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Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule for Calendar Year 2006 and Certain Provisions Related to the Competitive Acquisition Program of Outpatient Drugs and Biologicals Under Part B

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AGENCY:

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

ACTION:

Final rule with comment.

SUMMARY:

This rule addresses Medicare Part B payment policy, including the physician fee schedule that are applicable for calendar year (CY) 2006; and finalizes certain provisions of the interim final rule to implement the Competitive Acquisition Program (CAP) for Part B Drugs. It also revises Medicare Part B payment and related policies regarding: Physician work; practice expense (PE) and malpractice relative value units (RVUs); Medicare telehealth services; multiple diagnostic imaging procedures; covered outpatient drugs and biologicals; supplemental payments to Federally Qualified Health Centers (FQHCs); renal dialysis services; coverage for glaucoma screening services; National Coverage Decision (NCD) timeframes; and physician referrals for nuclear medicine services and supplies to health care entities with which they have financial relationships. In addition, the rule finalizes the interim RVUs for CY 2005 and issues interim RVUs for new and revised procedure codes for CY 2006. This rule also updates the codes subject to the physician self-referral prohibition and discusses payment policies relating to teaching anesthesia services, therapy caps, private contracts and opt-out, and chiropractic and oncology demonstrations.

As required by the statute, it also announces that the physician fee schedule update for CY 2006 is −4.4 percent, the initial estimate for the sustainable growth rate for CY 2006 is 1.7 percent and the conversion factor for CY 2006 is $36.1770.

DATES:

Effective Date: These regulations are effective on January 1, 2006.

Comment Date: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on January 3, 2006.

ADDRESSES:

In commenting, please refer to file code CMS-1502-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 regulation 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-1502-FC, P.O. Box 8017, Baltimore, MD 21244-8017.

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

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-1502-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) 786-7197 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 HHH 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 a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

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

Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by mailing your comments to the addresses provided at the end of the “Collection of Information Requirements” section in this document.

For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section.

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FOR FURTHER INFORMATION CONTACT:

Pam West (410) 786-2302 (for issues related to practice expense).

Rick Ensor (410) 786-5617 (for issues related to the nonphysician workpool and supplemental survey data).

Stephanie Monroe (410) 786-6864 (for issues related to the geographic practice cost index and malpractice RVUs).

Craig Dobyski (410) 786-4584 (for issues related to list of telehealth services).

Ken Marsalek (410) 786-4502 (for issues related to multiple procedure reduction for diagnostic imaging services and payment for teaching anesthesiologists).

Henry Richter (410) 786-4562 (for issues related to payments for end stage renal disease facilities).

Angela Mason (410) 786-7452 or Catherine Jansto (410) 786-7762 (for issues related to payment for covered outpatient drugs and biologicals).

Fred Grabau (410) 786-0206 (for issues related to private contracts and opt out provision).

David Worgo (410) 786-5919 (for issues related to Federally Qualified Health Centers).

Dorothy Shannon (410) 786-3396 (for issues related to the outpatient therapy cap).

Vadim Lubarsky (410) 786-0840 (for issues related to National Coverage Decision timeframes).

Bill Larson (410) 786-7176 (for issues related to coverage of screening for glaucoma).

Lia Prela (410) 786-0548 (for issues related to the competitive acquisition program (CAP) for part B drugs).

Diane Milstead (410) 786-3355 or Gaysha Brooks (410) 786-9649 (for all other issues).

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SUPPLEMENTARY INFORMATION:

Submitting Comments: We welcome comments from the public on the following issues: interim RVUs for selected procedure codes identified in Addendum C; and the physician self referral designated health services listed in tables 32 and 33. You can assist us by referencing the file code CMS-1502-FC and the specific “issue identifier” that precedes the section on which you choose to comment.

Inspection of Public Comments: All comments received before the close of Start Printed Page 70117the 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 comments received before the close of the comment period on its public web site as soon as possible after they are 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, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

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

Information on the physician fee schedule can be found on the CMS homepage. You can access this data by using the following directions:

1. Go to the CMS homepage (http://www.cms.hhs.gov).

2. Place your cursor over the word “Professionals” in the blue areas near the top of the page. Select “physicians” from the drop-down menu.

3. Under “Billing/Payment” select “Physician Fee Schedule”.

To assist readers in referencing sections contained in this preamble, we are providing the following table of contents. Some of the issues discussed in this preamble affect the payment policies, but do not require changes to the regulations in the Code of Federal Regulations. Information on the regulation's impact appears throughout the preamble and is not exclusively in section VI.

Table of Contents

I. Background

A. Introduction

B. Development of the Relative Value System

C. Components of the Fee Schedule Payment Amounts

D. Most Recent Changes the Fee Schedule

II. Provisions of the Final Rule

A. Resource-Based Practice Expense Relative Value Units (PE RVUs)

1. Current Methodology

2. PE Proposals for CY 2006

3. PE Recommendations on CPEP Inputs for CY 2006

4. Payment for Splint and Cast Supplies

5. Miscellaneous PE Issues

B. Geographic Practice Cost Indices (GPCIs)

C. Malpractice RVUs

1. Five Percent Specialty Threshold

2. Specialty Crosswalk Issues

3. Cardiac Catheterization and Angioplasty Exception

4. Dominant Specialty for Low-Volume Codes

5. Collection of Premium Data

D. Medicare Telehealth Services

1. Requests for Adding Services to the List of Medicare Telehealth Services

2. Definition of an Originating Site

3. Other Issues

E. Contractor Pricing of Unlisted Therapy Modalities and Procedures

F. Payment for Teaching Anesthesiologists

G. End Stage Renal Disease (ESRD) Related Provisions

1. Revised Pricing Methodology for Separately Billable Drugs and Biologicals Furnished by ESRD Facilities.

2. Adjustment to Account for Changes in the Pricing of Separately Billable Drugs and Biologicals, and the Estimated Increase in Expenditures for Drugs and Biologicals

