or radiopharmaceutical agent, whether separately paid or packaged, has no impact on determining whether the claim is a single procedure claim.

After carefully considering all public comments received, we are adopting as final the proposed “pseudo” single process and the bypass codes listed in Table 1 without modification.

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2. Calculation of Median Costs for CY 2006

In this section of the preamble, we discuss the use of claims to calculate the OPPS payment rates for CY 2006. The hospital outpatient prospective payment page on the CMS Web site on which this final rule with comment period is posted provides an accounting of claims used in the development of the final rates: http://www.cms.hhs.gov/​providers/​hopps. The accounting of claims used in the development of this final rule with comment period is included on the Web site under supplemental materials for the CY 2006 final rule with comment period. 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.”

As we proposed, we used the following methodology to establish the relative weights to be used in calculating the OPPS payment rates for CY 2006 shown in Addendum A and in Addendum B to this final rule with comment period. This methodology is as follows:

We used outpatient claims for the full CY 2004 to set the 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 109 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 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 we 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 Healthcare 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. For this final rule with comment period, 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.

The overall hospital-specific CCR is the total of costs and charges in those cost centers where we believe that a significant portion of the costs and charges are for services paid under the OPPS. We have included the list of the cost centers that we use in our overall CCR calculation on our Web site along with our cost center to revenue code crosswalk, which we discuss below. We do not include the costs and charges generated by nursing schools or paramedical education programs in our cost and charge totals.

We then flagged CAH claims, which are not paid under the OPPS, and claims from hospitals with invalid CCRs. The latter 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, as proposed, we trimmed at the departmental CCR level to eliminate aberrant CCRs that, if found in high volume hospitals, could skew the medians. We used a four-tiered hierarchy of cost center CCRs to match a cost center to a revenue code, with the top tier being the most common cost center and the last tier being the default CCR. If a hospital's departmental CCR was deleted by trimming, we set the departmental CCR for that cost center to “missing,” so that another departmental CCR in the revenue center hierarchy could apply. If no other departmental CCR could apply to the revenue code on the claim, we used the hospital's overall CCR for the revenue code in question. 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 code indicated on the line with the charge. Table 2 of the proposed rule (70 FR 42690) contained 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 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 Start Printed Page 68538another file. These claims were combined with the 76X claims identified previously to calculate the partial hospitalization per diem rate.

We then excluded claims without a HCPCS code. We also 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, radiopharmaceutical agents, and blood and blood products. The line-item costs were also used to calculate the per administration cost of drugs, biologicals (other than blood and blood products), and radiopharmaceutical agents.

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, 3, 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” listed in Table 1 of the proposed rule and this final rule with comment period to remove separately payable procedures that we determined contain limited costs or no packaged costs from a multiple procedure bill. A discussion of the creation of the list of bypass codes used for the creation of “pseudo” single claims is contained in section 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 final rule with comment period) and packaged revenue codes into the cost of the single major procedure remaining on the claim. The list of packaged revenue codes is shown below in Table 2. These are the same as those published in Table 2 of the proposed rule (70 FR 42690).

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, 58.4 million claims were left. Of these million claims, we were able to use some portion of 52.7 million whole claims (90.24 percent of the potentially usable claims) to create the 88 million single and “pseudo” single claims for use in the CY 2006 median payment rate-setting.

We also excluded (1) claims that had zero costs after summing all costs on the claim and (2) 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 deleted claims containing token charges because 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 indicator “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 resources. Therefore, we deleted 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 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-Start Printed Page 68539reclassification 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.

We received a number of public comments concerning our proposed data processes for calculating the CY 2006 OPPS relative weights and median costs. A summary of the comments and our responses follow:

Comment: Commenters stated that the proposed rule did not provide adequate information for hospitals to evaluate the impact of each of the proposed policy changes independently or in combination. They requested that CMS provide a public use file that shows the impact of each individual proposed change in methodology so that providers can determine how the changes would affect their own operations and provide a basis for comments.

Response: We currently provide provider-specific tables that we understand are very accurate in estimating the payments individual hospitals will receive. While we wish to make available to the public as much hospital-specific information as possible, there are limits to the resources available to us to provide hospital-specific information. Generally, we provide a broad range of information to the public. We make available our claims data in the form of both a limited data set and a beneficiary encrypted data set for use by the public, including hospitals. In addition, in both the OPPS proposed and final rules each year, we give a detailed description of how we process the paid claims to derive the median costs and how we create relative weights from the median costs. Many different organizations with a broad range of divergent interests currently use this information provided to the public to generate extraordinarily detailed reports and data of interest to them. As this is public information, we would expect that hospital associations and hospitals could do the same, either directly or using alternative sources to determine the impact of various policy options.

Comment: One commenter strongly opposed the requirement that all OPPS encounters furnished on the same day must be billed on a single claim. Some commenters believed that this increases the number of claims that cannot be used for ratesetting by creating multiple procedure claims and creates a needless burden on hospitals to ensure that all encounters on the same date of service are billed on the same claim.

Response: We agree and we have revised our policy governing how services on the same date of service must be billed. See Change Request 4047, Transmittal 711, dated October 14, 2005 for a complete discussion of our current policy. Under this change in policy, there are instances where nonrepetitive OPPS services that are furnished on the same date of service may be billed on different claims as long as all charges that pertain to each service are also reported on the same claim as the HCPCS code that describes that service. We emphasize that it is vitally important to us that all of the charges that pertain to a separately paid service be included on the same claim with the service being billed so that the claim will accurately reflect the full cost of the service. If, for example, charges for a packaged drug, recovery room time, and sterile supplies that were used in providing a surgical service are not included on the claim with the HCPCS code and line-item charge for the use of the operating room for the surgical procedure, those charges for drugs, recovery room, and supplies will not be packaged with the charge for the OR time for the surgical procedure and that claim will incorrectly and inadvertently lower the median cost for that surgical procedure. This is especially the case if the service is a low volume service. Also, this revised billing policy cannot apply to services for which we use claim-specific OCE logic to determine payments, such as drug administration and observation services, because the OCE claim-by-claim logic cannot function properly if all services provided by a hospital that are related to the services subject to the OCE logic are not reported on the same claim.

Comment: One commenter supported deletion of claims with token or nominal charges (for example, a very small charge such as $1) but was concerned about exclusion of claims containing multiple surgical or cardiac catheterization services because such exclusions may significantly reduce the number of claims used for rate-setting. The commenter noted that CMS has long permitted hospitals to show a token charge on the line-item with separately paid procedures when they were performed at the same session as a surgical procedure for which a charge is shown as operating room time. Another commenter wanted claims that contain a single payable APC line to be included even if there are token charges on other nonpayable lines on the claim.

Response: The submission of claims for multiple separately paid procedures with the same date of service on which there is a charge for operating room time for one of the HCPCS codes and token charges on the lines for the other separately paid HCPCS codes reflects a difficulty with using multiple procedure claims. (For example, a claim contains three separately paid surgical services, with a charge of $2,000 for one and charges of $1 for each of the others, plus a single charge each for drugs, sterile supplies, and recovery room time.) We note if we were to use such claims and allocate packaging to each separately paid procedure (on some basis yet to be determined) and then divide the claim into multiple claims, we would be using claims records that would contain nothing but packaged costs and a token charge for some of those services. Similarly, if we were to focus solely on the procedure with the line charge of $2,000 and attribute all the packaging to it, we would be overstating the packaging for that service because some of it rightfully belongs with the other two separately paid procedures for which there was a token charge. We acknowledge the commenters' concern and we will continue to pursue an Start Printed Page 68540appropriate way to allocate the costs on these types of claims.

After carefully reviewing all public comments received, we are finalizing the process for calculating median costs and the list of packaged services shown in Table 2 for OPPS services furnished on or after January 1, 2006, as proposed without modification. Table 2 contains the list of packaged services by revenue code that we used in developing the APC relative weights listed in Addenda A and B of this final rule with comment period.

We note that comments and responses regarding aspects of median cost and relative weight calculations specific to particular services or particular categories of services are also found in specifically identified sections of this preamble.

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3. Calculation of Scaled OPPS Payment Weights

Using the median APC costs discussed previously, we calculated the final relative payment weights for each APC for CY 2006 shown in Addenda A and B to this final rule with comment period. As in prior years, we scaled all the relative payment weights to APC 0601 (Mid Level Clinic Visit) because it is one of the most frequently performed services in the hospital outpatient setting. We assigned APC 0601 a relative payment weight of 1.00 and divided the median cost for each APC by the median cost for APC 0601 to derive the relative payment weight for each APC. Using CY 2004 data, the median cost for APC 0601 is $60.19 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 final relative weights. Based on this comparison, we adjusted the relative weights for purposes of budget neutrality. The unscaled relative payment weights were adjusted by 1.012508103 for budget neutrality. The final relative payment weights are listed in Addenda A and B to this final rule with comment period. The final relative payment weights incorporate the recalibration adjustments discussed in sections II.A.1. and 2. of this preamble.

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 cost of those specified covered outpatient drugs (as discussed in section V. of this preamble) is included in the budget neutrality calculations for CY 2006 OPPS.

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 for the CY 2006 OPPS. (We provide a discussion of brachytherapy payment issues at section VII. of this final rule with comment period.)

Comment: One commenter indicated that CMS should convene a panel to look at additional data submission requirements that the panel believes would greatly enhance both the reliability of the data and its subsequent use for ratesetting. Specifically, the commenter urged CMS to consider whether to require hospitals to identify the APCs that apply to multiple procedure claims or develop a system that groups multiple procedure claims in a fashion that is analogous to the inpatient prospective payment system.

Response: We fail to understand how hospital reporting of the APCs that apply to services on claims would resolve the issue of how to distribute packaged costs, such as drugs and recovery room time, among multiple procedures billed on the same claim. Therefore, we do not support imposing this reporting burden on hospitals. With respect to grouping procedures into combination APCs for purposes of dealing effectively with services that commonly appear in specific combinations together on claims, we proposed creation of combination APCs for the CY 2004 OPPS to deal with very frequent combinations of services. While we chose not to implement this approach for the CY 2004 OPPS, largely in response to public comments, we have not ruled out such an approach in the future as a way to effectively calculate median costs and set payment rates for services for which the norm is provision in combinations with other services.

4. Changes to Packaged Services

a. Background. 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.” As stated in the proposed rule, the Packaging Subcommittee reviewed every code that was packaged in the CY 2004 OPPS (70 FR 42691). 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. Another criterion used to determine whether a code should become unpackaged was how likely it was for the costs of the packaged code to be appropriately mapped to the separately payable codes with which it was performed. The Packaging Subcommittee also examined median costs from hospital claims for packaged services.

The Packaging Subcommittee identified areas for change for some packaged CPT codes that they believed could frequently be provided to patients as the sole service on a given date and that required 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 recommended:

(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 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). Start Printed Page 68543

(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 are for procedures to measure blood oxygen levels).

(8) That CMS provide education and consistent guidelines to providers and fiscal intermediaries on correct billing for packaged codes in general, and in particular for CPT codes 36540, 36600, 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 Panel.

In addition, during its August 2005 meeting, the APC Panel accepted the report of the Packaging Subcommittee and made the following recommendations:

(1) No change to the CY 2005 status indicator of 76937 (N-packaged), ultrasound guidance for vascular access, but requested that CMS collect available hospital claims data on that code for further consideration by the Packaging Subcommittee at the next available meeting.

(2) No change to the CY 2005 status indicator of CPT code 38792 (N-packaged), sentinel node identification, but requested that CMS collect available hospital claims data on that code for further consideration by the Packaging Subcommittee by the next scheduled meeting.

(3) No change to the CY 2005 status indicator of CPT code 42550 (N-packaged), injection for salivary x-ray.

(4) That CMS collect additional data on CPT code 36500, venous catheterization for selective blood organ sampling, and the corresponding radiological supervision and interpretation code, 75893, including a list of other codes with which these codes are most frequently billed, for consideration by the Packaging Subcommittee.

(5) No change to the CY 2005 status indicator of CPT code 0069T (N-packaged), acoustic heart sound services.

(6) That CMS collect additional data on CPT 94762, overnight pulse oximetry, including a list of other codes with which this code is most frequently billed, for consideration by the Packaging Subcommittee.

b. Responses to the APC Panel Recommendations

For CY 2006, we proposed 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 assign a modifier to the codes. We noted in our proposed rule that CPT code 36540 was also bundled under the Medicare Physician Fee Schedule (MPFS), and our data demonstrated that the service was generally billed with other separately payable services (70 FR 42691). We also had relatively few single claims for CPT code 36600, compared to the procedure's overall frequency. Both of these codes had relatively low hospital resource utilization. As these procedures were almost always provided with other separately payable services, hospitals' payments for those other services included the costs of CPT codes 36540 and 36600. With respect to the APC Panel's recommendation that the OPPS make payment for one of these services if the code had a modifier appended signifying that it was the only service provided on a day, there is currently no appropriate CPT modifier that could be appended to signal this circumstance. A new HCPCS modifier would not be appropriate because the packaged codes recommended by the APC Panel for separate payment when billed alone are CPT codes.

We received a few public comments concerning this proposal.

Comment: Commenters stated that CPT 36540 should not be assigned status indicator “N” because drawing blood for laboratory work from a venous access device requires that a registered nurse assess the patient and then use a sterile kit to perform the blood draw. They objected to having to report an E/M visit code in order to receive payment for the service when it is the only service provided. The commenters requested that CMS assign the proposed status indicator “Q” for CPT code 36540 so that the OPPS could make payment when it is the only service provided. Similarly, at least one commenter asked that CMS assign the “Q” status indicator to CPT code 36600.

Response: We continue to believe that the services described by CPT codes 36540 and 36600 are almost always provided in conjunction with other separately payable services in the hospital outpatient department setting. Our data do not support making these services separately payable. We proposed the new “Q” status indicator for services that may be separately payable or packaged depending on special circumstances for CY 2006 only for observation services. Codes assigned this status indicator will require the application of OCE logic to determine the codes' payment status and identify separate payment if appropriate, and then application of the same logic in our data processing to develop median costs for those services for future OPPS updates. We seek to gain some experience with such logic in the OCE and our data processing for observation services prior to considering any expansion of the use of status indicator “Q.” Use of the “Q” modifier for procedures that are sometimes packaged would require ongoing maintenance of a list of codes for which this status indicator may be used and their APC assignments if separately paid, as well as additional claims and data processing activities.

After carefully reviewing all comments received, for CY 2006 we are adopting as final without modification our proposal to retain CPT codes 36540 and 36600 as packaged services and not adopt the APC Panel's recommendation to assign a modifier for use when the services are provided with no other separately payable services on the same day.

For CY 2006, we proposed 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 $39.00. 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 proposed to pay separately for this code every time it is billed. We believed that it was more appropriate to make payment for each procedure, rather than increase hospitals' administrative burden by requiring specific coding changes to indicate that there were no other separately payable procedures on the claim. Based on our review of the data, the cost for this procedure was not insignificant, and the volume of single and multiple claims was modest. When we reviewed related codes, including CPT code 51702 (Insertion of temporary Start Printed Page 68544indwelling bladder catheter, simple) and CPT code 51703 (Insertion of temporary indwelling bladder catheter, complicated), we noted that these codes also had substantial median costs and a moderate volume of single claims. Therefore, for CY 2006, we proposed to pay separately for CPT codes 51702 and 51703, mapping them to APC 0340 with a median cost of $39.00 and APC 0164 (Level I Urinary and Anal Procedures) with a median cost of $72.00, respectively. We proposed that CPT codes 51701, 51702, and 51703 be placed on the bypass list, as discussed in section II.A.1.b. of this final rule with comment period.

The comments we received supported our proposal. Accordingly, we are finalizing our proposal to pay separately for CPT codes 51701 and 51702, and to assign them to APC 0340 with status indicator “X,” and a median cost of $36.00 for CY 2006. We are also finalizing our proposal to pay separately for CPT code 51703, and to assign it to APC 0164 with status indicator “T,” and a median cost of $69.00 for CY 2006.

For CY 2006, we proposed to accept the APC Panel recommendation that CPT code 76937 (Ultrasound guidance for vascular access) remain packaged. We were concerned that there might be unnecessary overuse of this procedure if it were separately payable. In addition, we believed 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.

We received several public comments in response to our proposal.

Comment: A few commenters requested that some radiologic guidance codes, such as CPT code 76937 for ultrasound guidance for vascular access and CPT code 75998 for fluoroscopic guidance for central venous access device placement, become separately payable instead of packaged. The commenters stated that each guidance code could be reported with several separately payable procedure codes, thereby skewing the median costs for the procedures and not providing appropriate payment for the procedures when radiologic guidance was used. In addition, one commenter expressed concern that the codes have been packaged due to concern over unnecessary utilization. The commenter stated that an audit is a more appropriate way to prevent unnecessary utilization. In addition, the commenters cited a finding published in a June 2001 report by the Agency for Healthcare Research and Quality, that use of ultrasound guidance reduces relative risk for complications during a central venous catheter insertion by 78 percent, as a reason that separate payment should be made for CPT code 76937. The commenters also stated that assignment of packaged status to these codes conflicts with CMS' policy as stated in its CY 2003 OPPS final rule, to pay separately for all radiology guidance codes.

Response: OPPS hospital claims data reveal that out of the total instances of CPT code 76937 appearing on claims used for setting payment rates for CY 2006, CPT code 76937 was billed with four separately payable codes for insertion of central venous access devices 84 percent of the time. This indicates, as might be expected, that the costs for CPT code 76937 are typically packaged into four CPT codes, 36556, 36558, 36561, and 36569, the most commonly billed codes under the OPPS for vascular access device insertion. The data for CPT code 75998 reveal similar patterns of utilization and packaging. Of the total instances of CPT code 75998 appearing on claims used for setting payment rates for CY 2006, code 75998 was billed with the same four separately payable codes for insertion of central venous access devices 70 percent of the time. This indicates that the costs for fluoroscopic guidance for central venous access device placement are typically packaged into the same CPT codes as the costs for ultrasound guidance for vascular access. Of single claims used for setting payment rates for CY 2006 for those four CPT codes describing the insertion of vascular access devices, ultrasound guidance was reported from 16 to 34 percent of the time, and fluoroscopic guidance was billed from 29 to 52 percent of the time. For the same four CPT codes, one or more forms of guidance (fluoroscopic and/or ultrasound) were reported on 41 to 64 percent of the single claims utilized for rate-setting. Thus, overall for these vascular access device insertion services, guidance was used in at least 41 percent of the single claim cases, a very significant proportion of the time. If anything, this percentage may underestimate the utilization of guidance for the insertion of vascular access devices, as we have been told that hospitals may not always code separately for packaged services for which no separate payment is made.

Hospital claims data from CY 2004 yield a median cost of $61.00 for ultrasound guidance and $73.00 for fluoroscopic guidance for vascular access. The costs for these guidance procedures are relatively low compared with the CY 2006 payment rates for the separately payable services they most frequently accompany, which range from almost $500 to about $1,600. We note that, in general, our payment rates for vascular access device services for CY 2006 are significantly greater than our CY 2005 payment rates for the same services because more specific CY 2004 data available for CPT codes that were new in CY 2004 permitted us to reconfigure the APCs containing vascular access device procedures to improve clinical and resource coherence. In addition, our hospital claims data demonstrate that in CY 2004 guidance services were used frequently for the insertion of vascular access devices, and we have no evidence that patients lacked appropriate access to guidance services necessary for the safe insertion of vascular access devices in the hospital outpatient setting. We believe the increased CY 2006 payment rates for insertion of vascular access devices should result in preservation of appropriate access to medically reasonable and necessary ultrasound and fluoroscopic guidance procedures used to facilitate the insertion of the devices.

If we were to unpackage CPT codes 76937 and 75998, single bills available to develop median costs for vascular access device insertion services would be significantly reduced. In addition, separate payment for an ancillary guidance service always performed in conjunction with other separately payable services could lead to overutilization of the ancillary service, for which payment is more appropriately bundled into the prospectively established payment for the procedure to insert the vascular access device. Our statement regarding paying separately for radiology guidance services in the CY 2003 final rule with comment period was made in the context of our explanation regarding our decision to unpackage certain radiology guidance procedures that had first been packaged for CY 2002, and does not necessarily apply to all radiology guidance services. As for all HCPCS codes, we will continue to evaluate each service, including radiology guidance services, for its most appropriate OPPS payment status, including packaged versus separately payable designation, on a case-by-case basis according to the clinical and resource characteristics of the procedure and the other services with which it would likely be billed. Start Printed Page 68545

We will share the CY 2004 and early CY 2005 hospital claims data concerning these vascular access guidance services with the APC Panel Packaging Subcommittee, as recommended by the APC Panel, for their review prior to the next biannual APC Panel meeting.

After carefully considering the public comments received, we are adopting as final without modification our proposal to accept the APC Panel's recommendation that CPT code 76937 remains a packaged service for CY 2006. In addition, we are finalizing our proposal to continue to package CPT code 75998 for CY 2006.

We refer the reader to section VIII. of this preamble on drug administration regarding the APC Panel's recommendation concerning CPT codes 90471 and 90472.

For CY 2006, we proposed to accept the APC Panel recommendation to gather data and review CPT code 94762 to determine how often this code was billed without any other separately payable codes on the same date of service and whether it was performed more frequently alone in rural settings than other settings. During the August 2005 APC Panel meeting, we presented data to the APC Panel regarding CPT code 94762. CY 2004 OPPS hospital claims data indicated at that time that CPT code 94762 was billed only 1,145 times without any separately payable codes on the claim, which was only 1.5 percent of all units of code 94762 billed. Fifty-two percent of the 1,145 single occurrences of CPT code 94762 were provided by rural hospitals. Fifty-two percent was particularly high considering that, when reviewing both single and multiple procedure claims, the data indicated that CPT code 94762 was provided by rural hospitals only 12 percent of the time. The data revealed that rural hospitals were more likely than urban hospitals to bill CPT code 94762 without any separately payable codes on the claim. For purposes of this analysis, a rural hospital was defined as any hospital that is considered rural for payment purposes. In general, this included geographically rural providers as well as providers that were reclassified to rural areas for wage index classification.

We recognize that the data used in the analysis are somewhat limited. Because CPT 94762 is a packaged code and does not receive separate payment, it is possible that an unknown number of hospitals chose not to submit claims to CMS when CPT code 94762 was provided without other separately payable services on their claims.

Comment: Several comments requested that CMS change the status indicator for CPT code 94762 from “N” to “X” and that the service be assigned to APC 0369, (Level III Pulmonary Tests). They stated that because noninvasive ear or pulse oximetry for oxygen saturation, by continuous overnight monitoring, is a prerequisite for proving the medical necessity for home oxygen therapy, this is often the only service provided to beneficiaries during their hospital outpatient visits. The commenters stated that no E/M service is necessary and that it should be possible to receive payment for CPT code 94762 when it is the only service provided.

Response: We continue to believe that the packaged status of CPT code 94762 is appropriate. As discussed during the August 2005 APC Panel meeting, our data do not support separate payment for this service because 98.5 percent of the time, it is provided with separately payable services, and is rarely the only service provided in hospital settings on a single date of service to a Medicare beneficiary.

After carefully considering the public comments received, for CY 2006 we are accepting the APC Panel's recommendations to retain as a packaged service CPT code 94762. We will share the CY 2004 and early CY 2005 hospital claims data concerning CPT code 94762 with the APC Panel Packaging Subcommittee as recommended by the APC Panel, for its review during the next biannual APC Panel meeting.

For CY 2006, we proposed 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 state our belief that CPT code 77790 was 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 bundled with the payment for the brachytherapy service. The small number of single claims for this code in our data verified that this code was rarely billed alone without other payable services on the claim, and those few single claims might be miscoded claims. Our data review of CPT codes 94760 and 94761 revealed that these codes had low resource utilization, and were most frequently provided with other services. Similar to CPT code 77790, there were many fewer single claims for CPT codes 94760 and 94761 than multiple procedure claims that included CPT codes 94760 and 94761. CPT codes 94760 and 94761 describe services that were 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.

We did not receive any public comments concerning our proposal. Therefore, for CY 2006 we are finalizing, without modification, our proposal to accept the APC Panel's recommendations to retain as packaged services CPT codes 77790, 94760, and 94761.

For CY 2006, we proposed to accept the APC Panel recommendation to gather data and review CPT codes 42550 (injection for salivary x-ray), and 38792 (sentinel node identification) with the Packaging Subcommittee. In the proposed rule, we stated that this would include analyzing single and multiple procedure claims volume and resource utilization data, and reviewing those studies with the Packaging Subcommittee. During the August 2005 APC Panel meeting, the Panel recommended that we continue to package CPT codes 42550 and 38792 for CY 2006. We believed that CPT code 42550 was appropriately packaged, as were other injection codes that were integral to the provision of some separately payable procedures. In addition, we agreed with the APC Panel that CPT code 38792 was appropriately packaged because we believed that it would almost always be provided with other separately payable procedures on the same date of service, such as nuclear medicine services or surgical procedures.

We received a few public comments regarding our proposal to retain as packaged CPT code 38792.

Comment: The commenters stated that CPT 38792 is sometimes the only service provided in the hospital outpatient department, and that separate payment under the OPPS should be allowed. They stated that there are instances in which the injection for the X-ray is provided in the hospital outpatient department, and then the beneficiary goes to a different setting outside the hospital for the surgery. The commenters requested that CMS assign the proposed “Q” status indicator to this procedure code to make separate payment possible under the OPPS.

Response: We believe that the most appropriate course of action with regard to CPT code 38792 is to retain its packaged status and to collect Start Printed Page 68546additional data and, as recommended by the APC Panel, to then present those data to the Packaging Subcommittee during our next meeting with them. Based on our CY 2004 claims data, we had only four single claims for CPT code 38792. We continue to believe that payment for the injection service is most appropriately packaged with other separately payable services provided on the same date of service, most likely imaging or surgical procedures.

After carefully reviewing and considering the public comments received for CY 2006, we are accepting the APC Panel's recommendations to retain as packaged services CPT codes 38792 and 42550. Payment for those injection services is most appropriately bundled with the payments for other separately payable services provided on the same day.

We will share the CY 2004 and early CY 2005 hospital claims data concerning CPT 38792 with the APC Panel Packaging Subcommittee as recommended by the APC Panel, for its review during the next biannual APC Panel meeting.

As we proposed, we referred CPT code 97602 (Nonselective wound care) for MPFS evaluation of its bundled status as CPT code 97602 relates to services provided under the OPPS.

We received several public comments concerning our proposed treatment of CPT code 97602 for CY 2006, with assignment of status indicator “A.”. Those comments and others related to wound care services are addressed in section III.D.5.j. of this preamble.

During the August 2005 APC Panel meeting, the Panel recommended that CMS collect additional data on CPT code 36500 (Venous catheterization for selective blood organ sampling) and the corresponding radiological supervision and interpretation code, 75893. We received several clinical scenarios from a provider, indicating that CPT codes 36500 and 75893, both packaged services, were frequently provided on a claim without any separately payable codes. In those cases, the provider did not receive any payment. We believed it was unlikely that these two procedures would be reported without any other separately payable codes on the claim. Our early review of several clinical scenarios revealed that other separately payable codes would likely be provided on the same claim.

We received one comment in response to our proposal to retain packaged status for CPT codes 36500 and 75893.

Comment: One commenter requested that CMS allow separate payment for CPT codes 36500 and 75893 when these services are the only services on the claim. The commenter stated that there are many times that these are the only procedures performed during a hospital outpatient encounter.

Response: Our data do not support separate payment for these procedures at this time. After considering the comment and the APC Panel's recommendation, we will collect and review additional data to determine which codes are most frequently billed on claims with CPT codes 36500 and 75893. We will share the CY 2004 and early CY 2005 hospital claims data for these venous catheterization and radiological supervision services as recommended by the APC Panel, for its review prior to the next biannual APC Panel meeting.

During the August 2005 APC Panel meeting, the Panel recommended that CMS maintain the packaged status of CPT 0069T (Acoustic heart sound recording and computer analysis only). This code is indicated as an add-on code to an electrocardiography service, according to the American Medical Association's CY 2005 CPT book. Therefore, we believed this code was appropriately packaged because it was integrally related to the provision of electrocardiography, and should never be performed alone.

We received several comments regarding CPT 0069T in response to the code's new interim designation in the CY 2005 final rule with comment period and to our proposal for CY 2006.

Comment: Several commenters requested that CMS change the status indicator for CPT code 0069T (Acoustic heart sound recording and computer analysis only). The commenters requested that CMS assign the procedure to APC 0099 with an “S” status indicator rather than “N,” as was the CY 2005 and proposed CY 2006 status indicator for code 0069T. The commenters indicated that the test's status as a packaged procedure results in inequitable payment to hospitals. They stated that the cost of an EKG with the acoustic heart sound recording is $55, whereas the cost of an EKG without such recording is only $31. They added that because CMS has packaged the procedure, the hospital is underpaid by $24 for each test it performs.

Response: It is our understanding that the acoustic heart sound recording and analysis is intended for a specific, targeted group of patients to enhance the provider's ability to diagnose heart failure. The technology always is performed in conjunction with an EKG and as such is ideal for packaging. It is up to hospitals to increase their charges to reflect the additional costs for those EKGs that include the acoustic heart sound recording. If the hospital uses the test according to the manufacturer's guidelines, the costs will be distributed over the large number of EKGs that are performed in the hospital outpatient department and, over time, the additional costs will be recognized in the OPPS rates as increased payments for other services provided on the same day, likely EKGs. We are accepting the Panel's recommendation that we maintain the packaged status of CPT code 0069T for CY 2006. We will review claims data as they become available for the CY 2007 OPPS update.

We also received several comments that requested status indicator changes for other CPT codes, not previously brought before the Packaging Subcommittee.

Comment: Commenters suggested that the following packaged procedures should be made separately payable: CPT code 96523 (Irrigation of implanted venous access device for drug delivery systems (new code for CY 2006)); CPT code 76001 (Fluoroscopy, physician time more than one hour); CPT code 76003 (Fluoroscopic guidance for needle placement); CPT code 76005 (Fluoroscopic guidance and location of needle or catheter tip); CPT code 74328 (Endoscopic catheterization of the biliary ductal system, radiological supervision and interpretation); CPT code 74329 (Endoscopic catheterization of the pancreatic ductal system, radiological supervision and interpretation); CPT code 74330 (Combined endoscopic catheterization of the biliary and pancreatic ductal systems, radiological supervision and interpretation); HCPCS code P9612 (Catheterization for collection of specimen); and HCPCS code G0269 (Placement of occlusive device into either a venous or arterial access site, post surgical or interventional procedure).

Response: We believe that the commenters' suggestions bear closer examination. We will not make any changes to the packaged status of these services at this time. Rather, we will collect data related to the costs and utilization of these services for presentation to the Packaging Subcommittee of the APC Panel. We note that the status indicator of CPT code 96523, a new CPT code for CY 2006, is subject to comment in this final rule with comment period. We will discuss with the Packaging Subcommittee, on an ongoing basis, packaged procedures for which status indicator changes have been suggested by the public. The ongoing process allows members some additional time to Start Printed Page 68547consider the issues we bring to them prior to the twice yearly meetings where the subcommittee makes its recommendations to the full APC Panel.

Additional issues and new data concerning the packaging status of codes will be shared with the APC Panel Packaging Subcommittee 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. Payment for Partial Hospitalization

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. PHP APC Update for CY 2006

To calculate the final CY 2006 PHP per diem payment, we initially 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 used 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 from year to year while the median per diem cost for hospital-based PHPs has remained relatively constant ($200-$225). We believe that CMHCs 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. Since 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 with comment period 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.

As discussed in the proposed rule (70 FR 42693), 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 compared to CY 2003. The average charge per day for CMHCs in CY 2003 was $1,184 and in CY 2004, the CMHC average charge per day dropped to $765. 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. Start Printed Page 68548

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 believed 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.

As stated in the proposed rule (70 FR 42693), we considered three alternatives to our update methodology for the PHP APC for CY 2006 that would mitigate this drastic reduction in payment for PHP. One alternative was 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 have used $209, the median per diem cost for hospital-based PHPs during CY 2004 to establish the PHP APC for CY 2006. However, we believed 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.

The second alternative we considered was 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. 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 have affected 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 will provide an incentive for CMHCs to stabilize their charges so that we can use their data in future updates of the PHP APC. However, we believe that the trimming methods described above will 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, as stated in the proposed rule (70 FR 42693) we continue to be concerned about the volatility of the CMHC data. The analyses we conducted for the proposed rule seem to indicate that eliminating aberrant CMHC data results in a median per diem cost more in line with hospital data. We stated in the proposed rule that we would continue to analyze the CMHC data in developing payment rates, and cautioned that we may use only hospital data in the future if the data continue to be unstable.

In the proposed rule, we stated that we considered a third alternative that would lessen the PHP payment reduction for CY 2006, yet provide an adequate payment amount to promote access to the partial hospitalization benefit for Medicare beneficiaries (70 FR 42694). Using this approach, for CY 2006, we proposed 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. We scaled that amount relative to the cost of a mid-level office visit to establish the PHP APC for CY 2006. We believed 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 believed 15 percent was 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 proposed that the reduction in payments for PHP be a transitional measure, and proposed to 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.

We received 58 public comments in response to this proposal. A summary of the comments is provided below along with our responses.

Comment: In general, the commenters expressed concern that a reduction in the PHP rate of 15 percent would lead to the closure of many PHPs and that limited access to this crucial service would result in more costly inpatient hospital care as the only alternative. CMHCs commented that their costs are higher than hospitals', with most in the $300 to $400 range. Another commenter indicated that a per diem rate of $300 to $350 was more appropriate than our proposed amount.

A few commenters also suggested alternatives such as including prior years' CMHC data trended forward based on medical inflation, using a rolling-average or maintaining the CY 2005 payment rate for PHP services furnished in CY 2006.

Response: For the final rule, we analyzed 12 months of more current data for hospital and CMHC PHP claims for services furnished between January 1, 2004 and December 31, 2004. This claims data is more current in that it includes claims paid through June 30, 2005. We also used the most currently available cost-to-charge ratios to estimate costs. Using this updated data, we recreated the analysis performed for this year's proposed rule to determine if the significant factors we used in determining the proposed PHP rate had changed. The median per diem cost for CMHCs increased slightly to $154, while the median per diem cost for hospital-based PHPs decreased slightly to $201. The CY 2004 average charge per day for CMHCs was $760 similar to the figure noted in the proposed rule ($765) but still significantly lower than what is noted for CY 2003 ($1,184). We continue to believe that a combination of reduced charges and slightly lower CCRs for CMHCs resulted in a significant decline in the CMHC median per diem cost between CY 2003 and CY 2004.

Following the methodology used for the CY 2005 OPPS update, the combined hospital-based and CMHC median per diem cost would be $161, a decrease of 44 percent compared to the CY 2005 combined median per diem amount. While this figure is somewhat higher than the $149 combined median in the proposed rule, we believe that this amount is still too low to cover the cost for all PHPs.

As we did in the proposed rule, we again considered three alternatives to our update methodology for the PHP Start Printed Page 68549APC for CY 2006 that would mitigate the payment differences for PHP services. The first alternative was to base the PHP APC on hospital-based PHP data alone. Using the most recent years available data, the median per diem cost of hospital-based PHPs for CY 2004 is $201, somewhat less than the $209 median per diem cost of hospital-based PHP using the proposed rule CY 2004 data. We continue to believe that using $201 would be too low for all PHPs in CY 2006. However, we do believe the decrease from $209 to $201 from the proposed rule to this final rule with comment continues the trend in lower per diem costs for hospital-based PHPs.

The second alternative we considered was to apply the same trimming methodology noted in the proposed rule 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. Again, using the most recent available data, we compared CMHC per diem costs in CY 2003 to CMHC per diem cost in CY 2004 and determined the percentage change. Initially, we trimmed CMHC 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 $165, slightly more than noted in the proposed rule. Again, this approach still produced a per diem cost we believe is too low. We then trimmed CMHC claims where the difference in CMHC per diem costs from 2003 to 2004 were 25 percent or more. This trimming variant produced a CMHC median per diem cost of $172 for CY 2004.

We continue to believe that trimming certain aberrant CMHC data will provide an incentive for CMHCs to stabilize their charges so that we can use their data in future updates of the PHP APC. However, the two trimming methods described above produce median per diem costs that we believe are too low for the CY 2006 PHP APC rate.

The CY 2004 claims data coincides with the effective date of the separate CMHC outlier threshold policy which became effective January 1, 2004. We believe that this policy may have, in part, contributed to the rapid decreases in CMHC's per diem charges in CY 2004. If so, we may see charges stabilize in the CY 2005 claims data which would enable us to use the CMHC data to compute the CY 2007 rate.

We proposed a 15 percent reduction to the combined hospital-based and CMHC median per diem cost for CY 2006. We have conducted further analysis of more complete CY 2004 claims data combined with more recently available cost-to-charge ratios. The newer data continue to produce a combined hospital-based and CMHC median per diem cost that is an unacceptable decrease from CY 2005 PHP APC rate. We continue to believe that 15 percent is an appropriate reduction because it recognizes decreases in median per diem costs in the hospital data and the CMHC data, and also reduces the risk of adverse impact on access to these services that might result from a large single-year rate reduction.

To apply this methodology, we 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, the resulting APC final rate for PHP of $246.04 for CY 2006, of which $49.21 is the beneficiary's coinsurance.

Comment: A few commenters stated that CMHC facility costs increased in virtually every area including salaries, benefits, supplies, insurance, dietary support, transportation, communications and administrative support and that they experienced overall increases in expenses of more than 5 percent in most areas. These commenters requested that CMS increase the per diem rate paid for PHP services consistent with the inflation rate for the medical industry. Another commenter suggested we use inpatient costs per day as the basis for the PHP median per diem cost. This commenter suggested that CMS develop an adjustment factor relative to the inpatient psychiatric facility prospective payment system per diem base rate to form the basis for the PHP per diem rate.

Response: The statute does not provide for the update strategies suggested by these commenters and is specific as to the update methdology.

Comment: A few commenters indicated that the methodology used to compute the PHP APC distorts per diem costs because the claims include non-paid days.

Response: If a provider has charges on a bill for which they do not receive payment, this will be reflected in that provider's cost-to-charge ratio. This lower cost-to-charge ratio will be applied to the larger charges and will result in the appropriate cost per diem.

Comment: A few commenters stated that they are unable to collect coinsurance from their patients, that Medicaid cuts have made it more difficult to stay viable, and that the proposed rate reduction would cause PHP programs to close.

Response: The Medicare bad debt policy and Medicaid payment policies are beyond the scope of the July 25, 2005 OPPS proposed rule. We note the bad debt policy can be located in the Medicare Provider Reimbursement Manual, Pub. 15, Chapter 3 or through the following link: http://www.cms.hhs.gov/​manuals/​pub151/​PUB_​15_​1.asp.

Comment: With respect to the methodology used to establish the PHP APC amount, commenters expressed concern that data from settled cost reports fails to include costs reversed on appeal and that there are inherent problems in using claims data from a different time period like available cost-to-charge ratios on settled cost reports.

These commenters also stated that this can only artificially lower the actual median costs. The commenters claims that when cost reports are settled, generally 2 years or more after the actual year of services, they have operated on actual revenues of 80 percent of the per diem.

Response: We use the best available data in computing the APCs. With respect to PHP services, we specifically issued a Program Memorandum on January 17, 2003 directing FIs to update the cost-to-charge ratios on an on-going basis whenever a more recent full year cost report is available. In this way, we hoped to minimize the time lag between the cost-to-charge ratios and claims data.

Comment: One commenter related that administrative costs for CMHCs continue to be a major impediment to operating PHPs for Medicare beneficiaries. Medicare does not cover transportation to and from programs and does not cover meals. Almost all programs offer transportation because in most cases Medicare beneficiaries with serious mental illnesses would not be able to access these programs without the transportation.

Response: The services that are covered as part of a PHP are specified in section 1861(ff) of the Act. Meals and transportation are specifically excluded under section 1861(ff)(2)(I) of the Act.

Comment: Several commenters simply summed the payment rates for three Group Therapy Sessions (APC 0325) and one Extended Individual Therapy Session (APC 0323) and requested that amount as the minimum for a day of PHP. These same commenters then questioned why the per diem amount is considerably less than the combined cost of these services.

Response: We do not believe this is an appropriate comparison. It is important to note that the APC services cited by Start Printed Page 68550the commenter (APC 0325 and APC 0323) are not PHP services, but rather single outpatient therapeutic sessions. PHP is a complete program of services with efficiencies and economies of scale provided in contrast to individual psychotherapy services. We also believe that the commenters used only the median cost from single bills, for example, where group psychotherapy was the only service furnished. As stated earlier, we used data from PHP programs (both hospitals and CMHCs) to determine the median cost of a day of PHP. PHP is a complete program of services with efficiencies and economies of scale provided in contrast to individual psychotherapy services.

The PHP APC (0033) reflects the program of services provided in that it consists of the cost of all services provided each day and does not reflect a sole service. Although we require that each PHP day include a psychotherapy service, we do not specify the specific mix of other services provided and have focused our analysis on the cost per day rather than the cost of each service furnished within the day.

Comment: One commenter requested that the same provisions given to rural hospital outpatient departments also be given to rural CMHCs.

Response: We believe the commenter may be referring to the statutory hold harmless provisions. Section 1833(t)(7)(D) of the Act authorizes such payments, on a permanent basis, for children's hospitals and cancer hospitals and, through CY 2005, for rural hospitals having 100 or fewer beds and sole community hospitals in rural areas. Section 1866(t)(7)(D) of the Act does not authorize hold harmless payments to CMHC providers.

Comment: We received several comments from CMHCs stating that their costs are higher as hospitals can share and spread their costs to other departments. These commenters also indicated that the CMHC patient acuity level is more intense than the hospital patients as hospital outpatient departments need only provide 1 or 2 therapies, yet still receive the full per diem.

Response: By definition, a PHP bill must have at least 3 partial hospitalization HCPCS codes for each day of service, one of which must be a psychotherapy HCPCS code (other than brief psychotherapy). This requirement is applied to all partial hospitalization bills, whether provided in an outpatient hospital department or in a CMHC. Therefore, hospital outpatient departments must provide the same level of program intensity and must provide for the same level of patient acuity as CMHCs in order to receive payment.

Comment: A few commenters requested that CMS revise the CMHC cost report form (CMS-2088) to include a field which allows the CMHC to report its Medicare PHP days. They also recommended that we revise settlement worksheet D on the CMS-2088 to include new fields that display the Medicare PHP cost per day and separate PHP reimbursement between outlier and non-outlier reimbursement (since the current cost report form commingles both types of reimbursement). Finally, the commenters recommended that we revise the CMHC Provider Statistical & Reimbursement Report Type: 76P to include a field which reports actual paid Medicare PHP days.

Response: We appreciate the commenters suggestions for improving the Medicare cost report for CMHCs. We plan to explore these and other modifications to improve CMHC cost reporting so that we may use CMHC data in future ratesetting.

Comment: A few commenters stated that hospitals that offer partial hospitalization services should not be penalized for the instability in data reporting that stems from CMHCs.

Response: We believe hospitals-based PHPs have actually benefited from our combining hospital and CMHC data to compute the PHP APC rate. The median calculated from hospital outpatient department PHPs has consistently been far less then the median amount that is computed for CMHCs.

Comment: One commenter who represents CMHCs expressed frustration over several unsuccessful attempts at becoming a member of the APC panel.

Response: The qualifications and selection of the APC Panel members is outside the scope of this regulation. We refer the commenter to http://www.cms.hhs.gov/​faca/​apc/​default.asp for information on the APC panel.

3. 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, we used CY 2004 claims data to calculate the 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 contrast, for 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.

In the proposed rule, CMHCs were projected to receive 0.6 percent of the estimated total OPPS payments in CY 2006. As noted in section II.H. of this preamble, for CY 2006, we proposed to set the target for hospital outpatient outlier payments at 1.0 percent of total OPPS payments. We also proposed allocate a portion of that 1.0 percent, 0.6 percent (or 0.006 percent of total OPPS payments), to CMHCs for PHP services. As discussed in section II.G. below, we proposed to set 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 did not set a dollar threshold for CMHC outliers. We proposed 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 Start Printed Page 68551outlier threshold, we used hospital charge inflation factor to inflate charges to CY 2006.

We received no comments on our proposal. As discussed in section II.H, using more recent data for this final rule, we set the target for hospital outpatient outlier payments at 1.0 percent of total OPPS payments. We also allocate a portion of that 1.0 percent, 0.6 percent (or 0.006 percent of total OPPS payments), to CMHCs for PHP services. As we proposed, we set 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 did not set a dollar threshold for CMHC outliers. For CY 2006, we set the outlier threshold for CMHCs at 3.40 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. Conversion Factor Update for CY 2006

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 final rule on August 12, 2005, is 3.7 percent (70 FR 47392), rather than the 3.2 percent forecast published in the IPPS proposed rule on May 4, 2005 (70 FR 23384) and referenced in the CY 2006 OPPS proposed rule. 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 3.7 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 budget neutrality factor of 1.001485209 for wage index changes by comparing total payments from our simulation model using the FY 2006 IPPS final wage index values to those payments using the current (FY 2005) IPPS wage index values. In addition, to accommodate the rural adjustment discussed in section II.G. of this preamble, we calculated a budget neutrality factor of 0.99614506 by comparing payments with the rural adjustment to those without. For CY 2006, we estimate that allowed pass-through spending will equal approximately $45.5 million, which represents 0.17 percent of total OPPS projected spending for CY 2006. The conversion factor is also adjusted by the difference between the 2.0 percent pass-through set-aside and the 0.17 percent estimate of pass-through spending. Finally, decreasing payments for outliers to 1.0 percent of total payments, as proposed, returned 1.0 percent to the conversion factor.

The market basket increase update factor of 3.7 percent for CY 2006, the required wage index budget neutrality adjustment of approximately 1.001485209, the return of 1.0 percent in total payments from a reduced outlier target, the return of 1.83 percent of the pass-through set-aside, and the adjustment for the rural payment adjustment of 0.99614506 result in a conversion factor for CY 2006 of $59.511.

We received several public comments on the proposed conversion factor update for CY 2006.

Comment: Several commenters requested CMS to revise the market basket update included in the final OPPS rule to include a 3.7 percent market basket update, consistent with the IPPS final rule.