3. Revisions to Geographic Designations and Wage Indexes Applied to the ESRD Composite Payment Rate

4. Miscellaneous Comments on ESRD Issues

5. Revisions to the Composite Payment Rate Exceptions Process

H. Payment for Covered Outpatient Drugs and Biologicals

1. ASP issues

2. Payment for Drugs Furnished During CY 2006 in Connection With the Furnishing of Renal Dialysis Services if Separately Billed by Renal Dialysis Facilities

3. Clotting Factor Furnishing Fee

4. Payment for Inhalation Drugs and Dispensing Fee

5. Supplying Fee

6. Competitive Acquisition of Outpatient Drugs And Biologicals Under Part B

I. Private Contracts and Opt-out Provision

J. Multiple Procedure Payment Reduction for Diagnostic Imaging

K. Therapy Cap

L. Chiropractic Demonstration Discussion

M. Supplemental Payments to FQHCs Subcontracting with Medicare Advantage Plans

N. National Coverage Decisions Timeframes

O. Coverage of Screening for Glaucoma

P. Additional Issues

1. Corrections to Conditions for Medicare Payment (§ 424.22)

2. Chemotherapy Demonstration Project

III. Refinement of RVUs for CY 2006 and Response to Public Comments on Interim RVUs for 2005

A. Summary of Issues Discussed Related to the Adjustment of RVUs

B. Process for Establishing Work RVUs for the 2005 PFS

C. Work RVU Refinements of Interim RVUs

1. Methodology (Includes Table titled “Work Relative Value Unit Refinements of the 2004 Interim and Related Relative Value Units”)

2. Interim 2005 Codes

D. Establishment of Interim Work RVUs for New and Revised Physician's Current Procedural Terminology (CPT) Codes and New Healthcare Common Procedure Coding System Codes (HCPCS) for 2006 (Includes Table titled “American Medical Association Specialty Relative Value Update Committee and Health Care Professionals Advisory Committee Recommendations and CMS's Decisions for New and Revised 2006 CPT Codes”)

E. Discussion of Codes for Which There Were No RUC Recommendations or for Which the RUC Recommendations Were Not Accepted

F. Establishment of Interim PE RVUs for New and Revised Physician's Current Procedural Terminology (CPT) Codes and New Healthcare Common Procedure Coding System (HCPCS) Codes for 2006

IV. Five-Year Refinement of RVUs -Status update

V. Physician Self-Referral Prohibition: Nuclear Medicine and Annual Update to the List of CPT/HCPCS Codes

A. General

B. Nuclear Medicine

1. Response to Comments

2. Revisions to the List of Codes Identifying Nuclear Medicine Services

C. Annual Update to the Code List

1. Response to Comments

2. Revisions Effective for 2006

VI. Physician Fee Schedule Update for CY 2006

A. Physician Fee Schedule Update

B. The Percentage Change in the Medicare Economic Index (MEI)

C. The Update Adjustment Factor

VII. Allowed Expenditures for Physicians' Services and the Sustainable Growth Rate

A. Medicare Sustainable Growth Rate

B. Physicians' Services

C. Preliminary Estimate of the SGR for 2006

D. Revised Sustainable Growth Rate for 2005

E. Final Sustainable Growth Rate for 2004

F. Calculation of 2006, 2005, and 2004 Sustainable Growth Rates

VIII. Anesthesia and Physician Fee Schedule Conversion Factors for CY 2006

A. Physician Fee Schedule Conversion Factor

B. Anesthesia Fee Schedule Conversion Factor

IX. Telehealth Originating Site Facility Fee Payment Amount Update

X. Provisions of the Final Rule

XI. Waiver of Proposed Rulemaking

XII. Collection of Information Requirements

XIII. Response to Comments

XIV. Regulatory Impact Analysis

Addendum A—Explanation and Use of Addendum B.

Addendum B—Relative Value Units and Related Information

Addendum C—Codes with Interim RVUs

Addendum D—2006 Geographic Practice Cost Indices by Medicare Carrier and Locality

Addendum E-2006 GAFs

Addendum F—CAP: Revised Single Drug Category List

Addendum G—CAP: Revised New Drugs for CAP Bidding for 2006

Addendum H—List of CPT/HCPCS Codes Used to Describe Certain Designated Health Services Under Section 1877 of the Social Security Act

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In addition, because of the many organizations and terms to which we refer by acronym in this proposed final rule with comment, we are listing these acronyms and their corresponding terms in alphabetical order below:

AADA American Academy of Dermatology Association

AAH American Association for Homecare

ABN Advanced Beneficiary Notice

ACC American College of Cardiology

ACG American College of Gastroenterology

ACR American College of Radiology

AFROC Association of Freestanding Radiation Oncology Centers

AGA American Gastroenterological Association

AMA American Medical Association

AMP Average manufacturer price

AOAO American Osteopathic Academy of Orthopedics

ASA American Society of Anesthesiologists

ASGE American Society of Gastrointestinal Endoscopy

ASP Average sales price

ASTRO American Society for Therapeutic Radiation Oncology

AUA American Urological Association

AWP Average wholesale price

BBA Balanced Budget Act of 1997

BBRA Balanced Budget Refinement Act of 1999

BIPA Benefits Improvement and Protection Act of 2000

BLS Bureau of Labor Statistics

BMI Body mass index

BNF Budget neutrality factor

BSA Body surface area

CAP Competitive Acquisition Program

CBSA Core-Based Statistical Area

CF Conversion factor

CFR Code of Federal Regulations

CMA California Medical Association

CMS Centers for Medicare & Medicaid Services

CNS Clinical nurse specialist

COBC Coordination of Benefits Contractor

CPEP Clinical Practice Expert Panel

CPI Consumer Price Index

CPO Care Plan Oversight

CPT (Physicians') Current Procedural Terminology (4th Edition, 2002, copyrighted by the American Medical Association)

CRNA Certified Registered Nurse Anesthetist

CT Computed tomography

CTA Computed tomographic angiography

CY Calendar year

DAW Dispense as written

DHS Designated health services

DME Durable medical equipment

DMERC Durable Medical Equipment Regional Carrier

DSMT Diabetes outpatient self-management training services

EAC Estimated acquisition cost

ECP External counterpulsation

E/M Evaluation and management

EPO Erythopoeitin

ESRD End stage renal disease

FAX Facsimile

FDA Food and Drug Administration

FI Fiscal intermediary

FQHC Federally qualified health center

FR  Federal Register

GAF Geographic adjustment factor

GAO Government Accountability Office

GPCI Geographic practice cost index

GPOs Group Purchasing Organizations

HCPAC Health Care Professional Advisory Committee

HCPCS Healthcare Common Procedure Coding System

HHA Home health agency

HHS (Department of) Health and Human Services

HIC Health Insurance Number

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

HOCM High Osmolar Contrast Media

HPSA Health professional shortage area

HRSA Health Resources and Services Administration (HHS)

IDTFs Independent diagnostic testing facilities

IPF Inpatient psychiatric facility

IPPS Inpatient prospective payment system

IRF Inpatient rehabilitation facility

ISO Insurance Services Office

IVIG Intravenous immune globulin

JCAAI Joint Council of Allergy, Asthma, and Immunology

JUA Joint underwriting association

LCD Local coverage determination

LTCH Long-term care hospital

LOCM Low Osmolar Contrast Media

MA Medicare Advantage

MCAC Medicare Coverage Advisory Committee

MCG Medical College of Georgia

MedPAC Medicare Payment Advisory Commission

MEI Medicare Economic Index

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003

MNT Medical nutrition therapy

MRA Magnetic resonance angiography

MRI Magnetic resonance imaging

MSA Metropolitan statistical area

MSN Medicare summary notice

NCD National coverage determination

NCQDIS National Coalition of Quality Diagnostic Imaging Services

NDC National drug code

NECMA New England County Metropolitan Area

NECTA New England City and Town Area

NP Nurse practitioner

NPP Nonphysician practitioners

NPWP Nonphysician work pool

OBRA Omnibus Budget Reconciliation Act

OIG Office of Inspector General

OMB Office of Management and Budget

OPPS Outpatient prospective payment system

OT Occupational therapy

PA Physician assistant

PC Professional component

PE Practice Expense

PEAC Practice Expense Advisory Committee

PERC Practice Expense Review Committee

PET Positron emission tomography

PFS Physician Fee Schedule

PLI Professional liability insurance

PPAC Practicing Physicians Advisory Council

PIN Provider identification number

PPI Producer price index

PPO Preferred provider organization

PPS Prospective payment system

PRA Paperwork Reduction Act

PT Physical therapy

RFA Regulatory Flexibility Act

RIA Regulatory impact analysis

RN Registered nurse

RUC (AMA's Specialty Society) Relative (Value) Update Committee

RVU Relative value unit

SGR Sustainable growth rate

SMS (AMA's) Socioeconomic Monitoring System

SNF Skilled nursing facility

SNM Society for Nuclear Medicine

TA Technology assessment

TC Technical component

TEB Thoracic electrical bioimpedance

tPA Tissue-type plasminogen activator

UAF Update adjustment factor

UPIN Unique provider identification number

WAC Wholesale acquisition cost

WAMP Widely available market price

I. Background

A. Introduction

Since January 1, 1992, Medicare has paid for physicians' services under section 1848 of the Social Security Act (the Act), “Payment for Physicians‘ Services.” The Act requires that payments under the physician fee schedule (PFS) be based on national uniform relative value units (RVUs) based on the resources used in furnishing a service. Section 1848(c) of the Act requires that national RVUs be established for physician work, practice expense (PE), and malpractice expense. Prior to the establishment of the Start Printed Page 70119resource-based relative value system, Medicare payment for physicians' services was based on reasonable charges.

Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs may not cause total physician fee schedule payments to differ by more than $20 million from what they would have been had the adjustments not been made. If adjustments to RVUs cause expenditures to change by more than $20 million, we must make adjustments to ensure that they do not increase or decrease by more than $20 million.

B. Development of the Relative Value System

1. Work RVUs

The concepts and methodology underlying the PFS were enacted as part of the Omnibus Budget Reconciliation Act (OBRA) of 1989, Public Law 101-239, and OBRA 1990, (Public Law 101-508). The final rule published November 25, 1991 (56 FR 59502) set forth the fee schedule for payment for physicians' services beginning January 1, 1992. Initially, only the physician work RVUs were resource-based, and the PE and malpractice RVUs were based on average allowable charges.

The physician work RVUs established for the implementation of the fee schedule in January 1992 were developed with extensive input from the physician community. A research team at the Harvard School of Public Health developed the original physician work RVUs for most codes in a cooperative agreement with the Department of Health and Human Services (HHS). In constructing the code-specific vignettes for the original physician work RVUs, Harvard worked with panels of experts, both inside and outside the government, and obtained input from numerous physician specialty groups.

Section 1848(b)(2)(A) of the Act specifies that the RVUs for radiology services are based on a relative value scale we adopted under section 1834(b)(1)(A) of the Act, (the American College of Radiology (ACR) relative value scale), which we integrated into the overall PFS. Section 1848(b)(2)(B) of the Act specifies that the RVUs for anesthesia services are based on RVUs from a uniform relative value guide. We established a separate conversion factor (CF) for anesthesia services, and we continue to utilize time units as a basis for determining payment for these services. As a result, there is a separate payment methodology for anesthesia services.

We establish physician work RVUs for new and revised codes based on recommendations received from the American Medical Association's (AMA) Specialty Society Relative Value Update Committee (RUC).

2. Practice Expense Relative Value Units (PE RVUs)

Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 103-432), enacted on October 31, 1994, amended section 1848(c)(2)(C)(ii) of the Act and required us to develop resource-based PE RVUs for each physician's service beginning in 1998. We were to consider the staff, equipment, and supplies used in the provision of various medical and surgical services. The legislation specifically required that, in implementing the new system of PE RVUs, we apply the same budget-neutrality provisions that are applicable to other adjustments under the physician fee schedule.

Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), amended section 1848(c)(2)(C)(ii) of the Act to delay implementation of the resource-based PE RVU system until January 1, 1999. In addition, section 4505(b) of the BBA provided for a 4-year transition period from charge-based PE RVUs to resource-based RVUs.