Response: We have used a 3.7 percent market basket increase update factor in our conversion factor calculation for the CY 2006 OPPS update.

Comment: One commenter suggested that CMS increase total payments to hospitals by 3.2 percent and not the 1.9 percent total payment increase indicated in the regulatory impact analysis section of the proposed rule.

Response: The 1.9 percent reported in column 6 of Table 33 in the regulatory analysis section of the proposed rule is not the 3.2 percent that appears in column 5 because it models all payments to hospitals. The 1.9 percent reflects the loss of payment for drugs outside of OPPS authorized by Pub. L. 108-173, that expires in CY 2006. The statute requires CMS to take into account, for purposes of establishing a budget neutral CY 2006 update, the additional costs associated with payments for specified covered outpatient drugs. The regulatory impact analysis accompanying this final rule with comment period demonstrates a similar loss. The market basket increase update factor of 3.7 percent is offset by the drug payments in CY 2006 that were made outside the system in CY 2005, to result in an overall increase of 2.2 percent.

Accordingly, we are finalizing the conversion factor update for CY 2006 of $59.511.

D. Wage Index Changes for CY 2006

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 proposed 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 the CY 2006 OPPS proposed rule, in accordance with our established policy, we proposed to use the FY 2006 final version of these wage indices with any corrections posted on the CMS Web site, to determine the wage adjustments for the OPPS payment rate 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, Start Printed Page 68552and 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 applying to the OPPS for CY 2006. We refer the reader to the FY 2006 IPPS final rule (70 FR 47363 through 47387, August 12, 2005) for a detailed discussion of the changes to the wage indices. In this final rule with comment period, we are not reprinting the FY 2006 IPPS wage indices referenced in the discussion below, with the exception of the out-migration wage adjustment table (Addendum L of this final rule with comment period). We refer readers to the CMS Web site for the OPPS at http://www.cms.hhs.gog/​providers/​hopps. At this Web site, the reader will find a link to the FY 2006 IPPS wage indices tables and any corrections made to them.

1. The 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 final rule, we again stated that hospitals located in MSAs will be urban and hospitals that are located in Micropolitan Areas or Outside CBSAs will 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 1-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 final rule, we discussed the cessation of the 1-year transition and announced that hospitals will 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, TEFRA hospitals will receive 100 percent of their wage index based upon the new CBSA configurations beginning in CY 2006.

2. We are applying the 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 final 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 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 adopting all of the IPPS reclassifications 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. We are continuing to apply 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 final rule (70 FR 47383 and 47384, August 12, 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 final rule, we finalized our policy that reclassified hospitals not receive the out-migration adjustment unless they waive their reclassified status. 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 to this final rule with comment period lists all hospitals that will receive an out-migration adjustment to their wage index in 2006 including TEFRA hospitals that will receive an out-migration adjustment under this OPPS final rule with comment period. (See also Table 4J of the Addendum to the FY 2006 IPPS final rule).

We used the final FY 2006 IPPS indices to adjust the payment rates and coinsurance amounts that are included in this OPPS final rule with comment period 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 final 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.

We received two public comments on the application of the FY 2006 IPPS wage indices under the OPPS.

Comment: One commenter supported our proposal to extend the IPPS wage indices to OPPS because this simplifies payment for hospitals.

One commenter suggested that OPPS use different labor share percentages for hospitals with a wage index below 1.0 Start Printed Page 68553and hospitals with a wage index above 1.0. The commenter specifically cited the requirement in Pub. L. 108-173 that IPPS use a larger labor share percentage for hospitals with wage indexes over 1.0 and a relatively smaller labor share percentage for hospitals with wage indexes less than 1.0. This commenter specifically requested that CMS use a labor share of 50 percent for hospitals with wage indexes less than 1.0.

Response: Section 403 of Pub. L. 108-173 requires that IPPS hospitals be paid using a labor-related share of 62 percent unless this labor-related share would result in lower payments than would otherwise be made. Unlike IPPS, OPPS has no mandate to reduce the labor-related share. The OPPS labor-related share was determined through regression analyses conducted for the initial OPPS proposed rule (63 FR 47581, September 8, 1998). Those analyses identified 60 percent as the appropriate labor share for outpatient services. We confirmed that this labor-related share is still appropriate during our regression analysis for the payment adjustment for rural hospitals in this final rule. In these regression equations, the coefficient of the hospital wage index is the estimated percentage change in unit costs attributable to a 1 unit percent increase in the wage index, which is an estimate of the share of outpatient unit costs attributable to labor. Both Table 5 and Table 6 in section II.G. of this preamble indicate a coefficient of 63 percent for the wage index. In light of both analyses, we believe that the current 60 percent labor-related share remains appropriate for OPPS payment purposes.

After carefully considering the public comments received, we are finalizing our wage index adjustment policy for CY 2006 OPPS as proposed without modification.

E. Statewide Average Default Cost-to-Charge Ratios (CCRs)

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). As we proposed, in this final rule with comment period, we have updated the default ratios using the most recent cost report data for CY 2006.

We calculated the statewide default CCRs using the same CCRs that we use to adjust charges to costs on claims data. Table 3 of the proposed rule (70 FR 42696) listed 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.

For the proposed rule, 80.79 percent of the submitted cost reports represented data for CY 2003. We have since updated the cost report data we use to calculate cost to charge ratios with additional submitted cost reports for CY 2004. For the final rule, 51.66 percent, the majority of the submitted reports utilized in the default ratio calculation, 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 CY 2003, 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 appeared 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.

We did not receive any public comments concerning the proposed statewide average default CCRs. Therefore, we are finalizing them as shown in Table 3 below for OPPS services furnished on or after January 1, 2006.

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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 SCHs located in rural areas for services Start Printed Page 68556furnished 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 SCHs 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.)

We received four public comments concerning this hold harmless policy.

Comment: The commenters expressed concern about the impact that the expiration of the transitional corridor hold harmless payments would have on small rural hospitals because these are vulnerable facilities that provide important access to care in their communities.

One commenter recommended that the provision be expanded to permanently extend the hold harmless payments to small rural hospitals and rural SCHs, as is currently the case for cancer hospitals and children's hospitals. Two commenters referenced efforts by a large hospital association to work with Congress on legislation to provide for this expansion.

Response: We appreciate the comments that were submitted and we have carefully reviewed each of them. As the commenters acknowledge, section 1833(t)(7)(D) of the Act, as amended by section 411 of Pub. L. 108-173, provides that OPPS transitional corridor payments will expire for rural hospitals having 100 or fewer beds and SCHs located in rural areas on December 31, 2005. Therefore, we are providing for the termination of these payments in this final rule with comment period. However, as noted in section II.G. of this final rule with comment period, we are providing a 7.1 percent adjustment for rural sole community hospitals in accordance with section 411 of Pub. L. 108-173.

G. Adjustment for Rural Hospitals

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.

As described in our CY 2006 OPPS proposed rule, we used regression analysis to study the differences in outpatient cost per unit between rural and urban hospitals because we believed that a simple comparison of unit costs would not capture the myriad of factors that contribute to observed costs, including labor supply, complexity, and volume of services. For this final rule with comment period, we reran these regression analyses that we conducted in the proposed rule and conducted additional analyses in response to issues raised in public comments.

For this final rule with comment period, our regression analysis included all 4,088 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 a more complete set of CY 2004 Medicare claims than was used in the analysis for the proposed rule 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, services receiving pass-through payments, and any service paid under a separate payment system 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.

We calculated the total unit outpatient cost for each hospital by dividing total outpatient cost by the total number of APC units discounted for the joint performance of multiple surgical procedures. (See section II.G.1. below for a definition of discounted units.) As in the analysis for the proposed rule, 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. We used the explanatory regression models to assess which class of rural hospitals, if any, is significantly more costly than urban hospitals. In a “payment model” approach, the only independent variables included in the cost regression are those variables considered for payment adjustments. We used the payment model to determine the amount of the adjustment for any class of hospitals identified as significantly more costly in the explanatory model. The regression equations 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 unit 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). In regression analysis, dummy variables capture the difference in means of the dependent variable in the class of hospitals of interest and all other hospitals, holding all other variables in the equation constant.

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

For this final rule with comment period, we retained the same set of explanatory variables as used in the regression analysis for the proposed rule because we believe that these variables capture the most important factors contributing to differences in unit costs between rural and urban hospitals.

  • 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. We used the OPPS hospital wage index for CY 2006 as our measure of relative differences in labor input costs.
  • 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. We used the total number of discounted units as our indicator of volume. Discounted units Start Printed Page 68557are 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. 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).
  • 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. 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 as our measure of complexity. The service-mix index reflects the average APC weight of each facility's outpatient services. From our analysis, we also believe that the number of beds captures variation in unit costs attributable to the additional complexity of services performed by a hospital that is not explained by their service mix index.
  • 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 discounted 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 of 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, noted above, or scale economies are more important.
  • In addition to the above factors, we included additional categorical variables to indicate the types of specialty hospitals that participate in OPPS, specifically cancer, children's, long-term care, rehabilitation, and psychiatric hospitals because we do not believe that the costs, volume, and service-mix associated with these hospitals looks like the costs, volume, and service mix of a typical OPPS provider.
  • Finally, we included several categorical variables for rural/urban location and type of rural hospital to capture variation unexplained by the other independent variables in the model. Urban hospitals are the reference group for all of the different types of hospitals examined included in the regressions equations below. Table 4 provides descriptive statistics for the dependent variables and key independent variables by urban and rural status. Without controlling for the other influences on per unit cost, rural hospitals have a 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 Rural and Urban Location

VariableRuralUrban
MeansStandard DeviationMeansStandard Deviation
Unit Outpatient Cost$157.57($64.94)$188.76($93.53)
Standardized Unit Outpatient Cost$75.51($55.70)$73.54($40.98)
Wage Index0.8807(0.1012)1.0212(0.1479)
Service-Mix Index2.3636(0.9357)2.7544(1.6037)
Outpatient Volume21,021(21,770)38,469(46,925)
Beds78(56)196(170)
Number of Hospitals1,2062,882

2. Results

For this final rule with comment period, we began our analysis by rerunning the regression models that we had examined for the proposed rule. As a group, all rural hospitals continue to demonstrate weak evidence of slightly higher unit costs than urban hospitals, after controlling for labor input prices, service-mix complexity, volume, facility size, and type of hospital. In the explanatory model, regressing unit costs on all of the independent variables discussed above, the coefficient for the rural categorical variable was 0.024 (p=0.0613). 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 suggests that rural hospitals are approximately 2.4 percent more costly than urban hospitals after accounting for the impact of other explanatory variables. This is the same coefficient observed in the regression analyses for the proposed rule. The results of this regression appear in Table 5. This regression demonstrated reasonably good explanatory power with an adjusted R2 of 0.54 (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 Start Printed Page 68558facility size variable (beds), suggesting that facility size is more reflective of complexity than any economies of scale. The payment regression that accompanies this explanatory model indicates an adjustment for all rural hospitals of 4.3 percent.

As we did for our proposed rule, we divided rural hospitals into categories that reflected their eligibility for the expiring hold harmless provision under section 1833(t)(7)(D) of the Act in order to determine whether the small difference in costs was uniform across classes of rural hospitals or whether all of the variation was attributable to a specific type of rural hospitals. Specifically, we divided rural hospitals into rural SCHs, rural hospitals with 100 or fewer beds that are not rural SCHs, and other rural hospitals. The first two categories of rural hospitals are currently eligible for payments under the expiring hold harmless provision.

As indicated in the proposed rule, 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. The rural SCH variable has an explanatory regression coefficient of 0.06044 and an observed probability of 0.0003. 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 6.2 percent would be less than 0.1 percent. This is sufficient evidence to accept that rural SCHs are more costly than urban hospitals, holding all other variables constant.

Notably, we observe no significant difference between all small rural hospitals with 100 or fewer beds and urban hospitals or between other rural hospitals and urban hospitals. In the explanatory regression presented in Table 6, the dummy variable for small rural hospitals has an observed coefficient of 0.01203 and an associated probability of 0.4748. If the unit costs of small rural hospitals are the same as those of urban hospitals, the probability of observing a value as extreme or more extreme than 1.2 percent would be less than 50 percent. With such a high probability, there is insufficient evidence to conclude that rural hospitals with 100 or fewer beds are more costly than urban hospitals, holding all other variables constant. The results are almost identical when Start Printed Page 68559volume and facility size are not included in the equation. Finally, the dummy variable for other rural hospitals has an observed coefficient of −0.01646 and an associated probability of 0.4545. If the unit costs of other rural hospitals are the same as those of urban hospitals, the probability of observing a value as extreme or more extreme than −1.7 percent would be less than 50 percent. These results are also present when facility size and volume are not included in the equation. As with small rural hospitals, this is insufficient evidence to conclude that other rural hospitals are more costly than urban hospitals. Further, for this group of rural hospitals, the coefficient is negative, indicating lower cost per unit.

Based on the above analysis, we continue to believe that a payment adjustment for rural SCHs is warranted. The accompanying payment regression, also appearing in Table 6, indicates a cost impact of 7.1 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 implementing a 7.1 percent payment increase for rural SCHs for CY 2006. This adjustment will apply to all services and procedures paid under the OPPS, excluding drugs, biologicals, and services paid under the pass-through payment policy. As stated in the proposed rule, this adjustment is budget neutral, and will be applied before calculating outliers and coinsurance. We will not reestablish the adjustment amount on an annual basis, but we may review the adjustment in the future, and if appropriate, may revise the adjustment. Additional descriptive statistics are available on the CMS Web site.

We received 19 public comments concerning these results.

Comment: Several commenters supported our proposed payment increased for rural SCHs of 6.6 percent.

Response: We appreciate the commenters' support. As we discussed above, based on our most recent analysis, we are implementing an adjustment of 7.1 percent in this final rule with comment period. We believe that an adjustment at this level remains consistent with the views expressed by the commenters.

Comment: Several commenters expressed concern that the regression analysis, as presented, does not separately set out the regression results for rural hospitals with 100 or fewer beds that are not rural SCHs. They indicate that, while CMS stated that this class of hospitals did not demonstrate significance in the explanatory regression analyses, it did not definitively display these results. The Start Printed Page 68560commenters highlighted the importance of showing these results because these are the facilities that will be losing their hold harmless protection in CY 2006. One of the commenters cited MedPAC's 2005 Report to Congress, which noted that previous MedPAC research indicated higher costs for low-volume hospitals which are predominantly rural. The commenters urged CMS to specifically report the regression results with small rural hospitals with 100 or fewer beds identified separately.

Response: We agree with the commenters that we should identify small rural hospitals with 100 or fewer beds separately in the analysis. The results in Table 6 demonstrate that small rural hospitals with 100 or fewer beds do not appear to have unit costs different from those of urban hospitals after controlling for other contributors to unit cost, including volume.

Comment: Several commenters requested clarification on the definition of rural in order to assess which hospitals would be eligible for the rural adjustment. The commenters asked: Would a SCH located in a rural area that has been reclassified for wage index purposes into an urban area be eligible for the SCH adjustment? Would a SCH located in an urban area that has been reclassified for wage index purposes into a rural area be eligible for the SCH adjustment?

Response: SCHs will be considered rural for the rural adjustment, and for purposes of the OPPS rural adjustment only, under section 1833(t)(13)(B) of the Act if a hospital is geographically located in a rural area or has been reclassified to a rural area for wage index purposes. Therefore, a SCH located in a rural area that has been reclassified for wage index purposes into an urban area will be eligible for the adjustment, regardless of whether the SCH has been reclassified to an urban area for wage index purposes. In addition, a SCH located in an urban area that has been reclassified for wage index purposes into a rural area also will be eligible for the adjustment. New § 419.43(g)(1)(ii) of the regulations, which we are finalizing in this final rule with comment period, will provide that an SCH is eligible for the adjustment if the hospital is “located in a rural area as defined in § 412.64(b) of this chapter or is treated as being located in a rural area under § 412.103.” To clarify the text in response to the comments received, we are referencing § 412.103 in the final regulation text instead of the reference to section 1886(d)(8)(E) of the Act. This definition of a “SCH located in a rural area” only will apply for the purposes of the rural adjustment in this rule.

Comment: One commenter asked if rural SCHs that are participating in the Rural Community Hospital Demonstration Program would be eligible for the rural adjustment.

Response: Rural SCHs participating in the Rural Community Hospital Demonstration Program are eligible to receive this rural adjustment. The Rural Community Hospital Demonstration Program, authorized under section 410A of Pub. L 108-173, assesses whether rural hospitals will benefit from cost-based reimbursement and is limited to payment for inpatient services. Although SCHs participating in the demonstration program are not eligible to receive traditional SCH payments made under the IPPS, these hospitals retain their SCH status.

Comment: Several commenters requested clarification of whether CMS intends to make this adjustment available beyond CY 2006, and whether it intends to reestablish the adjustment amount on an annual basis.

Response: We will not reestablish the adjustment amount on an annual basis, but we may review the adjustment in the future and, if appropriate, revise the adjustment.

Comment: A few commenters requested that CMS extend the rural adjustment to CMHCs or make some other special allowance or provision for their rural location.

Response: Section 1833(t)(13)(A) of the Act limits the scope of this analysis and any adjustment to comparing rural and urban hospitals costs.

Comment: Several commenters requested that CMS extend the proposed rural adjustment to all SCHs, not just rural hospitals, under its equitable adjustment authority in section 1833(t)(2)(E) of the Act. The commenters described the necessary access to services that urban SCHs provide and highlighted that both urban and rural SCHs have been recognized for special protections by Congress in other payment systems because they are the sole source of inpatient hospital services reasonably available to Medicare beneficiaries.

One commenter used the public use file that CMS provided on its Web site and conducted detailed analyses to assess the appropriateness of an adjustment for urban SCHs. The commenter compared urban SCHs, rural SCHs, other urban hospitals, and other rural hospitals on the number of beds, their service mix, and wage index. The commenter also conducted regression analysis. The first model the commenter examined included a variable for rural location and a variable for SCH status in addition to the other variables used in CMS' explanatory model. The commenter reported that the SCH variable is significant, suggesting that SCHs are more costly than other non-SCHs controlling for rural or urban status. The commenter concluded that the results indicated SCHs are significantly more costly than hospitals that are not SCHs and that geographic location does not influence this finding.

The same commenter also examined an explanatory model that resembled CMS' explanatory model. The commenter indicated that this model included separate variables for urban SCHs, rural SCHs, and all other rural hospitals in order to isolate the unit cost differences between urban SCHs and other hospitals. The commenter reported that, in this model, the unit costs of urban SCHs were not significantly different from urban, non-SCH unit costs. With regard to this last finding, the commenter suggested that the lack of significance is less important than the comparability in the magnitude of the coefficient for rural and urban SCHs, and that both types of hospitals have coefficients at 6 percent. Finally, the commenter examined the significance of the rural indicator in an explanatory regression model conducted only with SCH hospitals. Within this population, the commenter reported that all explanatory variables are statistically significant, except an indicator for rural status, and suggested that this finding further supports extending the adjustment to urban SCHs. The commenter concluded by requesting that CMS repeat its regression to confirm that SCH status, and not geographic location, is indicative of higher costs, and if it finds this to be true, to appropriately adjust for higher costs.

Response: We do not believe it is sufficient to confirm that all SCHs are significantly more costly than non-SCHs, as the commenter demonstrated in its first regression model because the statutory authority for this adjustment is to be based upon the comparison between urban and rural hospitals. The regression model that includes a variable for SCH status and a variable for rural location only confirms that all SCHs have higher costs than hospitals that are not SCHs and that, having controlled for SCH status, rural and urban hospitals are not different. Rural SCHs comprise 90 percent of all SCH, and are the basis for the observed significance on the SCH variable. Notwithstanding the mandate for this rural adjustment, we believe that urban SCHs would have to demonstrate strong Start Printed Page 68561empirical evidence that they are significantly more costly than other urban hospitals. We do not find the strong empirical evidence supporting an adjustment for urban SCHs, as we do for rural SCHs.

In many respects, urban SCHs look like urban hospitals on some of the key variables presented in Table 4. Urban SCHs have a mean cost per unit of $183.89, and urban hospitals have a mean cost per unit of $188.76. Urban SCHs have a mean standardized unit cost of $74.01, and all urban hospitals have a mean standardized cost of $73.54. Finally, urban SCHs have a mean volume of 36,714, and urban hospitals have a mean volume of 38,469. Similar to the commenter, we also ran an explanatory regression analysis that included urban SCHs as a separate class of hospitals in addition to rural SCHs, small rural hospitals, and other rural hospitals. In these results, the coefficient associated with urban SCHs was 0.05960 and the associated probability was 0.1624. If the unit costs of urban SCHs are the same as those of urban hospitals, the probability of observing a value as extreme or more extreme than 6.1 percent would be less than 20 percent. We acknowledge the commenter's statement that the size of the coefficient on the urban SCH dummy variable is comparable to that on the dummy variable for rural SCHs. However, we do not believe that the size of the coefficient is sufficient evidence. The lack of significance associated with such a large coefficient is attributable to the much higher standard error accompanying urban SCHs compared to rural SCHs. Higher standard error indicates that there is large variability in unit costs for urban SCHs after controlling for all other variables in the equation. Some urban SCHs may have unit costs as high as rural SCHs, but clearly many do not. We believe that this observation accounts for the lack of significance on the rural variable in the commenter's regression analyses, which was limited to the population of SCHs.

Comment: One commenter requested that CMS examine whether the outpatient costs of Medicare-Dependent Small Rural Hospitals (MDHs), a subgroup of rural hospitals, are higher than urban hospitals' outpatient costs, and provide an adjustment to payments if appropriate.

Response: We did not find any evidence that rural MDHs are more costly than urban hospitals. We ran an explanatory regression analysis that included rural MDHs as a separate class of small rural hospitals from other small rural hospitals because 90 percent of rural MDHs were also small rural hospitals. We also included all of the other variables in Table 6 above, including rural SCHs and other rural hospitals. In these results, the coefficient associated with rural MDHs was −0.01955, with an associated probability of 0.4438. If the unit costs of MDHs are the same as those of urban hospitals, the probability of observing a value as extreme or more extreme than 2 percent would be less than 50 percent.

Comment: One commenter argued that CMS excluded variables from the regression model that control for “financial pressure” and “market structure.” The commenter argued that higher costs can be the result of inefficient operations as much as they could also be the result of higher input costs created by rural location, and that measures of financial pressure or market structure would capture any variation in unit cost attributable to a lack of local competition. The commenter suggested that SCHs may be inefficient because they already have special payment status under the IPPS and the OPPS. Finally, the commenter suggested that, because beneficiaries' access to care is the central objective of any payment policy, CMS should consider a low-volume adjustment that better captures higher costs that the hospital cannot control. At the same time, the commenter acknowledged that section 1833(t)(13)(A) of the Act specifically requires an analysis of urban and rural costs.

Response: While it is not inappropriate to include additional variables in the explanatory regression analysis, we first note that section 1833(t)(13)(A) of the Act specifically calls a determination of whether costs faced by rural hospitals are higher than those faced by urban hospitals. For this reason, we believe that the model in Table 6 ably controls for scale efficiencies in a comparison of urban and rural costs. Our adjusted R2 of 54 percent also demonstrates a relatively good fit. We acknowledge that some of the SCHs eligible for the adjustment may also be more costly because of inefficiencies due to limited competition or because they currently receive special payment status under the IPPS and the OPPS. However, we also agree with the commenter that beneficiary access is an important goal. We believe that the current model is sufficiently robust to identify hospitals with significantly higher costs such that payment under the OPPS alone might impact beneficiary access. The SCH status of these hospitals suggests that they are important to beneficiary access. Rural SCHs receive their designation because they are the only, or one of a few, sources of care for beneficiaries. For example, these hospitals may be the only immediately available source of emergency services for Medicare beneficiaries.

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 finalizing our policy by including a payment adjustment for rural SCHs of 7.1 percent and finalizing the regulation text at § 419.43(g) as noted above.

H. Hospital Outpatient Outlier Payments

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 in order to better target outliers to those high cost and complex procedures where a very costly service 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 a discussion on CMHC outliers, see section II.B.3. of this final rule with comment period.

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

For CY 2006, we proposed to set our projected target for aggregate outlier payments at 1.0 percent of aggregate total payments under the OPPS. A portion of that 1.0 percent, an amount equal to 0.6 percent of outlier payments, would be allocated to CMHCs for partial hospitalization program service outliers. In support of this decision, we cited MedPAC's March 2004 Report to Congress, in which MedPAC recommended that Congress pursue the statutory change needed to eliminate the outlier policy under the OPPS. We specifically highlighted several of the reasons given by MedPAC for the elimination of the outlier policy because they are equally applicable to any Start Printed Page 68562reduction in the size of the percentage of OPPS payments dedicated to outlier payments. One of MedPAC's arguments included the very narrow definition of many APCs with limited packaging frequently resulting in multiple service payments for any given claim. In addition, we noted that outlier policies are susceptible to “gaming” through charge inflation and that the OPPS is the only ambulatory payment system with an outlier policy. Finally, we cited MedPAC's observation that the distribution of outlier payments benefits some hospital groups more than others.

In order to ensure that estimated CY 2006 aggregate outlier payments would equal 1.0 percent of estimated aggregate total payments under the OPPS, we proposed 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. Ultimately, we chose to modify the fixed dollar threshold to target 1.0 percent of estimated aggregate total payment under the OPPS and not to modify the current 1.75 multiple in order to further our policy of targeting outlier payments to complex and expensive procedures with sufficient variability to pose a financial risk for hospitals. We note that modifying the multiple threshold would have done less to target outlier payments to complex and expensive procedures.

We calculated the fixed-dollar threshold for the proposed rule using the same methodology as we did in CY 2005. The claims that we use to model each OPPS lag by 2 years. For this final rule with comment period, we used CY 2004 claims to model the CY 2006 payment system. In order to estimate CY 2006 outlier payments for the proposed rule, we inflated the charges on the CY 2004 claims using the same inflation factor of 1.0865 that we used to estimate the IPPS fixed-dollar outlier threshold for the IPPS FY 2006 proposed rule. For 2 years, the inflation factor is 1.1804. The methodology for determining this charge inflation factor was discussed at length in the IPPS proposed rule (70 FR 47493, August 12, 2005). As we stated in our final rule for 2005, we believe that the use of this charge inflation factor is appropriate for OPPS because, with the exception of the routine service cost centers, hospitals use the same cost centers to capture costs and charges across inpatient and outpatient services (69 FR 65845, November 15, 2004). As also noted in the IPPS final rule, we believe that a charge inflation factor is more appropriate than an adjustment to costs because this methodology closely captures how actual outlier payments are made and calculated (70 FR 47495, August 12, 2005). We then applied the overall cost-to-charge ratio (CCR) that we calculate from each Hospital's Cost Report (CMS-2552-96) as part of our process for estimating median APC costs. The calculation of this overall CCR is discussed in greater detail in section II.A. of this preamble. We estimated outlier payments using these costs for several different fixed-dollar thresholds, holding the 1.75 multiple constant until the aggregated outlier payments equaled 1.0 percent of aggregated total payments under the OPPS. In addition, for CY 2006, we proposed an outlier threshold for CMHCs of 3.45 times the APC payment rate.

For this final rule with comment period, we recalculated the fixed-dollar threshold in light of updated claims data, a revised charge inflation estimate, and more timely CCRs. As in the proposed rule, we did not change the multiple threshold of 1.75 times the APC payment rate, but concentrated on adjusting the fixed-dollar threshold. We again used the same inflation factor that we used to estimate the IPPS fixed-dollar threshold. Because the charge inflation factor for the IPPS was revised to 14.94 percent for 2 years in the IPPS FY 2006 final rule (70 FR 47493, August 12, 2005), we inflated charges on all CY 2004 OPPS claims by 1.1494.

We then applied the hospital specific overall CCR which we calculated for purposes of our APC cost estimation. We simulated aggregated outlier payments using these costs for several different fixed dollar thresholds holding the 1.75 multiple constant until the total outlier payments equaled 1.0 percent of aggregated total OPPS payments. We estimate that a threshold of $1,250 combined with the multiple threshold of 1.75 times the APC payment rate will allocate 1.0 percent of aggregated total OPPS payments to outlier payments. We used a lower charge inflation factor of 14.94 percent to increase charges to reflect 2006 dollars. The proposed fixed dollar threshold declined to $1,250 from $1,575 in the proposed rule primarily because we used the lower charge inflation factor of 1.1494.

The following is an example of an outlier calculation for CY 2006 under our final 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 CCR 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 ($1,250 + APC payment). In this example, the provider meets both criteria:

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

(2) $7,800 exceeds $4,250 ($1,250 + $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.

For CMHCs, in CY 2005, 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. For this final rule with comment period, updated data reduces the multiple outlier threshold for CMHCs to 3.4. The outlier threshold for a CMHC is met when the cost of furnishing a service or procedure by a CMHC exceeds 3.4 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 3.4 times the APC payment rate.

We received 25 public comments concerning our proposed outlier policy.

Comment: One commenter supported CMS' decision to reduce the percentage of total payments set aside for outlier payments from 2.0 percent to 1.0 percent.

Response: We appreciate the commenter's support. Although the fixed-dollar threshold has changed due to more accurate data than in the proposed rule, we do not believe that this change would impact the views expressed by the commenter.

Comment: Several commenters expressed concern that, in light of an increase in the threshold from $1,175 to $1,575, CMS may have set the threshold for outlier payments too high. They requested clarification as to how CMS determined that a $400 increase in the fixed-dollar threshold was appropriate and how the $1,575 fixed-dollar threshold was calculated. The commenters specifically noted that in the IPPS final rule CMS reduced the charge inflation factor used to set the fixed-dollar threshold from 18.04 Start Printed Page 68563percent to 14.94 percent, and suggested that CMS make a similar adjustment to the OPPS methodology.

Response: As discussed above, for the proposed rule, we used a charge inflation factor of 1.1804 to inflate the charges on CY 2004 claims to CY 2006 dollars. We then applied the overall CCR that we calculate as part of our APC median estimation process to those inflated charges to estimate costs. We compared these estimated costs to 1.75 times the proposed APC payment amount and to the APC payment amount plus a number of fixed-dollar thresholds until we identified a threshold that produced total outlier payments equal to 1.0 percent of total aggregated OPPS payments. This methodology increased the fixed-dollar threshold by $400.

We repeated the same estimation process for this final rule, using a complete set of CY 2004 claims, the updated charge inflation estimate of 14.94 percent from the IPPS final rule, as requested by commenters, and each hospital's overall CCR, as calculated for our APC median setting process. The final fixed dollar threshold for OPPS 2006 is $1,250 plus the APC payment rate, and the final multiple threshold is 1.75 times the APC payment rate.

Comment: Commenters expressed concern that CMS has never reported the actual amount of outlier payments for the OPPS made in past years. They noted that CMS routinely reports prior year outlier payments for the IPPS. The commenters also expressed concern that CMS may not spend the percentage of total aggregated OPPS payment set aside each year for outlier payments. One commenter hypothesized that outlier payments had been underspent in previous years, and that the proposed reduction in outlier payments was designed to realign the policy with actual payment. The commenters urged CMS to publish data on actual outlier payments made in CY 2004 and prior years in the final rule. They also recommended that actual outlier payments for CY 2005 OPPS be reported as soon as CMS is able to obtain accurate data and that CMS continue to report these data in the future.

Response: As we have stated in prior rules (see for example 69 FR 65847, November 15, 2004), we have not provided aggregate outlier payments for past years because we do not use those estimates to set the outlier thresholds and because we make outpatient claims available. However, we understand that providers might wish to know this information, especially in light of recent changes in the OPPS outlier policy. In the final set of CY 2004 OPPS claims, aggregated outlier payments were 2.5 percent of aggregated total OPPS payments. In the final set of CY 2003 OPPS claims, aggregated outlier payments were 3.1 percent of aggregated total OPPS payments. For both years, the estimated outlier payments were set at 2 percent of total aggregated OPPS payments. At this time, we cannot make accurate estimates about aggregated total outlier payments for CY 2005, but we intend to provide this information in our proposed rule for CY 2007. We intend to continue reporting the percentage of total payments made in outlier payments for the most recent and complete set of claims in future rules. We note above our reasons for proposing to reduce the projected target percent of total aggregated OPPS payments attributable to outlier payments.

Comment: Several commenters suggested that CMS did not provide sufficient analytic support to justify a reduction in outlier payments from 2.0 percent to 1.0 percent, relying only on MedPAC's recommendations. The commenters urged CMS not to change its outlier policy or to delay implementation until greater technical analyses could be conducted. One commenter suggested that, without CMS' technical analyses, stakeholders cannot conduct their own analyses. The commenters frequently questioned our reference to the March 2004 MedPAC Report to Congress and stated that outlier payments are not evenly distributed among hospitals as justification for reducing the percentage of total payments dedicated to outlier payments. They noted that differences in outlier payments would be expected for hospitals serving different populations. Several commenters cited the continued instability in rates as a reason for continuing at 2.0 percent. One commenter specifically hypothesizes that instability in payment rates may be attributable to a lack of stability in unit costs, suggesting a continued need for outlier payments. Another commenter acknowledged that the variability in costs for APCs was clearly less than that for DRGs, but that the current policy of setting aside two percent of total payments, already accounted for this difference.

Response: Our decision to reduce the projected target amount of total payments set aside for outlier payments is based on the technical analyses that MedPAC conducted in its March 2004 Report to Congress demonstrating that the CY 2004 OPPS outlier policy was ineffective at addressing complex cases of financial risk and on the arguments that MedPAC made against outlier payments. As noted above, MedPAC argued that the fairly narrow definition of the APC groups makes outlier payments less necessary for the OPPS, that the limited packaging in OPPS frequently resulting in multiple service payments for any given claim, and that the susceptibility to “gaming” through charge inflation continues. MedPAC's 2004 Report to Congress also suggested that our outlier policy could be redistributing outlier payments among hospitals based on cost structures or charging patterns rather than differences in case-mix. We agree with the commenters that an unequal distribution of outlier payments according to differences in case mix is appropriate, the concern is that different case mix does not account for outlier payment distributions.

We do not believe that the moderate fluctuation in APC payment rates that continues to be present in the OPPS is an adequate argument against reducing the percentage of aggregated total OPPS payments set aside for outlier payments for several reasons: changes in payment rates appropriately reflect changes in costs, the variability of costs is less for complex and expensive procedures, and outlier payments in OPPS target services not cases. As discussed in section II.A. of this preamble, we believe that the moderate changes in the payment rates remaining after the system has been operating for several years is, in large part, a function of the small APC group size and service basis. The small group size of the APCs makes changes in service costs more transparent than if groups were larger. Aggregation generally reduces variation. Changes in payment rates from year to year appropriately reflect true changes in the cost of a specific service. Changes in cost and charging patterns captured in a provider's cost report will lead to changes in the median cost of services from year to year. In addition, we are required to adjust the APCs each year to ensure that groups are comparable with “respect to the use of resources.” The “2 times” rule requires that the highest median cost for an item or service within the group not be greater than two times the lowest median cost. The “2 times” rule specifically limits the amount of variability of unit costs in any group, forcing the APC payment rates to reflect changes in costs. It embeds some fluctuation into APC payment rates, but also reduces the need for an expansive outlier policy.

The observed variability in unit costs is greater for low cost and simple procedures and smaller for complex, expensive procedures. In its 2004 Report to Congress, MedPAC found that Start Printed Page 68564the highest variability in estimated costs was associated with the lowest cost items. This observation continues to be true in the CY 2004 claims. On average, HCPCS codes with low median costs demonstrate greater variability, as measured by the coefficient of variation, than HCPCS codes with high median costs. The coefficient of variation is the percent of the standard deviation accounted for by the mean and enables a relative comparison of variation across groups. This trend also is evident in the APC coefficient of variation. The bottom 50 percent of APCs arrayed by median costs have an average coefficient of variation of 82 percent, whereas the top 50 percent of APCs, arrayed by median cost, have an average coefficient of variation of 63 percent.

Finally, OPPS outlier payments are targeted to services, rather than cases. Unlike the IPPS, outlier payments are not for extremely costly patients but extremely costly services. In many cases, an extremely costly case in the outpatient setting may not warrant an outlier payment because no specific service was excessively costly. The small number of services included in any APC group means that the provider will receive payment for most services billed on a claim. Reducing total outlier payments to 1.0 percent of total OPPS payments effectively raises the payment for all other services because the foregone 1.0 percent of total spending is returned to the conversion factor. We acknowledge the comment stating that the comparative difference in cost variability between the IPPS and the OPPS is already accounted for in the difference between the 5 to 6 percent estimated outlier target under IPPS and the 2 percent projected outlier estimate under OPPS. However, we believe that setting total outlier payments at 1.0 percent of total aggregated OPPS payments sets aside an appropriate amount of dollars for unexpected and costly services.

Comment: One commenter indicated concern that CMS proposed an additional change to the outlier payments before having one year of experience with the fixed-dollar threshold introduced in CY 2005.

Response: We do not believe that these two policies are related. The amount of total aggregated OPPS payments set aside for outlier payments is an entirely different policy from the manner in which those payments are distributed to hospitals. We did not institute the fixed-dollar threshold to reduce outlier payments, but rather to target payments to expensive and costly cases. The fixed-dollar threshold will continue to have this effect within a smaller amount of outlier payments.

Comment: Several commenters suggested that CMS did not sufficiently demonstrate the impact on hospitals of reducing the percentage of estimated total payments dedicated to outlier payments 2.0 percent to 1.0 percent and requested this analysis. The commenters expressed concern that hospitals providing sophisticated and expensive technologies to very sick patients would be placed at greater risk of financial loss. Most of the commenters suggested that the reduction in the outlier percentage be delayed until CMS can fully evaluate the impact, while other commenters simply urged for a return to the 2-percent target amount.

Response: For the proposed rule, we did not include a specific analysis of the redistributive impact of outliers because the fixed-dollar threshold policy did not change, only the aggregate amount of dollars paid. We did include outlier payments in our impact tables, and we made the amount of outlier payment estimated for each hospital available on our Web site. However, we appreciate commenters' desire to more fully view the impact of the outlier policy. For this final rule with comment period, we have provided a separate table in our regulatory impact analysis, section XIX of this preamble, showing the differences in total aggregated OPPS payment for CY 2006 attributable to the change in the outlier policy. We estimate that no class of hospital will experience more than a 1 percent change in total payments due to outlier payments and many classes of hospitals receive greater payments.

Comment: Several commenters suggested that CMS pay outlier claims at the same rate at which inpatient outlier claims are paid, that is, 80 percent of cost. Various rationales were provided, including consistency with the IPPS, ensuring that hospitals can recoup the variable costs of providing expensive care, and improving the adequacy of payments.

Response: We believe that the payment percentage of 50 percent is appropriate for the OPPS because, in general, a costly OPPS service poses less of a financial risk for hospitals than a costly case under the IPPS. If we did increase the payment percentage to 80 percent, we would have to compensate elsewhere to maintain the 1.0 percent set aside for outlier payments, probably by raising the fixed-dollar threshold. Changing the payment percentage to 80 percent would merely concentrate a more generous outlier payment on a much smaller number of extremely costly services each year.

Comment: One commenter recommended a new methodology for estimating the fixed-dollar outlier threshold for both the OPPS and the IPPS. The commenter suggested that, in addition to inflating charges from CY 2004 to CY 2006, CMS also should adjust CCRs to reflect proportionally slower inflation in costs. The commenter believed that this would result in deflating overall CCRs. The commenter specifically recommended that CMS update the CCRs for the OPPS to the latest available hospital-specific data.

Response: We agree with the commenter that the CCRs that we use to set the outlier thresholds should be as recent as possible. We also believe that these CCRs should reflect, as closely as possible, the actual CCRs that the fiscal intermediary will use to determine outlier payments in CY 2006. As we did for the IPPS final rule (70 FR 47493, August 12, 2005), we used the overall CCRs from the most recent provider-specific file, in this case, the July 2005 OPSF, to estimate costs from inflated charges on CY 2004 claims. The OPSF contains CCRs from each provider's most recent tentatively settled cost report. Because of the time it takes to complete cost reports and upload them in the fiscal intermediaries' standard systems, for at least part of CY 2006, the CCRs on the OPSF are the same ones that the fiscal intermediaries will use to determine outlier payments. However, unlike the IPPS, the overall CCRs on the OPSF are higher than those that we use to estimate APC medians. The median overall CCR that we calculate from each hospital's cost report as a default CCR in estimating costs from charges in order to set relative weights is 0.305, whereas the median overall CCR on the OPSF is 0.32. Were we to use the CCRs from the OSPF, the fixed dollar threshold would increase, from $1,250 to $1,800.

We will consider using the CCRs found in the OSPF for the CY 2007 OPPS outlier calculations, similar to our calculations under IPPS. However, in view of the newness of a fixed-dollar threshold for OPPS outlier payments and our concern that using the OSPF CCRs for this final rule would result in an $1,800 fixed dollar threshold that is considerably higher than the proposed threshold, we have decided to use the CCRs that we calculated for the APC median setting process for our outlier calculations as we have in past years. These CCRs are timely, as the majority of them are created from cost reports with fiscal years beginning in 2004 and 2003.

Comment: One commenter requested that CMS reverse its decision to reduce Start Printed Page 68565the percentage of total payments attributable to outlier payments to 1 percent and return outlier payments to the target level of 3 percent established under the Balanced Budget Act (BBA) of 1997.

Response: For all of the reasons stated above, we do not believe that outlier payments should be increased to 3 percent of total payments. We further note that the BBA, as revised by the Balanced Budget Refinement Act (BBRA) of 1999, set an upper limit of “no more than” 3.0 percent for outlier policies, giving the Secretary the discretion to set a lower estimated target percent.

Comment: One commenter expressed concern that decreasing the outlier pool and increasing the fixed dollar threshold may encourage greater packaging in order to increase procedure charges.

Response: We do not believe that greater packaging is an issue for the OPPS outlier policy. Should providers choose to package more services into the charges for payable procedures and not report packaged services, over time, those higher costs would lead to higher payment rates for payable procedures. This would, in turn, increase the fixed dollar outlier threshold. Further, rolling the charges for packaged services into the charges for payable procedures is expected under OPPS.

Comment: One commenter requested that CMS describe the services that qualify for outlier payments.

Response: The actual services that qualify for outlier payments under the fixed dollar threshold policy introduced in CY 2005 will likely be quite similar to those receiving payments under 2005 OPPS. As noted above, at this time, we do not have a complete set of CY 2005 claims. However, in our analysis replicating the analysis done by MedPAC in its March 2004 Report to Congress, we estimate that costly services such as APC 0246 (Cataract Procedures with IOL Insert), APC 0080 (Diagnostic Cardiac Catheterization), and APC 0131 (Level II Laparoscopy) would receive a large percentage of outlier payments under the fixed-dollar threshold policy.

Accordingly, after considering the public comments received, for CY 2006, we are finalizing the OPPS outlier policy of two thresholds for hospitals of a multiple threshold of 1.75 times the APC payment amount and a fixed dollar threshold of $1,250 plus the APC payment amount and one threshold for CMHCs of 3.4 times the APC payment amount.

I. Calculation of the National Unadjusted Medicare Payment

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 final rule with comment period and the relative weight determined under section II.A. of this final rule with comment period. Therefore, the national unadjusted payment rate for APCs contained in Addendum A to this final rule with comment period and for HCPCS codes to which payment under the OPPS has been assigned in Addendum B to this final rule with comment period (Addendum B is provided as a convenience for readers) was calculated by multiplying the final CY 2006 scaled weight for the APC by the final CY 2006 conversion factor.

However, to determine the payment that will 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 are 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. The wage index values include the occupational mix adjustment described in section II.D. of this final rule with comment period that was developed for the FY 2006 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 L contains the qualifying counties and the final wage index increase developed for the FY 2006 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 SCH, 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 § 412.103 of the Act, multiply the wage index adjusted payment rate by 1.071 to calculate the total payment.

We received no public comments concerning our proposal for calculating the national unadjusted Medicare payment rate. Therefore; we are adopting as final, for OPPS services furnished on or after January 1, 2006, our proposed methodology for calculating the national unadjusted Medicare payment amount.

J. Beneficiary Copayments for CY 2006

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. Start Printed Page 68566

2. Copayment for CY 2006

For CY 2006, we proposed 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). We used the same methodology to determine the final unadjusted copayment amounts for services payable under the OPPS that will be effective January 1, 2006. These copayment amounts are shown in Addendum A and Addendum B of this final rule with comment period.

3. Calculation of the 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, $7.00 is 29 percent of $23.79.

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

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.

We received two public comments concerning our proposed methodology for calculating the beneficiary unadjusted copayment amount.

Comment: One commenter recommended that CMS maintain the coinsurance amount above 40 percent of the APC payment amount as the proposed payment rate for CY 2006 is lower than the CY 2005 payment rate when adjusted for inflation.

Response: We appreciate the commenter's recommendation but note that the statute does not provide for this. 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, that specified percentage is 40 percent of the APC payment rate.

Comment: One commenter objected to beneficiaries being liable for more than 20 percent of the Medicare payment rate for services paid under the OPPS. The commenter acknowledged that the law limits the copayment for a single service to the amount of the inpatient deductible, but objected to there being no limit to the amount of coinsurance that a beneficiary can incur per year or even for a single outpatient encounter. The commenter acknowledged that the amount of beneficiary copayment liability is set in statute but urged CMS to work with Congress to restore beneficiary coinsurance of hospital outpatient services to the level it views as appropriate.

Response: As the commenter indicated, the level of beneficiary coinsurance is set based on specific statutory criteria.

Comment: One commenter recommended that CMS work with Congress to restore the beneficiary coinsurance for hospital outpatient services to the appropriate level. By “appropriate,” we assume the commenter means that coinsurance for all OPPS services should be 20 percent, which is the coinsurance rate for other services paid under Medicare Part B.

Response: We appreciate the commenter's recommendation and will take it into consideration. However, until the statute at section 1833(t)(8)(C)(ii) of the Act is revised, the Secretary must adhere to the current requirements of the law, which caps the beneficiary coinsurance payment at 40 percent of the APC payment rate. In addition, the law requires that the coinsurance amount be no less than 20 percent of the APC rate.