We established the resource-based PE RVUs for each physician's service in a final rule, published November 2, 1998 (63 FR 58814), effective for services furnished in 1999. Based on the requirement to transition to a resource-based system for PE over a 4-year period, resource-based PE RVUs did not become fully effective until 2002.

This resource-based system was based on two significant sources of actual PE data: The Clinical Practice Expert Panel (CPEP) data and the AMA's Socioeconomic Monitoring System (SMS) data. The CPEP data were collected from panels of physicians, practice administrators, and nonphysicians (for example, registered nurses) nominated by physician specialty societies and other groups. The CPEP panels identified the direct inputs required for each physician's service in both the office setting and out-of-office setting. The AMA's SMS data provided aggregate specialty-specific information on hours worked and PEs.

Separate PE RVUs are established for procedures that can be performed in both a nonfacility setting, such as a physician's office, and a facility setting, such as a hospital outpatient department. The difference between the facility and nonfacility RVUs reflects the fact that a facility receives separate payment from Medicare for its costs of providing the service, apart from payment under the PFS. The nonfacility RVUs reflect all of the direct and indirect PEs of providing a particular service outside a facility setting.

Section 212 of the Medicare, Medicaid and State Child Health Insurance Program Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) directed the Secretary to establish a process under which we accept and use, to the maximum extent practicable and consistent with sound data practices, data collected or developed by entities and organizations to supplement the data we normally collect in determining the PE component. On May 3, 2000, we published the interim final rule (65 FR 25664) that set forth the criteria for the submission of these supplemental PE survey data. The criteria were modified in response to comments received, and published in the Federal Register (65 FR 65376) as part of the November 1, 2000 final rule. The PFS final rules published in 2001 and 2003, respectively, (66 FR 55246 and 68 FR 63196) extended the period during which we would accept these supplemental data.

As discussed in the January 7, 2004 physician fee schedule final rule (69 FR 1092), section 303(a)(1)(B) of MMA amended section 1848(c)(2) of the Act by adding new subparagraph (H), “Adjustments in Practice Expense Relative Value Units for Certain Drug Administration Services beginning in 2004”. Subparagraph (H)(i) requires the Secretary to determine the practice expense RVUs for 2004 using practice expense surveys submitted to the Secretary as of January 1, 2003 by a physician specialty organization in accordance with section 212 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 if the survey: (1) Covers practice expenses for oncology drug administration services; and (2) meets criteria established by the Secretary for acceptance of such surveys. Consistent with section 1848(c)(2)(H)(i) of the Act, in January 7, 2005 final rule, we announced we would use the ASCO survey to determine the practice expense RVUs for physician fee schedule services furnished on or after January 1, 2004 because it: (1) Was submitted prior to January 1, 2003; (2) includes expenses for drug administration services; and (3) meets criteria we have established for use of surveys.Start Printed Page 70120

3. Resource-Based Malpractice RVUs

Section 4505(f) of the BBA amended section 1848(c) of the Act to require us to implement resource-based malpractice RVUs for services furnished on or after 2000. The resource-based malpractice RVUs were implemented in the PFS final rule published November 2, 1999 (64 FR 59380). The malpractice RVUs are based on malpractice insurance premium data collected from commercial and physician-owned insurers from all the States, the District of Columbia, and Puerto Rico.

4. Refinements to the RVUs

Section 1848(c)(2)(B)(i) of the Act requires that we review all RVUs no less often than every five years. The first 5-year review of the physician work RVUs went into effect in 1997, published on November 22, 1996 (61 FR 59489). The second 5-year review went into effect in 2002, published on November 1, 2001 (66 FR 55246). The next 5-year review is scheduled to go into effect in 2007.

In 1999, the AMA's RUC established the Practice Expense Advisory Committee (PEAC) for the purpose of refining the direct PE inputs. Through March of 2004, the PEAC provided recommendations to CMS for over 7,600 codes (all but a few hundred of the codes currently listed in the AMA's Current Procedural Terminology (CPT) codes).

In the November 15, 2004, PFS final rule (69 FR 66236), hereinafter referred to as the CY 2005 final rule, we implemented the first 5-year review of the malpractice RVUs (69 FR 66263).

5. Adjustments to RVUS Are Budget Neutral

Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs for a year may not cause total PFS payments to differ by more than $20 million from what they would have been if the adjustments were not made. In accordance with section 1848(c)(2)(B)(ii)(II) of the Act, if adjustments to RVUs cause expenditures to change by more than $20 million, we make adjustments to ensure that expenditures do not increase or decrease by more than $20 million.

C. Components of the Fee Schedule Payment Amounts

Under the formula set forth in section 1848(b)(1) of the Act, the payment amount for each service paid under the physician fee schedule is the product of three factors: (1) A nationally uniform relative value unit (RVU) for the service; (2) a geographic adjustment factor (GAF) for each physician fee schedule area; and (3) a nationally uniform conversion factor (CF) for the service. The CF converts the relative values into payment amounts.

For each physician fee schedule service, there are 3 relative values: (1) An RVU for physician work; (2) an RVU for practice expense; and (3) an RVU for malpractice expense. For each of these components of the fee schedule, there is a geographic practice cost index (GPCI) for each fee schedule area.

To calculate the payment for every physician service, the components of the fee schedule (physician work, PE, and malpractice RVUs) are adjusted by a geographic practice cost index (GPCI). The GPCIs reflect the relative costs of physician work, PEs, and malpractice insurance in an area compared to the national average costs for each component.

Payments are converted to dollar amounts through the application of a CF, which is calculated by the Office of the Actuary and is updated annually for inflation.

The general formula for calculating the Medicare fee schedule amount for a given service and fee schedule area can be expressed as:

Payment = [(RVU work × GPCI work) + (RVU PE × GPCI PE) + (RVU malpractice × GPCI malpractice)] × CF.

The CF for calendar year (CY) 2005 appears in section VI, Physician Fee Schedule Update for CY 2006. The RVUs for CY 2006 are in Addendum B. The GPCIs for CY 2006 can be found in Addendum D.