Accordingly, we are adopting as final, for OPPS services furnished on or after January 1, 2006, our proposed methodology for calculating the beneficiary unadjusted copayment amount.

III. Ambulatory Payment Classification (APC) Group Policies

A. Introduction

1. Treatment of New HCPCS Codes Discussed in the CY 2006 OPPS Proposed Rule

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. (Table 14 of the CY 2006 OPPS proposed rule.) We have designated the payment status of those codes and added them to the April update of the CY 2005 OPPS (Transmittal 514). In the proposed rule, we also solicited public comments on the proposed APC assignments of these services.

Table 7.—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, 1 g.
Q9942Injection, Immune Globulin, Intravenous, Lyophilized, 10 mg.
Q9943Injection, Immune Globulin, Intravenous, Non-Lyophilized, 1 g.
Q9944Injection, Immune Globulin, Intravenous, Non-Lyophilized, 10 mg.

Further, consistent with our annual APC updating policy, we proposed to assign the new HCPCS codes for CY 2006 to the appropriate APCs and incorporate them into our final rule with comment period for CY 2006.

We did not receive any public comments on the new procedural C codes, their status indicators, or their APC assignments for the two new OPPS procedures (C9723 and C9724) implemented in April 2005. Therefore, we are adopting as final our proposal to assign these HCPCS codes C9723 and Start Printed Page 68567C9724 for CY 2006 to the appropriate APCs, as shown in Addendum B of this final rule with comment period, without modification.

We received a number of public comments related to drugs described by new HCPCS codes implemented in April 2005 in the OPPS; specifically, HCPCS codes C9127, C9128, C9223, C9440, Q4079, Q9941, Q9942, Q9943, and Q9944. See section V. of this preamble (Payment Changes for Drugs, Biologicals, and Radiopharmaceutical Agents) for a discussion of these comments, including comment summaries, our responses and a description of our final OPPS payment policies. In addition, our final payment policy for CY 2006 is included in Addendum B of this final rule with comment period.

2. Treatment of New CY 2006 HCPCS Codes

In the proposed rule, we proposed that we would assign new HCPCS codes for CY 2006 to appropriate APCs and/or status indicators and that we would implement them in our final rule. However, we received some comments regarding individual new HCPCS codes that commenters expect to be implemented for the first time in the CY 2006 OPPS. We do not specifically respond to those comments in this final rule. We could not discuss APC and/or status indicator assignments for new CY 2006 HCPCS codes in the proposed rule because the new CY 2006 HCPCS codes were not available when we issued the proposed rule. Rather, as has been our practice in the past, we implement new HCPCS codes in the OPPS final rule, at which time we invite public comment about our treatment of the new codes. We subsequently respond to those comments in the final rule for the following year's OPPS update.

New 2006 HCPCS codes are designated in Addendum B with Comment Indicator “NI.” The status indicator and/or APC assignments for all HCPCS codes flagged with Comment Indicator “NI”, which are new 2006 HCPCS codes, are subject to public comment.

3. Treatment of New Mid-Year Category III CPT Codes

Twice each year, the AMA issues Category III CPT codes, which the AMA defines as temporary codes for emerging technology, services, and procedures. The AMA established these codes to allow collection of data specific to the service described by the code which otherwise could only be reported using a Category I CPT unlisted code. The AMA releases Category III CPT codes in January, for implementation beginning the following July, and in July, for implementation beginning the following January. In the past, CMS has treated new Category III CPT codes implemented in July of the previous year or January of the OPPS update year in the same manner that new Category I CPT codes and new Level II HCPCS codes implemented in January of the OPPS update year are treated; that is, we provide APC and/or status indicator assignments in the final rule updating the OPPS for the following calendar year. New Category I and Category III CPT codes, as well as new Level II HCPCS codes, are flagged with Comment Indicator “NI” in Addendum B of the final rule to indicate that we are assigning them an interim payment status which is subject to public comment following publication of the final rule that implements the annual OPPS update.

We are concerned that not recognizing for 6 months (from July to January) the Category III codes that the AMA releases each January for implementation in July may hinder timely collection of data pertinent to the services described by the codes. Moreover, delay in recognizing these codes could inhibit access to the services they describe because of provider reluctance to furnish a service that defaults to the OPPS payment assigned to unlisted codes. Also, we have on occasion found redundancy between Category III CPT codes and some of the C-codes, which are only payable under the OPPS and created by us in response to applications for New Technology services. Therefore, beginning in CY 2006, we are modifying this process and recognizing Category III CPT codes that are released by the AMA in January to be effective beginning July of the same calendar year in which they are issued, rather than deferring recognition of those codes to the following calendar year update of the OPPS. Adopting this approach means that new Category III CPT codes will be recognized under the OPPS biannually rather than annually.

Some of the new Category III CPT codes may describe services that our medical advisors determine to be similar in clinical characteristics and resource use to HCPCS codes in an existing APC. In these instances, we may assign the Category III CPT code to the appropriate clinical APC. Other Category III CPT codes may describe services that our medical advisors determine are not compatible with an existing clinical APC, yet are appropriately provided in the hospital outpatient setting. In these cases, we may assign the Category III CPT code to what we estimate is an appropriately priced New Technology APC. In other cases, we may assign a Category III CPT code one of several non-separately payable status indicators, including N, C, B, or E, which we feel is appropriate for the specific code. We expect that we will already have received applications for New Technology status for some of the services described by new Category III CPT codes, which may assist us in determining appropriate APC assignments. If the AMA establishes a Category III CPT code for a service for which an application has been submitted to CMS for New Technology status, CMS may not have to issue a temporary Level II HCPCS code to describe the service, as has often been the case in the past when Category III CPT codes were only recognized by the OPPS on an annual basis.

Therefore, beginning in July 2006, CMS will implement in the regular quarterly update of the OPPS the Category III CPT codes that the AMA releases in January 2006 for implementation in July 2006. CMS will implement in the January 2007 update of the OPPS the Category III CPT codes that the AMA releases in July 2006, and so forth.

B. Variations Within APCs

1. 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, partial hospitalization services, and medical visits. We also have developed separate APC groups for certain medical devices, drugs, biologicals, radiopharmaceuticals, and brachytherapy devices.

We have packaged into each procedure or service within an APC group the cost associated with those items or services that are directly related Start Printed Page 68568and 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 final rule with comment period.

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 hospital median cost of the services included in that APC relative to the hospital median 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.

2. 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 APCs.

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 violated 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 APCs to different APCs to resolve the 2 times rule violations. Of the 65 HCPCS code reassignments recommended by the APC Panel, we concurred with 58 of the recommended reassignments. Therefore, we proposed to reassign the HCPCS codes as indicated in Table 7 of the proposed rule (70 FR 42703).

The seven HCPCS code movements that the APC Panel recommended, but upon further review we proposed not to accept, are discussed below. We include in our discussion the assignments we also proposed and the final assignments for CY 2006.

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. At the time of the proposed rule, our analysis of those two APCs based on partial year 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 partial CY 2004 hospital claims data and to remove these APCs from the list of exceptions. The APC Panel recommended maintaining CPT codes 45303 (Proctosigmoidoscopy, rigid; with dilation) and 45305 (Proctosigmoidoscopy, rigid; with biopsy, single or multiple) in APC 0146 because the median cost for these codes appeared too high, and they believed that the CY 2004 claims were aberrant. In addition, the APC Panel recommended that CMS move CPT code 45309 (Proctosigmoidoscopy, rigid; with removal of single tumor, polyp, or other lesion by snare technique) from APC 0147 and assign it to a new proposed APC 0428. Based on the results of our review of several years of claims data and our study of hospital resource homogeneity, we disagreed that those claims data were aberrant. We proposed 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.

We received no public comments concerning our proposed APC assignments for CPT codes 45303, 45305 and 45309 and are making final our proposal, without modification.

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 (Cytopathology, concentration technique, smears and interpretation) and 88112 (Cytopathology, selective cellular enhancement technique with interpretation, except vaginal or cervical) from APC 0343 to a proposed new APC 0433. The APC Panel also recommended moving CPT codes 88319 (Determinitive histochemistry or cytochemistry to identify enzyme constituents) and 88321 (Consultation and report on referred slides prepared elsewhere) from APC 0342 to a proposed new APC 0433. Based on the results of our review of several years of hospital claims data and our study of hospital resource homogeneity, we proposed a different way to resolve the 2 times rule violation. We proposed to place CPT codes 88319 and 88112 in APC 0343 and to place CPT codes 88108 and 88321 in new APC 0433.

We received no public comments concerning our proposal.

We will finalize, without modification our proposal to assign CPT codes 88112 and 88319 to APC 0343 and to assign CPT codes 88108 and 88321 to new APC 0433.

c. Other Comments on the Proposed List of APC Assignments to Address 2 Times Violations. We received a few comments concerning our proposed reassignments for several of the other Start Printed Page 68569HCPCS codes (for example, CPT codes 57155, 75790, and 88187) indicated in Table 7 of the proposed rule (70 FR 42703) and the responses are included in clinically relevant sections, elsewhere in this preamble.

After carefully reviewing our final data and all comments received concerning our proposed assignments of the 58 HCPCS codes, we are finalizing those assignments as proposed.

3. 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. At the time of the proposed rule, taking into account the APC changes that we proposed 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 costs of procedures classified in the APCs, we reviewed all the APCs to determine which APCs would not satisfy the 2 times rule criteria. 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 published in the proposed rule (70 FR 42705) listed the APCs that we proposed to exempt from the 2 times rule based on the criteria cited above. For cases in which a recommendation by 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 those recommendations were based on explicit consideration of resource use, clinical homogeneity, hospital specialization, and the quality of the data used to determine the APC payment rates that we proposed for CY 2006. The median costs for hospital outpatient services for these and all other APCs can be found on the CMS Web site: http//www.cms.hhs.gov.

We received a number of comments about some of the procedures assigned to APCs that we proposed to make exempt from the 2 times rule for CY 2006. Those discussions are elsewhere in the preamble, in sections related to the types of procedures that were the subject of the comments.

For the proposed rule the listed exceptions to the 2 times rule were based on data from January 1, 2004 through September 30, 2004. For this final rule with comment period, we used data from January 1, 2004 through December 31, 2004. Thus, after responding to all of the comments on the proposed rule and making changes to APCs based on those comments, we analyzed the full CY 2004 data to identify APCs with 2 times rule violations.

Based on those final data, we found that there were 41 APCs with 2 times violations. We were able to remedy two violations of the 2 times rule that appeared in the final data for APC 0363 (Level I Otorhinolaryngologic Function Tests) and APC 0010, (Level I Destruction of Lesion). We moved CPT code 92588 (Evoked otoacoustic emissions; comprehensive or diagnostic evaluation) from APC 0363 to APC 0660 (Level II Otorhinolaryngologic Function Tests) to address a 2-times violation in APC 0363. We applied the criteria as described earlier to finalize the APCs that are exceptions to the 2 times rule for CY 2006.

Listed below in Table 8 is the final revised list of APCs that are exceptions to the 2 times rule for CY 2006.

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C. New Technology APCs

1. Introduction

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.

Every year we receive many requests for higher payment amounts for specific procedures under the OPPS because they require the use of expensive equipment. We are taking this opportunity to respond in general to the issue of hospitals' capital expenditures as they relate to the OPPS and Medicare.

Under the OPPS, our goal is to make payments that are appropriate for the services that are necessary for treatment of Medicare beneficiaries. The OPPS and most other Medicare payment systems are budget neutral and so, although we do not pay full hospital costs for procedures, we believe that our payment rates generally reflect the costs that are associated with providing care to Medicare beneficiaries in cost-efficient settings. Further, we believe that our rates are adequate to assure access to services for most beneficiaries.

For many emerging technologies there is a transitional period during which utilization may be low, often because providers are first learning about the techniques and their clinical utility. Quite often, the requests for higher payment amounts are for new procedures in that transitional phase. The requests, and their accompanying estimates for expected Medicare beneficiary or total patient utilization, often reflect very low rates of patient use, resulting in high per use costs for which requestors believe Medicare should make full payment. Medicare does not, and we believe should not, assume responsibility for more than its share of the costs of procedures based on Medicare beneficiary projected utilization and does not set its payment rates based on initial projections of low utilization for services that require expensive capital equipment. For the OPPS, we rely on hospitals to make their business decisions regarding acquisition of high cost capital equipment taking into consideration their knowledge about their entire patient base (Medicare beneficiaries included) and an understanding of Medicare's and other payors' payment policies.

As stated earlier, in a budget neutral environment we do not make payments that fully cover hospitals' costs, including those for the purchase and maintenance of capital equipment. We rely on providers to make their decisions regarding the acquisition of high cost equipment with the understanding that the Medicare program must be careful to establish its initial payment rates for new services that lack hospital claims data based on realistic utilization projections for all such services delivered in cost efficient hospital outpatient settings. As the OPPS acquires claims data regarding hospital costs associated with new procedures, we will regularly examine the claims data and any available new information regarding the clinical aspects of new procedures to confirm that our OPPS payments remain appropriate for procedures as they transition into mainstream medical practice.

2. 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, we recognized that 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) spanned too broad of a cost interval to accurately represent the lower costs of an ever-increasing number of procedures that are appropriate for New Technology APC assignment. Therefore, we proposed 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 also proposed 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 published in the proposed rule (70 FR 42706) contained a listing of the 10 additional New Technology APCs that we proposed for CY 2006.

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 proposed 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 published in our proposed rule (70 FR 42707) summarized these proposed New Technology APC reassignments.

We received no public comments in response to our proposed refinement of the New Technology APC cost bands. Therefore, for CY 2006, we are finalizing our proposal to discontinue New Technology APCs 1501 and 1538, and reassign the procedures currently assigned to them to New Technology APCs 1491 through 1500. Table 9 lists the final New Technology APCs 1491 through 1500 for CY 2006. Start Printed Page 68572

Table 9.—New Technology APCs for CY 2006

APCDescriptorStatus IndicatorFinal 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 IB ($10-$20)T15
1498New Technology—Level IC ($20-$30)T25
1499New Technology—Level ID ($30-$40)T35
1500New Technology—Level IE ($40-$50)T45

3. 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 CY 1996 data to set payment rates) and on our continuing experience with the assignment of services to New Technology APCs.

In the course of reviewing applications for New Technology APC assignments under the OPPS, we have encountered many situations in which there is extremely limited clinical experience with new technology services regarding their use and efficacy in the typical Medicare population. In some cases, there has been 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. In the CY 2006 proposed rule, we indicated that we believed that our current New Technology APC assignment process helps to assure such access, and that an enhancement to the New Technology APC application process might 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 APC application and review process for the OPPS. Therefore, in addition to our current information requirements at the time of application, we proposed 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. In making this proposal, we specifically indicated that we would not change our current criteria for assignment of a service to a New Technology APC. Rather, the intent of the proposed new requirement was to encourage timely review of a new service or procedure by the wider medical community as CMS is reviewing it for possible new coding and assignment to a New Technology APC under the OPPS. The AMA's CPT Editorial Panel has only one CPT code application that is used by applicants requesting consideration for either Category I or III codes. We indicated that 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 would 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. In the proposed rule, we indicated our belief that consideration by the CPT Editorial Panel might facilitate appropriate dissemination of the new technology services across delivery settings and bring to light other needed coding changes or clarifications. We further proposed 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 reminded the public that we do not consider an application complete until all informational requirements are provided. In addition, we reminded 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.

We received a large number of public comments concerning our proposal.

Comment: Many commenters suggested that the AMA CPT Editorial Panel may not be the most appropriate forum for a federally mandated decision. Some of these commenters pointed out that meetings of the panel and the considerations on which it bases decisions are not open to the public. Other commenters questioned whether there is an inherent conflict in the proposal, as CMS and the AMA are distinctly separate organizations with different objectives and constituencies, so that it may not be in the interest of Medicare beneficiaries to tie CMS policy to proceedings of the AMA. Other commenters suggested that even the requirement that the AMA acknowledge receipt of the coding application suggests that the AMA has potential “veto” power over CMS authority and Start Printed Page 68573may thus constitute an unlawful delegation of federal decision making.

Response: We wish to clarify that it was not our proposal to rely upon the decisions of the CPT Editorial Panel. Nor did we propose to adopt the objectives or policies of the AMA or the CPT Editorial Panel. Rather, we proposed only to require initiation of the process for obtaining a CPT code in order to foster the common objective of appropriately recognizing new technology services and properly coding those services. Under our proposal, we would continue to make determinations about the need for new HCPCS codes and about appropriate assignments to New Technology APCs to establish payment rates completely independently of the CPT Editorial Panel. We also proposed only that the applicant show us a letter of acknowledgement or receipt from the AMA, not that the AMA would send us such a letter or withhold such a letter as a way to exercise veto power.

Comment: One commenter stated that while it is possible for manufacturers to file CPT applications to the AMA, the AMA has usually discouraged this practice and specialty societies have been slow to support CPT applications not vetted through them. Another commenter indicated that manufacturers are often not in receipt of letters from the AMA indicating receipt of a CPT coding application, and hence may not be able to provide these letters with their application for New Technology APC assignment. Other commenters claimed that if a manufacturer waits to gather clinical and utilization information sufficient to support a Category I code, the application may no longer meet CMS's definition of “truly new” and may be ineligible for a New Technology APC assignment.

Response: Our proposal did not specifically require that manufacturers submit applications to the CPT Editorial Panel. In fact, we specifically proposed only that such an application “be submitted,” and did not stipulate the identity of the applicant. In addition, we were not proposing to require that manufacturers provide us with copies of letters they had received directly from the AMA. We understand, however, that manufacturers ordinarily work in concert with the actual applicants for new CPT codes, and expect that it is reasonable for a manufacturer to be able to obtain such a letter. We also specifically required only the initiation of the application process, not the receipt of a positive (or negative) decision by the CPT Editorial Panel, in order to prevent the process from delaying our decision beyond the point at which a New Technology APC assignment is appropriate. Our proposal was meant only to encourage the appropriate dissemination of information, data collection, and review by the wider medical community concerning new technologies. Finally, it is worth emphasizing that while our objective is to consider for assignment to New Technology APCs services that represent technologies that are “truly new,” for designation under the OPPS we specifically rely on our criteria which require that a service or procedure not be described by any existing HCPCS code or combination of codes, that it cannot be adequately represented in the claims data being used for the most current annual OPPS update, and that there is no appropriate clinical APC for its assignment. We do not believe that our proposal to require initiation of the CPT application process would result in delays beyond the point at which these criteria could still be met.

Comment: One commenter stated that there are only three submission deadlines per year for CPT applications, which do not comport to the quarterly schedule for filing New Technology applications to CMS.

Response: The filing dates for New Technology applications are informational dates published on our website as reference points for application receipt related to the earliest date for adding a new code for an approved service to a New Technology APC, that is, the beginning of the following quarter. The actual dates for adding new services, if approved, are often later than the next quarter, depending on specific issues related to comprehensive evaluation of a specific application, which often involves requests for additional information.

Comment: One commenter recommended as an alternative that CMS create codes for qualifying services and assign them to a New Technology APC and stipulate that those applicants must apply to the CPT Editorial Panel for a new code within one year.

Response: We do not believe that it would be advisable to accept this recommendation. First, we do not have a policy of making contingent approvals for payment. All requirements for Medicare payment must be met at the time a code and payment rate are established. In addition, this recommendation would require establishing a mechanism to monitor compliance with the condition of approval. Finally, the necessity of withdrawing some HCPCS codes from coding and payment because of non-compliance has great potential for causing confusion among providers.

Comment: One commenter stated that our concern about limited experience with new technologies in the Medicare population is more appropriately related to coverage of new procedures, rather than to coding issues. Assignment of a service to a New Technology APC is meant to create a mechanism for gathering utilization data, and does not guarantee coverage and payment of a technology. Coverage for new technologies remains the discretion of Medicare contractors, unless CMS makes a national coverage determination. This commenter claimed that the proposal to require a CPT coding application implies that CMS would be effectively removing the Medicare contractors from the coverage decision-making process.

Response: We do not believe that our proposal would have the effect of removing Medicare contractors from the process of making coverage decisions, or otherwise usurp the role of the coverage decision-making process. Rather, the proposal would serve merely to promote evaluation of new services by the wider medical community, so that the results of this evaluation could serve to assist in broader distribution of new clinical information, establishment of appropriate standard coding, and wider dissemination of promising technologies. Even when the CPT Editorial Panel establishes a new code, Medicare contractors have discretion to make local coverage decisions, and CMS retains the right to make national coverage determinations with regard to the procedure or service.

Comment: Some commenters indicated that there are unique payment concerns related to applying for a Category III CPT code, asserting that many Medicare contractors view Category III CPT codes as an indication that a technology is experimental or investigational. One commenter provided as an example a proposed and final policy of one CMS contractor not to cover any technologies described by Category III CPT codes, “since these codes have been created to track new, unproven therapies and tests.” Another commenter claimed that assignment of a Category III CPT code often results in non-coverage decisions by both local carriers and fiscal intermediaries.

Response: The example provided by commenters about the implications of Category III CPT codes for coverage decisions by Medicare contractors appears to be relevant outside the context of the OPPS, mainly within the physician payment context. We have been unable to identify any fiscal Start Printed Page 68574intermediary that has adopted any such broad noncoverage policy regarding Category III CPT codes.

Comment: One group of commenters urged us not to adopt the proposed requirement that a CPT application submission to the AMA's CPT Editorial Panel be required before we accept a New Technology APC application for review. These commenters asserted that a CPT coding application, in and of itself, will not provide us with input from the greater medical community, unless we wait until the CPT Editorial Panel has made a coding decision and that decision has been made public. Because of the timing of the CPT code review process, it is not reasonable for CMS to wait until the CPT Editorial Panel has made a public coding decision, which can take 6-12 months for an internal decision, and 6-24 months before publishing a coding decision for a Category I code. These commenters also believed that this requirement would delay access to new services, asserting that applying for a CPT code is a lengthy process and involves months of gathering information on the technology and its use, working with relevant specialty societies to obtain support for a new code and to develop a clinical vignette, and consulting within the CPT Editorial Panel. In order to obtain a Category I code, the new technology must have widespread usage across the country and in multiple locations, and its efficacy must be documented in U.S. peer-reviewed journal articles. Other commenters stated that a number of issues regarding the CPT coding process make our proposal impractical, in addition to the lack of a guaranteed timely review by the CPT Editorial Panel. The AMA does not have “official” evidence and utilization thresholds for coding applications. However, commenters indicated that physician specialty societies often require certain thresholds of utilization or clinical evidence be met before a Category I CPT application for a new service is submitted, and there is considerable variation in such thresholds among the specialty societies. If a manufacturer submits an application without society support or before there is widespread utilization, the application is more likely to be denied or assigned a Category III CPT code, even if that was not requested. Some commenters indicated that there are payment concerns in applying for a Category III CPT code, asserting that most private payers view Category III CPT codes as indication that a technology is experimental or investigational, and therefore refuse to cover procedures or services described by Category III CPT codes. These commenters asserted that because of the risk of non-coverage of Category III CPT codes, manufacturers may forego applying for New Technology APC assignments, or will be hesitant to apply for both a New Technology APC assignment and CPT code simultaneously. Without unique service codes, it will be more difficult for CMS to track new services and eventually to assign them to clinically appropriate APCs. The result will be fewer New Technology APC applications, and less beneficiary access to new technologies. A few commenters asserted that little would be gained by the mere filing of a CPT application without a coding determination from the CPT Editorial Panel, because the information in both applications is similar. One commenter suggested that if there is information from the CPT application that CMS requires to evaluate the New Technology APC application, we should add such questions to our application.

In lieu of using the CPT coding process to encourage review by the wider medical community, a few commenters recommend that CMS appoint a standing advisory committee of clinical representatives, or another independent group of medical experts from specialties and hospitals, to review New Technology APC applications and provide input to CMS. Other commenters also suggested that we convene an independent group of medical experts to assist in the review of applications as necessary.

A number of other commenters, principally from hospitals and hospital associations, supported our proposal to require a CPT application prior to our consideration of a New Technology APC application because they favored less ambiguity in the coding framework. Some of these commenters said that there is a proliferation of C-codes and G-codes, which are burdensome to hospitals as such codes are often not recognized by other payers, and our proposal will minimize the need for expedited issuance of C-codes or G-codes. They asserted that hospitals would benefit by reduced duplication of codes for services recognized by Medicare and other payers. Other commenters claimed that the correct process for coding new services is to start by way of the CPT Editorial Panel review process rather than the New Technology APC application process. Other commenters also supported the requirement on the grounds that the CPT review process is rigorous, including input by physician specialty societies, which indicates the level of acceptance of a new technology in the medical community, relevant to the OPPS because physicians perform new technology procedures in the hospital setting. One commenter indicated that there may be specific occasions when it is necessary to submit applications to the CPT Editorial Panel and CMS simultaneously. Another commenter requested that we recognize potential delays resulting from this additional step and expedite our review of New Technology APC applications. Finally, one commenter indicated appreciation of the reasons for the proposal, but asked that this new requirement remain as stated, that an application needs to be submitted to the AMA CPT Editorial Panel, but that it did not necessarily need to be reviewed and processed by the CPT Editorial Panel prior to CMS's consideration of the New Technology APC application.

Response: In light of the strong division among the commenters on the merits of our proposal to require that a CPT coding request be submitted prior to submission of a New Technology APC application, we have decided not to adopt this proposal at this time. Many of the comments reflect confusion about the specifics of the proposal. Therefore, we are concerned that, because the commenters did not understand some specifics of this proposal during their review of the CY 2006 proposed rule, we may similarly not be in a position to understand all the implications of the concerns noted by the commenters. In particular, we did not intend to tie our decision-making regarding applications for New Technology APC assignment to the CPT Editorial Panel process, but wished to promote review of the coding, clinical use, and efficacy of new technology services by the wider medical community to facilitate the swift spread of promising new technologies into medical practice.

While we are deferring our proposal, we continue to believe that timely review of potential new services by the wider medical community is valuable, given our experience that many services that have requested OPPS coding and assignment to a New Technology APC have demonstrated limited clinical efficacy. We also continue to believe that new technology services deserve timely standard and comprehensive coding established through the CPT Editorial Panel review process to permit appropriate payment and data collection regarding their utilization patterns and clinical outcomes. We also do not agree with many of the criticisms directed against the proposal. For example, as stated previously, we do not agree that Start Printed Page 68575our proposal to have applicants file a CPT coding request before submission of a New Technology APC application would make the CPT coding process a Federal decisionmaking forum. This is because we would not require a decision to be made by the CPT Editorial Panel. However, in light of the numerous and considered comments opposed to the proposal, we are not proceeding with it at this time.

At the same time, we remain committed to the general goal of promoting review of the coding, clinical use, and efficacy of new technology services by the wider medical community. We continue to believe that such broad and early review of new technology procedures would enhance our ability to make appropriate initial and subsequent decisions on assignments of new services to New Technology APCs and would facilitate the more rapid dissemination of promising new technologies to all service settings and appropriate patient populations. Therefore, we will continue to study how to best achieve these goals of timely review of new technologies by the general medical community to validate their clinical worth and distinctiveness in comparison with existing services and to promote more rapid dissemination of effective new procedures throughout standard medical practice. In doing so, we will continue to consider whether the proposal we advanced would serve that goal. We would specifically welcome further input on this proposal or alternatives to it. We may reintroduce this proposal or advance alternative approaches at a later date.

As a preliminary matter, we are not inclined to accept one alternative recommended by some commenters. Specifically, we are not inclined to establish a standing advisory committee to provide input on New Technology applications to the OPPS, as some have suggested. A standing committee involving outside experts would add additional review time that would impede upon our application process, as well as prevent us from evaluating New Technology applications for addition to the OPPS on a quarterly basis, as appropriate. We prefer to maintain the flexibility that our current process provides. In addition, the specific medical expertise required to evaluate new technologies would likely vary widely from application to application. This factor would render consultation with a standing advisory committee with fairly stable membership more difficult to maintain.

4. New Technology Services

a. Ablation of Bone Tumors

Comment: One commenter requested that we reassign CPT code 20982 (Ablation, bone tumor(s) (eg, osteoid osteoma, metastasis) radiofrequency, percutaneous, including computed tomographic guidance) from New Technology Level XX, APC 1557 to New Technology Level XXII, APC 1559. The commenter stated that the procedure has been in New Technology APC 1557 for 2 years, and that the payment rate for that APC is not adequate to cover the hospitals' costs. The commenter asserted that assignment to that APC was based on inadequate information. The commenter used physician practice expense data to estimate costs to perform the ablation procedure, and stated that the costs far surpass the OPPS payment amount, largely due to the high cost of the necessary radiofrequency probe. Further, the commenter added that its analysis found that 2 of the 16 single claims CMS used to calculate the median cost for CPT code 20982 for the proposed rule were inaccurate because no charge for the ablation device, as indicated by the absence of a separate supply charge, was included. The commenter believed that those two claims had a significant effect on the median cost for CPT code 20982, because of the small number of claims for the procedure. The commenters' analysis further showed that the median cost for these procedures was $2,156 based on 14 claims that included a supply charge.

Response: As we have stated in this preamble, we are committed to relying on our claims data for making APC assignments as much as possible. While we appreciate the external data provided by the commenter regarding the costs of supplies associated with the practice expense inputs for the Medicare Physician Fee Schedule, that payment system utilizes a different methodology for establishing payment for services that is not directly applicable to payment rates under the OPPS. In the case of CPT code 20982, we believe that our hospital claims data are adequate to support our proposal to maintain the service in New Technology APC 1557 for CY 2006. CPT code 20982 was a new code for CY 2004 so we have 1 year of hospital data for this procedure. For CPT code 20982, we have 17 single claims from CY 2004 with a procedure-specific median cost of $1,578. As we do not require that hospitals bill a separate supply charge for the probe that is used for this service because there is no specific device C-code available, we have no reason to believe that claims for CPT code 20982 without a separate supply charge do not contain charges for all costs associated with the procedure. The catheter charges may be wrapped into the charge for the procedure itself. The code-specific median indicates that even the current New Technology APC payment at $1,850 may be too high, but given the information provided by the commenter and the relatively low number of CY 2004 claims available for calculating the median cost for CPT code 20982, we are finalizing our proposal for CY 2006 and are retaining CPT code 20982 for at least 1 more year in New Technology APC 1557.

b. Breast Brachytherapy

Comment: In response to the November 15, 2004 final rule with comment period (69 FR 65682), one commenter applauded our assignment of CPT codes 19296 (Placement of radiotherapy afterloading balloon catheter into the breast for interstitial radioelement application) and 19298 (Placement of radiotherapy afterloading balloon catheters, multiple tube and button type, into the breast for interstitial radioelement application) to New Technology APC 1524 (Level XIV $3000-$3500), and CPT code 19297 (Placement of radiotherapy afterloading balloon catheter into the breast for interstitial radioelement application; concurrent with partial mastectomy) to New Technology APC 1523 (Level XXIII $2500-$3000) for CY 2005. The commenter stated that these payment amounts adequately cover the costs of the applicator devices involved in the procedures.

Response: We agree with the commenter's acknowledgement that the payment amounts that we assigned to CPT codes 19296, 19297, and 19298 for CY 2005 adequately cover the resource costs associated with these procedures. Therefore, for CY 2006, we are maintaining CPT codes 19296 and 19298 in New Technology APC 1524 and CPT code 19297 in New Technology APC 1523.

c. Enteryx Procedure

A new CPT code, 0133T (Upper gastrointestinal endoscopy, including esophagus, stomach, and either the duodenum and/or jejunum as appropriate, with injection of implant material into and along the muscle of the lower esophageal sphincter (e.g., for treatment of gastroesophageal reflux disease)), was created for implementation January 1, 2006 to describe the procedure currently coded under the OPPS as HCPCS code C9704 (Injection or insertion of inert substance Start Printed Page 68576for submucosal/intramuscular injections(s) into the upper gastrointestinal tract, under fluoroscopic guidance). For CY 2005, C9704 was assigned to New Technology APC 1556, with a payment rate of $1,750. As discussed below, we determined an appropriate APC assignment for this procedure for CY 2006. However, in the period between publication of the proposed rule and the end of the comment period, the product manufacturer recalled this product and the Food and Drug Administration has warned physicians about the danger of its use.

In our analyses to determine the most appropriate APC assignment for the new CPT code, we found that the most accurate payment will be made by retaining the procedure's current APC assignment. We did not automatically assign CPT code 0133T to APC 1556 because that CPT code explicitly includes the endoscopy that is integral to the service, whereas the current C-code does not. For that reason we calculated the claims-based median cost for the procedure by using single claims for HCPCS code C9704, on the premise that if the procedure required endoscopy and the endoscopy was not separately billed then the endoscopy charges were reflected in the charges for HCPCS code C9704 as well as claims for HCPCS code C9704 that had a charge for an endoscopy included to assure us that we were capturing the charges for the entire procedure from as many claims as possible. Thus, to determine an appropriate APC placement for CPT code 0133T we analyzed all single claims for HCPCS code C9704, as well as claims that had HCPCS code C9704 combined with either CPT code 43234 (Upper gastrointestinal endoscopy, simple primary examination (e.g., with small diameter flexible endoscope)), or CPT code 43235 (Upper gastrointestinal endoscopy including esophagus, stomach, and either the duodenum and/or jejunum as appropriate; diagnostic, with or without collection of specimen(s) by brushing or washing).

The median cost from these claims which would crosswalk to the new CPT code is $1,660. Therefore, we believe that it is still appropriate to retain the procedure, coded for CY 2006 as CPT code 0133T, in New Technology APC 1556 rather than assigning it to a different New Technology APC or a clinical APC at this time. We will be deleting HCPCS code C9704. As with all procedures assigned to New Technology APCs, we will reevaluate it for next year to determine whether assignment to a clinical APC is more appropriate.

d. Extracorporeal Shock Wave Treatment

Comment: Several commenters to both the November 15, 2004 final rule with comment period and to our July 25, 2005 proposed rule opposed our placement of new HCPCS codes for high energy Extracorporeal Shock Wave Therapy (ESWT) services into New Technology APC 1547. In response to a New Technology application for ESWT, we created new codes for high energy ESWT for chronic lateral epicondylitis (C9720-tennis elbow) and for chronic plantar fasciitis (C9721) effective January 1, 2005, and placed them into New Technology APC 1547, with a payment rate of $850 for CY 2005. A number of commenters requested that these ESWT services be placed in New Technology APC 1559, which has a payment rate of $2,250. A manufacturer of ESWT equipment, who commented, cited our regulations (42 CFR § 419.31) in stating that APC groups “must be” comparable in terms of clinical use and resources required. This commenter, as well as another manufacturer, claimed that New Technology APC 1547 does not cover the costs of the ESWT procedures for chronic lateral epicondylitis and for chronic plantar fasciitis. The commenters provided their estimated costs of the procedure at about $2,300 per service for both clinical indications. One commenter also indicated that it understood that the AMA's CPT Editorial Panel intended to issue new codes for the two high energy ESWT services beginning in CY 2006. It stated that when these new CPT codes become effective, providers and payers will be faced with two different sets of codes for high energy ESWT, the CPT codes and the HCPCS C-codes, and this will cause difficulties with provider billing and reimbursement.

Commenting parties expressed their belief that our placement of ESWT did not cover the costs of ESWT for plantar fasciitis, claiming that the ESWT equipment costs between $250,000 and $400,000 for each unit, varying by manufacturer, and summarizing other additional costs, such as those for an annual maintenance contract, a specialized technician, and anesthesia, along with a specialized transport vehicle for the ESWT equipment. Commenters asserted that high energy ESWT is comparable to the resource costs of services in Level II Foot Musculoskeletal Procedures, APC 0056 with a CY 2005 payment rate of $2,380.72, except that ESWT includes the capital costs for the equipment, transport vehicle, and technician mentioned earlier. The commenters also stated that high energy ESWT has a similar technology and cost structure, including technological devices, maintenance contracts, and specialized technical personnel, to extracorporeal shock wave lithotripsy, for the fragmentation of kidney stones. These commenters proposed that high energy ESWT be placed in APC 1559. One hospital indicated that its average cost for ESWT is $2,100. Another commenter who compared high energy ESWT with lithotripsy stated that if we wished to compare ESWT with the costs of other procedures, then we should use lithotripsy, which also employs high energy extracorporeal shock waves, but for the treatment of kidney stones. The commenter claimed that many of the other costs associated with the two procedures were similar as well, with the exception of an imaging component used with lithotripsy. The commenter noted that lithotripsy's APC assignment, APC 0169, has a payment rate close to that of New Technology APC 1559. Another commenter, commenting only on HCPCS code C9721, recommended that high energy ESWT for treatment of chronic plantar fasciitis be placed in either clinical APC 0055 (Level I Foot Musculoskeletal Procedures) or APC 0056 (Level II Foot Musculoskeletal Procedures), claiming that it fits most closely clinically to procedures in APC 0055, and that high energy ESWT is more homogeneous to either APC 0055 or 0056 clinically and economically than to its assigned New Technology APC. The commenter also stated that any new CPT code beginning in CY 2006 for high energy ESWT for chronic plantar fasciitis should replace HCPCS code C9721 and should be placed in APC 0055 or 0056.

Response: When we determine that a new service is eligible for placement into a New Technology APC, we then perform our own cost analysis and cost estimate, in addition to taking the projected costs submitted in a New Technology APC application into consideration. As we stated in our November 30, 2001 final rule (66 FR 59900) concerning placement of new services into APCs, “* * * we will not limit our determination of the cost of the procedure to information submitted by the applicant. Our staff will obtain information on cost from other appropriate sources before making a determination of the cost of the procedure to hospitals.” We compared the necessary hospital resources such as procedure room time, personnel, anesthesia and other resources of the ESWT procedure to various other procedures for which we have historical Start Printed Page 68577hospital claims data. Additionally, we took into consideration projected costs submitted in the New Technology APC application, including the capital costs and equipment utilization assumptions, concluding that HCPCS codes C9720 and C9721 should be assigned to New Technology APC 1547. New Technology APCs, by their very definition, do not contain services that are clinically homogeneous, but instead, based solely on hospital resource considerations, the services have estimated costs that place them into the same New Technology payment band. In contrast, services assigned to the same clinical APC are homogeneous with respect to both their clinical characteristics and hospital resource utilization.

There are new CPT codes for CY 2006 that describe high energy ESWT services, and hospitals providing these services in CY 2006 will use the CPT codes to report them instead of the two predecessor C codes. In particular, CPT code 0102T (Extracorporeal shock wave, high energy, performed by a physician, requiring anesthesia other than local, involving lateral humeral epicondyle) will replace HCPCS code C9720. In addition, CPT code 28890 (Extracorporeal shock wave, high energy, performed by a physician, requiring anesthesia other than local, including ultrasound guidance, involving the plantar fascia) will replace HCPCS code C9721. We have closely reviewed the hospital cost information provided by the commenters, along with our CY 2004 hospital claims data for other outpatient hospital services. We are not confident yet, in the absence of hospital claims data for the predecessor C codes or the new CPT codes, that we can appropriately place CPT codes 0102T and 28890 in clinical APCs where they would share clinical and resource homogeneity with other services. Therefore, for CY 2006 we are assigning CPT codes 0102T and 28890 to New Technology APC 1547 with a payment rate of $850. We believe that the payment rate is appropriate based on all cost and utilization information available to us regarding high energy ESWT and other services provided in a hospital outpatient setting.

Comment: One commenter, the applicant for assignment of high energy ESWT to a New Technology APC, claimed that our assignment of ESWT to a New Technology APC violates the Administrative Procedure Act (APA). The commenter asserted that the OPPS proposed rule published August 16, 2004 (69 FR 50448) failed to mention ESWT or its placement in an APC. Moreover, the commenter claimed that our lack of discussion of our methodology made proper comments difficult if not impossible. The commenting party claimed that finalizing a rule without explanation is unlawful. The commenter furthermore claimed that the placement of ESWT in APC 1547 was arbitrary, capricious, and in excess of statutory authority in violation of the Administrative Procedure Act. The commenter claimed that it appeared that CMS ignored the applicant's data that it submitted regarding resource use, instead comparing the resource costs for ESWT with entirely different procedures, resulting in inaccurate conclusions regarding the costs of ESWT services. Moreover, the commenter claimed that we have improperly classified ESWT into the same APC as endoscopic epidural lysis, which it claims violated the statutory requirement to group procedures based on both costs and clinical and resource comparability.

Response: We disagree that our assignment of ESWT to New Technology APC 1547 was arbitrary, capricious, and in violation of the APA or the Medicare statute. As stated in our response above, we perform our own cost analysis and estimate the cost of any eligible new service, while taking the projected hospital costs submitted in the New Technology APC application into consideration. As we have indicated above, our November 30, 2001 final rule concerning placement of new services into APCs states that we do not limit our determination of the cost of the procedure to information submitted by the applicant. We obtain information on costs from other appropriate sources before making a determination of the cost of the procedure to hospitals. In the case of the ESWT procedures, our clinical review team of physicians compared the resources such as procedure room time, anesthesia, and other resources of the ESWT procedure to the resources of various other outpatient hospital procedures for which we have historical hospital claims data. We believe that our claims data on other procedures in terms of hospital resource use yield relevant cost information for use in developing cost estimates for new procedures without a claims history. As explained above, we took the New Technology APC applicant's costs into account as we reviewed its projected hospital costs thoroughly and, in particular, utilized information regarding expected service frequency, capital equipment, and other costs in our total cost estimate for the procedures. As discussed earlier, assignment to a New Technology APC does not imply clinical homogeneity with other services assigned to the same New Technology APC. We also note that we could not have included these two C-codes in the proposed rule for CY 2005, since we had not yet completed our evaluation of the New Technology APC application and rendered a decision until well after that proposed rule was published. As we have announced numerous times elsewhere, we will add New Technology service codes and assign their payment rates in our quarterly updates, where applicable and available, to facilitate timely integration of new codes into the OPPS. The timing of the ESWT procedures decision made the addition of the codes and payment rates coincident with our CY 2005 final rule publication. In order to have provided a discussion of the codes in a proposed rule, implementation of the codes would have been delayed a full year.

e. GreenLight Laser

During the August 2005 APC Panel meeting, the Panel recommended accepting CMS' proposed creation of APC 0429 for CY 2006 and the inclusion of HCPCS C9713, which describes use of the GreenLight Laser System, in this APC. We received several public comments concerning the reassignment of HCPCS codes C9713, 52647, 52648, 50080, and 50081 to APC 0429.

Comment: Several commenters requested that CMS maintain HCPCS code C9713 in its New Technology APC for one more year, which would give hospitals more time to learn how to correctly code for this service. The commenters stated that our proposed reassignment of the procedure to a clinical APC was premature because the decision was based on only 9 months of claims data. They suggested that many hospitals may not even have known about the new HCPCS code C9713 because it was not implemented until April 5, 2004, and, therefore, CMS received even fewer correctly coded claims than the true number of outpatient hospital services actually described by HCPCS code C9713 that were performed on Medicare beneficiaries during the 9 month period.

The commenters pointed out that there is evidence that hospitals have not been using the HCPCS code properly and reminded us that some members of the APC Panel stated that their hospitals were not coding these procedures correctly.

The commenters stated that the short period of time for collection of claims data and the low median cost calculated for HCPCS code C9713 based on those claims support their conjecture that the claims are not correct, and that the Start Printed Page 68578procedure should remain in its CY 2005 New Technology APC for at least one more year to allow for collection of more accurate claims data.

Response: For CY 2006, CPT revised the descriptors of two procedure codes for prostate laser procedures described by CPT codes 52647 and 52648. The revised CPT code descriptors are as follows: 52647 (Laser coagulation of prostate, including control of postoperative bleeding, complete (vasotomy, meatotomy, cystourethroscopy, urethral calibration and /or dilation, and internal urethrotomy are included if performed); and 52648 (Laser vaporization of prostate, including control of postoperative bleeding, complete (vasectomy, meatotomy, cystourethroscopy, urethral calibration and/or dilation internal urethrotomy and transurethral resection of prostate are included if performed). These descriptors for the CPT codes will be implemented on January 1, 2006. Our policy in the OPPS is to maintain only one HCPCS code that describes a specific procedure, and to the extent possible adopt CPT coding for services provided under the OPPS. In this case we determined, based on our review of the new descriptors, that procedures reported using HCPCS code C9713 in CY 2005 could be appropriately billed with CPT codes for CY 2006.

We also concluded that the resource use and clinical aspects of the laser vaporization procedure reported with HCPCS code C9713 and of the prostate procedures reported using CPT codes 52647 and 52648 prior to revision were so similar that it was appropriate to move, as proposed, the CY 2004 hospital claims data for HCPCS code C9713 to APC 0429 to contribute to the APC's median cost calculation for CY 2006. In addition, there was no reason to postpone adoption of the revised CPT codes for use in the OPPS. Although we had less than a full year of hospital claims data available for HCPCS code C9713, we had well over 1,600 single claims upon which to calculate median costs for the procedure, and those claims data confirmed the resource similarity of this service to the services coded by CPT codes 52647 and 52648. The medians for these three procedures only range from $2,475 to $2,602 and the clinical indications for the procedures are also similar. For CY 2006 we are adopting the newly available revised CPT codes for reporting the procedure previously described by HCPCS code C9713 and deleting HCPCS code C9713, effective January 1, 2006.

Creation of a new Level V APC 0042 for Cystourethroscopy and Other Genitourinary Procedures, the level to which we assigned the CY 2004 data for the prostate laser procedures described by HCPCS code C9713 and CPT codes 52647 and 52648, along with cost data for two other procedures also reassigned to that APC, resulted in tighter median cost distributions within all levels of the APCs for cystouresthroscopy and other genitourinary procedures. We are confident in the median costs for all of these prostate procedures because we have over 1,000 single claims for each of those procedures.

Although HCPCS code C9713 was placed in a New Technology APC for only one year, assignment to an appropriate clinical APC is always our goal for procedures that spend time assigned to New Technology APCs. In this case, the creation of a Category I CPT code that describes the procedure reported by HCPCS code C9713 during CY 2004 and CY 2005 in the OPPS occurred more quickly than is often the case. We believe that the procedure's assignment with similar procedures to a new clinical APC is appropriate and will result in accurate payment. Also, we expect that adoption of a revised CPT code for reporting the noncontact laser vaporization of the prostate procedure will reduce hospitals' administrative burden as they will be able report CPT codes for prostate services provided in CY 2006, rather than C-codes specific to the OPPS.