Section 1848(e) of the Act requires us to develop GAFs for all physician fee schedule areas. The total GAF for a fee schedule area is equal to a weighted average of the individual GPCIs for each of the three components of the service. However, in accordance with the statute, the GAF for the physician's work reflects one-quarter of the relative cost of physician's work compared to the national average.

D. Most Recent Changes to the Fee Schedule

In the CY 2005 final rule (69 FR 66236), we refined the resource-based PE RVUs and made other changes and clarifications to Medicare Part B payment policy. These included:

  • Supplemental survey data for PE;
  • Updated GPCIs for physician work and PE;
  • Updated malpractice RVUs;
  • Revised requirements for supervision of therapy assistants;
  • Revised payment rules for low osmolar contrast media (LOCM);
  • Payment policies for physicians and practitioners managing dialysis patients;
  • Clarification of care plan oversight (CPO) requirements;
  • Requirements for supervision of diagnostic psychological testing services;
  • Clarifications to the policies affecting therapy services provided incident to a physician's service;
  • Requirements for assignment of Medicare claims;
  • Additions to the list of telehealth services;
  • Changes to payments for drug administration services; and
  • Several coding issues.

The CY 2005 final rule (69 FR 66236) also addressed the following provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173):

  • Coverage of an initial preventive physical examination.
  • Coverage of cardiovascular screening blood tests.
  • Coverage of diabetes screening tests.
  • Incentive payment improvements for physicians in physician shortage areas.
  • Changes to payment for covered outpatient drugs and biologicals and drug administration services.
  • Changes to payment for renal dialysis services.
  • Coverage of routine costs associated with certain clinical trials of category A devices as defined by the Food and Drug Administration.
  • Coverage of hospice consultation service.
  • Indexing the Part B deductible to inflation.
  • Extension of coverage of intravenous immune globulin (IVIG) for the treatment in the home of primary immune deficiency diseases.
  • Revisions to reassignment provisions.
  • Payment for diagnostic mammograms.
  • Coverage of religious nonmedical health care institution items and services to the beneficiary's home.

In addition, the CY 2005 PFS final rule finalized the calendar year (CY) 2004 interim RVUs for new and revised codes in effect during CY 2004 and issued interim RVUs for new and revised procedure codes for CY 2005; updated the codes subject to the physician self-referral prohibition; discussed payment for set up of portable x-ray equipment; discussed the third 5-year refinement of work RVUs; and solicited comments on potentially misvalued work RVUs.

In accordance with section 1848(d)(1)(E) of the Act, we also announced that the PFS update for CY 2005 would be 1.5 percent; the initial Start Printed Page 70121estimate for the sustainable growth rate for CY 2005 was 4.3; and the CF for CY 2005 would be $37.8975.

II. Provisions of the Final Rule

In response to the August 8, 2005 proposed rule (70 FR 45764), we received approximately 15,000 comments. We received comments from individual physicians, health care workers, professional associations and societies, and beneficiaries. The majority of the comments addressed the proposals related to PE and the negative update to the PFS, GPCIs, and Teaching Anesthesiology.

The proposed rule discussed policies that affected the RVUs on which payment for certain services would be based and other changes to Medicare Part B payment policy. We also discussed changes related to payment for covered outpatient drugs and biologicals; supplemental payments to federally qualified health centers (FQHCs); payment for renal dialysis services; the national coverage decision (NCD) process; coverage of screening for glaucoma; private contracts; and physician referrals for nuclear medicine services and supplies to health care entities with which they have financial relationships. RVU changes implemented through this final rule with comment are subject to the $20 million limitation on annual adjustments contained in section 1848(c)(2)(B)(ii)(II) of the Act.

After reviewing the comments and determining the policies we would implement, we have estimated the costs and savings of these policies and discuss in detail the effects of these changes in the Regulatory Impact Analysis in section XIV.

For the convenience of the reader, the headings for the policy issues correspond to the headings used in the August 8, 2005 proposed rule. More detailed background information for each issue can be found in the August 8, 2005 proposed rule.

A. Resource Based Practice Expense (PE) RVUs

Based on section 1848(c)(1)(B) of the Act, PEs are the portion of the resources used in furnishing the service that reflects the general categories of physician and practitioner expenses (such as office rent and wages of personnel, but excluding malpractice expenses).

Section 121 of the Social Security Amendments of 1994 (Pub. L. 103-432), enacted on October 31, 1994, required us to develop a methodology for a resource-based system for determining PE RVUs for each physician's service. Up until that point, physicians' PEs were based on historical allowed charges. This legislation stated that the revised PE methodology must consider the staff, equipment, and supplies used in the provision of various medical and surgical services in various settings beginning in 1998. The Secretary has interpreted this to mean that Medicare payments for each service would be based on the relative PE resources typically involved with performing the service.

The initial implementation of resource-based PE RVUs was delayed until January 1, 1999, by section 4505(a) of the BBA. In addition, section 4505(b) of the BBA required the new payment methodology be phased-in over 4 years, effective for services furnished in CY 1999, and fully effective in CY 2002. The first step toward implementation called for by the statute was to adjust the PE values for certain services for CY 1998. Section 4505(d) of BBA required that, in developing the resource-based PE RVUs, the Secretary must:

  • Use, to the maximum extent possible, generally accepted cost accounting principles that recognize all staff, equipment, supplies, and expenses, not solely those that can be linked to specific procedures.
  • Develop a refinement method to be used during the transition.
  • Consider, in the course of notice and comment rulemaking, impact projections that compare new proposed payment amounts to data on actual physician PEs.

Beginning in CY 1999, Medicare began the 4 year transition to resource-based PE RVUs. In CY 2002, the resource-based PE RVUs were fully transitioned.

1. Current Methodology

The following sections discuss the current PE methodology.

a. Data Sources

There are two primary data sources used to calculate PEs. The AMA's SMS survey data are used to develop the PEs per hour for each specialty. The second source of data used to calculate PEs was originally developed by the CPEP. The CPEP data include the supplies, equipment, and staff times specific to each procedure.