After carefully considering all comments we received, we are finalizing, without modification, our proposal to assign CPT codes 52647, 52648, 50080, and 50081 to new APC 0429, Level V Cystourethroscopy and Other Genitourinary Procedures. The CY 2004 hospital claims data for HCPCS code C9713 have been assigned to APC 0429 for purposes of establishing the final CY 2006 payment rate for that APC.

f. Magnetoencephalography (MEG)

We proposed to reassign MEG procedures to clinical APC 0043, using CY 2004 claims data to establish median costs on which payments would be based.

We received a number of public comments concerning the reassignment of CPT codes 95965, 95966, 95967.

Comment: A number of commenters addressed our proposal to assign magnetoencephalography (MEG) procedures to APC 0430. There are three MEG procedures affected by our proposal: CPT code 95965, MEG recording and analysis for spontaneous brain magnetic activity; CPT code 95966, MEG for evoked magnetic fields, single modality; and CPT code 95967, MEG for evoked magnetic fields, each additional modality to be listed separately in addition to CPT code 95965 for primary procedure. Each of those procedures is currently assigned to a separate New Technology APC, and the commenters believed that they should remain in those APCs for CY 2006. The commenters believed that assignment to APC 0430 was inappropriate because the proposed payment level of $674 was inadequate to cover the costs of the procedures and because the procedures should not be assigned to only one level as their required hospital resources differ significantly.

The commenters stated that the median costs based on CMS' hospital claims data are erroneous because hospitals are not providing accurate charges for the procedures. Further, they stated that our data did not represent the true costs of the procedures because MEG procedures are performed on very few Medicare patients.

In addition to the written comments we received on our proposed rule, hospital and manufacturer representatives made presentations to the APC Panel during its August 2005 meeting. At that time, the Panel recommended that CMS retain the MEG procedures in their current New Technology APCs and that we collect more external data and provide a detailed review of the data for the Panel's consideration at its next meeting.

Response: The MEG procedures have been assigned to New Technology APCs for 4 years. In CY 2002, all three services were assigned a payment rate of $150 in a single New Technology APC. As these CPT codes were new for CY 2002 and, therefore, first open to comment in the CY 2002 final rule, we received several comments regarding the costs of the services. For CY 2003, all three services were assigned to higher paying New Technology APCs, with a rate of $2,250 for CPT code 95965, $1,375 for CPT code 95966, and $875 for CPT code 95967. For CY 2004 and CY 2005, the procedures were again assigned to higher paying New Technology APCs, with CPT code 95965 moving to a rate of $5,250; CPT code 95966 to a rate of $1,450; and CPT code 95967 to a rate of $950.

For CY 2006, we proposed to assign these procedures to one new clinical APC because assignment to New Technology APCs is generally temporary while we are gathering hospitals claims data, and we now have 3 years of data upon which to base clinical APC assignments. Over the entire 3-year period, the median costs Start Printed Page 68579for all 3 services, especially CPT code 95965, have generally been far less than the OPPS payment rates. In fact, the CY 2005 median cost (based on CY 2003 claims data) for CPT code 95965 was only 16 percent of the payment rate, and for CY 2006 the median cost (based on CY 2004 claims) was only 12 percent of the rate.

These procedures are rarely performed on Medicare beneficiaries and, therefore, we have a small number of claims now and have no expectation that the volume will increase. Patients targeted for MEG investigation procedures are typically between 17 and 32 years old. Furthermore, industry expectations are that the technology's growth will be in installations outside of hospitals. Nevertheless, almost all services with ongoing expectations of low volume for Medicare beneficiaries, including obstetrical services, reside in clinical APCs, not New Technology APCs. From CY 2003 claims data we were able to use 20 of the 21 claims submitted for CPT code 95965, 7 of the 7 claims submitted for CPT code 95966, and 4 of the 6 submitted for CPT code 95967 to calculate median costs of the procedures. For CY 2006 based on CY 2004 hospital claims data, we were able to use 10 of the 10 claims submitted for CPT code 95965 and 3 of the 4 submitted for CPT code 95966, while we had no claims for CPT code 95967.

In contrast to the comments, we are committed to relying increasingly on those data, especially in a case like this where the few hospitals that offer this technology have been billing these procedures for at least four years and the technology is no longer new. However, we also are sensitive to the potential access effects of relying on a low volume of claims to establish payment rates, as well as to the APC Panel's recommendation regarding these procedures as noted by the commenters. Therefore, for CY 2006 we considered charge and cost information provided to us during the comment period in addition to our claims data. A commenter provided total charge information billed to multiple payers, including Medicare, for MEG services from one hospital which showed charges of about $10,500. Also included in the information we received during the comment period were cost estimates for the procedures from various sources, and the estimates of costs varied considerably. For example, we were provided with estimates of hospital costs per case for CPT code 95965 that ranged from $8,321 to $4,054. We believe that some of that variation may be due to differences in the number of cases used in amortization estimates, as the costs of the equipment used in MEG procedures are significant. However, the fact that volume varies from one provider to another does not mean that we will base our payments on the high cost per case that results from allocating costs over only a few cases. In the case of MEG, we are especially sensitive to this given the very low level of Medicare beneficiary participation in the technology because of the clinical circumstances in which MEG services are typically provided. The OPPS payment rates for services need to make appropriate payments for the services provided to Medicare beneficiaries, recognizing that, as a budget neutral payment system, the OPPS does not pay the full hospital costs of services. We expect that our payment rates generally will reflect the costs that are associated with providing care to Medicare beneficiaries in cost-efficient settings.

We agree with the APC Panel and the commenters that there are no currently existing clinical APCs containing other services where MEG services could be appropriately assigned, based on clinical and resource homogeneity with other OPPS services. We carefully considered our claims data, information provided by commenters, and the APC Panel recommendation that we retain the MEG procedures in New Technology APCs. As a result of this analysis, we determined that using a 50/50 blend of the code-specific median costs from our most recent CY 2004 hospital claims data and the CY 2005 code-specific payment amounts as the basis for assignment of the procedures for CY 2006 would be one way to recognize both the current payment rates for the procedures, which were originally based on the theoretical costs to hospitals of providing MEG services, and the median costs based upon our hospital claims data regarding actual MEG services provided to Medicare beneficiaries by hospitals. Accordingly, for CY 2006, because we are not fully confident in our claims data for MEG procedures and there are no clinical APCs containing other services that share clinical and hospital resource characteristics with MEG procedures, we believe that it is most appropriate to place MEG services in New Technology APCs for CY 2006 to accommodate these adjusted costs. We agree with the commenters that these APCs should be “S” status so no multiple procedure reduction will apply, as we are determining an adjusted cost for each specific MEG service. For CPT codes 95965 and 95966, we averaged the services' median costs from CY 2004 claims data with their CY 2005 payment rates to determine adjusted costs for the procedures and, therefore, their appropriate New Technology APC assignments. There were no CY 2004 claims for CPT code 95967, and thus, no median cost to use for such an adjustment. For that procedure, we based the New Technology APC assignment on the historical relationship (66 percent in CY 2005) between the New Technology APC payment for that procedure and the New Technology APC payment for CPT code 95966, the code to which CPT code 95967 is an add-on. We used 66 percent of our CY 2006 payment rate for CPT code 95966 to determine the adjusted cost of CPT code 95967 and establish the New Technology payment amount for CPT code 95967 for CY 2006. The table below provides the CY 2006 payment rates and the resulting APC assignments for MEG services.

As suggested by the APC Panel, we will continue to study the APC assignments for these procedures over the coming year and invite members of the public to submit any information they believe will be helpful to us. We have given these procedures special consideration through this adjustment methodology for CY 2006 to help assure that Medicare beneficiaries have appropriate access to MEG services. With an additional year of data and improved consistency of billing by hospitals providing MEG services, we are hopeful that the claims-based median costs of these services in future years will more consistently and appropriately reflect hospitals' costs of providing MEG procedures.

Table 10.—CY 2006 APC Assignments for MEG Services

CPTCY 2006 median costCY 2005 paymentAdjusted costCY 2006 payment amount/APC
95965$644.71$5,250$2,947.35$2,750/1523
959661,013.341,4501,231.671,250/1514
95967N/A950818.97850/1510
Start Printed Page 68580

g. Positron Emission Tomography (PET) Scans

(1) Nonmyocardial PET Scans

Positron emission tomography (PET) serves an important role in the clinical care of many Medicare beneficiaries. As stated in the November 15, 2004 final rule with comment period (69 FR 65716), we believe there are sufficient claims data to assign nonmyocardial PET scans to a single clinical APC. However, to minimize any potential impact that a payment reduction resulting from this move might have had on beneficiary access to this technology, we set the CY 2005 OPPS payment for nonmyocardial PET scans based on a 50/50 blend of their CY 2005 median cost and the payment rate of the CY 2004 New Technology APC to which they were assigned. Therefore, nonmyocardial PET scans were assigned to New Technology APC 1513 (New Technology—Level XIV ($1,000-$1,200) for a blended payment rate of $1,150 in CY 2005.

At the February 2005 APC Panel meeting, the Panel agreed with a presenter's assertion that the resource costs associated with nonmyocardial PET scans are similar to the costs associated with myocardial PET scans, and recommended that myocardial PET scans be placed in the same New Technology APC 1513 in which the nonmyocardial PET scans currently reside. Furthermore, presenters at the February 2005 APC Panel meeting expressed concern that movement of nonmyocardial PET scans from their New Technology APC to lower paying clinical APC 0285 could impede beneficiary access to this technology, similar to concerns articulated by commenters in previous years.

As a result of a recent Medicare national coverage determination (Publication 100-3, Medicare Claims Processing Manual section 220.6), effective January 28, 2005, we discontinued the PET G-codes listed in Table 10, and activated the CPT codes listed below in Table 11 for myocardial and nonmyocardial PET scans and concurrent PET/CT scans for anatomical localization. These lists of codes along with claims processing instructions, are provided in Change Request 3756, Transmittal 514, Publication 100-04, Medicare Claims Processing Manual.

Table 12.—CPT Codes for Covered PET Scan Indications Effective for Dates of Service on or After January 28, 2005

CPT codeDescription
78459Myocardial imaging, positron emission tomography (PET), metabolic evaluation.
78491Myocardial imaging, positron emission tomography (PET), perfusion, single study at rest or stress.
78492Myocardial imaging, positron emission tomography (PET), perfusion, multiple studies at rest and/or stress.
78608Brain imaging, positron emission tomography (PET); metabolic evaluation.
78811Tumor imaging, positron emission tomography (PET); limited area (e.g., chest, head/neck).
78812Tumor imaging, positron emission tomography (PET); skull base to mid thigh.
78813Tumor imaging, positron emission tomography (PET); whole body.
78814Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; limited area (e.g., chest, head/neck).
78815Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; skull base to mid thigh.
78816Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; whole body.

In the CY 2006 OPPS proposed rule, we proposed to maintain CPT codes 78608, 78609, 78811, 78812, and 78813 for nonmyocardial PET scans in New Technology APC 1513 (New Technology—Level XIII, $1,100-$1,200) at a payment rate of $1,150, the same APC placement as their predecessor G-codes, to ensure continuing beneficiary Start Printed Page 68581access to this technology. We also proposed to maintain CPT codes 78814, 78815, and 78816, which describe concurrent PET/CT scans for anatomical localization, in New Technology APC 1514 (New Technology—Level XIV, $1,200-$1,300) at a payment rate of $1,250, based on input claiming that the costs associated with PET/CT technology are higher than the costs of PET technology alone.

Comment: Several commenters to the November 15, 2004 final rule with comment period (69 FR 65682) urged that we replace the G-codes for PET procedures with the established CPT codes for PET scans, while commenters to the July 25, 2005 proposed rule (70 FR 42674) applauded our transition to the CPT codes for PET scans. These commenters stated that movement to the established CPT codes for PET scans would greatly reduce the burden on hospitals of tracking and billing the G codes which are not recognized by other payors, and would allow for more uniform hospital billing of these scans. Furthermore, while a few commenters urged that we increase the payment for PET scans, the majority of commenters supported our proposal to maintain nonmyocardial PET scans in New Technology APC 1513 (paying $1,150), consistent with the payment level under their predecessor G-codes. Commenters stated that hospital claims data do not accurately reflect the costs of providing these services, and beneficiary access to this technology would be threatened if hospital claims data alone were used to set the CY 2006 payment rates.

Response: We agree with commenters that movement from the G-codes to the established CPT codes for PET scans allows for more uniform billing of these scans. Furthermore, we concur, in general, with commenters' recommendations that the payment levels under the established CPT codes for PET scans be consistent with the payment levels under their predecessor G-codes. Therefore, we are maintaining newly established CPT codes 78608, 78811, 78812, and 78813 for nonmyocardial PET scans in New Technology APC 1513 (New Technology—Level XIII, $1,100-$1,200) at a payment rate of $1,150. In addition, for myocardial PET scans we are assigning CPT codes 78459 and 78491 to newly established APC 0306 (Myocardial Positron Emission Tomography (PET) imaging, single study, metabolic evaluation) and CPT code 78492 to newly established APC 0307 (Myocardial Positron Emission Tomography (PET) imaging, multiple studies), where the APC medians have been calculated based on data from their predecessor G-codes, as discussed in more detail below. However, we are changing the status indicator for CPT code 78609 (Brain imaging, PET; perfusion evaluation) from “S” (separately paid under the OPPS) to “E” (not paid under the OPPS) retroactive to January 28, 2005, as historically there has been and currently there remains no coverage for this service under the Medicare program.

Comment: Numerous comments applauded our recognition of the newly established CPT codes for concurrent PET/CT scans and acknowledgement of the clinical usefulness of concurrent PET/CT scans for attenuation correction and anatomical localization in the management of patients with cancer. However, several commenters expressed concern that the proposed assignment of PET/CT scans (CPT codes 78814, 78815, and 78816) to New Technology APC 1514 (paying $1,250) may not adequately cover the costs of providing PET/CT services. These commenters explained that hospitals incur more capital and maintenance costs with PET/CT than with conventional PET. For instance, a large trade association commented that a new PET/CT scanner costs approximately $1.8 million, compared to $1.2 million for a conventional PET scanner. Another commenter quoted annual maintenance costs of approximately $240,000 for a new PET/CT scanner, compared to $120,000 for a conventional PET scanner. These commenters asserted that the proposed payment rate for PET/CT scans does not recognize the additional diagnostic benefits provided by concurrent PET/CT scans over traditional diagnostic PET and CT scans. These commenters further explained that the CT scan performed during a PET/CT is not limited to one part of the body but includes the entire area imaged by the PET scan and, therefore, is more efficient than performing one PET scan plus several separate CT scans for different regions of the body. Several commenters recommended that we assign the newly established CPT codes for PET/CT scans (CPT codes 77814, 78815, and 78816) to New Technology APC 1519 (paying $1,750) based on external data and an economic analysis submitted by one of the commenters, which reported the costs of providing a PET/CT scan at approximately $1,717. In contrast, a leading mobile provider of PET/CT scans reported an average cost of $1,485 for providing a PET/CT scan, which included FDG, mileage to sites, technologists, supplies, equipment maintenance, and scheduling.

Response: While we acknowledge that concurrent PET/CT scans for attenuation correction and anatomical localization in the management of patients with cancer may be clinically useful, we have received no convincing data that support the assignment of PET/CT scans (CPT codes 78814, 78815, and 78816) to an APC paying higher than $1,250. The external data and economic analysis submitted by one of the commenters failed to meet the criterion for consideration of external data that we proposed in our August 12, 2003 proposed rule (68 FR 47987) and finalized in our November 7, 2003 final rule (68 FR 63424). The external data and analysis was not provided with the level of detail that would have allowed us to verify the claims data nor to have adjusted the claims data should we have determined an adjustment was necessary. Furthermore, one commenter reported an average cost of $1,485 for providing a PET/CT scan, which included FDG, among other related costs. Considering that FDG will be paid separately at charges adjusted to cost for CY 2006 (estimated typically to be about $250), the payment rate of $1,250 for PET/CT scans (not including FDG) adequately covers the cost of $1,485 that this commenter reported for providing PET/CT scans (including FDG). While we acknowledge that PET/CT scanners may be more costly to purchase and maintain than dedicated PET scanners, a PET/CT scanner is versatile and may also be used to perform individual CT scans, thereby potentially expanding its use if PET/CT scan demand is limited. Therefore, for CY 2006, we are maintaining CPT codes 78814, 78815, and 78816, which describe concurrent PET/CT scans for attenuation correction and anatomical localization, in New Technology APC 1514 (New Technology—Level XIV, $1,200-$1,300) at a payment rate of $1,250.

Comment: One commenter expressed concern that the proposed payment rate of $1,250 for a PET/CT scan may not cover the costs of a diagnostic CT when performed in conjunction with a PET/CT scan. The commenter stated that although many of the technical resources for acquiring diagnostic CT data when performed as a single acquisition with a PET/CT scan are the same as for the CT for attenuation correction and anatomical localization, the initial capital costs are greater for a PET/CT scanner capable of performing a diagnostic CT. In addition, there are added costs for acquiring the diagnostic CT data such as for the contrast agent and appropriate personnel. This commenter expressed interest in a continued dialogue with CMS on the issue of appropriate payment for the Start Printed Page 68582technical costs of performing a diagnostic CT acquired simultaneously with a PET/CT scan.

Response: We appreciate the commenter's concerns regarding appropriate billing and OPPS payment for a PET scan with CT for attenuation correction and anatomical localization and a diagnostic CT scan performed as a single acquisition. We will consider this issue should we issue more specific hospital billing guidance regarding various combinations of medically reasonable and necessary PET and CT scans.

(2) Myocardial PET Scans

Comment: Two commenters to the November 15, 2004 final rule with comment period (69 FR 65682) urged CMS to delete HCPCS code G0230 (PET imaging, metabolic assessment for myocardial viability following inconclusive SPECT study) and recognize CPT code 78459 (myocardial imaging, positron emission tomography, metabolic evaluation) by changing its status indicator from “B” to “S.”

Response: As a result of a recent Medicare national coverage determination Publication 100-3, Medicare Claims Processing Manual section 220.6), effective January 28, 2005, we discontinued HCPCS code G0230 and activated CPT code 78459, changing its status indicator from “B” to “S.” For CY 2006, we are maintaining CPT code 78459 as the active code for billing “myocardial imaging, positron emission tomography, metabolic evaluation.”

Comment: Several commenters to the November 15, 2004 final rule with comment period (69 FR 65682) and the CY 2006 OPPS proposed rule (70 FR 42674) stated that the payment rate for APC 0285 does not accurately reflect the costs associated with performing multiple studies of PET myocardial perfusion imaging. They noted that, as configured, APC 0285 violated the two times rule for CY 2005 and was proposed as an exception to the two times rule for CY 2006. These commenters suggested that CMS split myocardial PET scans into two APCs to distinguish the resource consumption differences between single-study and multiple-study PET imaging.

Response: We agree with commenters that the significant cost differences between single study and multiple studies myocardial PET imaging services reflected in our historical hospital claims data for the G-code myocardial PET scan services support the splitting of APC 0285 into two myocardial PET scan APCs for more accurate rate-setting for these services for CY 2006. Furthermore, the splitting of APC 0285 resolves the two times violation that occurred in the CY 2006 proposed rule configuration of APC 0285. Therefore, we are assigning single-study myocardial PET imaging procedures and metabolic evaluation of myocardial PET imaging to APC 0306 (Myocardial Positron Emission Tomography (PET) imaging, single study, metabolic evaluation) with a median cost of $800, based on the CY 2004 hospital claims data for the predecessor G-codes that have been replaced with CPT codes 78459 and 78491. In addition, we are assigning multiple-study myocardial PET imaging procedures to APC 0307 (Myocardial Positron Emission Tomography (PET) imaging, multiple studies) with a median cost of $2,482, based on the CY 2004 hospital claims data for the predecessor G-codes that have been replaced with CPT code 78492.

Comment: One commenter explained that myocardial PET perfusion studies may be performed with or without gating similar to myocardial SPECT procedures. However, for myocardial PET perfusion studies, there are no additional codes to describe gating; therefore, the provider receives the same payment regardless of having performed a gated study versus a non-gated study. The commenter requested that the payment rate for myocardial PET perfusion studies be adjusted to assure proper payment for gated studies.

Response: While we recognize that the CPT codes describing myocardial PET scans make no distinction between gated and non-gated studies, we received numerous comments urging that we discontinue the G-codes for PET scans and recognize these CPT codes for PET scans. Furthermore, the splitting of the myocardial PET scans into two APCs to distinguish single-study imaging from multiple-study imaging, as discussed in detail above, may improve payment for certain gated studies that involve multiple studies and address the commenter's concern for adequate payment for gated studies.

h. Proton Beam Treatment

In the CY 2005 OPPS 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 for CY 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 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 for the proposed 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 was $934 derived from partial CY 2004 claims data at the time of development of the CY 2006 proposed rule. 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 proposed 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 for CY 2006.

Comment: Numerous commenters applauded our proposal to reassign CPT codes 77523 (Proton treatment delivery, intermediate) and 77525 (Proton Start Printed Page 68583treatment delivery, complex) from New Technology APC 1510 (New Technology—Level X ($800-$900) to clinical APC 0667 (Level II Proton Beam Radiation Therapy), setting payment on the median cost of $1,133 derived from the CY 2004 claims, an increase from the median cost of $934 in the proposed rule. Commenters also supported our proposal to maintain CPT codes 77520 (Proton treatment delivery; simple, without compensation) and 77522 (Proton treatment delivery; simple, with compensation) in APC 0664 (Level I Proton Beam Radiation Therapy), setting the payment on the median cost of $947 derived from the full year CY 2004 claims. Commenters stated that these proposed payments more accurately reflect the significant capital expense and operating costs of a proton beam therapy center. Commenters also were pleased with our proposal to maintain separate APCs for distinguishing simple from intermediate and complex proton beam therapies, stating that the distinction is necessary to differentiate between the resource demands of the different treatment levels. Commenters urged CMS to continue protecting beneficiary access to this technology, especially during this early stage of clinical adoption to ensure economic viability of both existing facilities and those in various stages of construction and development.

Response: We agree with commenters that the CY 2004 median cost data for proton beam therapy services more accurately reflect the significant capital expense and high operating costs of a proton beam therapy facility. Furthermore, our reassignment of CPT codes 77523 and 77525 from New Technology APC 1510 to clinical APC 0667 based on the improved median cost data and stable frequency is consistent with our policy of transitioning New Technology services into a clinically appropriate APC with payment based on median cost data once the data for these services become sufficiently stable to protect patient access to such services. Therefore, we are finalizing our proposal to reassign intermediate and complex proton beam therapy services (CPT codes 77523 and 77525) from New Technology APC 1510 to clinical APC 0667, and to maintain simple proton beam therapy services (CPT codes 77520 and 77522) in APC 0664 for CY 2006.

i. Smoking Cessation Counseling

Comment: Two commenters expressed concern about our proposal to move smoking cessation HCPCS codes G0375 (Smoking and tobacco-use cessation counseling visit; 3-10 minutes) and G0376 (Smoking and tobacco-use cessation counseling visit; greater than 10 minutes) from their current New Technology APC 1501 (Level I, $0-$50) with a payment rate of $25, to New Technology APC 1491 (Level IA, $0-$10) with a payment rate of $5. Both commenters contended that the current payment rate of $25 is not sufficient to cover resources associated with this type of visit. Both commenters expressed the conviction that, once claims data reflecting the costs of the service become available, it would become clear that a payment rate closer to $52 is warranted. One commenter urged us to maintain these codes in their current New Technology APC until provider claims data become available. The other commenter took the position that placement in a New Technology APC is not appropriate, as the services could reasonably be placed in an existing clinical APC. Specifically, this commenter recommended that HCPCS codes G0375 and G0376 be assigned immediately to APC 0600 (Low Level Clinic Visits), which the commenter considers appropriate in terms of resource costs and clinical characteristics. Finally, both commenters pointed out that there was an inconsistency in our tables in the proposed rule with regard to the APC assignments of codes G0375 and G0376. Specifically, Table 10 in the proposed rule (70 FR 42706) showed HCPCS code G0375 assigned to New Technology APC 1491 (with a payment rate of $5), while HCPCS code G0376 was assigned to New Technology APC 1492 (with a payment rate of $15). However, Addendum B of the proposed rule (70 FR 42936) showed both HCPCS codes G0375 and G0376 assigned to New Technology APC 1491 (with a payment rate of $5).

Response: We thank the commenters for bringing to our attention a typographical error that appeared in Table 10 of the proposed rule (70 FR 42706). This error did not come to our attention in time for correction. Our intent, as indicated in Addendum B, was to assign both HCPCS codes G0375 and G0376 to APC 1491 (with a payment rate of $5). We regret the error. We do not agree with the commenter who suggested that it is appropriate at this time to remove HCPCS codes G0375 and G0376 from assignment to a New Technology APC and to assign them to clinical APC 0600 (Low Level Clinic Visits). One purpose of assignment to a New Technology APC is to provide an opportunity to collect claims data from our system, in order to allow for the ultimate placement of a code in the most appropriate clinical APC in terms of hospital resource requirements. At this time, we lack any data that would justify placing these codes in the clinical APC recommended by the commenter or in any other clinical APC. We believe that these smoking cessation services, because they are so specifically defined with respect to coding and coverage, may not require similar hospital resources as those required of other services assigned to APC 0600. As two specific G-codes were developed for these new smoking cessation services, the specific services likely bear little clinical resemblance to many of the evaluation and management services assigned to APC 0600, whose median cost currently reflects CY 2004 claims from hospitals. We also cannot agree with the commenter recommending placement of these codes in one or more higher-paying New Technology APCs. Our proposal to reassign these codes from their current New Technology APC 1501 (with a payment rate of $25) to New Technology APC 1491 (with a payment rate of $5) was based on our assessment that the hospital facility resources required for this service are likely to be very limited. At the time of activation of these new G-codes in CY 2005, New Technology APC 1501 was the New Technology APC applicable to new OPPS services with expected hospital costs of between $0 and $50. As we proposed to refine the New Technology cost bands for CY 2006 and are finalizing that proposal in this final rule, we believe that for CY 2006 assignment of the smoking cessation G-codes to New Technology APC 1491 now more appropriately reflects the hospital resources required for these services. Therefore, for CY 2006, we are finalizing that proposal in this final rule. However, for CY 2007 rate-setting, we will reassess the APC placement of these codes in light of the available partial year CY 2005 hospital claims data.

j. Stereoscopic Kv X-ray

Comment: A number of commenters addressed our creation of a new code for stereoscopic kilovolt x-ray imaging, HCPCS code C9722 (Stereoscopic kilovolt x-ray imaging with infrared tracking for localization of target volume), and assignment of the service to a New Technology APC. Commenters stated that the “definition,” which appears to refer to the code descriptor, combines two technologies into one HCPCS code. A commenter claimed that this descriptor excludes other superior technologies to acquire kilovolt (kV) x-ray images for localization of target volume that do not rely on infrared Start Printed Page 68584tracking. Commenters asserted that the key feature of the service is the use of kV x-ray imaging for localization of target volume, while the infrared tracking feature is used for patient monitoring only to ensure immobilization, not for positioning and localization. A commenter stated that many kV x-ray systems do not use infrared tracking. The commenters, including a number of cancer centers, recommended modifying the descriptor of HCPCS code C9722 to “Stereoscopic kV x-ray imaging with or without infrared tracking for localization of target volume,” claiming that this would allow hospitals equal reimbursement for providing the service regardless of the vendor from whom they bought the kV x-ray equipment. One commenter stated that the kV x-ray is part of Image Guided Radiation Therapy (IGRT), a new generation of conformal radiation therapy techniques, and that it was working with the CPT Editorial Panel to submit CPT applications for stereoscopic x-ray guidance, as well as other IGRT technologies. A commenter stated that there is a new CPT code for stereoscopic x-ray guidance effective January 1, 2006, and recommended that we crosswalk HCPCS code C9722 to the new CPT code.

Response: The AMA's CPT Editorial Panel created new CPT code 77421, “Stereoscopic X-ray guidance for localization of target volume for the delivery of radiation therapy”, which will be effective January 1, 2006. We will replace HCPCS code C9722 with CPT code 77421 for CY 2006, mapping the new code to the same New Technology APC as for CY 2005—APC 1502. As with the instructions embedded in the descriptor for HCPCS code C9722, CPT code 77421 should not be reported with the five G-codes for stereotactic radiosurgery treatment to be billed under the OPPS in CY 2006. As CPT code 77421 makes no reference to infrared tracking, the commenters' concerns are addressed by the use of this CPT code and its descriptor.

k. Stereotactic Radiosurgery (SRS)

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 HCPCS code 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 CY 2004, so we have only one year of hospital claims data reflecting costs of all 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 proposed 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.

In the CY 2006 proposed rule, we acknowledged 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 indicated that we had no need to separately track SRS planning services, which share clinical and resource homogeneity with other radiation treatment planning services 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 together the median costs of the following CPT codes Start Printed Page 68585that we found to be regularly billed with SRS delivery (CPT code 61793 in the available hospital data): 77295, 77300, 77370, and 77315. In the CY 2006 proposed rule, our examination of the costs from the CY 2004 claims data available to us at that time for the above-mentioned CPT codes closely approximated 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 utilized for the proposed rule totaled $1,297, while the median cost for HCPCS code G0242 was $1,366 and the median cost for HCPCS code G0338 was $1,100 based on the partial year CY 2004 claims data. In addition, three of the above-mentioned CPT codes were included on the proposed bypass list for CY 2006, so we did 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 proposed 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 acknowledged 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 proposed for CY 2006, might 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 specifically requested 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 did 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.

As discussed in detail above, the APC Panel recommended that CMS create a single HCPCS code to encompass both Cobalt 60-based and linear accelerator-based SRS planning. Furthermore, the Panel recommended that we make no changes to the coding or APC placement of SRS treatment delivery HCPCS codes G0173, G0243, G0251, G0339, and G0340 for CY 2006.

For reasons discussed below, we are discontinuing HCPCS codes G0242 and G0338 for the reporting of charges for SRS planning under the OPPS for CY 2006, and instructing hospitals to bill charges for SRS planning, regardless of the mode of treatment delivery, using all of the available CPT codes that most accurately reflect the services provided. In addition, while we are reassigning HCPCS code G0243 to clinical APC 0127 for CY 2006, we are making no changes to the APC placement of SRS treatment delivery HCPCS codes G0173, G0251, G0339, and G0340.

We received a number of public comments on these SRS issues.

Comment: We received numerous comments supporting our proposal to discontinue HCPCS codes G0242 (Cobalt 60-based stereotactic radiosurgery planning) and G0338 (Linear accelerator-based SRS planning) for the reporting of charges for SRS planning, and to instruct hospitals to bill charges for SRS planning using available CPT codes that most accurately reflect the services provided. These commenters agreed that available CPT codes more accurately describe the services involved in SRS planning and are less administratively burdensome for providers because other payors recognize them. Some commenters urged that we retain separate codes for reporting the planning and treatment delivery of Cobalt 60-based SRS, whether through the use of existing G-codes (HCPCS codes G0242 and G0243) or through available CPT codes. Several of these commenters explained that although the planning and treatment delivery of Cobalt 60-based SRS most often occur on the same date of service, there are instances in which the planning and treatment are not delivered on the same date of service due to an unanticipated problem that arises during the planning that precludes the treatment delivery. In such instances where only planning for the Cobalt 60-based SRS is performed, commenters stated that CMS would need to clarify how providers should bill these services if separate codes are not maintained for the planning and treatment delivery of Cobalt 60-based SRS. Commenters expressed concern that combining the planning code (HCPCS code G0242) and treatment delivery code (HCPCS code G0243) for Cobalt 60-based SRS into a single combination code would necessitate the use of a modifier when they are not performed on the same date of service and would complicate the billing of these services and increase the administrative burden on hospitals. One commenter suggested that, if we decide to maintain HCPCS code G0242 for Cobalt 60-based SRS planning rather than transition to the CPT codes, we consider placing the planning code (HCPCS code G0242) on the bypass list as an alternative solution to generating more single bills for future rate-setting, rather than combining the planning and treatment delivery codes for Cobalt 60-based SRS into a single combination code.

In contrast, a few commenters urged that we continue to recognize HCPCS codes G0242 and G0338 for the reporting of SRS planning rather than transition to the available CPT codes that describe these services. These commenters predicted that another year of stability would allow CMS to collect more reliable data for use in setting the CY 2008 payment rates for SRS planning services.

Many commenters urged that we refrain from treating various forms of SRS (i.e., Cobalt 60-based and linear accelerator-based) differently by “bundling” planning into the treatment delivery for Cobalt 60-based SRS by creating a single combination code, while “unbundling” planning and treatment delivery for linear accelerator-based SRS by paying separately for these services. These commenters asserted that the planning and treatment delivery of SRS, regardless of the form of delivery, are clinically distinct services that should be reported separately to distinguish their distinct resource requirements. One commenter refuted claims that the administration of the planning and treatment delivery of SRS on the same date of service is unique to Cobalt 60-based SRS, arguing that the planning and treatment delivery of LINAC-based SRS likewise are typically performed on the same day, and that a mere time proximity of the two services does not necessitate a single combination code for either form of SRS. Several commenters cautioned against establishing different coding schemes for various SRS services that would likely cause confusion for coders, inaccurate coding, and unreliable data for future rate setting. Start Printed Page 68586

Numerous other commenters urged CMS to combine the planning code (HCPCS code G0242) and treatment delivery code (HCPCS code G0243) for Cobalt 60-based SRS into a single surgical code, preferably CPT code 61793 (stereotactic radiosurgery, particle beam, gamma ray, or linear accelerator, one or more sessions), which would replace all of the SRS G codes regardless of the mode of delivery. These commenters stated that the planning and treatment delivery of Cobalt 60-based SRS are always performed on the same day and that a single combination code would be less confusing for coders, provide more accurate claims data, and result in a more appropriate payment for Cobalt 60-based SRS. While some of these commenters urged that we assign this single combination code to a higher paying New Technology APC consistent with its CY 2004 median cost data until more accurate cost data are available for determining an appropriate clinical APC, other commenters strongly opposed the designation of Cobalt 60-based SRS as a new technology service, noting that Cobalt 60-based SRS became a standard of care for treating cancer patients over two decades ago and a new technology label is no longer appropriate. Commenters stated that CMS' designation of Cobalt 60-based SRS as a new technology service has led other insurers to consider the treatment to be experimental, which frequently delays, and sometimes prevents, access to treatment for critically ill patients. These commenters urged that we assign this new combination code reflecting planning and delivery of Cobalt 60-based SRS to a surgical APC and set the payment based on the median cost calculated from the CY 2004 hospital claims data. Some of these commenters recommended that this single combination code describe all forms of SRS, while other commenters emphasized the importance of maintaining separate combination codes for Cobalt 60-based SRS and LINAC-based SRS to distinguish the significant clinical and resource cost differences associated with these services.

One commenter urged that if CMS replaces the G-codes for SRS planning with available CPT codes describing these services, we should not assign HCPCS code G0243 (Cobalt 60-based SRS treatment delivery) to a New Technology APC paying higher than its CY 2005 payment rate of $5,250. This commenter supported our proposal to make no changes to the APC placement of SRS treatment delivery codes that describe a complete course of treatment in one session, stating that the proposed payment of $5,250 for all single session SRS treatment services for CY 2006 is appropriate based on the hospital resources involved in furnishing these services.

Response: We thank the many commenters for their insightful thoughts and recommendations for the reporting of hospital charges for SRS services under the OPPS for CY 2006. In recognition of the heightened level of diligence that the current coding scheme for SRS services requires of hospital coders to ensure that charges for these services are reported under the appropriate G-code, we carefully considered several options for simplifying the coding scheme for SRS services while maintaining a certain level of data specificity to reflect the differential clinical considerations and hospital resource utilization that are necessary to inform future rate setting.

First, we considered several recommendations by commenters to bundle the planning for Cobalt 60-based SRS into the treatment delivery (HCPCS code G0243) for Cobalt 60-based SRS by either establishing a single combination G-code describing both the planning and delivery of Cobalt 60-based SRS or by instructing providers to report CPT code 61793 for such services. However, we agree with the majority of commenters who expressed strong opposition to a single combination G-code or CPT code to report the planning and treatment delivery of Cobalt 60-based SRS, noting the following concerns: (1) The administrative burden on providers of maintaining duplicative codes for SRS planning to accommodate various payors (that is, G-codes for Medicare and CPT codes for non-Medicare payors); (2) the added complexity of attaching a modifier to the code for instances when planning and delivery are not provided on the same date of service because treatment does not proceed due to an unanticipated problem; (3) the confusion for coders and unreliable data that could emanate from inconsistent coding schemes for different forms of SRS (that is, Cobalt 60-based and LINAC-based SRS); and (4) the nonspecificity of the descriptor for CPT code 61793 which describes all forms of SRS treatment delivery and makes no mention of SRS planning services. We also agree with the majority of commenters who stated that the G-codes (G0242 and G0338) for SRS planning are duplicative of existing CPT codes that adequately describe such services and that are much less administratively burdensome on hospitals because they are recognized by non-Medicare payors. Furthermore, our analysis of the CY 2004 claims data revealed that the median costs for HCPCS codes G0242 and G0338 closely approximated the sum of the median costs for the CPT codes (77295, 77300, 77315, 77370) that were most commonly billed under the OPPS for SRS planning prior to the establishment of HCPCS codes G0242 and G0338. In addition, we remind commenters that three of the above-mentioned CPT codes are included on the bypass list for CY 2006, so we do not anticipate that the billing of these codes on the same day as an SRS treatment delivery service will cause significant problems with multiple bills for SRS services, eliminating any need for recognizing a single combination G-code or CPT code which describes both planning and treatment delivery SRS services for the purpose of generating more single bills. Finally, based on additional confirmation from commenters that the similarities in clinical characteristics and resource costs associated with treatment planning for services delivering radiation, regardless of the mode of treatment delivery, dispel the need to separately track planning services for SRS, we are discontinuing HCPCS codes G0242 and G0338 for the reporting of charges for SRS planning under the OPPS for CY 2006, and instructing hospitals to bill charges for SRS planning, regardless of the mode of treatment delivery, using all of the available CPT codes that most accurately reflect the services provided.

We also agree with the majority of commenters who strongly urged that we reassign HCPCS code G0243 (Cobalt 60-based treatment delivery) from New Technology APC 1528 to a clinical APC, pointing out that Cobalt 60-based SRS became a standard of care for treating cancer patients over two decades ago and, therefore, a new technology label no longer appropriately describes the service. Furthermore, the median costs from hospital claims for HCPCS code G0243 based on a significant number of single claims each year have been quite stable over the past three years, supporting movement of this service out of a New Technology APC and into a clinical APC based on its median cost data from CY 2004. Therefore, we are reassigning HCPCS code G0243 from New Technology APC 1528 to clinical APC 0127 and setting its payment rate based on a median cost of $7,297 for CY 2006.

Lastly, we agree with commenters who emphasized the significant clinical and resource cost differences associated with the treatment delivery of Cobalt 60-based SRS and LINAC-based SRS, and Start Printed Page 68587that establishment of a single code to describe all forms of SRS treatment delivery would result in a loss of essential data specificity for determining appropriate future payment rates for these services. For instance, based on the CY 2004 claims data, the median costs for the various forms of SRS treatment delivery ranged from $2,502 to $7,296. These significant differences in median cost data emphasize the importance of maintaining different codes that distinguish the various forms of SRS treatment delivery for the purpose of setting the most appropriate payment rates for these services. We believe it would be premature, as well, to move the LINAC-based SRS treatment delivery procedures to clinical APCs for CY 2006 because we have only one year of claims data reflecting their current coding structure, although we have hundreds of single claims for some of the services. We will be examining our claims data carefully for the next OPPS update, because we will then have 2 years of data for these LINAC-based SRS treatment delivery services now assigned to New Technology APCs. Therefore, we are maintaining HCPCS codes G0173 and G0339 in New Technology APC 1528, HCPCS code G0251 in New Technology APC 1513, and HCPCS code G0340 in New Technology APC 1525 for CY 2006. And as mentioned elsewhere in this section, we are reassigning HCPCS code G0243 from New Technology APC 1528 to clinical APC 0127.

Comment: One commenter urged that we create a new CPT code titled “Surgeon-based Gamma Stereotactic Radiosurgery, complete course, one procedure, per lesion” to describe Cobalt 60-based SRS planning and treatment delivery and assign this CPT code to a new surgical APC titled “Surgeon-based Gamma Stereotactic Radiosurgery.” This commenter recommended that we set the payment rate of this new APC based on the combined median costs from claims data for HCPCS codes G0242 and G0243.

Response: We appreciate the commenter's suggestion; however, CMS does not possess the authority to create CPT codes, which are established and maintained by the American Medical Association. Furthermore, under the OPPS, we do not label APCs according to the type of clinician delivering the service (that is, surgeon versus non-surgeon) because such categorization is irrelevant to establishing payment for hospital services billed under the OPPS. Rather, we provide titles for clinical APCs that describe the actual hospital services assigned to the APCs for which providers should report their hospital costs and charges. In addition, as discussed above, we agree with the majority of commenters who opposed the recognition of a single combination code (that is, CPT code 61793) for the planning and delivery of Cobalt 60-based SRS services, for reasons stated previously, i.e. the administrative burden of maintaining duplicative codes, the added complexity of attaching a modifier to the code for instances when planning and delivery are not provided on the same date of service because treatment does not proceed due to an unanticipated problem, the confusion for coders and unreliable data that could emanate from inconsistent coding schemes for different forms of SRS (that is, Cobalt 60-based and LINAC-based SRS), and the nonspecificity of the descriptor for CPT code 61793 which describes all forms of SRS treatment delivery and makes no mention of SRS planning services. Therefore, as discussed elsewhere in this section, for CY 2006, we are discontinuing HCPCS code G0242 and recognizing existing CPT codes for the reporting of Cobalt 60-based SRS planning, and moving HCPCS code G0243 (Cobalt 60-based SRS treatment delivery) from New Technology APC 1528 to clinical APC 0127 based on a median cost of $7,296.

Comment: Several commenters recommended that we make HCPCS code G0339 (Image guided, robotic, linear accelerator-based (LINAC) SRS treatment delivery, complete session, first session of fractionated treatment) a permanent code and continue to pay this service at the CY 2005 payment rate of $5,250. These commenters also recommended that we eliminate HCPCS code G0340 (Image guided, robotic, linear accelerator-based (LINAC) SRS treatment delivery, fractionated treatment, 2nd-5th sessions) and instruct hospitals to report HCPCS code G0339 for all fractionated treatment sessions, stating that the resource costs are the same for each session regardless of the number of treatment sessions that the patient receives.

Response: We disagree with the commenters' assertions that the resource costs are the same for each session of image-guided, robotic LINAC-based SRS treatment delivery regardless of the number of treatment sessions that the patient receives. Based on CY 2004 claims data, the median cost for HCPCS code G0339 ($4,917) was considerably higher than the median cost for HCPCS code G0340 ($2,502), and does not support the elimination of HCPCS code G0340 or its payment at a rate comparable to the payment rate for HCPCS code G0339. As the SRS treatment delivery G-codes are national Level II HCPCS codes that we utilize for billing SRS treatments in the OPPS, we are uncertain what changes the commenter would like us to make for the codes to be “permanent.” Therefore, for CY 2006, we are maintaining HCPCS code G0339 in New Technology APC 1528, and HCPCS code G0340 in New Technology APC 1525.

Comment: One commenter urged CMS to assign HCPCS codes G0251 and G0340, for fractionated non-robotic and image-guided robotic LINAC-based SRS respectively, to the same APC, contending that these procedures involve similar resources and should be paid equally. In contrast, another commenter asserted that image-guided robotic LINAC-based SRS is substantially more resource intensive than non-robotic LINAC-based SRS, and that CMS should maintain HCPCS code G0251 in a separate APC from HCPCS code G0340 to distinguish their levels of resource requirements.

Response: We began recognizing HCPCS code G0251 to describe fractionated sessions of non-robotic LINAC-based SRS treatment delivery in CY 2004, which yielded no single procedure claims data for HCPCS code G0251 to substantiate a similarity or lack of similarity of its resource costs in comparison with HCPCS code G0340 (fractionated, 2nd-5th sessions, image-guided robotic LINAC-based SRS treatment delivery). However, the large divergence in the median cost of $2,802 for the complete session of non-robotic LINAC-based SRS treatment delivery (HCPCS code G0173), in comparison with the median cost of $4,917 for the complete and first fractionated sessions of image-guided robotic LINAC-based SRS treatment delivery (HCPCS code G0339), indicates that fractionated image-guided robotic LINAC-based SRS treatment delivery is likely substantially more resource intensive than fractionated non-robotic LINAC-based SRS treatment delivery. Therefore, for CY 2006, we are maintaining HCPCS code G0251 in New Technology APC 1513 and HCPCS code G0340 in New Technology APC 1525. However, for CY 2007, we will reexamine our APC placement of HCPCS codes G0251 and G0340 based on CY 2005 hospital claims data.

Comment: One commenter to the November 15, 2004 final rule with comment period (69 FR 65682) disagreed with CMS' statement that CPT codes 0082T (Stereotactic body radiation, treatment delivery, one or more treatment areas, per day) and Start Printed Page 685880083T (Stereotactic body radiation therapy, treatment management, per day) are bundled into the current G-codes for SRS treatment delivery. The commenter stated that stereotactic body radiation treatment delivery and management are new technologies and, thus, are not included in the current G-codes for SRS treatment delivery; however, the commenter provided no cost data nor any explanation as to how stereotactic body radiation treatment differs from the current procedures described by the G-codes for SRS treatment delivery. Instead, the commenter simply requested that CMS designate these new tracking codes for stereotactic body radiation treatment delivery and management as new technology services and assign these codes to a New Technology APC.

Response: We disagree with the commenter's unsubstantiated assertion that the current G-codes for SRS treatment delivery do not already describe or include some services that could also be identified as stereotactic body radiation treatment delivery and management described by CPT codes 0082T and 0083T, respectively. Furthermore, we received no evidence to support the commenter's assertion that these services represent new technologies that could not be represented in our hospital claims data. Therefore, for CY 2006, we are maintaining CPT code 0082T with a status indicator of “B” because we consider an alternate code to be available for billing this service under the OPPS. Likewise, for CY 2006, we are maintaining CPT code 0083T with a status indicator of “N”, indicating that the charges for this service are packaged into the payment for other services paid separately under the OPPS.

D. APC—Specific Policies

We received many comments on our proposed changes to specific groups of services as discussed in the CY 2006 OPPS proposed rule preamble and displayed in Addendum B. We have grouped these comments, and our responses, into five general clinical categories as shown below.

We received one comment that generally addresses our APC assignment methodology.

Comment: One commenter objected to the placement of codes for unlisted services in the lowest APC that is clinically appropriate and to the lack of discussion of this policy in the CY 2006 OPPS proposed rule. The commenter asked that CMS examine claims data and match unlisted services to the diagnosis to determine if there is a more appropriate APC than the lowest level.

Response: We discussed this policy in the CY 2005 OPPS proposed rule which we published on August 16, 2004 (69 FR 50448), and we made our existing policy final in the November 15, 2004 final rule (69 FR 65682). We proposed no changes to this policy in the CY 2006 OPPS proposed rule (which we published on July 25, 2005 (70 FR 42674)) and, therefore, we have not changed the policy. The HCPCS codes for unlisted services should be used only if there is no existing code that can be used alone or with existing modifiers to report the service that was furnished. We believe that their use should be very rare. We do not believe that examination of the diagnoses on claims for unlisted procedures would enable us to properly place the codes into APCs because there are so many different types of services at different levels of resource use that could apply to a single diagnosis. There is a 2-year lag between the year of hospital claims data and the OPPS payment rates that are established based on the data. New procedure-specific HCPCS codes are developed on an annual basis, and there are continuous changes in procedures for many diagnoses as medical practice evolves. Therefore, we have no confidence that the array of unlisted services billed by hospitals, and by implication their median costs, in a given year for patients with certain diagnoses would necessarily have any relationship to unlisted services, and their median costs, billed 2 years later for patients with the same diagnoses. Moreover, placing unlisted services in the lowest level APC encourages use of existing codes where it is possible and also encourages development of new HCPCS codes for services for which codes do not exist.

1. Cardiac and Vascular Procedures

a. Acoustic Heart Sound Recording and Analysis

Comment: One commenter requested that CMS change the status indicator for CPT code 0069T (Acoustic heart sound recording and computer analysis only). The commenter requested that we assign the procedure to APC 0099 with an “S” status indicator rather than “N,” as is currently assigned to CPT code 0069T. The commenter stated that the test's current status as a packaged procedure results in inequitable payment to the hospital. They stated that the cost of an EKG with the acoustic heart sounds recording is $55 whereas, the cost of an EKG without is $31, and that because we have packaged the procedure, the hospital is underpaid by $24 for each test it performs.

Response: It is our understanding that the acoustic heart sound recording and analysis is intended for a specific, targeted group of patients to enhance the provider's ability to diagnose heart failure. The technology, as described by CPT code 0069T, always is performed in conjunction with an EKG and as such is ideal for packaging. It is the hospitals responsibility to increase their charges to reflect the additional costs for those EKGs that include the acoustic heart sound recording. If the hospital uses the test according to the manufacturer guidelines, the costs will be distributed over the large number of EKGs that are performed in the hospital outpatient department and, over time, the additional costs may be recognized in the OPPS rates as increased median costs for EKGs in general.

Comment: One commenter requested that CPT code 0069T (Acoustic heart sound recording and computer analysis only) become separately payable. The commenter was concerned that CMS interpreted the code to be an add-on code to an EKG procedure. The commenter clarified that CPT code 0069T is often used as a stand-alone procedure, provided without an EKG procedure.

Response: We are accepting the APC Panel's recommendations that CPT code 0069T remain packaged for CY 2006. The Panel reviewed this code and determined it to be an add-on code to an electrocardiography service, as indicated by the American Medical Association's descriptor of this code. In addition, we are concerned that there may be unnecessary utilization of this procedure if it is separately payable because it is an add-on code to EKG services, for which there were almost 6 million claims under the OPPS in CY 2004. Lastly, we continue to believe that this service is a minor procedure that may be performed quickly accompanied by an EKG and likely other separately payable services, and thus is appropriately packaged.

b. Cardiac Electrophysiologic Services (APC 0087)

Comment: Commenters objected to the decline in proposed payment rate for APC 0087 from prior years. They also objected to what they view as a two times violation in APC 0087 and asked that we move electrophysiologic “mapping” CPT codes 93609, 93613, and 93631 to APC 0086 because the CPT code median costs for these codes are much higher than the median costs for the other codes in APC 0087. They state that because “mapping” CPT codes 93609, 93613, and 93631 are billed with other cardiac electrophysiologic services Start Printed Page 68589already assigned to APC 0086, then these “mapping” services should also be assigned to the same clinical APC. They also asked that we use only claims that contain the device codes required for these CPT codes in setting the median cost for the APC into which CMS places these codes.

Response: We disagree that there is a 2 times violation, under our rules, in APC 0087. The law permits an exception to the two times rule for “low volume items and services.” We define any service that does not meet our test as a “significant service” to be a “low volume item or service.” A significant service is a service with a single bill frequency greater than 1,000 (which no services in APC 0087 meet) or a service with a single bill frequency greater than 99 and more than 2 percent of the single bills (which no services in APC 0087 meet). Because APC 0087 does not have any codes which meet the test of being significant, all of the codes in APC 0087 are “low volume” under our definition, and there is no two times violation.

Notwithstanding the absence of a 2 times violation under our rules, we acknowledge the commenter's concerns, and we will ask for the APC Panel's views regarding the assignment of these codes to APC 0087 in preparation for the CY 2007 OPPS update. We also recognize that, for many of the procedures assigned to APC 0087, multiple procedure claims are the norm. We will also work with the APC Panel to develop potential strategies which could enable us to use more claims for rate setting for these cardiac electrophysiologic services. We disagree, however, that because the electrophysiology “mapping” codes are performed with other cardiac electrophysiology studies, the clinical and resource characteristics of the “mapping” procedures necessarily are similar to the base services provided.

See section IV.A. for our discussion of adjustments to median costs for device-dependent APCs for the CY 2006 OPPS. See Table 16 for the adjusted median cost for APC 0087 for the CY 2006 OPPS.

c. Cardioverter-Defibrillator Implantation (APC 0107, 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 the 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, which constitute the majority of claims under these APCs, 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 cost 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. For each unique scenario, 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 were shown in the proposed rule in Tables 16 and 17.

We proposed to set the medians for these APCs at 85 percent of their CY 2005 payment medians and based our modeling of the scalar and the impact analysis on that proposal, although we believed 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 proposed to adjust the median costs for these APCs in the same manner as other device-dependent APCs, we stated in the proposed rule that 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 specifically invited 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 rate-setting in order to improve the accuracy of median costs based upon hospital claims.

We received many public comments concerning our proposal.

Comment: Many commenters stated that the payments CMS proposed for APCs 0107 and 0108 are inadequate to cover the acquisition costs of the Start Printed Page 68590devices, much less the full hospital costs of providing the services. They asserted that the proposed payments for APCs 0107 and 0108 are only 84 percent of the cost of the device alone, leaving the hospital with an out of pocket loss for the device and no payment for the service costs. They indicated that if the proposed payment rates are made final, APCs 0107 and 0108 will have incurred reductions of 20.5 percent and 29.4 percent respectively since CY 2002. They urged that CMS use external data for the device portion of the median cost or at a minimum, accept the APC Panel recommendation to set the payment rate for APCs 0107 and 0108 at no less than the CY 2005 OPPS payment rate updated by the full market basket increase. They say that beneficiary access to care will be inhibited by continued inadequate payments for these services.

Response: We have considered the comments and, as proposed, will adjust the medians for the services in APCs 0107 and 0108 under the same policy being applied to other device-dependent APCs. See section IV.A. of this preamble for our discussion of the use of external data, and requests to update the CY 2005 OPPS median costs and payment rates by the market basket for purposes of setting the CY 2006 OPPS payments. Also see section IV. A. of this preamble for our discussion of adjustments to median costs for device-dependent APCs. See Table 16 for the CY 2006 adjusted median costs for device-dependent APCs, including APCs 0107 and 0108.

Comment: One commenter supported the recommendations of the APC Panel that CMS package CPT codes 93640 and 93641 (electrophysiologic evaluation at time of initial implantation or replacement of cardioverter-defibrillator) and treat CPT code 33241 (subcutaneous removal of cardioverter-defibrillator) as a bypass code when it appears on claims with services assigned to APCs 0107 or 0108. The commenter believed that these changes would result in a more robust set of claims to be used to set the median costs for APCs 0107 and 0108. Other commenters indicate that with or without these changes, the increased volume of claims is unlikely to result in adequate median costs for these procedures.

Response: We believe that it may be appropriate to package CPT codes 93640 and 93641 into the services assigned to APCs 0107 and 0108, and that it may be appropriate to bypass CPT code 33241 only when it appears on the same claim with codes in APCs 0107 or 0108, and we will explore doing this in the future. The APC Data Subcommittee will continue to advise us on efforts to increase the amount of usable claims data for services that very frequently are provided along with other separately payable procedures.

As noted above, consistent with payment for other device-dependent APCs, the CY 2006 OPPS payment for APCs 0107 and 0108 is set based on 90 percent of the CY 2005 OPPS adjusted median cost. See Table 16 for a complete listing of device-dependent APCs and the adjusted median costs on which the payment rates are based.

d. Endovenous Ablation (APC 0092)

Comment: One commenter addressed our final rule (November 15, 2004) regarding the APC assignment of new CPT codes 36475 (Endovenous radiofrequency ablation, first vein) and 36476 (Endovenous radiofrequency ablation, vein add-on). The commenter asserted that the assignment to APC 0092 (Level I Vascular Ligation) was inappropriate and results in payment that is inadequate to cover the costs of the procedure. The commenter recommended creation of two new APCs, Level I and Level II endovenous ablation procedures, and advocated assignment of both CPT codes 36475 and 36476 to the higher of the two levels. The commenter stated that radiofrequency (RF) ablation procedures are quite different from other vein stripping methods and require substantially more operating room time and hospital resources than do vein stripping or endovenous laser procedures.

Further, the commenter stated that our assignment of CPT codes 36475 and 36476 to APC 0092 was inconsistent with the cost data CMS analyzed for making pass-through payments for the ablation catheter (HCPCS code C1888, which expires December 31, 2005). The commenter asserted that we failed to add the costs for the ablation device into the procedure when we made the assignment to APC 0092. The commenter also stated that hospitals and the manufacturer have submitted cost information and charge data to CMS that support assignment of the procedures to an APC with a payment rate of about $2,500.

We received one comment, from the same commenter, on our proposed rule. The commenters stated that the RF ablation procedures are more like those assigned to APC 0086, Ablate Heart Dysrythm Focus, than those in APC 0092 (Level I Vascular Ligation). Similar to its comment on the final rule, the commenter recommended that CMS reassign CPT codes 36475 and 36476 to a new APC with a payment amount of approximately $2,800. The commenter also recommended that we assign new CPT codes 36478 (Endovenous ablation therapy of incompetent vein, extremity, inclusive of all imaging guidance and monitoring, percutaneous, laser; first vein treated) and 36479 (Endovenous ablation therapy of incompetent vein, extremity, inclusive of all imaging guidance and monitoring, percutaneous, laser; second and subsequent veins treated in a single extremity, each through separate access sites) to the lower level of the two new endovascular ablation procedure APCs that they requested, with a payment rate of approximately $2,300.

In its proposed rule comments, the commenter provided detailed information about the costs of the endovenous ablation procedures from the practice expense cost inputs for the Medicare Physician Fee Schedule. The commenter based its recommendations for OPPS payment on those data and provided prices for the RF ablation catheter ($680) and the laser fiber kit ($325), as well as for the capital equipment for each procedure type.

Response: Prior to the CY 2005 implementation of CPT codes 36475 and 36476 for radiofrequency ablation and CPT codes 36478 and 36479 for laser ablation, the radiofrequency ablation device used in the endovenous ablation procedure was coded using HCPCS code C1888 (Catheter, ablation, non-cardiac, endovascular) and was separately paid as a pass-through until December 31, 2004 when the pass-through status expired.

We received a significant number of bills for HCPCS code C1888 (1787 units) in CY 2004 and considered the median cost ($636) based on those bills, along with clinical information and historical hospital claims data for other OPPS services in making the APC assignments of the new CPT codes. We assigned all RF and laser endovenous ablation procedures for the first vein and second and subsequent veins to APC 0092, status indicator “T,” with other vein procedures and a CY 2005 payment rate of $1,538. However, in response to the comment we reconsidered our decision. While there are no two times rule violations for APCs 0092 and 0091 for CY 2006, the median costs for individual procedures assigned to those APCs significantly overlap. Nevertheless, APC 0091 has a somewhat higher payment rate for CY 2006. Given the costs for the disposables and other resources used in delivery of both laser and RF endovenous ablation services, we determined that assignment to the higher paying of these APCs was a more Start Printed Page 68591accurate placement than APC 0092 as we proposed. Therefore, for CY 2006, CPT codes 36475, 36476, 36478, and 36479 will be assigned to APC 0091. The “T” status of the APC should ensure appropriate payment when ablation of more than one vein is performed in an operative session. For CY 2007 we will have hospital claims data for those codes for the first time, and, with the assistance of the APC Panel, we will reconsider the APC assignments for them and the other procedures assigned to APCs 0091 and 0092 because we believe that for procedures assigned to APCs 0091 and 0092 CY 2007 APC reconfiguration may be advisable.

e. External Counterpulsation Therapy (APC 0678)

Comment: One commenter submitted comments about external counterpulsation therapy (EECP, HCPCS code G0166). The commenter requested that we base the CY 2006 payment for this procedure on the OPPS relative weight for the procedure from CY 2005. The commenter was concerned because the OPPS rate for this procedure has decreased every year since CY 2000, and they believed that the lower payments might result in diminished beneficiary access to the therapy. The commenter believed that the low costs in the CMS data may be due to hospitals filing inaccurate claims.

Response: Although the OPPS payment rate for EECP has decreased every year since CY 2000 as noted by the commenter, we are committed to relying on our hospital claims data for this APC. In addition, we note that the total numbers of OPPS claims for this service have increased over the past several years, from 26,836 in CY 2002, to 37,568 in CY 2003, and again to 40,362 in our most recent claims data for CY 2004. We have no reason to believe that Medicare beneficiaries are having trouble accessing this therapy. Hospitals have been billing Medicare for EECP since CY 2000 and so should be filing accurate bills. The procedure is in an APC that has no other procedures that can affect its median, and the median cost for the CY 2006 OPPS is based on more than 38,000 single claims. Therefore, we will finalize our proposed CY 2006 APC assignment and payment rate for APC 0678, based on our standard OPPS methodology.

f. Intracardiac Echocardiography (APC 0670)

Comment: One comment submitted comments about the APC assignment for CPT code 93662 (Intracardiac echocardiography during therapeutic/diagnostic intervention, including imaging supervision and interpretation). The commenter objected to the procedure's assignment to APC 0670 (Level II Intravascular and Intracardiac Ultrasound and Flow Reserve) for several reasons. First among those reasons was that the procedure should not be assigned to the same APC as is CPT code 92978, Intravascular ultrasound (coronary vessel or graft) during diagnostic evaluation and/or therapeutic intervention including imaging supervision, interpretation and report. The commenter stated that the two procedures are dissimilar clinically and with respect to resource consumption. The differences between the two procedures listed by the commenter were: the intracardiac echocardiography (ICE) procedure can be used to image the entire heart rather than just a coronary vessel as does the intravascular ultrasound (IVUS) procedure; ICE is closely associated with electrophysiology and interventional cardiology procedures; IVUS is an imaging technique used as an adjunct to coronary/peripheral stent deployment; IVUS catheters cost from $500 to $700 whereas ICE catheters cost from $900 to $2,800; and the mean and median costs for the procedures are very different.

Response: The ICE procedure is a CPT code “add-on,” and so normally is not reported alone on OPPS bills. For that reason, only 10 of the 541 claims for the procedure were single claims that we could use to calculate its procedure-specific median cost of $1,815. In fact, all four of the procedures assigned to APC 0670 are “add-on” codes, and two of the procedures had no single claims for CY 2004 because one of the codes, CPT code 31620 (Endobronchial ultrasound (EBUS) during bronchoscopic diagnostic or therapeutic intervention(s)), was new for CY 2005 and CPT code 93571 (Intravascular Doppler velocity and/or pressure derived coronary flow reserve measurement (coronary vessel or graft) during coronary angiography including pharmacologically induced stress; initial vessel) was packaged under the OPPS in CY 2004 and when unpackaged for CY 2005, no single claims were available. The fourth code in APC 0670, CPT code 92978, the IVUS procedure, had a median cost of $1,505 and 115 single claims and, therefore, had a disproportionate influence on the median cost for the APC.

We do not agree that there are no significant clinical similarities among the procedures assigned to APC 0670. These similarities include their “add-on” status and their use of intravascular or intrabronchial catheters or wires with complex capabilities to provide clinical information, such as images or flow data. The hospital resources required for all of these services are highly related to the costs of the technologies used for the procedures. In general, our hospital claims data are quite consistent with assignment of CPT code 93662 to APC 0670 with a median cost of $1,505 for CY 2006, along with the other services previously described. We note that our CY 2004 total claims volume for CPT code 93662 almost doubled between CY 2003 and CY 2004, providing no evidence that Medicare beneficiaries are having trouble accessing this service.

As discussed elsewhere in this preamble, we are working on alternative strategies for determining the costs for procedures that are reported as CPT “add-on” codes. When we are better able to identify those costs, we will reevaluate the assignment of the ICE and IVUS procedures. At this time, however, we believe that APC 0670 is the most appropriate assignment for CPT codes 93662 and 92978.

g. Percutaneous Thrombectomy and Thrombolysis (APC 0676)

Comment: One commenter submitted comments regarding the APC assignment for CPT code 92973, Percutaneous transluminal coronary thrombectomy and CPT code 37195 (Thrombolysis, cerebral, by intravenous infusion). The commenter stated that the payment rate for APC 0676 (Thrombolysis and Thrombectomy) was based largely on only one of the procedures assigned to the APC, CPT code 36550 (Declotting by thrombolytic agent of implanted vascular access device or catheter), and that it was inappropriately low for CPT codes 92973 and 37195. The commenter stated that the procedures coded by CPT codes 92973 and 37195 require a mechanical device costing hundreds of dollars or significant quantities of expensive lytic agents, respectively. The comment also suggested that the difficulty that CMS has in obtaining accurate cost data for these procedures is due to the fact that they are rarely reported as single claims, and that next year there will be new codes for percutaneous thrombectomy that will help to remedy that situation.

Response: For CY 2006, we proposed to retain CPT code 92973 in APC 0676 and to remove CPT code 37195 from the inpatient list and assign it to APC 0676 as well. The median cost for each of these procedures was based on one single claim each, out of 149 and 28 total claims respectively. The very low volume of single claims is expected for these two procedures because CPT code Start Printed Page 6859292973 is an “add-on” code and would not be expected to be reported alone, and CPT code 37195 was on the inpatient list in CY 2004, and therefore, we do not have many outpatient hospital claims for it.

The commenter's point that the APC 0676 payment rate was based mainly on one of the other procedures assigned to that APC is correct. The procedure coded with CPT code 36550 (Declotting by thrombolytic agent of implanted vascular access device or catheter) had a very high volume of single claims with a procedure-specific median cost of $128 so that its claims disproportionately influenced the APC median cost of $135. There were 5,099 single claims for that procedure and the next highest volume of single claims in APC 0676 was only 439 claims for CPT code 37201 (Transcatheter therapy, infusion for thrombolysis other than coronary).

While we acknowledge the small number of claims for CPT code 92973, we agree with the commenter than its continued assignment to APC 0676 could lead to significant underpayment for this service that utilizes a costly catheter. Therefore, we will reassign CPT code 92973 to APC 0088 (Thrombectomy) with an APC median of $2,171 for CY 2006, where other procedures that are more clinically and resource coherent with CPT code 92973 reside. As this service is an “add-on” code to other surgical procedures and is assigned status indicator “T,” we expect that its payment rate will be reduced by 50 percent when it is correctly billed with other surgical procedures.

With respect to CPT code 37195, we will finalize its assignment to APC 0676 for CY 2006. We expect that the lytic drugs that will be administered to a patient during this procedure will generally be separately payable under the OPPS, as well as some of the other services that typically will be provided to a patient receiving cerebral thrombolysis by intravenous infusion. While we expect that performance of this procedure in the hospital outpatient setting will remain rare, we believe that APC 0676 should make appropriate payment for CPT code 37195 for CY 2006. As always, we will examine the costs from hospital claims as new data become available to ensure that the OPPS payment is appropriate.

h. Coronary Flow Reserve (APCs 0416 and 0670)

Comment: One commenter requested that CMS make permanent the revised APC 0670 (Level II Intravascular and Intracardiac Ultrasound and Flow Reserve) and new APC 0416 (Level I Intravascular and Intracardiac Ultrasound and Flow Reserve), as presented in the November 15, 2004 final rule. In addition, the commenter requested that we reactivate discontinued HCPCS code C3556 which was used previously for three specific brands of sensors, including guidewire-mounted coronary flow reserve sensors. The commenter believed that the requirement to report HCPCS device codes for device-dependent APCs would result in inaccurate cost information for the flow reserve sensors because these devices are currently coded using HCPCS code C1769 which is also used to code all types of guidewires.

Response: We appreciate the comment concerning these new and revised APCs as we published them in the November 15, 2004 final rule. We have made those changes final.

Beginning April 1, 2001, many manufacturer and device-specific HCPCS codes established for device pass-through payment purposes were discontinued in favor of more general codes to describe categories of devices. HCPCS code C3556 was discontinued as of April 1, 2001 as part of that action. The guidewire-mounted coronary flow reserve sensors previously reported with HCPCS code C3556 were cross-walked to HCPCS code C1769, which was established for coding guidewires. The Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 required us to establish categories, or types, of devices and no longer create codes to describe each device specifically. Further, we do not create new device codes unless one is needed to support accurate payment for devices that meet our criteria for transitional pass-through payment. There is no such need in this case as the guidewire-mounted coronary flow reserve sensor received its full period of device pass-through payments.

We do not believe that use of HCPCS code C1769 will result in inaccurate cost data for coronary flow reserve measurement services. Reporting the device code on claims for device-dependent procedures is meant to ensure that the bills upon which we rely for calculation of the median costs include the device costs integral to the procedures. We base this policy on our belief that if a hospital includes the code for the device on the bill, even though there is no separate payment for the device, the bill is more likely to be an accurate and complete report of hospital charges (and thereby, costs). We expect that hospitals reporting the required guidewire device C-code along with a coronary flow reserve measurement service will provide an appropriate charge for the device used in the procedure.

The new requirement for device coding is one technique that we believe will help us to address the ongoing problem of hospitals inadvertently failing to accurately and fully bill the charges for all hospital resources utilized to perform procedures. By requiring that the device code be on the claim, we are more confident that the device costs have been included in the hospital's bill and that we will capture accurate costs for rate setting for the procedure as a whole.

i. Vascular Access Procedures (APCs 0621, 0622, and 0623)

Many of the codes that currently describe vascular access procedures were new in the CY 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, for the proposed rule we developed a new APC configuration for vascular access procedure codes and several other related codes. The proposed new assignments were supported by CY 2004 hospital claims data and are based on median cost and clinical considerations.

Thus, for CY 2006 we proposed 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 proposed placed all of the procedures currently Start Printed Page 68593assigned to APC 0187 into more clinically appropriate APCs. We also proposed 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 clinical APCs were comprised of a different mix of codes than is currently the case for the CY 2005 OPPS. There were no codes assigned to APC 0187 because the only procedures that remained in APC 0187 after reassigning the vascular access procedures as we proposed 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 proposed 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 proposed to create three new clinical 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 also proposed to rename APCs 0109 and 0115 as follows: APC 0109 (Removal of Implanted Devices); and APC 0115 (Cannula/Access Device Procedures).

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 proposed the APC modifications for CY 2006 OPPS as summarized in Table 13 of the proposed rule (70 FR 42713).

We received a few comments on our proposal.

Comment: All of the comments were supportive of our reconfiguration of the APCs and encouraged us to make the proposal final.

Response: We appreciate the commenters' support.

Therefore, we are finalizing our proposal without modification for FY 2006.

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2. Radiology, Radiation Oncology, and Nuclear Medicine

a. Angiography and Venography (APCs 0279, 0280, and 0668)

Comment: One commenter supported our proposal to reassign CPT code 75790 (Angiography, arteriovenous shunt, radiological supervision and interpretation) from APC 0281 (Venography of Extremity) to APC 0279 (Level II Angiography and Venography except Extremity). However, this same commenter objected to our proposal to move CPT codes 75820 (Venography, extremity, unilateral, radiological supervision and interpretation) and 75822 (Venography, extremity, unilateral, radiological supervision and interpretation) from APC 0281 (Venography of Extremity) to APC 0668 (Level I Angiography and Venography except Extremity). The commenter contended that CPT codes 75790, 75820, and 75822 share similar clinical characteristics and resource requirements and, therefore, should be mapped to the same APC 0279. For instance, the commenter stated that all three services require the use of guidewires, catheters, local anesthetic, and contrast. Furthermore, the commenter asserted that CPT code 75822 involves a bilateral procedure which requires much higher resource costs than other services assigned to APC 0668. Lastly, the commenter stated that CPT codes 75790, 75820, and 75822 share similar clinical characteristics with CPT code 75658 (Angiography, brachial, retrograde, radiological supervision and interpretation), which currently resides in APC 0279, differing only with respect to whether a vein is accessed versus an artery in an extremity. The commenter urged that CMS reassign CPT codes 75790, 75820, and 75822 to APC 0279 for CY 2006. In addition, the commenter recommended that CMS modify the title of APC 0668 to exclude language referring to extremities based on the commenter's belief that none of the other CPT codes assigned to APC 0668 relate to extremities.

Response: Based on our analysis of our CY 2004 claims data we disagree with the commenter that services described by CPT codes 75790, 75820, and 75822 require similar hospital resources. CPT code 75790 has a median cost of $548, based on over 18,000 single claims from CY 2004, and is assigned to APC 0279 (Level II Angiography and Venography), which has a median cost of $517. We believe that this APC appropriately reflects the clinical and hospital resource characteristics of CPT code 75790 and provides appropriate payment to hospitals for this service.

In contrast, CPT code 75720 has a median cost of only $258, based on almost 3,500 single claims that represent over half of the total claims for the service. Similarly, CPT code 75722 has a median cost of $349, based on over 2,400 claims that represent more than half of the total claims for the service. Both of these procedures are assigned to APC 0668 which has a median cost of $375. We believe that APC 0668 appropriately reflects the clinical and hospital resource characteristics of both of these procedures. Thus, although these three codes were assigned to the same clinical APC 0281 for CY 2005, when we eliminated that APC and reassigned the three services, we were able to place them in such a way as to provide more accurate payments for each of the services.

We appreciate the commenter's drawing our attention to the phrase “Except Extremity” that remained in the APC titles for APCs 0668, 0279, and 0280 after we eliminated the CY 2005 APC for extremity venography services. For CY 2006, we have removed the phrase “Except Extremity” from the APC title for APCs 0668, 0279, and 0280, so they are now renamed Levels I, II, and III Angiography and Venography, respectively.

b. Brachytherapy (APCs 0312, 0313, and 0651)

Comment: Commenters objected to the proposed reduction in the payment rates for APCs 0312, 0313 and 0651 for the CY 2006 OPPS. They indicated that the reductions could result in decreased access to care. They recommended that CMS use only claims on which a brachythearpy source appears with the procedure code, which they describe as “correctly coded” claims, as the basis for the median cost calculations for these APCs. They indicated that using only claims on which the brachytherapy source code was billed results in median costs that are higher than the median costs calculated using all single procedure claims. At its August 2005 meeting, the APC Panel recommended that we evaluate this proposal. The commenters also asked that CMS expand the adjustment proposed for selected device dependent APCs to APCs 0312, 0313 and 0651. They asked that CMS consider alternative methodologies to utilize single and multiple procedure claims for rate setting purposes so that more claims could be used. They also asked that CMS use external proprietary and confidential data to determine median costs for rate-setting. They said that because brachytherapy sources are required to furnish these services, they should be treated like device dependent APCs with regard to adjustment of medians and required editing for the presence of sources on the claims.

Response: We have not accepted the commenters' recommendations to use external data for the reasons we cite in the discussion of external data in section II. of this preamble. Moreover, we have not accepted the recommendation that we use only claims that contain a brachytherapy source on the claim to calculate the median costs for APCs 0312, 0313, and 0651 because we believe that the presence of a source on the claim is not relevant, since sources are paid separately. While the median costs presented by the commenters based on claims that contain sources resulted in higher median costs, we do not see a valid reason to limit the claims to claims with sources because the presence of the source is not relevant to the median cost of the procedural APC. We have no reason to believe that the claims without sources on the claim do not contain the full charges for the procedural services furnished. We have applied adjustments to the median costs for device dependent APCs for CY 2006 because of the difficulties in ensuring device charges are fully reflected on claims for these services, thus allowing appropriate packaging of the device costs into the APC payments. This rationale does not apply to the APCs for application of brachytherapy sources, so we have not applied the device dependent APC median adjustment policy to APCs 0312, 0313, and 0651 for CY 2006.

We disagree that these services should be treated like device dependent APCs solely because they require brachytherapy sources. The critical distinction is that the APC payment for device dependent APCs includes payment for the packaged devices, while payment for these brachytherapy source application APCs is exclusive of payment for the sources, which are paid on the basis of charges reduced to cost. The editing for the presence of key devices on claims for services assigned device dependent APCs is not “correct coding” editing. Instead, the edit is made to maximize the likelihood that the charge for the principle device required to perform the service is included on the claim so that we will capture the cost of the device in setting the median cost for the APC.

Although the brachytherapy procedure comments have largely Start Printed Page 68596focused on the payment for CPT code 77778, the application of the brachytherapy sources, we note that all the related procedures, such as needle or catheter use and placement, must be considered for a full analysis of payment for brachytherapy services. The brachytherapy source application service is but one component of the entire procedure. The hospital also bills for the placement of the needles or catheters, the imaging and planning services, and is paid separately for the sources at charges reduced to costs.

Because of the particularly large drop in median cost from the median based on CY 2003 data compared to the median cost based on CY 2004 claims data for APC 0651, we extensively reviewed the cost of APC 0651, which is most commonly billed for the provision of interstitial prostate brachytherapy and frequently appears on the same claim with CPT code 55859, the code for placement of needles or catheters into the prostate. Contrary to the commenters' belief that “correctly coded” claims for CPT code 77778 also contain brachytherapy sources, in most cases of prostate brachytherapy both CPT codes 55859 and 77778 are found on the same claim with a radiologic guidance code (often CPT codes 76000 or 76965) and/or with a radiation planning code (usually CPT code 77290). This results in a correctly coded claim for interstitial brachytherapy designated as a multiple procedure claim. Furthermore, these claims not only contain the two major procedures (CPT codes 55859 and 77778), but they also often contain the three ancillary procedures (CPT codes 76000, 76965 and/or 77290), which are not on the bypass list because they have packaging in excess of $50 or they have packaging on more than 5 percent of single bills.

In our review, we identified 11,341 claims containing both CPT codes 55859 and 77778 on the same date of service. We then looked for claims in this subgroup that contained no separately paid codes other than the three ancillary services (after we applied the bypass list and removed any codes on it). This gave us 7,533 claims containing CPT codes 55859 and 77778 with no other major procedures except for the 3 ancillary services. We believe that claims with CPT codes 55859, 77778 and one or more of these 3 ancillary services represent the most typical combinations of services furnished when brachytherapy sources are applied. We then calculated two combination median costs: a combination package and combination bypass. The first combination median cost was calculated by treating these three codes as if they were grouped into one comprehensive service by adding the costs of these codes to the costs on the claim for CPT codes 55859 and 77778 and all other packaged costs. This “combination group median” is $3,187.86. This “combination group median” overstates the costs of CPT codes 55859 and 77778 by the extent to which the costs of the three ancillary services and the packaging that is associated with them are reflected in it. We then calculated a second combination median cost in which we treated these three ancillary codes as if they were on the bypass list by removing the line item charges for these codes and associated all packaging on the claim with CPT codes 55859 and 77778. This “combination bypass median” is $2,968.64. This “combination bypass median” overstates the costs of CPT codes 55859 and 77778 to the extent that the packaged costs associated with the 3 ancillary services are reflected in it.

We then compared the sum of the single bill medians calculated from our OPPS stated methodology for CPT codes 55859 and 77778 to both of these combination medians. The sum of the single bill medians for these codes (without any costs from the three ancillary procedures) is $2,662.62. We then summed the medians for CPT codes 55859, 77778, 76000, and 77290, a typical combination of codes for these services, resulting in a sum of $2,975.50, similar in range to both the “combination group median” and the “combination bypass median.”

Under our analysis, the sum of the single bill medians for insertion of needles or catheters in the prostate and the application of brachytherapy sources is well within the range of the combination medians we calculated based on the multiple procedure claims. Accordingly, we have no reason to believe that the single bill median costs for the services reported by CPT codes 55859 and 77778 do not otherwise appropriately reflect the costs for those services. Therefore, we have used the standard OPPS methodology for clinical brachytherapy services to set the payment rates for the CY 2006 OPPS.

Comment: One commenter stated that date of service stratification results in pseudo single claims for APCs 0312 and 0651 that lack packaging because all packaging on the claim has the same date of service as the other procedure on the claim (i.e. not the procedure code in APC 0312 or 0651). The commenter indicated that the median costs for these “pseudo no package” claims is significantly lower than the medians for other single procedure bills for these services and, therefore, should be deleted from the claims used to set the median costs for these APCs.

Response: We have no basis to believe that the charges for the procedure code are not all-inclusive charges for all packaged items and services associated with the procedure when a single charge appears for a procedure code. Again, we encourage hospitals to bill all relevant HCPCS codes that appropriately reflect the services provided.

c. Computed Tomography (APCs 0283 and 0333)

Comment: One commenter supported our proposal to pay separately for low osmolar contrast material (LOCM) and most magnetic resonance contrast agents. However, the commenter expressed concern that the separate payment for these agents will not adequately compensate for the reduced payment which CMS proposed for APCs 0283 (CT with contrast) and 0333 (CT and CTA without contrast followed by contrast). The commenter stated that they did not understand CMS' rationale for proposing to reduce payments for APCs 0283 and 0333 to a level that results in an overall net loss for contrast-enhanced CT studies.

Response: We do not agree with the commenter's assertion that the proposed CY 2006 payment rates for APCs 0283 and 0333 will necessarily reduce overall payments for contrast-enhanced CT studies. First, the proposed CY 2006 payments for APCs 0283 and 0333 decreased by less than 3 percent compared to their CY 2005 payment rates. Second, our proposal to pay separately for LOCM products (HCPCS codes Q9945 through Q9951) as a result of the mean costs per day of their predecessor codes (HCPCS codes A4644 through A4646) exceeding $50, may increase overall payments for some contrast-enhanced CT studies while decreasing overall payments for other contrast-enhanced CT studies, depending on the volume and concentration of the LOCM used. The CY 2006 final payment rates for APCs 0283 and 0333 were calculated from CY 2004 hospital claims data utilizing the standard OPPS methodology based on our comprehensive payment policies for CY 2006, which include unpackaging LOCM.

Therefore, hospital charges for LOCM in association with single claims for services assigned to APCs 0283 and 0333 were not packaged into the median cost calculations for these APCs. As a result, we would expect the APC payment rates for APCs 0283 and 0333 to decline slightly for CY 2006. For CY 2006, we are applying our standard Start Printed Page 68597OPPS rate setting methodology using CY 2004 hospital claims data to set the payment rates for APCs 0283 and 0333, and are paying separately for LOCM based on the payment methodology described in section V.B.3.a.(3) of this preamble.

d. Computed Tomographic Angiography (APC 0333)

In Addendum B of the CY 2006 proposed rule (70 FR 42776), we proposed to maintain a number of imaging procedures discussed below in their CY 2005 APCs.

Comment: Several comments expressed concern that the CY 2006 proposed payment rate for Computerized Tomographic Angiography (CTA) procedures (APC 0662) continues to be lower than the proposed payment rate for conventional CT procedures. These commenters recommended that CMS set the payment rate for CTA procedures at a level equal to the payment for a CT scan (APC 0333) plus a three-dimensional image reconstruction (APC 0282) by either increasing the payment for APC 0662 or reassigning CTA procedures to an existing APC whose payment rate more closely reflects the resource costs of performing CTA procedures.

Response: As we stated in the November 15, 2004 final rule with comment period (69 FR 65722), accurate cost information about the cost of image reconstruction for CTA specifically, and for CT alone as utilized with CTA, would be required in order to implement the commenter's suggestion that we make the payment rate for CTA (APC 0662) equal to the sum of the rates for CT alone (APC 333) plus image reconstruction (APC 282). Such cost information is not available. The CY 2004 image reconstruction CPT code 76375 (coronal, sagittal, multiplanar, oblique, 3-dimensional and/or holographic reconstruction of computed tomography, magnetic resonance imaging, or other tomographic modality) is not limited to image reconstruction performed for CTA and may be used in a number of other procedures. Based on the available CPT codes for CTA, we would not expect any current utilization of CPT code 76375 to be for CTA post-image processing, unless there was no appropriate CTA code to describe the body region imaged, which we believe would rarely be the case. In addition, we would not expect our current cost data for CTA alone to necessarily reflect the resources utilized for the CT portion of CTA.

Commenters provided no evidence suggesting that Medicare beneficiaries have experienced difficulty accessing these services in the hospital outpatient setting. To the contrary, our number of claims for CTA procedures increased steadily between CY 2002 and CY 2003 and nearly doubled from CY 2003 to CY 2004. Furthermore, we used over 50 percent (99,000 single claims out of nearly 180,000 total claims) of the CY 2004 claims for CTA procedures to calculate the CY 2006 payment rate for these services.

We now have several years of robust claims data for CTA procedures and have no reason to doubt this data. Based on the full year of CY 2004 data, the median costs for the APCs 0333 (CT) and 0662 (CTA) are about equal, and have decreased minimally from their median costs based on CY 2003 claims data. Because hospitals set their own charges for services, which we then convert to costs, we still see no reason why adding the costs for CT alone plus the costs for image reconstruction would necessarily provide a better estimate of costs for CTA than our analysis of our specific CTA claims. Furthermore, no other existing clinical APC appears to contain services that share more clinical and resource cost homogeneity with CTA procedures than APC 0662, whose median cost reflects solely the claims data from 8 CTA procedures. For this reason, we are not reassigning CTA procedures to any other clinical APC(s) for CY 2006. Instead, for CY 2006, we are applying our standard OPPS rate-setting methodology for calculating the payment rate for CTA procedures residing in APC 0662. Once again, we encourage all hospitals to take all actions necessary to ensure that they are billing accurately and including in their charges all resources utilized to deliver CTA services.

e. Computed Tomographic Guidance (APC 0332)

Comment: One commenter objected to the proposed payment rate of $194 for CPT code 76362 (Computed tomography guidance for, and monitoring of, visceral tissue ablation), which was proposed to be assigned to APC 0332 (Computerized Axial Tomography and Computerized Angiography without Contrast) for CY 2006. The commenter said that, although CMS included only 9 single claims in the calculation of the $371 median cost for CPT code 76362 in the proposed rule, they identified 202 single bills with a median cost of $580 for CPT code 76362. The commenter indicated that it found that CPT code 76362 was not being treated as a major procedure in CMS' median cost calculations, and it could not determine if CMS packaged the cost for CPT code 76362 into the payment for the other separately payable procedure on the claim. The commenter indicated that it simulated removing the exception (although they did not specify what they did) and by doing so found 202 single bills with a median cost of $580 for the code. The commenter asked that we place CPT code 76362 in New Technology APC 1507 (Level VII $500-$600) so that payment would be set at $550. The commenter also requested that CMS add CPT code 76362 to the bypass list in future years.

Response: We do not agree that CPT code 76362 would be appropriately assigned to New Technology APC 1507 because CT is not a new technology. The use of CT guidance for and monitoring of visceral tissue ablation is a more recent application of this well-established technology. We acknowledge that we have few single bills upon which to base our calculation of the median cost of this service, but this is consistent with our expectations based on the nature of the service. We believe that all correctly coded claims would also include a CPT code for the specific ablation service that was monitored using CT and billed along with CPT code 76362.

We believe that the primary costs directly attributable to CTP code 76362, as opposed to the accompanying ablation procedure, are the hospital resources required for the lengthy operation of the necessary CT scanner. In examining the clinical characteristics of the use of CT for visceral tissue ablation, we believe that the CT use time for the procedure, although variable depending on the specific ablation procedure provided, would typically be longer than the CT use time for most noncontrast CTs assigned to APC 0332.

Because the commenter indicated their comfort with CPT code 76362 being added to the bypass list, we analyzed the line item charges for all units of service of CPT code 76362 billed by hospitals in CY 2004. The median charge per unit based on over 1,000 units was $1,165. Application of a hospital average CCR of 0.28 for the diagnostic radiology cost center to the median charge of $1,165 for CPT code 76362 yielded a procedure-specific line item cost of approximately $325 for this service. This is quite consistent with our final single claim median cost of $363 based on 9 single claims.

Therefore, we are reassigning CPT code 76362 to APC 0333 (Computerized Axial Tomography and Computerized Angiography Without Contrast Followed by Contrast) with an APC median cost of $303 for CY 2006, where Start Printed Page 68598CT procedures that include both noncontrast and contrast studies in one examination session reside. We believe that, although the ablation monitoring service is not necessarily provided both without and with contrast, the longer time of use of the CT scanner for CPT code 76362 is more consistent with the scanner use time for services assigned to APC 0333. In addition, the median cost of APC 0333 is similar to the median cost of CPT code 76362 based on single claims and to the other cost estimate based on our analysis of all billed units of the code.

With respect to the commenter's data findings, CPT code 76362 is considered to be a minor procedure (notwithstanding the status indicator of “S”), because it so frequently occurs on the same claim as other separately paid procedures and is ancillary to them. As such, when a minor procedure is on the same claim as a major procedure, the claim is considered to be a single major procedure claim and the costs of the minor procedure are not used to set the median for the minor procedure, nor are they packaged into the payment for the major procedure. The only single claims that are used in the calculation of the median cost for the minor procedure code and, therefore, for the APC to which the code is assigned are single minor procedure claims which are derived from circumstances in which the minor procedure appears alone on a claim or when it appears as one of several multiple minor procedures on a claim and can be split off because the services have different dates of service.

We considered making CPT code 76362 a major procedure and adding the service to the bypass list. However, the code does not meet the empirical criteria we have established for considering new additions to the bypass list. Of the total claims for CPT code 76362, we had only 9 single procedure claims (less than the 100 required for a code to go onto the bypass list); 6 of the 9 claims (67 percent) contained packaged services (more than the 5 percent limit) that yielded a median of $1,231 (considerably above the $50 median limit). Hence, because the data for CPT code 76362 from CY 2004 do not meet any of the criteria for addition of the code to the bypass list, we will not convert it to a major procedure and add it to the bypass list for CY 2006. However, we will consider for CY 2007 whether we should make an exception to our empirical criteria for additions to the bypass list for services such as CPT code 76362. We will continue to develop a more appropriate median cost for the procedure and it seems plausible that the procedure should have very little associated packaging.

f. Computerized Reconstruction (APC 0417)

Comment: One comment expressed concern about the payment rate for HCPCS code G0288 (Reconstruction, computed tomographic angiography of aorta for preoperative planning and evaluation post vascular surgery). The commenter was concerned because the proposed rule indicated that the rate for HCPCS code G0288 would decrease for CY 2006, continuing a trend of decreases that began in CY 2004. The commenter made several recommendations to CMS that it believed would help to limit the decreased rate for CY 2006 and to prevent continuation of the downward trend for coming years. The first recommendation was for CMS to mandate which revenue code hospitals are to use to report HCPCS code G0288. The commenter recommended use of revenue code 0780, Telemedicine. This was based on their finding that hospitals used 17 different revenue codes to report HCPCS code G0288. The commenter stated that more consistent use of a revenue code would alleviate the effects of providers not billing charges high enough to result in cost findings near the acquisition costs.

Next, the commenter recommended that for CY 2006, CMS use the hospital overall CCRs to calculate the median for HCPCS code G0288. The commenter believed use of the overall CCRs would increase the median for APC 0417 to approximately $415.

Third, the commenter recommended as a fallback measure, in case the first two recommendations could not be implemented, that CMS should use the CY 2005 rate, adjusted upward in accordance with the CY 2006 conversion factor, for APC 0417 in CY 2006.

Finally, the commenter requested that the descriptor for HCPCS code G0288 be revised to read, “Three-dimensional pre-operative and post-operative computer-aided measurement planning and simulation in accordance with measurements and modeling specifications of the Society for Vascular Surgery.” They stated that the revised descriptor would ensure that the code would be used more accurately.

Response: Regarding the commenter's last request, that we revise the descriptor for HCPCS code G0288, we do not believe that is necessary. HCPCS code G0288 was revised in CY 2004 to clarify that the service can be provided for both treatment planning prior to surgery and for postsurgical monitoring. Other than this one comment, we have had no indication that there is confusion among providers about when to use the code. In addition, we generally allow hospitals to allocate their charges across revenue codes as they feel is appropriate to their specific institutional settings, and we see no reason to deviate from this policy for the service described by HCPCS code G0288. We do not understand how specifying a revenue code for reporting would necessarily ensure adequate hospital charges for the service.