The AMA developed the SMS survey in 1981 and discontinued it in 1999. Beginning in 2002, we incorporated the 1999 SMS survey data into our calculation of the PE RVUs, using a 5-year average of SMS survey data. (See Revisions to Payment Policies and Five-Year Review of and Adjustments to the Relative Value Units Under the Physician Fee Schedule for CY 2002 final rule, published November 1, 2001 (66 FR 55246).) The SMS PE survey data are adjusted to a common year, 1995. The SMS data provide the following six categories of PE costs:

  • Clinical payroll expenses, which are payroll expenses (including fringe benefits) for clinical nonphysician personnel.
  • Administrative payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician personnel involved in administrative, secretarial or clerical activities.
  • Office expenses, which include expenses for rent, mortgage interest, depreciation on medical buildings, utilities and telephones.
  • Medical material and supply expenses, which include expenses for drugs, x-ray films, and disposable medical products.
  • Medical equipment expenses, which include depreciation expenses, leases, and rent of medical equipment used in the diagnosis or treatment of patients.
  • All other expenses, including expenses for legal services, accounting, office management, professional association memberships, and any professional expenses not mentioned above.

In accordance with section 212 of the BBRA, we established a process to supplement the SMS data for a specialty with data collected by entities and organizations other than the AMA (that is, the specialty itself). (See the Criteria for Submitting Supplemental Practice Expense Survey Data interim final rule with comment period, published on May 3, 2000 (65 FR 25664).) Originally, the deadline to submit supplementary survey data was through August 1, 2001. This deadline was extended in the November 1, 2001 final rule through August 1, 2003. (See the Revisions to Payment Policies and Five-Year Review of and Adjustments to the Relative Value Units Under the Physician Fee Schedule for CY 2002 final rule, published on November 1, 2001 (66 FR 55246).) Then, to ensure maximum opportunity for specialties to submit supplementary survey data, we extended the deadline to submit surveys until March 1, 2005. (See the Revisions to Payment Policies Under the Physician Fee Schedule for CY 2002 final rule, published on November 7, 2003 (68 FR 63196).)

The CPEPs consisted of panels of physicians, practice administrators, and nonphysicians (registered nurses, for example) who were nominated by physician specialty societies and other groups. There were 15 CPEPs consisting Start Printed Page 70122of 180 members from more than 61 specialties and subspecialties. Approximately 50 percent of the panelists were physicians.

The CPEPs identified specific inputs involved in each physician service provided in an office or facility setting. The inputs identified were the quantity and type of nonphysician labor, medical supplies, and medical equipment.

In 1999, the AMA's Multi-specialty Relative Value Update Committee (RUC) established the PEAC. Since 1999, and until March 2004, the PEAC, a multi-specialty committee, reviewed the original CPEP inputs and provided us with recommendations for refining these direct PE inputs for existing CPT codes. Through its last meeting in March 2004, the PEAC provided recommendations which we have reviewed and accepted for over 7,600 codes. As a result of this scrutiny by the PEAC, the current CPEP/RUC inputs differ markedly from those originally recommended by the CPEPs. The PEAC has now been replaced by the Practice Expense Review Committee (PERC), which acts to assist the RUC in recommending PE inputs.

b. Allocation of Practice Expenses to Services

In order to establish PE RVUs for specific services, it is necessary to establish the direct and indirect PE associated with each service. Our current approach is to allocate aggregate specialty practice costs to specific procedures and, thus, it is often referred to as a “top-down” approach. The specialty PEs are derived from the AMA's SMS survey and supplementary survey data. The PEs for a given specialty are allocated to the services performed by that specialty on the basis of the CPEP/RUC data and work RVUs assigned to each CPT code. The specific process is detailed as follows:

Step 1—Calculation of the SMS Cost Pool for Each Specialty

The six SMS cost categories can be described as either direct or indirect expenses. The three direct expense categories include clinical labor, medical supplies and medical equipment. Indirect expenses include administrative labor, office expense, and all other expenses. We combine these indirect expenses into a single category. The SMS cost pool for each specialty is calculated as follows:

  • The specialty PE per hour (PE/HR) for each of the three direct and one indirect cost categories from the SMS is calculated by dividing the aggregate PE per specialty by the specialty's total hours spent in patient care activities (also determined by the SMS survey). The PE/HR is divided by 60 to obtain the PE per minute (PE/MIN).
  • Each specialty's PE pools (for each of the three direct and one indirect cost categories) are created by multiplying the PE/MIN for the specialty by the total time the specialty spent treating Medicare patients for all procedures (determined using Medicare utilization data). Physician time on a procedure-specific level is available through RUC surveys of new or revised codes and through surveys conducted as part of the 5-year review process. For codes that the RUC has not yet reviewed, the original data from the Harvard resource-based RVU system survey is used. Physician time includes time spent on the case before, during, and after the procedure. The physician procedure time is multiplied by the frequency that each procedure is performed on Medicare patients by the specialty.
  • The total specialty-specific SMS PE for each cost category is the sum, for each direct and indirect cost category, of all of the procedure-specific total PEs.

Table 1 illustrates an example of the calculation of the total SMS cost pools for the three direct and one indirect cost categories discussed in step 1. For this specialty, PE/HR for clinical payroll expenses is $9.30 per hour. The hourly rate is divided by 60 minutes to obtain the clinical payroll per minute for the specialty.

The total clinical payroll for providing hypothetical procedure 00001 for this specialty of $3,633,465 is the result of taking the clinical payroll per minute of $0.16; multiplying this by the physician time for procedure 00001 (56 minutes); and multiplying the result by the number of times this procedure was provided to Medicare patients by this specialty (418,602). The total amount spent on clinical payroll in this specialty is $667,457,018. This amount is calculated by summing the clinical payroll expenses of procedure 00001 and all of the other services provided by this specialty.