In response to the commenter's recommendations regarding our hospital cost data, we conducted a detailed examination of our CY 2004 claims data and, like the commenter, found that hospitals used 17 different revenue codes to report HCPCS code G0288. However, we also found that although 8 different cost centers for HCPCS code G0288 were used in our conversion of charges to costs for the service, for 83 percent of the approximately 5,300 single bills utilized for rate setting we converted hospital charges to costs using one cost center, namely Diagnostic Radiology. Therefore, while we acknowledge that utilizing an overall hospital CCR for HCPCS code G0288 yields a higher median cost, $335 for APC 0417 based on our analysis, as opposed to a median cost of $235 utilizing our standard revenue code to cost center crosswalk, we do not believe that it would be appropriate to substitute specific hospital overall CCRs in our calculation of this APC's median. We utilize one hospital-specific departmental CCR for the conversion of charges to costs for most of the single claims, and we have no reason to believe that the CCR in this case is inappropriate. Also, hospitals should bill adequate and complete charges for the service to account for all of the hospital resources required.

Additionally, we see no reason to adjust the payment rate for APC 0417 to the CY 2005 rate adjusted upward in accordance with the CY 2006 conversion factor. We note that despite reductions in payment rates over the last several years, the number of total procedures billed under the OPPS for HCPCS code G0288 has continued to rise from 2,065 in CY 2002, to 4,733 in CY 2003, and most recently to 8,421 in CY 2004. We have no evidence that Medicare beneficiaries are having trouble accessing this service based on our hospital claims information. Therefore, we believe that it is appropriate for us to use our historical hospital cost data as the basis for the CY 2006 payment amount, and we are Start Printed Page 68599finalizing our payment rate for APC 0417 at $235.66 for CY 2006.

g. Diagnostic Computed Tomographic Colonography (APC 0333)

We proposed to reassign CPT 0067T (diagnostic computed tomographic colonography (CTC-Dx)) to APC 0333 (CT and CTA without contrast followed by contrast) for CY 2006.

Comment: One commenter responded to the November 15, 2004 final rule with comment period (69 FR 65682), explaining that CPT code 0067T (diagnostic computed tomographic colonography (CTC-Dx)) was established in CY 2005 to replace the previous coding scheme for CT colonography involving two computed tomography (CT) scans (i.e., abdomen and pelvis) and three-dimensional image reconstruction. Furthermore, the commenter explained that the two CT components of a CTC-Dx may be administered in a variety of ways: (1) CT without contrast, (2) CT with contrast, or (3) CT without contrast followed by a CT scan with contrast. The commenter stated that CMS' assignment of CPT code 0067T to APC 0332 (CT and CTA without contrast) for CY 2005 failed to recognize the cost differential between a CT scan and the variety of ways in which a CTC-Dx scan is administered, along with the costs associated with the three-dimensional image reconstruction. The commenter urged CMS to reconsider the APC placement of CPT code 0067T, taking into account its advantages as a less invasive and less costly alternative to a colonoscopy.

Response: Due to the recent establishment of CPT code 0067T in CY 2005, we will have no hospital claims data for determining its resource requirements until CY 2007. For CY 2005, we assigned CPT code 0067T to APC 0332 (CT and CTA without contrast) because we considered the clinical characteristics of CTC-Dx to be relatively similar to other services assigned to APC 0332. We thank the commenter for bringing to our attention the variety of ways in which a CTC-Dx can be administered, notably a CT scan without contrast followed by a CT scan with contrast. In light of this additional information, for CY 2006 we proposed to reassign CPT 0067T to APC 0333 (CT and CTA without contrast followed by contrast), where similar services reside involving a CT scan without contrast followed by a CT scan with contrast. We are finalizing our proposal to reassign CPT 0067T to APC 0333 for CY 2006. However, in preparation for CY 2007 rate setting, we will reexamine the APC placement of CPT code 0067T based on available CY 2005 hospital claims data.

h. Intensity Modulated Radiation Therapy (IMRT) (APCs 0310 and 0412)

In Addendum B of the CY 2006 proposed rule, we proposed to maintain CPT code 77301 (Radiotherapy dose plan, intensity modulated radiation therapy (IMRT)) in APC 0310 (Level III Therapeutic Radiation Treatment Preparation) based on the CY 2004 hospital claims data submitted for CPT code 77301. In addition, we proposed to maintain CPT codes 0073T (Compensator-based IMRT treatment delivery) and 77418 (Multileaf collimator-based intensity modulated treatment delivery) in APC 0412 (IMRT treatment delivery) for CY 2006.

We received several public comments related to IMRT issues.

Comment: One commenter expressed concern that the proposed payment rate for CPT code 77301 does not reflect the actual physics planning time and resources for this procedure. The commenter recommended that we take into consideration the costs associated with IMRT planning for a typical head and neck case, including the time spent by the dosimetrists, physicists, and physicians, when setting the payment for CPT code 77301.

Response: The proposed procedure-specific median cost of $827 for CPT code 77301 was calculated using 16,417 single procedure claims out of 16,885 total claims (97 percent of the total claims). We proposed to maintain CPT code 77301 in APC 0310 (Level III Therapeutic Radiation Treatment Preparation) grouped with only one other service, CPT code 77295 (Set radiation therapy field), whose proposed median procedure-specific cost of $844 had the effect of increasing the proposed payment for CPT code 77301 due to its significantly higher single frequency of claims used to set the payment for APC 0310. We have no reason to believe that the single procedure claims for CPT code 77301 that represent IMRT planning for head and neck treatment reflect more accurate costs and charges than those claims for CPT 77301 that represent IMRT planning for other body areas. Thus, we would have no justification for discarding such a subset of claims that appear to be accurately reported under CPT code 77301, but merely require less resource utilization for certain covered clinical indications. Rather, the high percentage of single procedure claims for this service, which remains at 97 percent for the final rule data, along with its relatively stable median cost for several years, confirms our belief that the CY 2006 median cost for CPT code 77301 accurately reflects hospitals' costs for the service. We believe these data represent, on average, the resources consumed by hospitals for the provision of IMRT planning services. We note that the OPPS does not provide payment for physicians' professional services that may be required for procedures. Therefore, for CY 2006, we are maintaining CPT code 77301 in APC 0310 with an APC median cost of $825, higher than the final code-specific median cost of CPT code 77301 of $786.

Comment: In response to the November 15, 2004 final rule with comment period (69 FR 65682) and the CY 2006 OPPS proposed rule (70 FR 42674), several commenters applauded our decision to establish a national payment rate for category III CPT code 0073T for compensator-based IMRT treatment delivery. These commenters stated that our decision to pay for compensator-based IMRT treatment delivery will encourage patient access and diffusion of this cost-effective technology. Furthermore, these commenters agreed with our rationale to assign CPT codes 0073T (Compensator-based IMRT treatment delivery) and 77418 (Multileaf collimator-based IMRT treatment delivery) to the same APC 0412 (IMRT treatment delivery) for rate setting purposes, noting that the IMRT treatment delivery costs are virtually identical for both modalities. In contrast, one commenter to the November 15, 2004 final rule with comment period (69 FR 65682) was opposed to the assignment of CPT code 0073T to APC 0412. This commenter explained that CPT code 0073T was created specifically to distinguish compensator-based IMRT treatment delivery from multileaf collimator-based IMRT treatment delivery, described by CPT code 77418. The commenter believed that the assignment of CPT codes 0073T and 77418 to the same APC 0412 precludes CMS from collecting distinct claims data for each code, and urged CMS to assign CPT code 0073T to a New Technology APC and reserve APC 0412 for CPT code 77418.

Response: Our decision to place CPT codes 0073T and 77418 in the same APC 0412 supports the clinical homogeneity of APC 0412. Because we had no CY 2003 claims data for the newly established Category III CPT code 0073T, we concluded that its resource costs were likely reflected to some degree in the costs and charges reported for CPT code 77418, considering that this was the only CPT code available to providers for the billing of compensator-based IMRT treatment delivery prior to January 1, 2005. Contrary to a belief held by one of the commenters, the assignment of CPT codes 0073T and Start Printed Page 6860074418 to the same APC 0412 for payment purposes does not preclude CMS from collecting distinct claims data for these two codes. Once the CY 2005 claims data for CPT code 0073T become available for setting the CY 2007 payment rate, we will reexamine the APC placement of CPT code 0073T. In the meantime, for CY 2006 we will maintain CPT codes 0073T and 77418 in the same APC 0412.

Comment: One commenter explained that, effective January 1, 2005, the descriptor for CPT code 77418 (Multileaf collimator-based intensity modulated treatment delivery) was changed to explicitly exclude compensator-based IMRT treatment delivery and a new Category III code 0073T was created to describe compensator-based IMRT delivery. This commenter requested that we either update the December 19, 2003 Medicare Program Transmittal 32 (CR 3007) or issue a new Medicare Program Transmittal to include compensator-based IMRT treatment delivery code 0073T. The commenter provided CMS with recommended language to clarify the billing of compensator-based IMRT treatment delivery under the OPPS for CY 2006.

Response: We appreciate the commenter bringing to our attention the need to update our billing guidance to reflect the newly established Category III CPT code 0073T for the billing of compensator-based IMRT treatment delivery. We thank the commenter for providing CMS with recommended language and will consider such language as we revise our guidance on the billing of compensator-based IMRT treatment delivery under the OPPS for CY 2006.

i. Kidney Imaging (APC 0267)

Comment: One commenter expressed concern that CMS's proposed reassignment of CPT code 78700 (Kidney imaging, static) from APC 0404 (Level I Renal and Genitourinary Studies) to APC 0267 (Level III Diagnostic Ultrasound) disrupts the clinical homogeneity of the two APCs. The commenter stated that the resource requirements and clinical characteristics of kidney imaging have not changed in the past year and urged CMS to maintain CPT code 78700 in APC 0404 for CY 2006.

Response: We agree with the commenter's observation that the clinical attributes of CPT code 78700 more closely resemble the services assigned to APC 0404 rather than APC 0267. Although our proposal to reassign CPT code 78700 to APC 0267 was based on its median cost data collected for the proposed rule, the more recent median cost data from CY 2004 for CPT code 78700 do not preclude its return to APC 0404. Therefore, in the interest of preserving the clinical homogeneity of APCs 0267 and 0404, we are not adopting our proposed reassignment and will retain CPT code 78700 in APC 0404 for CY 2006.

j. Magnetic Resonance Guided Focused Ultrasound Ablation (APC 0193)

We received one public comment on the CY 2006 OPPS proposed rule concerning the APC assignments for HCPCS codes 0071T and 0072T, along with several related comments on the November 15, 2004 final rule with comment period.

Comment: Several commenters submitted comments on the November 15, 2004 final rule regarding the APC assignments of magnetic resonance guided focused ultrasound (MRgFUS) therapy for uterine fibroids. We proposed to retain magnetic resonance guided focused ultrasound (MRgFUS) procedures in APC 0193 for CY 2006. The commenters believed that the procedure's assignment to APC 0193 (Level V Female Reproductive Procedures) resulted in significant underpayment. They asserted that MRgFUS is a new technology and that CMS should assign the two Category III CPT codes to two separate New Technology APCs, based on external cost data, until adequate claims data are available upon which to base assignments to clinical APCs.

More recently, hospital and manufacturer representatives made a presentation at the August 2005 meeting of the APC Panel and also commented on our July 25, 2005 proposed rule. The Panel recommended that CMS work with stakeholders to assign CPT codes 0071T and 0072T, focused ultrasound ablation of uterine leiomyomata including magnetic resonance guidance, to an appropriate New Technology APC(s).

The procedures are coded with Category III CPT codes 0071T (Focused ultrasound ablation of uterine leiomyomata, including MR guidance; total leiomyomata volume less than 200 cc of tissue) and 0072T (Focused ultrasound ablation of uterine leiomyomata, including MR guidance; total leiomyomata volume greater or equal to 200 cc of tissue). These codes were new CPT codes in CY 2006. The commenters and the presenters at the APC Panel suggested that we assign CPT code 0071T to New Technology APC 1528 (Level XXV) and CPT code 0072T to New Technology APC 1532 (Level XXVI).

Response: In light of the additional information that has been presented to us, we agree that it would be more accurate to assign the two procedures to separate APCs to account for the higher level of resources required to ablate the larger growths. However, we do not agree that it is most appropriate to assign MRgFUS procedures to New Technology APCs 1528 and 1532. Although FDA approval of one specific ablation technology was relatively recent, MRgFUS therapy bears a significant relationship to technologies already in widespread use in hospitals, in particular MRI and ultrasound services. The use of focused ultrasound for thermal tissue ablation has been in development for decades, and the recent application of MRI to focused ultrasound therapy provides monitoring capabilities that may make the therapy more clinically useful. We believe that MRgFUS therapy is a new and integrated application of existing technologies (MRI and ultrasound) and, therefore, is not necessarily most accurately assigned to a New Technology APC. We believe that the technology used in this service fits as well into existing clinical APCs for female reproductive services, as do many other modalities that are currently assigned to those clinical groups. In addition, MRgFUS procedures are most often performed on younger women and are only seldom performed on Medicare beneficiaries. We believe that placing them in clinical APCs with other female reproductive procedures will enable us both to set accurate payment amounts and to maintain appropriate clinical homogeneity of the APCs.

Cost data for MRgFUS procedures provided to us for two hospitals showed high, but disparate costs. The costs per case reported by each of the hospitals were significantly different from one another and were much higher than reports of costs from other publicly available sources. We suspect that much of the variation reflects differences in capital costs and projections of utilization and procedure times, as well as in the types of personnel used to perform the procedures. We understand that the MRI equipment can also be used to perform conventional MRI procedures, and the MRI equipment costs should be allocated accordingly so that amortization of the costs will be shared by those tests. The OPPS payment rates for services need to make appropriate payments for the services to Medicare beneficiaries, recognizing that, as a budget neutral payment system, the OPPS does not pay the full hospital costs of services. We expect that our Start Printed Page 68601payment rates generally will reflect the costs that are associated with providing care to Medicare beneficiaries in cost-efficient settings.

We compared the necessary hospital resources for the MRgFUS procedures, including specialized equipment, MRI/procedure room time, personnel, anesthesia and other required resources, to various other procedures for which we have historical hospital claims data. Additionally, we took into consideration projected costs for the MRgFUS procedures submitted to us, and other available information regarding the clinical characteristics and costs of those services. Upon consideration of all of the information available to us, we have determined that a higher level of payment would be more appropriate for the MRgFUS procedures. However, we are rejecting the recommendation of the APC Panel, and we will assign CPT codes 0071T and 0072T to APC 0195 (Level IX Female Reproductive Procedures) and 0202 (Level X Female Reproductive Procedures), respectively for CY 2006. These new APC assignments provide significantly higher payment rates than we proposed for these services in CY 2006. We believe that these placements in APCs 0195 and 0202 will provide appropriate payments for MRgFUS services to provide access for Medicare beneficiaries who need them.

k. Non-Imaging Nuclear Medicine Studies (APC 0389)

In Addendum B of the CY 2006 proposed rule (70 FR 42776), we proposed to maintain CPT codes 78270 (Vitamin B-12 absorption study; without intrinsic factor), 78271 (Vitamin B-12 absorption study; with intrinsic factor), and 78272 (Vitamin B-12 absorption study; with and without intrinsic factor) in APC 0389 (Non-Imaging Nuclear Medicine) for CY 2006.

We received one public comment related to the above-mentioned nuclear medicine procedures.

Comment: One commenter expressed concern that the resource requirements associated with CPT codes 78271 (Vitamin B-12 absorption study; with intrinsic factor), and 78272 (Vitamin B-12 absorption study; with and without intrinsic factor) far exceed the median cost of APC 0389 (Non-imaging Nuclear Medicine) in which they reside. The commenter noted that the exceptionally low single claim counts for these procedures have little or no impact on the overall median cost for APC 0389 due to the thousands of other single claim counts for lower cost CPT codes that reside in APC 0389. To protect beneficiary access to these services, the commenter requested that CMS consider either freezing the payment rate for APC 0389 at its CY 2005 payment rate or buffering the proposed 12 percent decrease from its CY 2005 payment rate. The commenter noted that, in addition to underpayment for the nuclear medicine procedures, the three radiopharmaceuticals that could be used in the tests ( C1079—Supply of radiopharmaceutical diagnostic imaging agent, cyanocobalamin Co-57/58, per 0.5 mCi; C9013—Supply of Co-57 cobaltous chloride, radiopharmaceutical diagnostic imaging agent; and Q3012—Supply of oral radiopharmaceutical diagnostic imaging agent, cyanocobalamin cobalt Co-57, per 0.5 mCi) were proposed to change from status indicator “K” in CY 2005 to status indicator “N” for CY 2006. The commenter was concerned that the packaging of the necessary radiopharmaceuticals, in addition to the reduced payment rate for the tests, could threaten Medicare beneficiaries' access to these procedures.

Response: While we acknowledge the commenter's concern that the procedure-specific median costs for CPT codes 78271 ($244) and 78272 ($310) appear to far exceed the median cost of APC 0389 ($86) for CY 2006 based on the CY 2004 hospital claims data, we remind the commenter that the exceptionally low single claim counts that they brought to our attention for CPT codes 78271 (9 single claims) and 78272 (5 single claims) significantly increase the volatility of their median costs from year-to-year. Moreover, the higher CY 2005 single claim counts for CPT codes 78271 (209 single claims) and 78272 (133 single claims) based on the CY 2003 hospital claims data yielded lower median costs for CPT codes 78271 ($98) and 78272 ($159). These lower median costs may have been due to separate CY 2005 payments for the required radiopharmaceuticals, in comparison with the median costs from CY 2004 claims developed based on the CY 2006 payment policy of packaging the radiopharmaceuticals.

In reviewing the claims data for all of the CPT codes assigned to APC 0389 for CY 2005, we noted that, in addition to CPT codes 78271 and 78272, several other services had consistently higher procedure-specific median costs than the CY 2006 APC median cost ($86), including CPT code 78003 (Thyroid uptake; stimulation, suppression or discharge); CPT code 78190 (Kinetics, study or platelet survival, with or without differential organ/tissue localization); CPT code 78270 (Vitamin B-12 absorption study; without intrinsic factor); and CPT code 78191 (Platelet survival study) with median costs of $167, $170, $186, and $384, respectively. As these services were all low volume, with fewer than 100 claims each, there was no two times violation in APC 0389, despite the finding that the least expensive procedure assigned to APC 0389 had a median cost of $76. The higher level of hospital resources required for the more costly non-imaging nuclear medicine procedures was notable.

While we will not adjust the CY 2006 median cost of APC 0389 by using its CY 2005 median cost or dampening the decline between CY 2005 and CY 2006 as suggested by the commenter, we acknowledge that the structure of the APC would benefit from reconfiguration. Therefore, we are splitting the services assigned to APC 0389 for CY 2005 into two groupings for CY 2006: APC 0389, Level I Non-Imaging Nuclear Medicine; and newly created APC 0392, Level II Non-Imaging Nuclear Medicine. The assignment of CPT codes to these two APCs is shown in Table 14 below.

Table 14.—Assignment of CPT Codes to APCs 0389 and 0392 for CY 2006

APC 0389APC 0392
78725, Kidney function study78003, Thyroid, stimulation, suppression.
78000, Thyroid, single uptake78190, Platelet survival, kinetics.
78001, Thyroid, multiple uptakes78191, Platelet survival.
78999U, Nuclear diagnostic exam78270, Vitamin B-12 absorption exam; without intrinsic factor.
78271, Vitamin B-12 absorption exam; with intrinsic factor.
78272, Vitamin B-12 absorption exam; with and without intrinsic factor.
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In this reconfiguration, the median cost of APC 0389 for CY 2006 is $85, and the median cost for APC 0392 is $209. We believe that these new APC configurations will result in more accurate payments for non-imaging nuclear medicine studies, by improving clinical and resource homogeneity within the groupings. We note that for the purposes of any studies contemplated by the commenter, different codes will be available for reporting the required radiopharmaceuticals in the CY 2006 OPPS. Specifically HCPCS code C9013 will be deleted, HCPCS code A9546 (Cobalt CO-57/58, cyanocobalamin, diagnostic, per study dose, up to 1 microcurie) will replace HCPCS code C1079, and HCPCS code A9559 (Cobalt CO-57 cyanocobalamin, oral, diagnostic, per study dose, up to 1 microcurie) will replace HCPCS code Q3012. We anticipate that these new permanent HCPCS codes for radiopharmaceuticals will simplify billing and provide more accurate hospital claims data as the basis for potential packaging determinations in future years. With the transition to these new radiopharmaceutical HCPCS codes, we will closely monitor the claims data for APCs 0389 and 0392 in the future, as any changes in the packaging status of required radiopharmaceuticals could affect the median costs of services assigned to them and alter the resource homogeneity of the groupings.

l. Therapeutic Radiation Treatment (APC 0304)

Comment: One commenter objected to our proposal to maintain CPT code 77370 (Radiation physics consult) in APC 0304 (Level I Therapeutic Radiation Treatment Preparation) for CY 2006, noting that the procedure experienced over a 50 percent decrease in its payment rate between CYs 2004 and 2005. The commenter explained that this procedure often involves a significant amount of time spent by the physics department in developing the treatment planning, immobilization, and proper beam placement for the patient. The commenter requested that CMS consider the amount of time spent by the physicists and dosimetrists in collaborating with the physician when determining the APC placement of CPT code 77370 for CY 2006.

Response: The CY 2006 median cost of $140 for CPT code 77370 is based on 96 percent of the CY 2004 total claims (41,123 single procedure claims out of 42,753 total claims). Similarly, the CY 2005 median cost of $136 for CPT code 77370 was based on 95 percent of the CY 2003 total claims (40,723 single procedure claims out of 42,985 total claims). The robust claims data reported by hospitals over the past several years support the placement of CPT code 77370 in APC 0304 for CY 2006. Furthermore, the commenter provided no supporting evidence that the proposed payment of $105 for CY 2006 would jeopardize beneficiary access to this service. Therefore, for CY 2006 we are maintaining CPT code 77370 in APC 0304.

m. Urinary Bladder Study (APC 0340)

At the February 2005 APC panel meeting, the APC Panel recommended that we move CPT code 78730 (Urinary bladder residual study) from APC 0340 (Minor Ancillary Procedures) to APC 0404 (Level I Renal and Genitourinary Studies) for CY 2006, suggesting that the CY 2003 data for CPT code 78730 may have been derived from incorrectly coded hospital claims. For reasons discussed in detail below, we are maintaining CPT code 78730 in APC 0340 for CY 2006.

We received a number of public comments related to such imaging procedures.

Comment: One commenter stated that the resource requirements of CPT code 78730 (Urinary bladder residual study) do not resemble other services assigned to APC 0340 (Minor Ancillary Procedures). The commenter explained that the high volume and low median cost data for CPT code 78730 resulted from inappropriate use of this code to report other services unrelated to nuclear medicine. The commenter noted that during the February 2005 APC Panel meeting, the APC Panel recommended that CMS move CPT code 78730 from APC 0340 to APC 0404 (Level I Renal and Genitourinary Studies), suggesting that the CY 2003 data for CPT code 78730 may have been derived from incorrectly coded hospital claims. The commenter urged CMS to recognize the full costs associated with the nuclear medicine aspects of the procedure by reassigning CPT code 78730 to APC 0404 for CY 2006.

Response: In the November 15, 2004 final rule with comment period (69 FR 65705), we noted that CPT code 78730 was originally created and valued for the MPFS as a procedure requiring the services of a nuclear medicine technician, but that the use of the code subsequently had changed to be used primarily by urologists rather than by nuclear medicine physicians. While we reassigned CPT code 78730 to APC 0340 for CY 2005 based on robust CY 2003 claims data, we solicited other physician specialties to submit resource data for us to review in the context of our hospital claims data so that we could reexamine the appropriate APC placement of CPT code 78730 for CY 2006. While we acknowledge the commenter's repeated concern that the median cost for CPT code 78730 may reflect miscoded claims, the commenter again provided no supporting evidence of what they believe to be the true resource costs associated with CPT code 78730. If some of the reported claims data are inaccurate, we have no way to determine which claims are more or less accurate than others. Rather, a relatively stable number of single procedure claims has generated a consistent median cost for CPT code 78730 over the past four years (that is, ranging from $39 based on the CY 2001 claims data to $53 based on the CY 2004 claims data) and supports our assignment of CPT code 78730 to APC 0340 with an APC median cost of $36, as opposed to APC 0404 with an APC median cost of $217. Therefore, we are maintaining CPT code 78730 in APC 0340 for CY 2006. However, in preparation for the CY 2007 OPPS update, we will reexamine the APC placement of CPT code 78730 by reviewing any resource data submitted by commenters in the context of our CY 2005 hospital claims data. Commenters may wish to identify approaches to distinguishing correctly coded claims so that we could develop a procedure-specific median cost based on correctly coded hospital claims data. As the commenter believes the vast majority of claims for CPT code 78730 were miscoded over many years, they may wish to explore a change in the code with the AMA's CPT Editorial Panel or request their dissemination of guidance on use of the code, to clarify the code's intended use and assist providers in correctly billing for services provided.

3. Gastrointestinal and Genitourinary Procedures

a. Cystourethroscopy With Lithotripsy (APC 0163)

Comment: A few commenters requested that CMS assign CPT code 52353 (Cystourethroscopy, with ureteroscopy and/or pyeloscopy; with lithotripsy) to the new APC 0429 (Level V Cystourethroscopy and other Genitourinary Procedures). The commenters stated that this procedure has been grouped into the same APC (0163, Level IV Cystourethroscopy and other Genitourinary Procedures) with many of the procedures that we reassigned into APC 0429 and that CPT code 52353 should also be assigned to that APC. They stated that the procedure described by CPT code 52353 Start Printed Page 68603is used for the same indications as are those in APC 0429, and that much of the same capital equipment is used to perform CPT code 52353 and those in APC 0429.

The commenters asserted that although the median cost in CMS's hospital claims data for CPT code 52353 is lower than those for procedures in APC 0429, its median cost is the highest in APC 0163 and its costs are actually higher than reflected in the claims data since hospitals are failing to report all of the costs associated with the flexible ureteroscope required for the procedure.

Based on their analysis of the proposed rule data, the commenters found that assignment of CPT code 52353 to APC 0429 would only result in small decreases in the median costs for both APCs 0163 and 0429. They estimated that the median cost for APC 0163 would drop by approximately $19 and that the median cost for APC 0429 would decrease by approximately $100. They stated that these drops would not represent payment disruptions for the other procedures in the APCs.

Response: The median cost for CPT code 52353, $2,117, is the highest in APC 0163, but the procedure-specific median costs in APC 0163 vary from lowest to highest by very little. The median cost for APC 0163 is $1,997, only $120 lower than the code-specific median cost for CPT code 52353.

The median cost for APC 0429 is $2,502, and the median costs of the individual procedures with more than 50 single claims assigned to that APC (representing a total of 13,200 claims) vary from $2,475 to $2,602, a difference of only $127. We believe that the decrease in the APC 0429 median that would result from assignment of CPT code 52353 (14,570 claims) would unfairly disadvantage the procedures that we proposed to assign there, and that the $100 drop that the commenters referred to as not representing payment disruptions would not be viewed similarly by hospitals billing for the procedures we proposed for assignment to APC 0429. In addition, we have no reason to doubt the accuracy of our median cost for CPT code 52353 based on thousands of CY 2004 single hospital claims, nor do we understand why hospitals would differentially not be including charges for the costs of all required equipment and supplies for this procedure on their hospital claims in comparison with their billing for other procedures. Any small underpayment that would result from the continued assignment of CPT code 52353 to APC 0163 would be less than the potential for overpayment if the code were moved to APC 0429, which contains some procedures that have different clinical characteristics and services with higher median costs.

We will reevaluate the APC assignment for CPT code 52353 for CY 2007 and finalize our proposal, without modification, to retain it in APC 0163 for CY 2006.

b. GI Stenting (APC 0384)

Comment: Commenters, including the APC Panel, asked that we use only claims containing devices to set the APC median cost for APC 0384, or alternatively, freeze the 2006 CY OPPS payment rate at the CY 2005 OPPS payment.

Response: We considered the comments and have decided to apply the same policy to these services that we will apply to other device-dependent APCs. In the case of this APC, the median on which the CY 2006 OPPS payments will be based was calculated using claims that contain the device codes applicable to the services assigned to APC 0384. See the discussion of payment for device dependent APCs in section VI.A for our discussion of adjustments to median costs for device-dependent APCs. See Table 16 for the median cost on which the CY 2006 payment rate for APC 0384 is based.

Comment: Some commenters, including the APC Panel, recommended that we establish a separate APC for CPT codes 43268 and 43269 for endoscopic retrograde cholangiopancreatography (ERCP) services because they believed that these services use fluoroscopy while the other codes in APC 0384 do not. Other commenters opposed this change because they said that all services in APC 0384 require use of similar supplies, equipment, and fluoroscopic assistance. They indicated that the hospital resources that are required to furnish a specific GI stenting service are determined more by nuances arising from gaining access to the site at which the stent will be placed, sedating the patient, and providing fluoroscopic monitoring, than by the specific location where the stent is being placed.

Response: We did not create a new APC for ECRP-related stent procedures because those procedures are appropriately placed with the other services in APC 0384, both with respect to clinical characteristics and resources used, particularly in view of the clinical rationale provided by the commenters. In addition, the number of single claims available for establishing payment rates for APC 0384 is already relatively small. We are concerned that if we were to move the two ERCP procedures to another APC, there would be very few single claims remaining in APC 0384 to establish that APC's median cost.

c. Insertion of Uterine Tandems and/or Vaginal Ovoids for Clinical Brachytherapy (APC 0192)

Comment: Several commenters disagreed with our proposal to reassign CPT code 57155 (Insertion of uterine tandems and/or vaginal ovoids for clinical brachytherapy) from APC 0193 (Level V Female Reproductive Procedures) to 0192 (Level IV Female Reproductive Procedures). The commenters were concerned that the reassignment would result in a 66 percent decrease in payment, and that there was no discussion of the reassignment in the proposed rule. They requested that the procedure be retained in its current CY 2005 APC assignment, and that in the future CMS discuss all changes to APC assignments in the preambles of their proposed rules. They asserted that there have been no changes in the technology or provision of these services that would justify a reduction in payment and that the dramatic decrease in payment amount proposed by CMS would have a negative effect on Medicare beneficiaries' access to this important treatment for vaginal and/or uterine cancer.

Response: The procedure described by CPT code 57155 is for the insertion of the “holders” for brachytherapy sources when brachytherapy is to be delivered to specific sites. The procedure to load the radioactive elements and the brachytherapy sources themselves are separately payable under the OPPS. CPT code 57155 was first reassigned from APC 0192 to APC 0193 for CY 2004 Hospital claims data from CY 2002, utilized for the CY 2004 OPPS update, yielded a code-specific median cost for CPT code 57155 of about $743, based on 132 single claims. However, CY 2003 data, utilized for the CY 2005 OPPS update, provided a code-specific median for CPT code 57155 of approximately $232 based on 350 single claims, creating a 2 times violation in APC 0193. For CY 2005, our final OPPS payment policy specifically excepted APC 0193 from the two times rule in light of this violation.

While we did not propose to reassign CPT code 57155 for the CY 2005 OPPS, we now have a second year of hospital claims data from CY 2004 that indicate that CPT code 57155 should be assigned to a lower level Female Reproductive Procedures APC. Therefore, in addendum B of the proposed rule, we proposed to reassign CPT code 57155 to APC 0193. The median cost for CPT code 57155 of $353 based on 867 single claims is in the same range as the Start Printed Page 68604medians for other procedures assigned to APC 192 for CY 2006, making it an appropriate placement for CPT code 57155. If CPT code 57155 were to be assigned to APC 0193 which has a median cost of about $870, we would once again have to except APC 0193 from the two times rule for CY 2006. Based on stable claims data for the past 2 years and significant numbers of single bills, we used our standard OPPS methodology and the updated CY 2004 claims data to determine that hospital claims data for CPT code 57155 are accurate and appropriate to use for making the CY 2006 APC assignment for CPT code 57155. Therefore, we will finalize our proposal to assign CPT code 57155 to APC 0192.

d. Laparoscopic Ablation Procedures (APC 0131)

Comment: One commenter requested that CMS reassign CPT code 47370 (Laparoscopy, surgical; ablation of one or more liver tumor(s); radiofrequency) to APC 0132 (Level III Laparoscopy). The procedure is currently assigned to APC 0131, Level II Laparoscopy, and the commenter stated that the costs for the procedure far exceed the payment rate in that APC. The commenter analyzed OPPS claims for CYs 2002, 2003, and 2004 and found that the median cost for that procedure has been more than “two times greater than the median of the lowest cost item or service” in APC 0131 during all of those years. Further, they asserted that the procedure's median cost is actually more similar to those of the procedures assigned to APC 0132.

Response: We examined our median cost data for the years referenced in the comment and concur with their findings that the median cost for CPT code 47370 has been notably higher than those for other procedures in APC 0131 for several years. For CY 2006, we have 28 single claims, and the procedure-specific median cost of $5,088 is significantly higher than the median costs for most of the procedures assigned to APC 0131. The median cost for CPT code 47370 also is higher than the median costs for other procedures currently assigned to APC 0132. We believe that for purposes of clinical homogeneity, APC 0132 is the most appropriate APC assignment for the procedure but we will continue to monitor it for future APC assignment changes. For CY 2006, we will assign CPT code 47370 to APC 0132 (Level III Laparoscopy).

Comment: One commenter requested that CMS reassign CPT code 50542 (Laparoscopy, surgical; ablation of renal mass lesion(s)) to APC 0132 (Level III Laparoscopy). The procedure is currently assigned to APC 0131 (Level II Laparoscopy), and the commenter stated that the costs for the procedure far exceed the payment rate in that APC. The commenter analyzed OPPS claims and found that two of the 11 single claims available for the proposed rule did not reflect separate charges for the ablation device and was concerned that with so few claims, these two apparently incorrect claims may have a significant effect on the median cost.

Response: We examined our median cost data for CY 2005 and CY 2006. For CY 2005, there were 11 single claims used for the final rule median and the assignment of the procedure to APC 0131 was appropriate. For CY 2006, we have 16 single claims and the median cost is significantly higher than the median costs for most of the procedures assigned to APC 131. The median cost for CPT code 50542 is $3,940, within the range of median costs for procedures assigned to APC 0132 for CY 2006. We will assign CPT code 50542 to APC 0132 (Level III Laparoscopy) for CY 2006.

e. Plicator Procedure (APC 0422)

Comment: One commenter submitted comments about the APC assignment for new HCPCS code C9724 (EPS gastric cardia plicator) used in the treatment of gastroesophageal reflux disease (GERD). The commenter suggested that the procedure's assignment to APC 0422 (Level II Upper GI Procedures) is inappropriate because it is a new technology and that placement violates the OPPS two times rule. The commenter recommended that we assign the procedure to an APC with a higher payment rate and suggested that we may want to create a level III upper GI procedures APC. They reported that the cost of the Plicator Procedure kit ($1,795), in addition to the endoscopy (approximately $460) is two times more costly than CPT 43228 (Esophagoscopy, rigid or flexible; with ablation of tumor(s), polyp(s), or other lesion(s), not amenable to removal by hot biopsy forceps, bipolar cautery or snare technique), a high volume procedure that is also assigned to APC 0422.

Response: In April 2004, CMS received an application for this procedure to qualify for payment as a New Technology under the OPPS. In April 2005, CMS assigned it to HCPCS code C9724 and placed it in APC 0422 for payment under the OPPS. We have no claims data for the procedure due to its very recent HCPCS code assignment. We assigned it to APC 0422 because there are other endoscopic procedures for the treatment of GERD assigned to that APC and we believed, based on specific information available to us about the plicator service and hospital cost and clinical information regarding other services payable under the OPPS, that APC 0422 was an appropriate assignment for HCPCS code C9724. We continue to believe that is the most appropriate APC placement for the procedure. We will reevaluate that assignment when we have claims data on which to base a reassignment.

We find that there is no basis for the suggestion that assignment of HCPCS code C9724 represents a two times rule violation because there are no data for HCPCS code C9724 to compare to median costs for the other significant procedures assigned to that APC.

We are finalizing our proposal to assign HCPCS code C9724 to APC 0422 for CY 2006.

f. Prostate Cryosurgery (APC 0674)

For CY 2006 OPPS, we proposed to set the payment rate for APC 0674 (Prostate Cryoablation) based on an unadjusted median cost of $5,780. We received many public comments concerning the payment for prostate cryoablation.

Comment: Commenters objected to the proposed payment rate for cryoablation of the prostate (APC 0674) because they believed that the proposed payment was not sufficient to cover the cost of the procedure. The commenters indicated that a hospital incurs costs of greater than $9,000 to furnish the service. Commenters furnished copies of bills, invoices and cancelled checks intended to substantiate their claims that the total costs are in excess of $9,000 because the costs of the probes alone are no less than $4,000. They indicated that the proposed Medicare payment rate, if implemented, would result in a shortfall of over $3,000 per case. Commenters said that hospitals tend to under report and under charge their true costs for cryosurgery procedures, and that there are incentives to resist billing changes that would result in higher charges for the procedures. Commenters said that CMS should recalculate the median cost for APC 0674 by excluding claims that do not have a charge of at least $6,000 under either HCPCS code C2618 or revenue codes 270, 272 or 278 because any charge for cryoablation probes less than $6,000 would be inadequate to result in a reasonable cost for the device. Commenters indicated that, at a minimum, CMS should not set the payment rate for APC 0674 at less than the CY 2005 payment rate plus inflation.

Response: We share the commenters' concern that these services continue to be available to Medicare beneficiaries Start Printed Page 68605and we will pay APC 0674 under the general policy which we apply to device-dependent APCs. Under this general policy, we have set the median cost for APC 0674 using only claims that contain the device code for the cryoablation probes used in this service. See section IV.A. for our discussion of adjustments to median costs for device dependent APCs. See Table 16 for the adjusted median cost for APC 0674 for CY 2006.

Comment: Commenters indicated that the proposed Medicare payment rate would result in reduced or no access for Medicare beneficiaries. One commenter stated that in the past 2 years, a total of 29 hospitals either ceased performing or elected not to start a cryosurgery program due to inadequate Medicare payment. Commenters stated that inadequate payment under the OPPS would result in hospitals providing more expensive care in the inpatient setting under DRG 315 that could be much more costly to Medicare.

Response: Our review of the claims from hospitals used to set the median costs for APC 0674 shows that from CYs 2003 to 2004, the number of claims for APC 0674 grew from 1,516 to 2,328 or by 35 percent in one year. Similarly, the number of hospital providers furnishing the service grew from 222 to 317 or by 30 percent in one year. Neither the growth in the number of claims or the number of hospitals furnishing the service indicates that there is a barrier to access to care. Moreover, while 29 hospitals may have ceased performing the procedure or decided not to begin a cryosurgery program, the growth in hospitals furnishing the service from CYs 2003 to 2004 is substantial. This is particularly meaningful because the device came off of pass-through payment in CY 2004 and the payment for the device was packaged into the payment for the procedure in CY 2004, rather than being paid separately under the pass-through payment methodology. We see no reason to believe that Medicare beneficiaries have problems in accessing this service. Moreover, as commenters indicate in the discussion of calculation of payment weights, hospitals take many factors into consideration in determining whether to offer a service, only one of which is the rate of Medicare payment.

g. Stretta Procedure (APC 0422)

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, HCPCS code 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.

We received several public comments in response to the CY 2005 methodology for calculating the median cost for APC 0422 set forth in our CY 2005 OPPS final rule with comment period.

Comment: Commenters objected to the APC assignment of the Stretta procedure (HCPCS code C9701 in 2003; CPT code 43257 beginning in 2004) to APC 0422. Commenters indicated that CMS should recalculate the median cost for the procedure by packaging in the costs of all endoscopies (regardless of CPT code) that were performed on the same date as the Stretta procedure and assigning the procedure to a New Technology APC based on the recalculated median cost. They said that absent this change, CMS should clarify that hospitals may bill and will be paid for each endoscopy done at the time of the Stretta procedure. Commenters asked that we make these changes effective January 1, 2005.

Response: We did not make these changes for CY 2005 because we believe that we correctly calculated the median cost for the Stretta procedure by incorporating the cost of a single endoscopy (CPT codes 43234 and 43235) when billed into the reported median cost for Stretta in the calculation of the final rule median cost for the new CPT code 43257 for CY 2005, based on the codes hospitals correctly reported in CY 2004 for the full Stretta service. Moreover, we believe that assignment of the procedure to the APC that contains similar procedures for the treatment of gastroesophageal reflux disease is appropriate. Therefore, we believe that the Stretta procedure is placed in an APC for CY 2005 which is appropriate both with regard to clinical characteristics and resource use. As the code descriptor for CPT code 43257 includes upper gastrointestinal endoscopy, we do not expect that hospitals would separately bill for each endscopy done at the time of the Stretta procedure.

For CY 2006, we proposed to use both CY 2004 single claims for HCPCS code 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 (CPT code 43234 or CPT code 43235) along with HCPCS code C9701 were 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 cost for CPT code 43257 (HCPCS code C9701 in the CY 2004 claims data) of $1,669. Using these claims in the calculation of the median cost for APC 0422, we calculated a median cost of $1,386. We proposed to use this methodology, applied to the more complete final rule with comment period claims set, to calculate the final CY 2006 OPPS median cost for APC 0422.

We received several public comments on our proposed methodology for calculating the median cost for APC 0422.

Comment: One commenter objected to the proposed payment for CPT code 43257, the Stretta procedure for the CY 2006 OPPS. The commenter indicated that the payment would create economic disincentives to the utilization of the service and might ultimately impose greater costs on Medicare and its beneficiaries. The commenter asked that CMS create a new APC to which we would assign CPT code 43257 and CPT code 0008T, and that we use a different methodology from that proposed to calculate the median cost. The commenter indicated that because CPT codes 43228 and 43830 have higher volumes but lower costs, the inclusion of them in the same APC as CPT code 43257 does not enable payment of CPT code 43257 at a level that is appropriate to pay the costs of the service. Therefore, the commenter requested that we create a new clinical APC to enable higher payment for CPT code 43257. The commenter believed that creating the new APC is analogous to what CMS proposed to do for vascular access devices for the CY 2006 OPPS.

The commenter also asked that CMS undertake special claims manipulation to establish the median cost for the new APC. The commenter's preference was that we add the median cost for CPT code 43235 to the cost of all claims for Start Printed Page 68606HCPCS code C9701 (CPT code 43257 in 2005) which did not also contain at least one unit of an endoscopy code on the claim. These inflated claims costs would then be combined with all claims for HCPCS code C9701 which also contain at least one unit of an endoscopy code and with the claims for CPT code 0008T to set the median cost for the APC they wanted us to create. The commenter offered a less preferred alternative of using only claims that contained both HCPCS code C9701 and CPT codes 43234, 42235 or any other endoscopy code to calculate the median cost, which would not yield as robust a set of claims for median setting.

Response: We have not created a new APC for CPT code 43257 and CPT code 0008T, and we have kept them both in APC 0422 for the CY 2006 OPPS. The services reported by these CPT codes are clinically similar to the other procedures in APC 0422. In addition the resources used to furnish the services are very similar to the other services in APC 0442 based on hospital claims data. We see no reason to create a new APC for CPT codes 43257 and 0008T.

We also have not undertaken the special claims manipulation that the commenter requested. We do not believe that it is valid to add the median cost for an endoscopy to the costs for claims for which an endoscopy is not billed on the same claim. Similarly, we do not believe that it is valid to include all of the charges for endoscopies other than a single unit of CPT code 43234 or 43235 in the calculation of the median cost for the Stretta procedure. As the commenter indicates, endoscopy is a fundamental part of the Stretta service described by CPT code 43257. Therefore, there is every reason to believe that a hospital included all charges pertaining to the service in the charge for C9701 (the predecessor of CPT code 43257).

To set the median cost for APC 0422, we used all single procedure claims for CPT code 43257, and we also used claims with CPT code 43257 which contained one and only one unit of either CPT codes 43234 or 43235 on the same date of service. We packaged the costs of the single unit of the additional endoscopy and used these claims records in the calculation of the median cost for APC 0422.

For CY 2006 OPPS, the payment for APC 0422 is based on the median cost of $1,434 that was derived from this process. The median for CPT code 43257 which we derived from this process is $1,669. CPT codes 43257 and 0008T remain assigned to APC 0422.

h. Urological Stenting Procedures (APCs 0163 and 0164)

Comment: A few commenters requested reassignment of two urology procedures to newly created APC 0429 (Level V Cystourethroscopy). The commenters requested that CPT codes 0084T (Insertion of a temporary prostatic urethral stent) and 52282 (Cystourethroscopy, with insertion of urethral stent) be assigned to the new APC.

CPT 52282 is currently assigned to APC 0163 (Level IV Cystourethroscopy and other Genitourinary Procedures) and the commenters stated that it is neither clinically similar to the other procedures in that APC nor is it similar in terms of hospital resources. Those commenters also stated that CPT code 0084T is better suited for assignment to APC 0429 than to APC 0164 (Level I Urinary and Anal Procedures), to which it is currently assigned.

The commenters requested that if we do not reassign CPT codes 52282 and 0084T to APC 0429, that we at least move CPT code 52282 to APC 0385 (Level I Prosthetic Urological Procedures), where it was assigned for CY 2004. They stated that CMS moved it from APC 0385 for CY 2005 because CMS determined that the urethral stent being implanted was not a prosthetic device, a decision with which they strongly disagree. They asserted that the urethral stent, like collagen implants injected into the urethra and other devices, meets the Medicare definition of a prosthetic device and should be assigned to an APC in line with that designation.

Response: Based on careful examination of the claims data and the comments, we continue to find that assignment for these procedures to APCs 0163 and 0164 is appropriate. The median cost for CPT code 52282, $1,955, is considered within the range of median costs for the other procedures assigned to APC 0163. The APC median cost is $1,997, and the narrow procedure-specific range of median costs within the APC is $1,730 to $2,117. In contrast, the median cost for APC 0385, $4,384, is more than twice that of the median cost of CPT code 52282. In addition, the median cost for APC 0429 of $2,501 is significantly higher that the median cost for CPT code 52282.

While APC 0385 (Level I Prosthetic Urological Procedures), as its title suggests, was established as an APC for some urological procedures requiring prosthetics, it is not required that all procedures utilizing urological prosthetics be assigned to an APC with “prosthetic” in the title. Instead, urological procedures that do, or do not, utilize prosthetics, like other services paid under the OPPS, are assigned to APCs based on clinical and resource homogeneity with other services in those clinical APCs. CPT code 52282 for cystourethroscopy with insertion of a urethral stent shares common clinical characteristics with other cystourethrscopy services also assigned to APC 0163. Therefore, we continue to believe that APC 0163 is the most appropriate APC assignment for CPT code 52282 for CY 2006.

In addition, we have no claims data for CPT code 0084T because it was a new code for CY 2005. We assigned it to APC 0164 based on available information regarding the specific service, as well as clinical and cost information for other hospital services payable under the OPPS. CPT Changes: An Insider's View 2005, describes CPT code 0084T as the prepping of a patient for a typical sterile urethral device insertion procedure, followed by activities to select and deploy the stent in the prostatic urethra, and assessment of the patient's ability to void prior to discharge from the clinic. As stated earlier, we based our assignment for CPT code 0084T on the expected clinical and hospital resource characteristics of the service, rather than on whether or not the procedure required a prosthetic. Procedures utilizing urological prosthetics do not necessarily show the most clinical and resource compatability with other services assigned to APCs with prosthetic urological procedures in their APC titles, as such individual procedures may exhibit a wide range of clinical and cost differences. We assigned CPT code 0084T to a clinical APC that includes other urinary and anal procedures. We do not agree that its assignment to APC 0429, the highest level cytourethroscopy APC that contains complex laser prostate and percutaneous nephrostolithotomy procedures with a median cost of $2,502, is an appropriate placement for CPT code 0084T for CY 2006. We continue to believe that APC 0164 is the most appropriate APC assignment for CPT code 0084T for CY 2006. We will have CY 2005 claims data for CPT code 0084T and will reassess its APC assignment based on those data for the CY 2007 OPPS update.

We are finalizing, without modification, our proposal to retain CPT code 52282 in APC 0163 and CPT code 0084T in APC 0164 for CY 2006. Start Printed Page 68607

4. Other Surgical Services

a. Excision-Malignant Lesions (APCs 0019 and 0020)

Comment: One commenter submitted comments regarding CPT codes 11620 (Excision, malignant lesion, excised diameter 0.5 cm or less) and the code 11621 (excised diameter 0.6 to 1.0 cm). The commenter, representing a hospital, stated that there appeared to be an error in the placement of CPT code 11620 in APC 0020 (Level II Excision/Biopsy) and CPT code 11621 in APC 0019 (Level I Excision/Biopsy) because CPT code 11621 is the more invasive procedure of the two, yet it had been placed in an APC with a lower payment rate for CY 2006.

Response: This is not an error. APCs are arranged based on a combination of considerations, including clinical homogeneity and median costs from hospital claims data reflecting hospital resources used. We have several hundred single claims for CY 2003 and CY 2004 for each of the services. Our data for these years consistently show that CPT code 11621 was performed almost twice as often as CPT code 11620, but it also had a consistently lower median cost, reflecting less hospital resources required for the excision of a larger lesion in comparison with a smaller lesion. Based on CY 2004 hospital claims data, CPT code 11621 has a median cost of about $314 based on 659 single claims and is appropriately assigned to APC 0019, with a median cost of about $247. To place CPT code 11621 in APC 0020 (median cost of about $413) would create a significant overpayment. Conversely, CY 2004 claims data reveal a median cost of about $511 for CPT code 11620, based on 347 single claims, and therefore, the code is appropriately placed in APC 0020.

There could be many reasons why the hospital claims data reflect greater resource utilization for the procedure that the commenter believes is “less invasive,” such as different supplies or equipment used for smaller excisions or variations in surgical techniques and related procedural times depending on the size of the lesion. We feel confident that our stable median cost data accurately reflect that the hospital resources are greater for the excision procedure described by CPT code 11620, and therefore, will finalize our proposed CY 2006 APC assignments for CPT code 11620 in APC 0020 and for CPT code 11621 in APC 0019.

b. External Fixation (APCs 0046 and 0050)

Comment: One commenter suggested that the current configuration of APC 0046 (Open/Percutaneous Treatment Fracture or Dislocation) significantly underpays procedures that involve external fixation devices. The commenter gave several recommendations on ways to realign the procedures. First, they recommended that CMS distinguish procedures that involve external fixation devices by allowing hospitals to bill either CPT code 20690 (Application of a uniplane, unilateral, external fixation system) or CPT code 20692 (Application of multiplane, unilateral, external fixation system) together with a fracture procedure code, and that these combinations of codes would be placed in a new APC specifically for “fracture procedures with fixation devices.” The commenter reasoned that establishing one or two new APCs for these procedures when billed together would eliminate the ongoing two times rule violation, preserve clinical homogeneity, and more appropriately reimburse hospitals. Second, if CMS were to establish two new APCs, one should be for lower extremity fractures and the second should include upper extremity fractures.

Response: CPT codes 20690 and 20692 are currently in APC 0050, and no changes were proposed for the CY 2006 OPPS. There are no 2 times violations in the APC in which they are located, and each of these codes represents 1 percent or less of the total volume in the APC. Therefore, we see no reason to create a new APC for these codes as we believe APC 0050 provides appropriate payment to hospitals when services described by CPT codes 20690 and 20692 are provided and billed in accordance with correct coding guidelines. However, the CPT codes for treatment of a fracture often include “with” or “without fixation” in the definition of the code. Where fixation is included in the definition of the code, it would be miscoding to also report 20690 or 20692; these codes should be reported if, and only if, fixation is not included in the CPT code for treatment of the fracture. Providers should review the CPT instructions and look to the AMA's guidance on coding if they have questions about when these codes should be reported.

We do acknowledge, however, that we have excepted APC 0046 from the two times rule for several years, as we will again for CY 2006. This is a large APC to which many procedures are assigned, and the median costs of the significant procedures in this APC range from a low of about $1,231 to a high of approximately $3,460. We will ask the APC Panel at its next biannual meeting to consider whether this APC could be reconfigured to improve its clinical and resource homogeneity.

c. Intradiscal Annuloplasty (APC 0203)

Comment: During the August 2005 meeting of the APC Panel, there was one presentation by a provider in support of a higher payment amount for intradiscal annuloplasty procedures. The presenter provided clinical and cost information to the Panel and stated that the procedures' current assignments to APC 0203 (Level IV Nerve Injections) did not describe the clinical features or hospital resources associated with CPT codes 0062T (Percutaneous intradiscal annuloplasty, any method, unilateral or bilateral including fluoroscopic guidance; single level) and 0063T (Percutaneous intradiscal annuloplasty, any method, unilateral or bilateral including fluoroscopic guidance; one or more additional levels). Further, the presenter suggested that a more appropriate APC assignment that would achieve more clinical and hospital resource homogeneity would be either APC 0050 (Level II Musculoskeletal Procedures except Hand and Foot), or APC 0051 (Level III Musculoskeletal Procedures except Hand and Foot). The APC Panel agreed with the presenter and recommended that CMS assign the procedure to either APC 0050 or 0051.

Commenters on our proposed rule also requested that CMS assign CPT codes 0062T and 0063T to an APC that more accurately reflects the level of the procedures' resource use. The commenters also suggested that placement in either APC 0050 or 0051 would be the most appropriate from both clinical and payment aspects. They, like the presenter to the APC Panel, believed that a musculoskeletal APC was a more clinically accurate description of the procedure than its CY 2005 assignment with nerve injections in APC 0203.

Response: CPT codes 0062T and 0063T were new for January 2005. Thus, we had no hospital claims data upon which to base our APC assignment of these procedures, and we were interested in the additional information that was provided to us for our CY 2006 update to the OPPS. Commenters indicated that performance of the procedures requires a single use electrothermal catheter that costs more than $1,000 and operating room time of one hour. In addition, other more costly capital equipment is required in comparison with procedures assigned to Start Printed Page 68608APC 0203. The presenter to the APC Panel stated that the procedure costs range from $4,000 to about $7,000.

We found the information provided in the APC Panel presentation and the public comments to the proposed rule, in addition to the APC Panel's recommendation and historical hospital claims data regarding other services payable under the OPPS, to be convincing in favor of assignment of this procedure to APC 0050, with an APC median cost of $1,423 for CY 2006. We agree that placement in APC 0050 will result in more accurate payment and more APC clinical homogeneity for the procedure. For our CY 2007 update, we will have hospital claims data for the procedure and we will reevaluate the assignment.

d. Kyphoplasty (APC 0051)

Comment: Two commenters on the November 15, 2004 final rule with comment period (69 FR 65681), a device manufacturer and an orthopedic surgeon, commended CMS for creating C-codes (HCPCS codes C9718 Kyphoplasty, one vertebral body, unilateral or bilateral injection; and C9719, Kyphoplasty, each additional vertebral body) for this procedure in the hospital outpatient setting. The commenters stated, however, that placement in APC 0051, Level III Musculoskeletal Procedures Except Hand and Foot, (CY 2005 payment rate of $2,043) does not appropriately reflect the hospital resources used in performing these procedures, and that these assignments violate the two times rule because the resources associated with kyphoplasty are more than two times the cost of the resources for procedures in APC 0051. Both commenters recommended that kyphoplasty procedures be placed in APC 0425, Level II Arthroplasty with Prosthesis, at a CY 2005 payment rate of $5,562 in order to better reflect the clinical features and resources needed to perform the procedures. One commenter alternatively suggested creating a new APC solely for kyphoplasty.

Additionally, these two commenters also submitted new comments to the July 25, 2005 proposed rule containing new recommendations pertaining to the same issues. The commenters recommended that CMS either reassign kyphoplasty procedures to APC 0681 (Knee Arthroplasty) with a payment rate of $8,103 or create a new APC for kyphoplasty titled “Vertebral spinal augmentation and stabilization using balloon inflation” with a payment rate of $8,750. They also repeated their prior recommendation to place kyphoplasty services in APC 0425; however, one commenter suggested that this should only be a “stop gap measure” for one year until CMS can gather claims data. This commenter also recommended that if the CPT codes for kyphoplasty have a status indicator of “T,” they should then be placed in the same APC, as the add-on code would be subject to the multiple procedure reduction. The commenters reasoned that movement to a new APC would better reflect the clinical resources used and referenced outside data showing hospital median charges that range from $4,500 to $41,000, with an average charge of approximately $15,700.

A third individual commenter representing a hospital recommended that CMS either increase reimbursement for kyphoplasty, or change its status indicator to “C” to be more consistent with InterQual “Guidelines for Surgery and Procedures in the Inpatient Setting” and the Ingenix Cross Coder.

Response: For CY 2005, CMS created two C-codes for the kyphoplasty procedure: C9718 Kyphoplasty, one vertebral body, unilateral or bilateral injection and HCPCS code C9719 Kyphoplasty, one vertebral body, unilateral or bilateral injection; each additional vertebral body (List separately in addition to code for primary procedure). These procedures were placed in APC 0051 with a “T” status indicator because we believed that this APC was appropriate for these procedures in terms of clinical characteristics and resource costs.

Though we do not yet have claims data, we have been told that a bone biopsy is performed more than half the time in addition to the kyphoplasty procedure. For CY 2005, under the OPPS the bone biopsy could be billed separately along with one or more of the kyphoplasty C-codes. The typical deep bone biopsy code used for a vertebral body procedure, CPT code 20225, was assigned to APC 0020 (Level II Excision/Biopsy), which had a “T” status indicator and a payment rate of $434 for CY 2005. Both the biopsy and kyphoplasty procedures had a status indicator of “T”; therefore, when performed together the hospital would receive fifty percent of the payment rate for the bone biopsy ($217). We have been told that hospitals typically also bill one or more fluoroscopy codes for necessary guidance, such as CPT codes 76003 (Fluroscopic guidance for needle placement), or 76005 (Fluroscopic guidance and localization of needle or catheter tip for spine or paraspinous diagnosis or therapeutic injection procedures, including neurolytic agent destruction), along with the kyphoplasty procedure, and we note that these fluoroscopic services were packaged for CY 2005. Thus, for CY 2005 payment to a hospital providing a single level kyphoplasty procedure and billing packaged fluoroscopic guidance that was also accompanied by a bone biopsy would be about $2,260.

For CY 2006, several new CPT codes were created to describe the kyphoplasty procedure. These codes are:

  • CPT 22523—Percutaneous vertebral augmentation, including cavity creation (fracture reduction and bone biopsy included when performed) using mechanical device, one vertebral body, unilateral or bilateral cannulation (e.g., kyphoplasty); thoracic
  • CPT 22524—Percutaneous vertebral augmentation, including cavity creation (fracture reduction and bone biopsy included when performed) using mechanical device, one vertebral body, unilateral or bilateral cannulation (e.g., kyphoplasty); lumbar
  • CPT 22525—Percutaneous vertebral augmentation, including cavity creation (fracture reduction and bone biopsy included when performed) using mechanical device, one vertebral body, unilateral or bilateral cannulation (e.g., kyphoplasty); each additional thoracic or lumbar vertebral body (List separately in addition to code for primary procedure)

CPT codes 22523 and 22524 generally correspond to C code C9718, and CPT code 22525 generally corresponds to C code C9719. We will be deleting the two kyphoplasty C-codes for CY 2006, and hospitals will use the appropriate CPT codes to bill for kyphoplasty services. The new CPT codes include a bone biopsy when performed so hospitals will no longer separately bill CPT code 20225 when a bone biopsy accompanies a kyphoplasty procedure.

CPT code 76012 (Radiological supervision and interpretation, percutaneous vertebroplasty or vertebral augmentation including cavity creation, per vertebral body; under fluoroscopic guidance) for fluoroscopic guidance also has changed in definition for CY 2006 to include specific reference to vertebral augmentation including cavity creation, which is characteristic of the kyphoplasty procedure. For CY 2006, hospitals using fluoroscopic guidance for kyphoplasty would bill CPT code 76012, which has a status indicator S and is assigned to APC 0274 for calendar year CY 2006 with a payment rate of $173.53. Thus, while a hospital providing a kyphoplasty service in CY 2006 will no longer receive separate payment under the OPPS for an accompanying bone biopsy, hospitals Start Printed Page 68609will be able to bill for and receive separate payment for necessary fluoroscopic guidance. Thus, if there were no change for CY 2006 in the assignment of kyphoplasty services to APC 0051, as they were initially placed for CY 2005, payment to a hospital providing a single level kyphoplasty procedure and billing separately payable fluoroscopic guidance that was also accompanied by a bone biopsy would be about $2,352.

Based on modifications in coding associated with the change from C-codes to new CPT codes and additional clinical and hospital resource information, we believe it is appropriate to move the kyphoplasty procedures from APC 0051 to another APC for CY 2006. As we originally developed C-codes for outpatient hospital billing of kyphoplasty services after extensive clinical review, we do not agree with one commenter that kyphoplasty should by placed on the OPPS inpatient list. In addition, as kyphoplasty procedures do not entail implantation of a prosthesis, we do not agree with the commenters that kyphoplasty is comparable to services that require a prosthesis and, therefore, we will not place the new CPT codes in APC 0425 (Level II Arthroplasty with prosthesis). We also will not place the new CPT codes in APC 0681 (Knee arthroplasty) because we do not believe that the services are clinically coherent with knee arthroscopy procedures, and because we do not believe that resources required for kyphoplasty warrant that level of payment. We also will not create a separate APC solely for kyphoplasty procedures because we have no claims data from CY 2004 upon which to base a calculation of median cost for such an APC.

After considering the additional comments submitted, we have decided to place CPT codes 22523, 22524, and 22525 in APC 0052 (Level IV Musculoskeletal Procedures Except Hand and Foot) for CY 2006, based on clinical and resource compatibility with other procedures assigned to that APC. We agree with the commenters that the initial level procedures and the add-on code for each additional level should be assigned to the same “T” status APC. Although we received outside data on hospital charges and costs for this procedure, the data that was presented to us was highly variable in terms of charges and presented cost data for only one hospital. We will examine the median costs from hospital claims data for these services when it becomes available for the CY 2007 OPPS update.

e. Neurostimulator Electrode Implantation (APCs 0040 and 0225)

Comment: Commenters, including the APC Panel, recommended that the services currently assigned to APCs 0040 (percutaneous implantation of neurostimulators electrodes, excluding cranial nerve) and 0225 (implantation of neurostimulators electrodes, cranial nerve) be reorganized into three APCs, based on clinically coherent groupings of percutaneous, laminectomy or incision, and cranial neurostimulator electrode implantation. They indicated that such a realignment would enhance clinical and cost congruence of the procedure groupings. Other commenters objected to the reassignment of CPT code 63655 from APC 0225 to APC 0040.

Response: We agree with the proposal for creation of a new neurostimulator electrode implantation APC and have made the change. CPT codes 63655 (from APC 0225), 64575 (from APC 0040), 64577 (from APC 0225), 64580 (from APC 0225) and 64581 (from APC 0040) have been reassigned to newly created APC 0061 (Laminectomy or incision for implantation of neurostimulators electrodes, excluding cranial nerve).

See section IV. A. for our discussion of adjustments to median costs for device-dependent APCs. See Table 16 for the adjusted median costs for APCs 0040, 0225 and 0061 for CY 2006.

f. Neurostimulator Generator Implantation (APC 0222)

Comment: Commenters indicated that the proposed payment for neurostimulator generator implantation is inadequate and that CMS should use external data to set the payment rates. They explained that if payment rates were not increased, providers would cease providing the services. They asked that CMS set the median cost at the CY 2005 OPPS payment median inflated by the market basket.

Response: The proposed payment for APC 0222 (Implantation of neurological device) was based on a median cost that was set at 85 percent of the CY 2005 payment median. As with some other device-dependent APCs, the median cost on which the CY 2006 OPPS payment rate will be based will be set at 90 percent of the CY 2005 OPPS payment median. See the discussion of device-dependent APCs in section IV.A of this preamble.

Comment: Commenters objected to the payment for rechargeable neurostimulators under APC 0222 because they said that the payment rate for APC 0222 is inadequate for the payment of nonrechargeable devices, and that hospitals will not permit implantation of the rechargeable neurostimulators for this inadequate payment. They stated that CMS recognized the need for additional payment for rechargeable neurostimulators when it provided a new technology add-on payment under the IPPS for 2006, and that CMS should create a new category for rechargeable neurostimulators and should grant pass-through status for rechargeable neurostimulators for the CY 2006 OPPS.

Response: CMS does not announce decisions regarding pass-through status in regulations. There are many new items and services that fall under existing categories and pass-through status for each is determined on the merits of the specific application. When and if pass-through status for rechargeable neurostimulators is granted, it will be implemented through the OCE with creation of an appropriate category and status indicator assignment. Additions to the items qualifying for pass-through status are announced in quarterly updates of the OPPS claims processing and billing instructions sent to our contractors and posted on the CMS Web site.

g. Thoracentesis/Lavage (APC 0070)

Comment: One commenter said that CPT code 32019 (Insert pleural catheter) should be assigned to APC 0652 (Insertion of intraperitoneal catheters) because the clinical and resource characteristics of APC 0652 are more appropriate to CPT code 32019 than are the characteristics of APC 0070, the code's placement for CY 2005. The commenter indicated that APC 0070 is not an appropriate placement for CPT code 32019 because it is not like CPT code 32020 (tube thoracostomy with or without water seal) to which it is often compared and is assigned to APC 0070. The commenter stated that CPT code 32020 is a short term procedure, typically done at bedside with a single percutaneous incision, and uses a catheter with a simpler and different design. The commenter stated that CPT code 32019 is a long term procedure, typically done in a treatment room, using multiple incisions and subcutaneous tunneling, and a catheter with a more complex design. The commenter did not specifically describe the clinical or resource characteristics of APC 0652 that justify the conclusion that CPT code 32019 is more appropriately placed in APC 0652.

Response: We agree that the procedure reported by CPT code 32019 is likely more resource intensive than CPT code 32020 and other higher Start Printed Page 68610volume codes in APC 0070. Therefore, we are reassigning CPT code 32019 to APC 0427 (level III tube changes and repositioning) for the CY 2006. We do not agree that it is necessarily similar in resource use to the insertion of intraperitoneal catheter or cannula procedures currently assigned to APC 0652. We will examine the claims data for this code and review that decision when there are claims data for the code, which was new for CY 2004 and for which no cost data are available for use in the CY 2006 OPPS.

5. Other Services

a. Allergy Testing (APC 0370)

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 those CPT codes instruct providers to specify the number of tests or use the singular word “test” in their descriptors, while five of them 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 carefully examined 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 appeared 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 believed that this inaccurate coding would have resulted in an inflated CY 2006 median cost for services that were in the CY 2005 configuration of APC 0370.

Therefore, we proposed 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 to proposed APC 0381 (Single Allergy Tests) for CY 2006. We proposed 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 proposed a median cost for APC 0381 of $11 for CY 2006. Because we believed the single procedure claims for the codes remaining in APC 0370 reflected accurate coding of these services, we proposed to use the standard OPPS methodology to calculate the median for APC 0370. Table 12 as published in the proposed rule (70 FR 42711) listed the proposed assignment of CPT codes to APC 0370 and proposed APC 0381 for CY 2006.

We received one public comment concerning our proposed policy changes for allergy test procedures.

Comment: One commenter supported our proposal to move the allergy test CPT codes into two APC configurations to differentiate between CPT codes that represent “per visit” and “per test” services.

Response: We agree with the commenter that differentiating single allergy tests (“per test”) from multiple allergy tests (“per visit”) by assigning these services to two different APCs provides hospital coders with better clarity for billing these services and more accurately places these tests with like services sharing similar resource costs. Therefore, for CY 2006, we are finalizing our proposal to assign single allergy tests to newly established APC 0381 and maintaining multiple allergy tests in APC 0370. We expect that the improved clinical and resource homogeneity of these APCs, along with improved hospital coding of these services, will result in more accurate claims data for setting the CY 2008 payment rates for these services. In the meantime, for CY 2006, we are finalizing our proposal to calculate a “per unit” median cost for APC 0381 using a total of 340 claims containing multiple units or multiple occurrences of a single CPT code. Using this “per unit” methodology, we are setting the payment rate for APC 0381 based on a median cost of $11 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 finalizing our proposal to use the standard OPPS methodology to calculate the median for APC 0370. Table 15 lists the assignment of CPT codes to APCs 0370 and 0381 for CY 2006. We will be providing billing guidance to hospitals in CY 2006 clarifying the billing of allergy testing services under the OPPS that should be reported with charges per test rather than per visit, so that the accuracy of hospital claims data improves and allows us in the future to calculate median costs for both APCs 0370 and 0381 using our standard OPPS process.

Table 15.—Assignment of CPT Codes to APC 0370 and APC 0381 for CY 2006

APC 0370APC 0381
95056, Photosensitivity tests95004, Percutaneous allergy skin tests.
95060, Eye allergy tests95010, Percutaneous allergy titrate test.
95078, Provocative testing95015, Intradermal allergy titrate-drug/bug.
95180, Rapid desensitization95024, Intradermal allergy test, drug/bug.
95199U, Unlisted allergy/clinical immunologic service or procedure95027, Intradermal allergy titrate-airborne.
95028, Intradermal allergy test-delayed type.
95044, Allergy patch tests.
95052, Photo patch test.
95065, Nose allergy test.
Start Printed Page 68611

b. Apheresis (APC 0112)

Comment: Several commenters commended our proposal to reassign CPT code 36515 (Therapeutic apheresis; with extracorporeal immunoadsorption and plasma reinfusion) from APC 0111 (Blood product exchange) to APC 0112 (Apheresis, Photopheresis, and Plasmapheresis) for CY 2006. These commenters stated that the resource requirements and the clinical characteristics of CPT code 36515 more closely resemble the services assigned to APC 0112. However, these commenters expressed concern that the proposed 25 percent reduction in payment for APC 0112 (from $2,127 in CY 2005 to $1,590 proposed for CY 2006) will not cover the costs associated with the disposable supplies, specially trained medical staff, and equipment used in conjunction with the services assigned to APC 0112 and described by CPT codes 36515, 36516 (Therapeutic apheresis; with extracorporeal selective adsorption or selective filtration and plasma reinfusion), and 36522 (Photopheresis, extracorporeal). For example, commenters explained that the cost of the disposable supplies alone for CPT codes 36515 and 36516 nearly equals the proposed payment for APC 0112. One commenter provided practice expense information from the Medicare Physician Fee Schedule to substantiate supply costs of over $1,400 for CPT codes 36515 and 36516 and over $900 for CPT code 36522. Many commenters alleged that over half the hospitals reporting claims for CPT codes 36515 and 36516 in CY 2004 did not fully reflect the costs of the disposables in their charges for the procedure. Some of these commenters stated that hospitals that charge separately for the disposables are likely to charge more accurately for the full procedure than hospitals that bundle the entire costs of the disposable supplies into their charge for the procedure. These commenters urged that CMS set the payment rate for APC 0112 based only on claims where separate charges for supplies have been identified. Other commenters recommended that we exclude the CY 2004 claims data for CPT codes 36515 and 36516 and set the payment rate for APC 0112 based solely on the claims for CPT code 36522, whose proposed CPT code median cost appeared to be accurate to the majority of commenters. In addition, several commenters urged that we reexamine our calculation of the median cost for APC 0112 for errors in the computation, due to their observation that the proposed median cost of APC 0112 was significantly lower than the proposed median cost for CPT code 36522, which comprised 83 percent of the single claims used to set the proposed payment rate for APC 0112.

One commenter noted that CPT code 36516 is utilized for billing LDL-apheresis treatments, and expressed concern that only 40 percent of the CY 2004 claims used to calculate the proposed payment for CPT code 36516 actually reported diagnoses consistent with LDL-apheresis treatments on the claim. This commenter provided a list of hospitals which the commenter believed to be misreporting CPT code 36516, based on the commenter's experience as a distributor and knowledge of the market, and requested that we exclude the claims for CPT codes 36515 and 36516 submitted by these providers when calculating the payment rate for APC 0112. Another commenter provided a detailed analysis of the claims for CPT codes 36515, 36516, and 36522 that we used to calculate the proposed payment rate for APC 0112. Based on this claims analysis, of the 24 providers that billed CPT code 36515, 29 percent reported costs for the entire procedure at or below $170, and 67 percent reported medical supply costs at or below $1,412. The commenter also noted that nearly half of the single claims for CPT code 36515 were not billed with ICD-9 codes that supported the medical necessity of protein A column apheresis, leading the commenter to conclude that such providers were miscoding the services they performed. For instance, the commenter suspected that several hospitals may have incorrectly billed CPT code 36515 when reporting the collection of venous blood by venipuncture (CPT code 36415) based on the charges reported by these hospitals matching a typical charge for venipuncture. Further claims analysis also revealed that, of the 46 providers that billed CPT code 36516, 63 percent reported medical supply costs at or below $1,485. Furthermore, the commenters said that only 44 percent of the single claims for CPT code 36516 were billed with ICD-9 diagnosis codes that supported the medical necessity of LDL-apheresis. The commenter concluded that the underreporting of costs and assignment of inappropriate ICD-9 diagnosis codes to claims reporting CPT codes 36515 and 36516 were strong indicators that many providers failed to include the charges for medical supplies on the claims for CPT codes 36515 and 36516 or miscoded the services they provided.

Several commenters suggested that because the procedures assigned to APC 0112 utilize device systems to modify or selectively remove agents from the blood, these services should be treated in a manner similar to either device dependent APCs or blood and blood products. For instance, commenters recommended that we apply the same methodology to APC 0112 as we proposed to apply to blood and blood products, limiting the decrease in median cost to 10 percent on the basis that the services assigned to APC 0112 could be considered closely related to blood and blood products. Alternatively, these commenters suggested that we should consider treating APC 0112 as a device dependent APC, limiting the decrease in median cost to 15 percent on the basis that the device systems are integral to the procedures assigned to APC 0112 and comprise a significant cost component of these procedures. One of these commenters urged that we add APC 0112 to the list of device dependent APCs, and set the payment floor at 100 percent of the CY 2005 payment rate plus the market basket update for all device dependent APCs.

Response: We appreciate commenters' concerns that we use accurate and complete claims data to develop the median cost to set the payment rate for APC 0112 for CY 2006. In response to requests by several commenters that we reexamine our calculation of the median cost for APC 0112, we closely studied the single claims charge and cost distributions for CPT codes 36515, 36516, and 36522, those single claims we used to set the payment rate for APC 0112. First, we noted that we had 4,828 single bills drawn from a total of 6,071 bills for services in APC 0112, allowing us to use approximately 80 percent of all claims in establishing the median cost for APC 0112. This large percentage of single bills held true for each of the 3 CPT codes assigned to the APC as well. The availability of almost 5,000 single bills for rate setting, a 15 percent increase over the number of single bills available for the CY 2005 OPPS update, increases our confidence in the accuracy of the median cost of APC 0112 calculated for CY 2006.

Next, we confirmed that we made no errors in the calculation of the APC median cost. The apparent inconsistency between the relatively high median cost of CPT code 36522, which provided the majority of single claims for APC 0112, and the relatively lower APC median cost was explained by the observed distribution of costs of single claims for all of the services assigned to APC 0112. Almost half of the costs of single claims for CPT code 36522 are closer to the APC median. The cost of single claims for CPT code Start Printed Page 6861236522 at the 45th percentile is $1,597.45. We applied all of our usual processes, including standard trimming, to the calculation of the APC median cost.

In our analysis of the distributions of costs from claims for all three CPT codes assigned to APC 0112, we observed that CPT code 36515, in particular, had some claims with very low costs of less than $200 up through the 50th percentile of claims costs. While, in the commenters' opinions, claims with even higher costs could not have represented the full costs of the procedures, we were not confident that we had reason to exclude claims with higher costs in calculating the median cost of APC 0112. Therefore, we identified 12 hospital providers submitting claims for CPT code 36515 with the lowest fifteen percent of costs and then recalculated the median cost for APC 0112, excluding all claims for CPT code 36515 reported by these 12 providers. We found essentially no change in the median cost of APC 0112 in this recalculation, as compared with its median cost based on all single claims.

Because commenters suggested that we set the APC median cost using only claims with medical supply revenue code charges, we proceeded to analyze all single claims for APC 0112 for the presence of separate line item charges under revenue codes 270 (Medical/Surgical Supplies) and 272 (Sterile Supplies) that could most likely represent separate charges for the costly disposables that commenters indicated are required for all 3 CPT codes assigned to the APC. The median cost for claims with medical supply revenue code charges is higher, at $2,800, compared with the median cost for claims without medical supply revenue code charges, $1,400. However, we do not believe it is appropriate to subset the claims based on the presence of medical supply revenue code charges for calculating the median APC cost for several reasons. First, we noted that between 80 and 90 percent of the single claims for each CPT code and, consequently, of all single bills used to estimate the median cost for APC 0112 did not have separate charges under one of the two specified revenue codes. This is fully consistent with our past guidance to hospitals that it is appropriate to bundle the costs of all supplies (excluding implantable devices with active device codes) into the line item charges for the procedures with which they were used. For those claims billed with charges in the 270 and 272 medical supply revenue codes, we observed that the specific median cost associated with those revenue codes was only $349. Because this median cost is well below the approximately $900-1,400 cost commenters expected for the disposable supplies, we are not convinced that the bills with separate revenue code charges are truly more reflective of the full costs of the apheresis procedures. Finally, we observed that there were actually higher total costs in the distribution of those claims without separate billing of revenue code charges, up to $12,296 in comparison with a maximum of $10,131 for those claims with separate revenue codes charges. Considering the small percentage of providers reporting separate supply charges for CPT codes 36515, 36516, and 36522 under revenue codes 0270 and 0272, and the low median cost for such revenue code charges, the majority of providers appear more likely to have included their disposable supply charges in their overall charges for the procedures rather than to have reported such charges under a supply revenue code. We have no reason to believe, based on our analysis, that the claims with separate charges for supplies are more correctly coded or more accurately reflective of the costs of services assigned to APC 0112.

In conclusion, we are not making any adjustments to our standard processes for developing APC median costs for CY 2006 for APC 0112. We will not screen claims for the presence of specified diagnoses that the commenters feel are appropriately treated with these procedures and assume that all other claims are miscoded. The three services treat a number of different medical conditions, and while there are some local coverage policies for the procedures, it would be difficult to identify the correct ICD-9 diagnosis coding for those claims reflecting all of the cases of appropriate utilization of these services. We are not calculating the payment rate for APC 0112 based solely on those claims where separate charges for supplies have been identified. Although we recognize that some of the charges reported for CPT codes 36515 and 36516 in particular are unexpectedly low, we disagree with those commenters who asserted that the hospital claims data for CPT codes 36515 and 36516 are flawed to the extent that would justify discarding all such claims and basing the payment rate for APC 0112 solely on claims for CPT code 36522. We will not exclude all claims for two of the three procedures assigned to APC 112 to calculate the APC's median cost, because we believe that the APC median cost should reflect the variable costs of all services assigned to it. Consistent with details provided in the comments, we do not believe that the costs of procedures described by CPT codes 36515, 36516, and 36522 are the same, as the services are each provided using very specific disposable supplies for patients with different clinical conditions. In addition, we do not agree with those commenters who argued that the services described by CPT codes 36515, 36516, and 36522 should be treated in a manner similar to either device dependent APCs or blood and blood products by mitigating their payment reductions. We do not consider a procedure requiring a disposable supply to be a device dependent APC, which utilizes implantable devices. In addition, we do not believe that the data concerns regarding these procedures that treat the blood are similar to the supply and availability challenges associated with maintaining the nation's blood supply. Therefore, for CY 2006, we are applying our standard OPPS rate-setting methodology to all single claims for APC 0112, setting the payment rate for APC 0112 based on a median cost of $1,568.

c. Audiology (APCs 0364, 0365, and 0366)

Comment: One commenter, an association representing audiologists, requested more detailed explanation for several proposed movements of CPT codes among APCs. We proposed for CY 2006 to make the following APC migrations: CPT codes 92533 (audiometry, air & bone) and 92572 (staggered spondaic word test) from APC 0364 to APC 0365; CPT code 92561 (Bekesy audiometry, diagnosis) from APC 0365 to APC 0364; and CPT code 92577 (Stenger test, speech) from APC 0365 to APC 0366. The commenter did not object to the changes.

Response: With respect to proposed APC reassignments of services that are not specifically discussed in the proposed rule, in general we proposed changes to improve the clinical and resource homogeneity of the involved APCs, and, in particular, to address violations of the two times rule resulting from variable median costs.

In this instance, CPT code 92561 was moved from the Level II Audiometry APC to the Level I Audiometry APC because the data from CY 2004 hospital claims showed that the code-specific median cost of $19 for CPT code 92561 was most compatible with the median cost of APC 0364, at $27. To leave the code in APC 0365 would create a significant overpayment, and there was another clinically appropriate APC Start Printed Page 68613available. A similar rationale applied to CPT code 92577, whose code-specific median cost of $108 was more coherent with the median cost of APC 0366 (Level III Audiometry) of $100 than the median cost of the Level II APC at $80. While we excepted APC 0364, the CY 2005 APC assignment for CPT code 92553, from the two times rule for CY 2005, we proposed to move CPT code 92553 to APC 0365 for CY 2006 to eliminate our need to except APC 0364 from the two times rule for CY 2006. When compared with the median costs of other procedures in APC 0365, the median cost of CPT code 92553 of $43 was reasonably consistent with the median costs of other codes assigned to APC 0365 and to the overall APC median cost of $71. Due to this code's significant volume of single claims and stable median costs, we believed that it was appropriate to propose its reassignment based on both clinical and hospital resource considerations. We are finalizing our APC assignments for CPT codes 92561, 92577, and 92553 as proposed for CY 2006.

We proposed to move CPT code 92572 (staggered spondaic word test) from APC 0364 to APC 0365 for CY 2006 because we believed that its resource requirements, as reflected in hospital claims data, were more consistent with other services assigned to APC 0365 than to procedures assigned to APC 0364. CY 2003 hospital claims data for CPT code 92572 revealed a median cost of about $100 based on 19 single claims. CY 2004 claims data, based on 10 single claims, yielded a median cost of about $167. Although the median does not appear to be as stable for this code as the others discussed nor is the volume of claims large, upon review of final CY 2004 hospital claims data in response to this comment and examination of the clinical characteristics of the service, we believe that CPT code 92572 is most appropriately assigned to APC 0366 for CY 2006. Therefore, we will not finalize our proposal to move CPT code 92572 to APC 0365, but will instead reassign the service to APC 0366 for the CY 2006 OPPS.

d. Bone Marrow Harvesting (APC 0111)

Comment: Several commenters stated that the proposed payment of $735 for CPT code 38230 (Bone marrow harvesting for transplantation) does not adequately cover the costs of providing this service. These commenters called our attention to the large difference in the proposed median cost of $1,209 for CPT code 38230 and the proposed median cost of $747 for APC 0111, where CPT code 38230 resides. Commenters also noted the volatility of the CPT code median as a result of the extremely low frequency of 9 claims, noting that the costs of these claims ranged from $140 to $66,770. Commenters strongly urged CMS to reassign CPT code 38230 from APC 0111 (Blood product exchange) to APC 0123 (Bone marrow harvesting and bone marrow/stem cell transplant) to more accurately reflect the high cost of this procedure and to improve the clinical homogeneity of the two APCs, stating that the APC title for APC 0123 is more applicable to CPT code 38230 than the title of APC 0111.

Response: Hospitals have reported a consistently low median costs for CPT code 38230 for the past several years, prompting us to reassign this service to a lower paying APC, from APC 0123 to APC 0111, for CY 2005. However, closer analysis of this code-specific low median cost leads us to suspect that a number of providers are likely billing this code for services that are not described by CPT code 38230, bone marrow harvesting for transplantation. Considering the typical clinical characteristics of the service, we would expect the costs of the necessary hospital resources to more closely approximate the median costs of services assigned to APC 0123 for CY 2006. Therefore, we will return CPT code 38230 to APC 0123 for CY 2006. However, we will reevaluate the appropriateness of this APC assignment during the OPPS update for CY 2007. In the meantime, we advise providers to exercise greater care when reporting CPT code 38230 to ensure that this code is billed correctly only for services described by the CPT code and that all costs associated with providing the bone marrow harvesting procedure are included in charges on the claims for the service.

e. Computer Assisted Navigational Procedures

Comment: Two commenters expressed concern about computer assisted navigation for orthopedic procedures (CPT codes 0054T, 0055T, and 0056T). Both commenters were concerned that CMS had not assigned these procedures to an APC for OPPS payment, but instead had proposed their status indicators as “B” while another computer assisted navigational procedure, CPT code 61795 (Stereotactic computer assisted volumetric (navigational) procedure, intracranial, extracranial, or spinal), had previously been assigned status indicator “S” in APC 302 (Level III Radiation Therapy). Both commenters recommended that orthopedic computer assisted navigational procedures should be assigned to APC 0302 with the other computer assisted navigational procedures, or alternatively each procedure (CPT codes 61795, 0054T, 0055T, and 0056T) should be placed in a new clinical APC with a payment rate equaling the payment rate of APC 0302.

Response: We agree with the commenters that these computer assisted navigational procedures share a common technological theme in their clinical use during surgical procedures and may use comparable hospital resources. We, therefore, will place CPT codes 0054T, 0055T, and 0056T in APC 0302 with CPT 61795 for CY 2006. We will also give APC 0302 a new name, “Computer Assisted Navigational Procedures,” because the APC contains only these four services and is thus most appropriately described by that title.

f. Hyperbaric Oxygen Therapy (APC 0659)

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. Start Printed Page 68614

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 cost 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 rate-setting, 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 41,152 claims to calculate the proposed median for APC 0659 for CY 2006. Applying the methodology described above, we proposed a median cost for APC 0659 of $93.37 for CY 2006.

We received several public comments concerning our proposed APC payment for HBOT.

Comment: Several commenters approved of our decision to rely on each hospital's overall CCR rather than the respiratory therapy CCR in our calculation of HBOT median costs. However, the commenters noted that most hospitals providing HBOT services report the costs and charges associated with providing this service on a separate line of their cost report. These commenters further encouraged us to use the CCR specific to HBOT for hospitals that report HBOT separately. They also asked CMS to encourage hospitals not reporting costs and charges for HBOT separately, to do so in the future.

Response: Unfortunately, the Healthcare Cost Report Information System (HCRIS), the electronic database of the Hospital Cost Report (CMS-2552-96) that we use to estimate costs from charges, rolls up costs and charges on each hospital's cost report into a standard list of cost centers. Because HBOT is not included on the standard list of cost centers, CMS does not have readily available information about the specific costs and charges that each institution garners in providing HBOT services. Until last year, we had hypothesized that most hospitals providing HBOT services reported the costs and charges for those services as a separate line item in their respiratory therapy cost center. Commenters convinced us that hospitals did not report their HBOT costs and charges in a uniform location on their cost report. In the final rule for CY 2005, we used the overall CCR for each hospital rather than the respiratory therapy CCR to calculate the median cost for HBOT (APC 0659). While we could encourage hospitals to report their costs and charges for HBOT separately, at this time extra effort by hospitals would not allow us to improve the accuracy of our HBOT median cost calculation because we lose line-item specificity when the data is entered into HCRIS.

Comment: One commenter commissioned a study to analyze our rate-setting methodology and conducted an independent survey of hospitals that provide HBOT services. Surveys conducted in CYs 2004 and 2005 asked all hospitals providing HBOT services to identify the standard cost center associated with the line on their cost report where the hospital reports costs and charges for HBOT: 206 hospitals, or 44 percent of all hospitals providing HBOT services, responded to one of the surveys. The commenter believes that the survey results are generalizable to all hospitals providing HBOT services because the demographics of those hospitals not responding to the surveys are comparable to those responding to the surveys. For each of the responding hospitals, the survey results provided the standard cost center on each hospital cost report. The study calculated an HBOT CCR for each hospital based on the costs and charges in the associated standard cost center, not just the costs and charges for HBOT. On the basis of these results, the study then generalized an HBOT CCR to the 56 percent of hospitals not responding to the surveys. Specifically, the study simulated HBOT CCRs for each of the non-responding hospitals by applying a methodology that generalized to the non-responding hospitals HBOT-specific findings from similar hospitals. The study results led the commenter to conclude that the proposed median cost of $93.37 was too low, and that a more accurate estimate of median cost per unit is $118.94. On the basis of this analysis the commenter requested that CMS use the median cost of $118.94 to set the payment rate for APC 0659. The commenter noted that APC 0659, where the HCPCS code for HBOT (C1300) is assigned, is unusual as it is one of only a few APCs that contain only one HCPCS code. They concluded that as no averaging of the costs of services occurs, any changes in the median cost for C1300 in APC 0659 have a particularly great impact on the APC median, as compared to changes in the median cost for a procedure assigned to an APC to which multiple services are assigned.

Response: We receive many submissions of external data from commenters supporting their requests for higher median cost estimates for specific procedures. In many cases, submitted data have not met the minimum standards required for setting payment rates. We have previously provided preferred characteristics of external data to be submitted in comments regarding devices (68 FR 47987). While we have not specifically provided criteria for non-device external data, the subset of our published characteristics that could be applicable to a service such as HBOT include the public availability of the data, its representativeness of a diverse group of hospitals both by location and type, and its identification of its data sources. As part of the CY 2005 study, hospitals gave their consent for their identification and cost report information to be made public, an essential characteristic of data submitted as part of a public comment. The submitted HBOT CY 2005 survey data represent a varied group of 120 hospitals, both by location and type of hospital, as well as 31 percent of the population of total hospitals providing HBOT services according to CY 2004 hospital claims. Inclusion of HBOT survey data from the CY 2004 survey increases the response rate to 44 percent. The survey results provide us with the specific standard cost center in which costs and charges for HBOT are located for the responding hospitals, allowing us to relate the HBOT charge data to cost-to-charge information provided in hospital cost reports for these hospitals. We are appreciative of this study in that it provides us with some useful information as we examine our payment for HBOT services.

These survey results based on this modest response may, therefore, be representative of the 464 hospitals that submitted HBOT claims to the OPPS in CY 2004. However, only a small minority of OPPS hospitals actually provides HBOT services, and there is such significant regional variation in the frequency of billing of hospital outpatient HBOT services that it is unlikely to be fully explained by the different health characteristics of regional populations. We understand that HBOT may also be provided in freestanding centers, and the business decisions around its location may depend upon the local healthcare infrastructure. Therefore, while the Start Printed Page 68615responding hospitals may be similar to the non-responding hospitals with respect to hospital category and geographic location, we are not confident that these characteristics alone signify that the minority of responding hospitals is truly reflective of the relatively small number of OPPS providers billing for HBOT. In addition, we are not certain that comparability of hospitals with respect to their category and geographic location is related to individual hospital decisions about where to include HBOT costs and charges on their Medicare cost reports. Therefore, we are not convinced that it would be appropriate to generalize these HBOT cost center findings to non-responding hospitals to calculate an adjusted payment rate for HBOT.

In addition to our concern about generalizability based on the methodology discussed above, we have several additional reservations about employing the approach recommended by the commenter without the benefit of additional comment from other parties. First, employing this approach may establish an important precedent, which may well be cited by other commenters concerned with the median costs of other services. The OPPS is a prospective payment system that relies upon the coherent grouping of services that share clinical as well as resource utilization characteristics and the packaging of many ancillary services to determine payments. We are concerned that differentially employing methods that depend on additional external collection of information from hospitals may have unintended and potentially negative consequences in a payment system based on averages and relative values. It stands to reason that, as in the case of HBOT, commenters will only submit special surveys and proposals to refine rate-setting when they have at least a strong reason to believe that such customized methods will increase the rates for the specific services in which they are interested. In a budget-neutral payment system based on relative weights, this poses the risk that using this specific external information for select services will actually distort the process of establishing the relative weights in favor of some services but to the disadvantage of other services where such information is not available or not as potentially influential based on the APC assignments of those services. In a relative system such as the OPPS, it may be more important to employ a consistent set of data than to adopt specially “enhanced” data and methods for some services, but not for all services generally. Indeed, a consistent data set may be more likely to yield accurate relative values than a mixed data set consisting of both values calculated from hospital claims data and values determined by enhanced methods.