Step 2—Calculation of CPEP Cost Pool

CPEP data provide expenditure amounts for the direct expense categories (clinical labor, supplies, and equipment cost) at the procedure level. Multiplying the CPEP procedure-level PEs for each of these three categories by the number of times the specialty provided the procedure, produces a total category cost, per procedure, for that specialty. The sum of the total expenses from each procedure results in the total CPEP category cost for the specialty. Start Printed Page 70123

For example, in Table 2, using CPEP data, the clinical labor cost of procedure 00001 is $65.23. Under the methodology described above in this step, this is multiplied by the number of services for the specialty (418,602), to yield the total CPEP data clinical labor cost of the procedure: $27,305,408. In this example, the clinical labor cost for all other services performed by this specialty is $831,618,600. Therefore, the entire clinical labor CPEP expense pool for the specialty is $858,924,008. Step 2 is repeated to calculate the CPEP supply and equipment costs.

Step 3—Calculation and Application of Scaling Factors

This step ensures that the total of the CPEP costs across all procedures performed by the specialty equates with the total direct costs for the specialty as reflected by the SMS data. To accomplish this, the CPEP data are scaled to SMS data by means of a scaling factor so that the total CPEP costs for each specialty equals the total SMS cost for the specialty. (The scaling factor is calculated by dividing the specialty's SMS pool by the specialty's CPEP pool.)

The unscaled CPEP cost per procedure value, at the direct cost level, is then multiplied by the respective specialty scalar to yield the scaled CPEP procedure value. The sum of the scaled CPEP direct cost pool expenditures equals the total scaled direct expense for the specific procedure at the specialty level.

In the Step 3 example shown in Table 3, the SMS total clinical labor costs for the specialty is $667,457,018. This amount divided by the CPEP total clinical labor amount of $858,924,008 yields a scaling factor of 0.78. The CPEP clinical labor cost for hypothetical procedure 00001 is $65.23. Multiplying the 0.78 scaling factor for clinical labor costs by $65.23 yields the scaled clinical labor cost amount of $50.69. Individual scaling factors must also be calculated for supply and equipment expenses. The sum of the scaled direct cost values, $50.69, $43.90, and $139.45, respectively, equals the total scaled direct expense of $234.04.

Table 3.—Calculation and Application of Scaling Factors

Standard methodologyClinical/LaborSuppliesEquipmentTotal Scaled direct expense (Sum of A, B, and C)
(A)(B)(C)(D)
(a) Total—SMS Pool$667,457,018$344,493,945$531,094,831
(b) Total—CPEP Pool858,924,008411,894,6175,929,275,023
(c) Scaling Factor0.7852.491,556.86
Unscaled Value
(e) CPT 00001—Scaled Value50.6943.90139.45$234.04
(c) = (a)/(b)
(e) = (c)*(d)

Step 4—Calculation of Indirect Expenses

Indirect PEs cannot be directly attributed to a specific service because they are incurred by the practice as a whole. Indirect costs include rent, utilities, office equipment and supplies, and accounting and legal fees. There is not a single, universally accepted approach for allocating indirect practice costs to individual procedure codes. Rather allocation involves judgment in identifying the base or bases that are the best measures of a practice's indirect costs.

To allocate the indirect PEs to a specific service, we use the following methodology:

  • The total scaled direct expenses and the converted work RVU (the work RVU for the service is multiplied by $34.5030, the 1995 CF) are added together, and then multiplied by the number of services provided by the specialty to Medicare patients.
  • The total indirect PEs per specialty are calculated by summing the indirect expenses for all other procedures provided by that specialty.

For example, in Table 4, the physician work RVU for procedure 00001 is 2.36. Multiplying the work RVU by the 1995 CF of $34.5030 equals $81.43. The physician work value is added to the scaled total direct expense from Step 3 Start Printed Page 70124($234.04). The total of $314.47 is a proxy for the indirect PE for the specialty attributed to this procedure. The total indirect expenses are then multiplied by the number of times procedure 00001 is provided by the specialty (418,602), to calculate total indirect expenses for this procedure of $132,055,728. The process is repeated across all procedures performed by the specialty, and the indirect expenses for each service are summed to arrive at the total specialty indirect PE pool of $6,745,545,434.

Table 4.—Calculation of Indirect Expense

Standard MethodologyPhysician Work*Total direct expenseTotal
(A)(B)(C)
(a) CPT 00001$81.43$234.04$315.47
(b) Allowed Services418,602
(c) Subtotal132,055,728
(d) All Other Services6,613,489,706
(e) Total Indirect Expense6,745,545,434
* Calculated by multiplying work RVU of 2.36 by 1995 CF of $34.5030.

Step 5—Calculation and Application of Indirect Scaling Factors

Similar to the direct costs, the indirect costs are scaled to ensure that the total across all procedures performed by the specialty equates with the total indirect costs for the specialty as reflected by the SMS data. To accomplish this, the indirect costs calculated in Step 4 (Table 4) are scaled to SMS data. The calculation of the indirect scaling factors is as follows:

  • The specialty's total SMS indirect expense pool is divided by the specialty's total indirect expense pool calculated in Step 4 (Table 4), to yield the indirect expense scaling factor.
  • The unscaled indirect expense amount, at the procedure level, is multiplied by the specialty's scaling factor to calculate the procedure's scaled indirect expenses.
  • The sum of the scaled indirect expense amount and the procedure's direct expenses yields the total PEs for the specialty for this procedure.

In table 5, to calculate the indirect scaling factor for hypothetical procedure 00001, divide the total SMS indirect pool, $3,337,285,089 (calculated in Step 1-Table 1)), by the total indirect expense for the specialty across all procedures of $6,745,545,434. This results in a scaling factor of 0.49. Next, the unscaled indirect cost of $315.47 is multiplied by the 0.49 scaling factor, resulting in scaled indirect cost of $156.07. To calculate the total PEs for the specialty for procedure 00001, the scaled direct and indirect expenses are added, totaling $390.12.

Table 5.—Calculation of Indirect Scaling Factors and Total Practice Expenses

Standard methodologyIndirect costsDirect costSpecialty specific practice expenses (Sum of A, B)
(A)(B)(C)
(a) Total—SMS Indirect Expense$3,337,285,089
(b) Total Indirect Expense for all Procedures (from Step 4)6,745,545,434
(c) Scaling Factor0.49
(d) CPT 00001—Unscaled Value315.47
(e) CPT 00001—Scaled Value156.07$234.04$390.12

Step 6—Weighted Average of RVUs for Procedures Performed by More Than One Specialty

For codes that are performed by more than one specialty, a weighted-average PE is calculated based on Medicare frequency data of all specialties performing the procedure as shown in Table 6.