Lastly, our capacity to review, evaluate, and adapt special approaches to increase payment levels for individual services in the OPPS is necessarily limited. Based on all of our concerns previously discussed, it is consequently important that we obtain some idea of the extent of other possible requests for use of special methods and non-claims based data to increase payment levels for particular services or groups of services before setting such a precedent for one specific OPPS service, where there appear to be no pressing access concerns based on our OPPS payment rates to date. Our hospital claims data reveal steadily increasing frequencies of HBOT claims, from 101,843 services in CY 2002, to 188,604 services in CY 2003, and once again to 242,558 services in CY 2004. This more than doubling of HBOT services in hospital outpatient departments over a 2-year time period indicates that Medicare beneficiaries are unlikely to be experiencing difficulty in accessing medically necessary HBOT services in the context of the OPPS payment rates for HBOT.

Before we engage in further rulemaking, we therefore specifically invite input on other situations where special approaches may be appropriate and where high quality external data might be made available. We are interested in the possible merits of these other approaches and in potential criteria that we might use to assess when a special methodology should be employed. We believe these comments can help us to develop options for consideration for the CY 2007 OPPS update. In the meantime, we intend to continue our efforts to improve the precision of the OPPS relative weights by increasing our use of multiple procedure claims and refining our cost estimation process.

While we solicit additional public comment on this subject matter, for CY 2006 rate-setting we are finalizing our proposal to recalculate 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 47,101 claims to calculate the final median cost for APC 0659 for CY 2006. Applying the methodology described above, we are setting the final payment rate for APC 0659 based on a median cost of $90.09 for CY 2006.

Comment: One commenter pointed out that they had difficulty replicating CMS's median cost estimate, in part because the public dataset that we make available included cost data calculated with the respiratory therapy CCR, that the calculation of the “overall CCR” was not sufficiently defined in regulations to be replicated, and that using the cost centers marked with a “Y” on the “Revenue Code to Cost Center Crosswalk Description” did not yield an overall CCR comparable to the one that we used.

Response: We acknowledge the commenter's concern regarding the accessibility and quality of data available to replicate CMS's median cost calculations. While we believe that we have fulfilled our public obligation to provide access to data to support public comments, users of the data can sometimes identify improvements. We agree that the overall CCR calculation should be more transparent. We have provided additional information about this calculation both in the final rule under our discussion of APC median calculations and on our Web site. We also agree that we should have placed the hospital specific overall CCR to estimate costs for HBOT on our public use file. We will remedy this for the CY 2007 rulemaking process.

g. Ophthalmology Examinations (APC 0601)

Comment: One commenter, representing eye physicians and surgeons, agreed with our decision to exempt the APC 0235 (Level I Posterior Segment Eye Procedures) from the 2 times rule for CY 2006. The commenter also agreed with our proposal to move several other ophthalmology procedures into higher paying APC groups (CPT codes 65265, 65285, 66220, 67025, 67027, 67036, 67038, 67039, and 67121). See 70 FR 42704, July 25, 2005 for a table including the proposed changes.

However, this commenter disagreed with the proposal to move CPT codes 92004 (eye exam, new patient) and 92014 (eye exam, established patient) from APC 0602 (High Level Clinic Visits) to APC 0601 (Mid Level Clinic Visits). The commenter urged CMS to reconsider this decision and keep these codes in APC 0602.

Response: At its February 2005 meeting, the APC Panel recommended that CMS restructure APCs 0601 and 0602 to eliminate violations of the two times rule. At the time of the proposed rule for CY 2006, the available median cost data for these two codes showed Start Printed Page 68616that the hospital resources for both codes were more homogenous with other services assigned to the mid level clinic visit APC 0601, as compared to services assigned to the high level clinic visit APC 0602. Keeping these codes in APC 0602 for CY 2006 would have resulted in significant overpayments for both codes based on historical hospital claims data.

We now have additional claims data, reflecting more complete median costs for both codes from CY 2004 claims. Upon review of CPT code 92004, its median cost of $82 based on almost 21,000 single claims is more consistent with the median costs of other services assigned to APC 0602 ($88), and assigning this code to APC 0602 for CY 2006 would not cause a two times rule violation. We, therefore we will not finalize our CY 2006 proposal to move CPT code 92004 to APC 0601, but instead we will reassign CPT code 92004 back to APC 0602 for CY 2006. However, the median cost of CPT code 92014 ($67) based on nearly 100,000 single claims remains more consistent with the median cost of APC 0601 ($60). Based on OPPS hospital claims data, hospitals are consistently reporting higher costs for comprehensive eye exams for new patients in comparison with comprehensive eye exams for established patients. These differences in costs likely result from the additional hospital resources required to provide eye exams to new patients, in keeping with current clinical practice. To return CPT code 92014 to APC 0602 for CY 2006 would significantly overpay comprehensive eye examinations for established patients. We therefore finalize our CY 2006 proposal to assign CPT code 92014 to APC 0601.

h. Pathology Services

Comment: One commenter supported the proposed status indicator of B for HCPCS codes D0472-D0999 because the commenter indicated that providers should bill the appropriate CPT code in place of these codes. The commenter urged CMS to require its contractors to deny claims for HCPCS codes D0472-D0999.

Response: We agree that these HCPCS codes duplicate existing CPT codes and therefore have designated them as not payable or recognized under OPPS. As a practical matter, this change in status indicator has little or no impact on providers because of this entire code series, in all of CY 2004, only 3 units of HCPCS code D0999 were billed by hospitals under OPPS. This CY 2006 final rule with comment period applies to payments under the OPPS and a comment that we should deny claims for these codes submitted by all other providers in all other settings is outside the scope of this final rule.

Comment: One commenter objected to payment of CPT code 86586 under the OPPS and asked that we place it on the clinical laboratory fee schedule for CY 2006 because currently, the only source of payment is under the OPPS and therefore independent laboratories cannot be paid for it.

Response: We agree with this comment and we will pay for this code under the clinical lab fee schedule in CY 2006. This code will therefore not be paid under the OPPS in 2006.

Comment: One commenter objected to payment being made under the OPPS for CPT codes 80500-80502 and 88187-88189, which are for physician interpretation and report services. The commenter asked that we change their status indicators to “M” so that the codes would not be billable to a fiscal intermediary nor payable under the OPPS. The commenter believed that these services should only be paid to physicians on claims submitted by carriers.

Response: These services currently have status indicator “X” and are separately paid under OPPS. We believe that payment to hospitals is appropriate because of the resources hospitals furnish for the physician to be able to perform these services in a hospital (that is, space, computer, office supplies, medical records system).

i. Photodynamic Therapy of the Skin (APC 0013)

Comment: One commenter supported the proposed move of CPT code 96567 (Photodynamic Therapy of the Skin) from APC 0013, with a proposed payment rate of $66, to APC 0016 with a proposed payment rate of $153. The commenter also expressed appreciation that the drug used with this procedure (HCPCS code J7308) is paid separately and not bundled into the payment for the procedure. The commenter asked that CMS continue to monitor the median costs reported by hospitals so that Medicare beneficiaries may continue to have access to this procedure and the drug associated with the procedure.

Response: We appreciate the thoughtful comments submitted by this pharmaceutical manufacturer. We will finalize the placement of CPT code 96567 in APC 0016 as proposed. As always, we will continue to monitor claims data submitted by hospitals to ensure appropriate payment for all procedures.

j. Wound Care

As stated in the July 25, 2005 proposed rule (70 FR 42692), based upon a recommendation from the APC Panel we referred CPT code 97602 (non-selective wound care) for MPFS evaluation of its bundled status in relation to services provided under the OPPS. In the proposed rule for CY 2006, we assigned CPT code 97602 a status indicator of “A,” meaning that while it was not payable under the OPPS, it was payable under a fee schedule other than the OPPS, specifically the MPFS. We explained that, 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). Furthermore, 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 furnishing non-selective wound care services described by CPT code 97602.

We received several public comments concerning our proposed treatment of CPT code 97602 under the OPPS.

Comment: Several commenters objected to our proposal to maintain a status indicator of “A” for CPT code 97602, which does not allow for separate payment under the OPPS. These commenters contended that CMS' recognition of this code only under the MPFS as a bundled service is equivalent to CMS asking hospitals to furnish but not charge for this service. They asserted that our decision not to pay for this service under the OPPS is based on a misclassification of this code as an “always therapy” service. They further explained that registered nurses, as opposed to physical therapists, routinely perform non-selective wound care services in the hospital outpatient setting. These commenters urged CMS to acknowledge non-selective wound care as meeting the definition of covered outpatient therapeutic services under the OPPS. Two commenters requested that we assign the newly proposed status indicator “Q” to CPT code 97602 so that separate payment can be made under the OPPS when this is the only payable service provided under the OPPS. These two commenters also suggested that we pay this service at the same payment rate as services assigned to APC 0600 (Low Level Clinic Visits).

Another commenter strongly recommended that CMS also review our status indicator assignment of “A” to CPT codes 97605 (Negative pressure wound therapy; total wound(s) surface area less than or equal to 50 sq. cm.) and 97606 (Negative pressure wound Start Printed Page 68617therapy; total wound(s) surface area greater than 50 sq. cm.), in addition to CPT code 97602 as mentioned by other commenters and discussed above. The commenter urged that we pay separately for these services under the OPPS, emphasizing that these codes represent comprehensive wound care management and are typically not performed with any other service. Furthermore, the commenter objected to our designation of CPT codes 97602, 97605, and 97606 as “always therapy” services, contending that these services are often performed by registered nurses and should be classified as “sometimes therapy” services and assigned a status indicator of “S” which pays separately under the OPPS. Finally, this commenter recommended that we assign CPT codes 97602, 97605, and 97606 to New Technology APC 1502 (Level II $50-$100) with a payment rate of $75 for CY 2006 until we can collect hospital claims data to aid us in assigning these services to a clinical APC based on hospital median costs.

Response: We thank the commenters for their views on the classification and payment status of wound care services under the OPPS. Pursuant to a congressional mandate (Balanced Budget Act of 1997, Pub. L. 105-33) to pay for all therapy services under one prospective payment system, as provided under section 1834(k)(5) of the Act, we created a therapy code list to identify and track outpatient therapy services paid under the MPFS. We provide this list of therapy codes along with their respective designation in the Medicare Claims Processing Manual Pub. 100-04, section 20. We define an “always therapy” service as a service that must be performed by a qualified therapist under a certified therapy plan of care, and a “sometimes therapy” service as a service that may be performed by a non-therapist outside of a certified therapy plan of care. As recommended by the commenters, we have carefully reviewed our designation of CPT codes 97602, 97605, and 97606 as “always therapy” codes and our assignment of payment status indicator “A” to these codes under the OPPS. In light of the comments, we have also reexamined our classification of CPT codes 97597 (selective wound care; total wound(s) surface area less than or equal to 20 sq. cm.) and 97598 (selective wound care; total wound(s) surface area greater than 20 sq. cm.) as “sometimes therapy” codes with respect to payment under the OPPS. The past implications of designating CPT codes 97602, 97605, and 97606 as “always therapy” services, in addition to assigning these codes a status indicator of “A” under the OPPS indicating they were to be paid off the MPFS, were that hospitals may have been unable to bill and be paid for these services when they were provided as non-therapy in the hospital outpatient setting. When some of these OPPS services were packaged under the MPFS, hospitals received no separate payment, and when other services were paid off the MPFS, the services were required to meet the criteria for therapy services. However, this requirement for payment to hospitals only as therapy services was inconsistent with Medicare's designation of CPT codes 97597 and 97598 as “sometimes therapy” services, that could be appropriately provided either as therapy services or as non-therapy services. Therefore, for CY 2006, we are reclassifying CPT codes 97602, 97605, and 97606 as “sometimes therapy” services that may be appropriately provided either as therapy or non-therapy services, as well as maintaining our designation of CPT codes 97597 and 97598 as “sometimes therapy” services.

In order to pay hospitals accurately when delivering these “sometimes therapy” services independent of a therapy plan of care, we are establishing payment rates for CPT codes 97597, 97598, 97602, 97605, and 97606 under the OPPS when performed as non-therapy services in the hospital outpatient setting. To further clarify, hospitals will receive separate payment under the OPPS when they bill for wound care services described by CPT codes 97597, 97598, 97602, 97605, and 97606 that are furnished to hospital outpatients by non-therapists independent of a therapy plan of care. In contrast, when such services are performed by a qualified therapist under an approved therapy plan of care, providers should attach an appropriate therapy modifier (that is, GP for physical therapy, GO for occupational therapy, and GN for speech-language pathology) and/or report their charges under a therapy revenue code (that is, 420, 430, or 440) to receive payment under the MPFS. The OCE logic will either assign these services to the appropriate APC for payment under the OPPS if the services are non-therapy, or will direct contractors to the MPFS established payment rates if the services are identified on hospital claims with a therapy modifier or therapy revenue code as therapy.

Under the OPPS, we considered several options for determining the APC placement of CPT codes 97597, 97598, 97602, 97605, and 97606. As two commenters suggested, we considered placing these codes in APC 0600 (Low Level Clinic Visits); however, we concluded that these services do not share similar enough characteristics in terms of clinical homogeneity and resource requirements to other services assigned to APC 0600. In particular, specialized supplies are likely necessary for the procedures, unlike many of the supplies used in services assigned to APC 0600. Likewise, we also considered one commenter's recommendation to assign CPT codes 97597, 97598, 97602, 97605, and 97606 to New Technology APC 1502 with a payment rate of $75. However, because we do not consider wound care services to be appropriately described by a new technology designation under the OPPS, nor do we expect the resource intensity of these services to approach $75, we are not assigning these services to New Technology APC 1502. Instead, we sought to place these codes in clinical APCs with like services sharing similar resource requirements. Therefore, for CY 2006, we are assigning CPT code 97602 to APC 0340 (Minor Ancillary Procedures) because we consider the resource requirements of this service to be similar to the hospital resources necessary for many of the other minor hospital procedures assigned to this APC. While it may be that our CY 2004 hospital claims data may not reflect all claims for services that could have been described by CPT code 97602 because some hospitals may have been billing for an evaluation and management service if nonselective wound care was the only procedure provided on a day, we note that based on almost 75,000 single claims the median cost of $42 for CPT code 97602 is very consistent with the CY 2006 median cost of $36 for APC 0340. In addition, we are assigning CPT codes 97597 and 97605 to APC 0012 (Level I Debridement and Destruction), and CPT codes 97598 and 97606 to APC 0013 (Level II Debridement and Destruction) because we consider these services to closely resemble both the clinical characteristics and resource requirements of the other debridement services assigned to these APCs. We have listed these five codes in Addendum B with status indicator “X” for CPT code 97602 and status indicator “T” for CPT codes 97597, 97598, 97605, and 97606, along with their individual APC assignments to indicate their payment rates in common hospital outpatient circumstances where the services are provided as non-therapy. If a claim indicates, as described above, that the services are provided as therapy, the claim for such services will be paid under the MPFS. Start Printed Page 68618

When hospitals provide wound care services, they should bill the most appropriate CPT codes to describe those services. Hospitals should not bill for an evaluation and management service along with the wound care service unless a significant, separately identifiable evaluation and management service, correctly identified with modifier −25 on the claim, was also provided to the patient during the same encounter. Lastly, under the OPPS we consider payment for nonselective wound care to always be included in payment for selective wound care or negative pressure wound therapy if both services are provided at the same anatomic site in one encounter. Therefore, hospitals should not bill for both services when nonselective wound care is provided with selective wound care or negative pressure wound therapy at the same anatomic site in a single encounter. Hospitals would appropriately use the ^59 modifier to indicate nonselective and selective wound care or negative pressure wound therapy services provided in a single encounter at different anatomic sites.

IV. Payment Changes for Devices

A. Device-Dependent APCs

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 costs 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 50-50 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.

1. Public Comments and Our Responses on the November 15, 2004 OPPS Final Rule With Comment Period

We solicited public comments concerning the methodology set forth in our CY 2005 OPPS final rule with comment period (November 15, 2004, 69 FR 65681). A summary of the comments we received and our responses follow:

Comment: One commenter asked that CMS implement device edits other than those included in Table 19 of the November 15, 2004 final rule with comment period in April 2005. The commenter asked that CMS add the following APCs to the list of device-dependent APCs and implement device editing for them using the specific device codes provided by the commenter: APC 0088 (Thrombectomy), APC 0141 (Level I Upper GI Procedures), APC 0151 (Endoscopic Retrograde Cholangio-Pancreatography), APC 0154 (Hernia/Hydrocele Procedures), APC 0187 (Miscellaneous Placement/Repositioning), APC 0315 (Level II Implantation of Neurostimulator), APC 0415 (Level II Endoscopy Lower Airway), APC 0416 (Level I Intravascular and Intracardiac Ultrasound and Flow Reserve), and APC 0676 (Level II Thrombolysis and Thrombectomy).

Response: We implemented the device edits for device-dependent APCs in two phases for CY 2005. Those identified in Table 19 of the November 15, 2004 final rule with comment period (69 FR 65763) were implemented effective for services furnished April 1, 2005, and later. The remaining edits for device-dependent APCs were implemented effective for services furnished October 1, 2005, and later. We implemented the edits in two phases so that we could ensure that any systems issues that might arise with implementation of the first set of edits would be resolved before we implemented the remainder of the edits. We limited the edits we implemented to those for services included in the list of device-dependent APCs that we posted on the CMS Web site for public review to minimize the possibility of unintended claims processing problems. At this time, we have not expanded the scope of device-dependent APCs or the scope of the edits because of concerns raised by hospitals regarding the administrative burden that edits impose on hospitals. We will evaluate the impact of the edits on hospitals and on our claims data before we consider expanding the scope of the edits to other services such as those suggested by the commenter.

Comment: One commenter recommended that device codes C1750 (Cath, hemodialysis, long-term) and C1752 (Cath, hemodialysis, short-term) be allowed when billing for services using CPT codes 36557 (Insert tunneled cv cath), 36558 (Insert tunneled cv cath), and 36581 (Replace tunneled cv cath). The commenter further recommended that CMS allow the use of device code C1898 (Lead, pmkr, other than trans) when billing for services using CPT codes 33211 (Insertion of heart electrode), 33216 (Insert lead pace-defib, one), and 33217 (Insert lead pace-defib, dual).

Response: We agree with the commenter's recommendations and made the changes when the edits were implemented in the two phases for CY 2005 discussed above in response to the preceding comment.

Comment: One commenter recommended that device codes for Start Printed Page 68619brachytherapy needles, catheters, and sources be required when providers bill for the following CPT codes for brachytherapy application: 77761, 77762, 77763, 77776, 77777, 77778, 77781, 77782, 77783, and 77784. Numerous other commenters strongly opposed device editing for brachytherapy procedures due to the burden that it would impose on them.

Response: We did not require these edits for CY 2005. The needles and catheters that are placed for the application of brachytherapy sources are not placed when the procedures cited are performed but are generally placed in procedures that are coded separately. In the case of application of seeds for prostate brachytherapy (CPT code 77778), the needles or catheters are placed when CPT code 55859 (Percut/needle insert, pros) is performed and not as part of CPT code 77778. Moreover, for CY 2005, sources of brachytherapy are billed and paid separately on the basis of charges reduced to cost and, therefore, are irrelevant to the calculation of a median cost for the application of the brachytherapy sources because, unlike other devices, the cost of brachytherapy sources is not packaged into the payment for the service in which the sources are required.

2. CY 2006 Proposal, APC Panel Recommendations, and Responses to Public Comments Received

In the CY 2006 OPPS proposed rule, we proposed to base the 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 proposed rule, we proposed to calculate median costs for these APCs using all single bills without regard to whether there was a device code reported 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 were proposed to be reconfigured in such a way that no valid comparison was possible. Table 15 published in the CY 2005 OPPS proposed rule showed the comparison of these median costs (70 FR 42714).

As we stated previously, in CY 2004, CMS reissued HCPCS codes for devices and asked hospitals to voluntarily code devices utilized to provide services. As part of our development of the medians for this final rule with comment period, 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. Therefore, we did not propose 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.

In the CY 2006 proposed rule, we stated that 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 recognized 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, we proposed to adjust the median costs for the device-dependent APCs listed in Table 15 of the CY 2006 proposed rule (70 FR 42714) 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. We stated that we viewed 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.

As stated in the proposed rule (70 FR 42714), we expect that CY 2006 will 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.

a. APC Panel Recommendations

In the CY 2005 proposed rule, we proposed to treat APCs 0107 and 0108 in the same manner as we proposed to treat other device-dependent APCs. We note that at its August 2005 meeting, the APC Panel recommended that CMS set the payment rates for cardioverter defibrillator APCs (APCs 0107 and 0108) at the CY 2005 payment rates plus the full market basket increase for CY 2006. We did not accept this recommendation because to do so would greatly contradict our stated policy of applying a single standardized methodology wherever possible to establish APC payment amounts that are appropriately relative to one another.

The APC Panel also recommended that CMS add APC 0416 (Level I Intravascular and Intracardiac Ultrasound and Flow Reserve) and, in particular, CPT code 37250 (Iv us first vessel add-on) to the list of device-dependent APCs and require device editing for CPT code 37250.

We did not accept this recommendation. Many services that require devices are not included in the set of APCs to which we have given special attention as they came off pass-through status. We package the costs of relatively high cost devices into the median costs for the device-dependent APCs, and the absence of charges for these devices on claims is the reason for special treatment of the APCs in the past. The absence of charges also gives rise to our application of device editing to the services in the device-dependent APCs so that our hospital claims data are more complete for these specific services. At this time, we see no compelling reason to expand this list of device-dependent APCs. This is particularly true given that we expect that, for CY 2007, these APCs will not receive special attention as a class. However, we note that we will make case-by-case decisions regarding the adjustment of median costs where we believe that it is appropriate. Start Printed Page 68620

b. Public Comments Received and Our Responses

We received numerous public comments concerning our proposal. Following is a summary of those comments and our responses:

(1) Adjustment of Median Costs

Comment: Some commenters supported the proposed median cost adjustment for device-dependent APCs and supported the use of claims data to set the relative weights for the CY 2006 OPPS. However, many commenters stated that the proposed payments are inadequate to compensate hospitals for the full costs of the devices and procedures for many APCs, including, but not limited to, implantation of cochlear implants, neurostimulators, urologic prosthetics, and cardioverter defibrillators.

Commenters presented a variety of requests for revised median costs or revised payment rates. Many commenters asked that CMS accept and use external data in place of claims data and requested that CMS accept and use confidential and proprietary information that cannot be made public. Other commenters objected to the use of external data to set median costs that are the basis of the rates and to the use of any proprietary or confidential information that cannot be shared with the public. Some commenters asked CMS to substitute specific amounts they identified for the device portion of the median cost, for the full median cost, or for the payment amount for the APCs of interest to them. Commenters urged CMS to restrict the claims used to calculate the median costs for device-dependent APCs to those with specified diagnoses, or to those with specified HCPCS device codes, or with specified revenue code charges only if the charges associated with those codes exceeded amounts they recommended. Some commenters asked that CMS set the CY 2006 median cost at the CY 2005 adjusted median with an inflation adjustment for the full market basket increase for CY 2006. Other commenters asked CMS to adjust the medians to no less than 95 percent of the CY 2005 OPPS adjusted medians for all APCs, as well as for device-dependent APCs. These commenters stated that a transitional step to 85 percent was too great to prevent disruption to care.

Some commenters asked CMS to disregard requests to set the payment rates at 100 percent of the CY 2005 OPPS payment rates plus inflation for neurostimulator and cardioverter defibrillator APCs, which they stated have been given preferential treatment over other device-dependent APCs in past years. These commenters requested that the same adjustment policy apply to all device-dependent APCs. Some commenters asked CMS to use only claims that contained appropriate device codes in the calculations of the median costs because the presence of the device code and a charge for the device are more likely to produce the best possible estimate of relative cost for the service. All commenters who addressed this general issue of device-dependent APCs supported an adjustment of some type to median costs for these high cost APCs.

Response: After considering all of the comments received, we have set the median costs for device-dependent APCs for CY 2006 at the highest of: The median cost of all single bills; the median cost calculated using only claims that contain pertinent device codes and for which the device cost is greater than $1; or 90 percent of the payment median that was used to set the CY 2005 payment rates. We set 90 percent of the CY 2005 payment median as a floor in consideration of comments that stated that a 15-percent reduction from the CY 2005 payment median was too large of a transitional step. We also incorporated, as part of our methodology, the recommendation to base payment on medians that were calculated using only claims that passed the device edits. We believe that this policy provides a reasonable transition to full use of claims data in CY 2007, while better moderating the amount of decline from the CY 2005 OPPS payment rates. Table 16 of this final rule with comment period contains the CY 2005 payment median, the CY 2006 unadjusted single bill median, the amount represented by 90 percent of the CY 2005 payment median, the CY 2006 median calculated using only claims containing appropriate devices, and the CY 2006 adjusted median on which payment is based. As we discussed, in the CY 2006 proposed rule, we did not adjust the medians for APC 0122 (Level II Tube Changes and Repositioning), APC 0427 (Level III Tube Changes and Repositioning) APC 0166 (Level I Urethral Procedures), APC 0168 (Level II Urethral Procedures), APC 0621 (Level I Vascular Access Procedures), APC 0622 (Level II Vascular Access Procedures), and APC 0623 (Level III Vascular Access Procedures) because of substantial migration of HCPCS codes within these APCs.

We did not inflate the CY 2005 median cost or payment rate by the market basket, or substitute specific amounts derived from external studies or other external sources, as requested by commenters, because doing so would contradict our stated policy of using claims data developed from a single source, and applying a single standardized methodology wherever possible to establish payment amounts that are appropriately relative to one another. The Medicare claims database we use contains all claims for all services paid under the OPPS for all Medicare patients (other than those in Medicare managed care programs). As such, we believe that it is the best and most reliable source for standardized utilization and cost data in the Nation with regard to Medicare outpatient hospital care. Because the OPPS is a relative weight system, we believe it is important that, to the maximum extent possible, the relative weights be calculated using standardized processes and a standardized base of claims data.

(2) Effects of Inconsistent Markup of Charges

Comment: Some commenters objected to the use of claims data because they believed the payments that result are less than the cost of the procedures and the devices due to the high markup of low cost items and services and the low markup of high cost items and services. They indicated that the use of CCRs applied to hospital charges results in median costs that are inadequate for high cost devices because the markup on high cost devices is insufficient to result in the correct costs for the devices after application of CCRs calculated from all services in the applicable departments. Commenters offered a variety of recommendations for dealing with this phenomenon that they identified as “charge compression.” They suggested that CMS establish a sample of hospitals from which data would be collected for use in place of claims data or to validate the data derived from claims. They also suggested that CMS establish a new cost center solely for high cost devices and calculate an appropriate CCR for this new specialized cost center. Some of the commenters recommended that CMS conduct a study of the data of volunteer hospitals to determine an appropriate CCR for high cost devices that would be applied to all hospitals. They noted that CMS could adjust claims-based medians by substituting proprietary confidential cost data for the device portion of the median costs. They suggested that CMS could also calculate a charge decompression factor that would estimate the markup function from charges on claims and device acquisition cost data and incorporate these data into setting two CCRs: one for high cost devices and one for low cost Start Printed Page 68621devices, which would be used in place of actual hospital CCRs. Lastly, the commenters also suggested that CMS could create a broad stakeholder panel to address this issue.

Other commenters stated that the use of the hospital's average CCR results in computed costs and relative weights that are more or less than specific actual costs, but that this averaging is appropriate and desirable in a PPS and should continue. They stated that the alternative is a micromanaged payment system that resembles the system that Congress discarded in favor of a bundled PPS. The commenters urged CMS to remain committed to the principles of a PPS and the use of averaging, rather than seeking to pay the actual cost for one element of costs at the expense of all other items and services, which they stated would occur as a result of the application of budget neutrality adjustments required by law. They reiterated that many factors go into the decision of what services to furnish in a hospital, and that the payment for a specific service is only one of the applicable factors.

Response: We agree that the use of the hospital's average CCR results in computed costs and relative weights that may be more or less than specific actual costs and that this averaging is appropriate and desirable in a PPS and should continue. One of the principal purposes of determining median costs for weight setting in a budget neutral payment system is to determine the appropriate relativity in resource use among services, so that the fixed amount of money can be fairly and equitably distributed among hospitals based on case-mix. We note that, in general, the median costs derived from this process may not represent the actual acquisition costs of the services being furnished, nor will they ever represent acquisition costs. They are estimated relative costs that are converted to relative weights, scaled for budget neutrality, and then multiplied by a conversion factor to result in payments that, as we have previously discussed, were designed in such a manner that they are not expected to pay the full costs of the services.

(3) Effects of Multiple Procedure Reduction

Comment: Some commenters stated that all device-dependent APCs should be assigned a status indicator of “S” (significant service, separately payable) because none of the procedures assigned to these APCs should ever be reduced when performed with another procedure. Commenters stated that much of the cost of these procedures is a function of the cost of the device, and that the device cost remains unchanged whether the procedure in which it is required is performed with other surgical procedures or not. Commenters specifically objected to the movement of CPT code 33225 (L ventric pacing lead add-on) from New Technology APC 1525 in CY 2005 where it has a status indicator of “S” to APC 0418 ( Insertion of Left Ventricular Pacing Elect) for CY 2006, in which it was proposed to have status indicator “T,” because the payment for the procedure, when performed in addition to another procedure, would be reduced by 50 percent although most of the cost of the procedure is in the device, the cost of which remains fixed. Commenters also specifically objected to the assignment of status indicator “T” to APCs 0223 and 0227 because it results in a reduction in payment when services to place a catheter and implant an infusion pump are provided in the same session.

Response: We decide on a service-by-service basis whether the assignment of a status indicator “S” or “T” is appropriate. In the case of most device-dependent APCs, the service in question is never reduced because it is always the procedure with the highest payment rate (for example, cochlear implants and insertion of a cardioverter defibrillator (ICD)), and the assignment of a status indicator “T” is necessary so that the lower cost services are reduced in payment to reflect the efficiencies that occur when they are done at the same time as the highest paid procedure.

In the case of CPT code 33225 for insertion of a left ventricular pacing electrode at time of insertion of an ICD, we believe that payment at 50 percent of the payment rate for APC 0418 is appropriate for this add-on procedure based on the information furnished to us by manufacturers, hospitals, and physicians who are familiar with the service. This procedure is always done as an adjunct to insertion of a cardioverter defibrillator and a significant portion of the cost of the procedure is in the extension of operating room time and not in the cost of the device, drugs, or supplies needed to furnish the service. While CPT code 33225 is an add-on code, we discuss our ongoing exploration of possible solutions to the data challenges in developing appropriate payment rates for add-on codes in the data section (section II.A.) of this final rule with comment period. Also assigned to APC 0418 is the stand-alone procedure for insertion of the left ventricular lead, and we believe the add-on lead insertion is appropriately reduced by 50 percent in comparison with the payment rate for the stand-alone insertion procedure. Therefore, we believe that payment at 50 percent of the amount for APC 0418 to which we proposed to assign CPT code 33225 is appropriate and, as proposed, we have moved CPT code 33225 to APC 0418 with a status indicator of “T.”

When a spinal infusion pump is implanted along with an intrathecal or epidural catheter, CPT codes billed likely include those assigned to APCs 0227 and 0223, respectively. The higher paying APC 0227 for implantation of the infusion pump would receive full payment, while the catheter insertion APC 0223 would receive 50 percent of the APC payment because both APCs are assigned “T” status indicators. We believe this reduction is appropriate, as there are some efficiencies when both services are performed in a single session. In addition, we note that the CPT code for the catheter implantation includes the possibility of repositioning in its descriptor, so it is possible that this procedure may not require a new device every time it is performed. Therefore, we believe that the procedures assigned to APCs 0223 and 0227 are appropriately assigned “T” status indicators.

(4) Impact of Proposed Rates on Access to Care

Comment: Some commenters stated that under the proposed payments, Medicare beneficiaries may not get the device-related services they need because Medicare payments would be inadequate to compensate hospitals for their costs, and that hospitals would not furnish the services to Medicare beneficiaries for the rates that Medicare proposed to pay in CY 2006. They stated that hospitals will either cease providing certain services, or they will decide not to furnish them due to low Medicare payment rates.

Response: We share the commenters' concern that beneficiaries have access to all of the care they need, regardless of the type of service. As other commenters have stated, hospitals decide upon the range of services to offer based on a variety of factors, of which Medicare outpatient hospital payment is only one. We believe that the best way to ensure access to care for Medicare beneficiaries is to establish the OPPS using as many claims as possible from all hospitals so that the relative weights on which the payments are based result in the most fair and equitable distribution possible of Medicare's funding for outpatient hospital services.

We note that our regulations at 42 CFR 489.53(a)(2) state that a hospital Start Printed Page 68622risks termination of its Medicare provider agreement if it treats Medicare beneficiaries differently from other similar patients in the hospital.

(5) Addition of Other APCs as Device-Dependent APCs

Comment: Some commenters asked that CMS expand the list of APCs for which medians will be adjusted to include all APCs that require the use of a device. Specifically, they requested that we apply any median adjustment for device-dependent APCs also to APC 0112 (Apheresis, Photopheresis, and Plasmapheresis), APC 0312 (Radioelement Applications), APC 0313 (Brachytherapy), and APC 0651 (Complex Interstitial Radiation Source Application). They asked that CMS set the median for all such APCs that use a device at the CY 2005 OPPS adjusted median after inflating by the full market basket increase for CY 2006. Commenters asked that CMS add APC 0416 Level I Intravascular and Intracardiac Ultrasound and Flow Reserve) and, in particular, CPT code 37250 (Iv us first vessel add-on) to the list of device-dependent APCs and require device editing for CPT code 37250. They stated that this service requires a device, that its APC should be treated like all other device-dependent APCs, and that claims for the service should be returned if they are submitted without the HCPCS code for the device so that the full cost of the device will be included on every claim.

Response: As previously stated in response to the APC Panel's recommendation on a similar issue, many services that require devices are not included in the set of APCs to which we have given special attention as they came off pass-through status. We package the costs of relatively high cost devices into the median costs for the device-dependent APCs, and the absence of charges for these devices on claims is the reason for special treatment of the APCs in the past. The absence of charges also leads to our application of device editing to the services in the device-dependent APCs so that our hospital claims data are more complete for these specific services. At this time, we see no compelling reason to expand this list of device-dependent APCs. This is particularly true given that we expect that, for CY 2007, these APCs will not receive special attention as a class. However, we note that we will make case-by-case decisions regarding the application of edits where appropriate.

(6) Instructions on Reporting Device Charges

Comment: Some commenters asked that CMS educate providers on how to report charges for devices and technologies that do not have HCPCS codes, and that CMS issue explicit instructions regarding consistent use of revenue codes for reporting charges for devices and technologies to ensure that such charges are fully reported on claims.

Response: CMS' instructions regarding the need to report device codes and charges are included in the Internet Only Manual, Claims Processing Manual 100-4, Chapter 4 (CMS Web site: http://www.cms.hhs.gov/​manuals/​). Section 61.1 of that manual provides instructions on the requirement to report the device code and directs providers to the CMS Web site for the most current list of HCPCS codes for devices and for the most recent set of procedure code to device edits. In addition, section 20.5.1 specifies revenue centers that should be used when devices are reported. As always, when devices do not have appropriate HCPCS codes for reporting, hospitals should be sure to include all charges associated with their use on claims for services with which the devices were used.

(7) Application of Wage Index to Device-Dependent APCs Containing Devices

Comment: Some commenters objected to the application of the wage index to an APC into which devices were packaged. They indicated that applying the wage index will continue to further undervalue new technology services. They asked that CMS revise its policy and apply the wage index only to the service portion of the procedure for APCs for which the device cost is more than 80 percent of the total APC payment.

Response: Whether the application of the wage index to 60 percent of the APC payment will raise or reduce the payment for the service depends on the wage index value of the area in which the hospital is located. However, while we do not believe that the application of the wage index underpays new technology items or services, we acknowledge the commenter's request, and we will consider it as we develop our policies for future updates of the OPPS.

(8) Recalls of High Cost Devices

Comment: Some commenters are concerned that claims for items subject to a recall not be used for claims setting as there is no charge for the device on the claim, and the use of the claim could skew the median cost. These commenters also asked that CMS provide explicit guidance on how to report devices for which the provider incurred no cost due to replacement by the manufacturer under a recall of the device.

Response: The recalls of a significant number of cardioverter defibrillators and pacemakers to which the commenters referred occurred very late in CY 2004 and in CY 2005. Therefore, we believe that they have no effect on the CY 2004 claims used to set the rates for the CY 2006 OPPS. We are aware of the potential impact on data used for ratesetting for the CY 2007 OPPS and are already considering a strategy for ensuring that the CY 2005 claims data we will use for the CY 2007 OPPS will be appropriately reflective of the costs of the devices. We note that one way of doing this is to not use claims that contain device charges of $1.01 or less in the calculation of the median costs for these APCs. In the July 2005 OPPS instruction, Change Request 3915, dated June 30, 2005, we issued interim instructions regarding how hospitals should report device codes and charges when the device was furnished without cost by the manufacturer under a recall. Specifically, we advised hospitals to report the HCPCS code for the device and a token charge of $1.01 or less on the line with the device code. Accordingly, we will use the device code and charge combination to find these claims in the CY 2005 data.

For the future, beginning January 1, 2006, hospitals should report modifier “FB” on the claim with the device code (where there is one to report) or with the procedure code (where there is no appropriate device code) to indicate that a device used in the procedure was furnished without cost to the provider and, therefore, is not being charged to Medicare or the beneficiary. The device edits will recognize the modifier and will not return the claim to the provider as incomplete because the device code is not on the claim. CMS will issue instructions regarding use of the modifier in the January 2006 OPPS change request issuance.

(9) Separate Payment for High Cost Devices

Comment: Some commenters asked that we pay separately for high cost devices and recommended that CMS define “high cost” devices as those with a cost greater than 50 percent of the APC payment rate. They indicated that even with device editing, they do not believe Start Printed Page 68623that hospitals will be diligent about reporting all of their services or setting charges that reflect the costs of the devices. They believed that separate payments for high cost devices is the only way to achieve valid cost data for devices and related services.

Response: In general, we believe that packaging the costs of items needed to furnish services into the payments for the services and the assignment of multiple services to a single APC create incentives for efficiency and for the selection of the least costly device that meets the patient's needs. Therefore, for the CY 2006 OPPS, we will continue to package payment for all devices without pass-through status, and which are not brachytherapy sources, into the payments for the procedures that utilize them. However, we recognize that there may be valid reasons to consider whether it would be appropriate to pay separately for some high cost devices, and we will consider whether there are circumstances in which this may be appropriate in the future.

After carefully reviewing all comments received concerning our proposed median cost adjustment for device-dependent APCs for CY 2006, we have set the medians for device-dependent APCs at the highest of: the median cost of all single bills; the median cost calculated using only claims that contain pertinent device codes and for which the device cost is greater than $1; or 90 percent of the payment median that was used to set the CY 2005 payment rates. Table 16 below shows the adjusted median costs for the listed device-dependent APCs for which comparisons with prior years are valid to the highest of the CY 2006 unadjusted APC median, 90 percent of the adjusted median on which payment was based for the CY 2005 OPPS, or the median calculated using only claims that meet the device code edits implemented in CY 2005.

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B. Pass-Through Payments for Devices

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

Section 1833(t)(6)(B)(iii) of the Act requires that, under the OPPS, a category of devices be eligible for transitional pass-through payments for at least 2, but not more than 3 years. This period begins with the first date on which a transitional pass-through payment is made for any medical device that is described by the category. In our November 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 expired; 95 categories expired after CY 2002 and 2 categories expired after CY 2003. All of the categories listed in Table 17, 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 17 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. Brachytherapy sources for other than prostate brachytherapy, which are now separately paid in accordance with section 621(b)(2) of Pub. L. 108-173, are an exception to this established policy. For CY 2005, we continued to apply this policy, the same as we did in CYs 2003 and 2004, to categories of devices that expired on December 31, 2004.

2. Proposed and Final Policy for CY 2006

For CY 2006, we proposed 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 proposed 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 the CY 2006 OPPS update.

We received two public comments concerning the expiration of pass-through payment for these three device categories.

Comment: One commenter recommended that CMS extend the pass-through payment for device category C1819 until December 31, 2006, rather than ending pass-through payment on December 31, 2005. The commenter expressed concern that our median cost data for the procedure codes utilizing a tissue localization excision device do not include the costs attributed to device category C1819, and that the volume of C1819 claims is not sufficient to affect the median costs for CPT codes 19125 (Excision, breast lesion) and 19160 (Removal of breast tissue).

Response: We finalized the pass-through payment for device category code C1819 in the CY 2005 final rule with comment period and responded to a similar comment in that same rule (69 FR 65773). In this CY 2006 final rule with comment period, we are merely implementing that decision effective for services furnished on or after January 1, 2006. Moreover, we believe that the device costs represented by device category code C1819 are found in our median cost data, as we have CY 2004 hospital claims billed with C1819 that have been used to establish CY 2006 payment rates. As the device median cost was only approximately $67 and the median cost of APC 0028 (Level I Breast Surgery), where the accompanying procedure CPT codes 19125 and 19160 mentioned in the comment reside, is over $1,100, we anticipate that the packaging of this device will not limit appropriate access. We note that as usage of this device grows, the device costs may become more prominent contributors to the median costs of procedures utilizing the device, as long as hospitals report the device code and its associated charges on their claims.

Comment: One commenter expressed concern regarding the appropriate packaging of expiring device categories from pass-through payment for ophthalmologic devices after December 31, 2005. The commenter recommended that device category code C1814 be packaged with HCPCS codes 67036 (Removal of inner eye fluid), 67040 (Laser treatment of retina), 67108 (Repair detached retina), and 67112 (Rerepair detached retina), all of which the commenter claimed are paid under APC 0672. The commenter recommended that device category code C1818 be packaged with HCPCS code 65770 (Revise cornea with implant), which is proposed to be paid through APC 0244 (Cornea Transplant).

Response: Our policy is to package the expired device categories' costs with the costs relating to the procedure codes with which they were billed in our claims data. We will apply this policy to device category codes C1814 and C1818 as well. To the extent that the HCPCS codes reported in our claims data for the services associated with device codes C1814 and C1818 are the same as those HCPCS service codes noted in the comment, the median cost data for those HCPCS codes will include the costs associated with codes C1814 and C1818.

As indicated in the November 15, 2004 final rule with comment period, device categories C1814, C1818 and C1819 will expire from pass-through payment on December 31, 2005. We remind the public that these C-codes are still active for the billing and reporting of devices and their charges along with the HCPCS codes for the procedures with which they are used. When billing for procedures utilizing devices that have active device codes, hospitals are required to report the codes for the devices on their claims for the procedures. Start Printed Page 68627

Table 17.—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

C. 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

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 for continuing pass-through payment in CY 2004 to determine whether the costs associated with the device categories are packaged into the existing APCs. Based on our review of the data for the 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 are not confident that CY 2004 claims reporting C-codes represent the typical costs of all hospitals providing the services. Therefore, we did not propose to use CY 2004 claims with device coding to propose CY 2006 device offset amounts. In addition, we did not propose to use the CY 2005 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 and Final Policy for CY 2006

For CY 2006, we proposed 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 Start Printed Page 68628the new category are packaged into the existing APC structure. If we do not determine for any new device category the device costs associated with the new category are packaged into existing APCs, we proposed 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 proposed to announce the offset amounts in the program transmittal that announces the new category.

For CY 2006, we proposed 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 that 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 proposed 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 proposed 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.

We proposed not to publish a list of APCs with device percentages as 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 to 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 hospital claims data where device C-code reporting is required.

We did not receive any public comments in response to our proposals.

Accordingly, we are finalizing our proposed policy for CY 2006 for calculating device percentages and applying offsets.

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 CY 2005 OPPS 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 recommended that CMS allow the creation of a new pass-through category for items implanted or inserted through a natural orifice, as long as the other existing criteria are met.

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?

(1) Public Comments Received on the November 15, 2004 Final Rule With Comment Period 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 responses to them.

Comment: Most commenters generally framed their responses to the four Start Printed Page 68629questions 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 CMS 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 CMS considers “new” could be clarified so that if the device in question was not FDA approved or not used for the services in the OPD during the year of the hospital claims that provided the basis for the most recent OPPS update, it should be considered “new.” Some commenters elaborated by example. They stated that if CMS changes the surgical insertion or implantation requirement to include devices inserted through natural orifices in CY 2005, devices approved by the FDA and in use in the OPD in CY 2003 or previously would not be eligible, while devices approved by FDA in CY 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 believed 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. The 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, 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, guidewires, 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, commenters 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. One 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' 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. The 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 proposed to maintain our current criterion that a device must be surgically inserted or implanted, but also proposed to modify the way we currently interpret this criterion under § 419.66(b)(3) of the regulations. We proposed 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 noted that we would 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). Start Printed Page 68630Specifically, we noted that we would maintain 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 proposed revision of our definition of devices that are surgically inserted or implanted, we reminded 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 existing 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.

(2) Public Comments Received on the CY 2006 OPPS Proposed Rule and Our Responses

We received many comments concerning our proposals to modify the surgical insertion or implantation criterion for new pass-through device categories.

Comment: Commenters supported our proposal to modify the way we currently interpret our criterion that a device must be surgically inserted or implanted under § 419.66(b)(3) of the regulations, but suggested that CMS 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 items that are surgically inserted or implanted through a surgically created incision. A few commenters suggested that CMS modify the regulatory language to codify this change, by explicitly stating in § 419.66(b)(3) that the device is implanted or inserted through a natural or surgically created orifice or through a surgically created incision. These commenters made this request in the context of stating that the proposed interpretation resolves the current need to make a traditional surgical incision to insert or implant a device through an orifice for that device to be considered eligible for a pass-through device category.

Response: We appreciate the support for our proposal to modify our interpretation of the surgical insertion or implantation criterion for pass-through payment eligibility for devices. Our current criterion is that a device must be surgically inserted or implanted, while our interpretation of this criterion up to this point has been to consider eligible only those devices that are inserted or implanted through a surgically created incision, as clarified in our August 3, 2000 interim final rule. As stated above, other clarifications in that interim final rule remain. We do not believe that it is either essential or advisable to revise the regulations. Therefore, we are not changing the current language of § 419.66(b)(3), as some commenters have suggested. However, we are adopting as final our interpretation that surgical insertion or implantation criteria include devices that are surgically inserted or implanted via a natural or surgically created orifice, as well as those devices that are inserted or implanted via a surgically created incision. We will maintain all of the 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) and 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).

b. 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. These parties have recommended that CMS 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 the vast majority 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