Table 6.—Weight Averaging for All Specialties

Standard methodologyPractice expense valuePercent of total allowed services
(A)(B)
(a) Specialty Total Practice Expense$390.1283
(b) Weighted Avg.—All Other Specialties929.8717
(c) Weighted Avg.—All Specialties481.70100
Start Printed Page 70125

Step 7—Budget Neutrality and Final RVU Calculation

The total scaled direct and indirect inputs are then adjusted by a budget neutrality factor (BNF) to calculate RVUs. Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs may not cause total PFS payments to differ by more than $20 million from what they would have been if the adjustments were not made. Budget neutrality for the upcoming year is determined relative to the sum of PE RVUs for the current year. Although the PE RVUs for any particular code may vary from year-to-year, the sum of PE RVUs across all codes is set equal to the current year. The BNF is equal to the sum of the current year's PE RVUs, divided by the sum of the direct and indirect inputs across all codes for the upcoming year. The BNF is applied to (multiplied by) the scaled direct and indirect expenses for each code to set the PE RVU for the upcoming year.

In Table 7, the sum of the scaled direct and indirect expenses for hypothetical code 00001 ($481.70) is multiplied by the BNF (0.02 in this example) to yield a PE RVU of 10.60.

Table 7.—Calculate PE RVU

Total scaled direct and indirect inputsBudget neutrality factorFinal PE RVU
(A)(B)(C)
(a) Code 00001$481.700.0210.60

c. Other Methodological Issues: Nonphysician Work Pool (NPWP)

As an interim measure, until we could further analyze the effect of the top-down methodology on the Medicare payment for services with no physician work (including the technical components (TCs) of radiation oncology, radiology and other diagnostic tests), we created a separate PE pool for these services. However, any specialty society could request that its services be removed from the nonphysician work pool (NPWP). We have removed some services from the NPWP if we find that the requesting specialty provides the service the majority of the time.

NPWP Step 1—Calculation of the SMS Cost Pool for Each Code

This step parallels the calculations described above for the standard “top-down” PE allocation methodology. For codes in the NPWP, the direct and indirect SMS costs are set equal to the weighted average of the PE/HR for the specialties that provide the services in the pool. Clinical staff time is substituted for physician time in the calculation. The clinical staff time for the code is from CPEP data. Otherwise, the calculation is similar to the method described previously for codes with physician time.

The following example in Table 8 illustrates this calculation for hypothetical code 00002. In this example, the average clinical payroll PE/HR for all specialties in the NPWP is $12.30 and the clinical staff time for code 00002 is 116 minutes.

NPWP Step 2—Calculation of Charge-Based PE RVU Cost Pool

The NPWP calculation uses the 1998 (charge-based) PE RVU value for the code, multiplied by the 1995 CF (25.74 × $34.503 = $888.11). The percentage of clinical labor, supplies and equipment are the percentage that each PE category represents for all physicians relative to the total PE for all physicians (calculated from the SMS data) as shown in Table 9.

Start Printed Page 70126

NPWP Step 3—Calculation and Application of Scaling Factors

After the total cost pools for each code in the NPWP are calculated, the steps to ensure the total charge-based PEs for the procedure do not exceed the total SMS PEs for the procedure (scaling) are the same as those described previously for codes with physician work.

In Table 10, the SMS total clinical labor costs are $2,499,159. This amount divided by the charge-based total clinical labor amount of $16,613,742 yields a scaling factor of 0.15. The charge-based clinical labor cost for hypothetical procedure 00002 is $158.08 (from NPWP Step 2—Table 9). Multiplying the 0.15 scaling factor for clinical labor costs by $158.08 yields the scaled clinical labor cost amount of $23.78. Individual scaling factors must be calculated for both supply and equipment expenses. The sum of the scaled direct cost values, $23.78, $32.57 and $2.72, respectively, equals the total scaled direct expense of $59.07.

Table 10.—Calculation and Application of Direct Cost Scaling Factors

NPWP methodologyClinicalSuppliesEquipmentTotal scaled direct expense (Sum of A, B, and C)
(A)(B)(C)(D)
(a) Total—NPWP Specialty Pool$2,499,159$1,503,559$650,188
(b) Total NPWP Charge-based Pool16,613,7424,386,7759,986,912
(c) Scaling Factor0.150.340.06
(d) CPT 00002—Unscaled Value158.0895.0341.74
(e) CPT 00002—Scaled Value23.7832.572.72$59.07

NPWP Step 4—Calculation of Indirect Expenses

Because codes in the NPWP do not have work RVUs, indirect expenses are set equal to direct expenses (for codes with physician work, indirect expenses equal the sum of the scaled direct expenses and the converted work RVU). This amount is then multiplied by the number of times the procedure is performed.

In Table 11, the scaled total direct expense from NPWP Step 3 (Table 10) ($59.07) is also the proxy for the total indirect expense attributed to the procedure. The total indirect expense is multiplied by the number of services (105,095), to calculate total indirect cost for this procedure of $6,207,961.

Table 11.—Calculation of Indirect Expenses

NPWP methodologyPhysician work *Total direct expenseTotal
(A)(B)(C)
(a) CPT 00002$59.07$59.07
(b) Allowed Services—NPWP105,095
(c) Total NPWP Indirect Expense$6,207,961

NPWP Step 5—Calculation and Application of Indirect Scaling Factors

Similar to the direct costs, the indirect costs are scaled to ensure that the total of the charge-based PE costs across all procedures equates with the total indirect costs as reflected by the SMS data for the code. To accomplish this, the charge-based indirect PEs are scaled to the SMS indirect PEs.

In Table 12, to calculate the indirect scaling factor for hypothetical procedure 00002, the total SMS indirect PE, $9,407,404 (from NPWP Step 1—Table 8), is divided by the total charge-based indirect expense of $6,207,961 (from NPWP Step 4—Table 11). This results in a scaling factor of 1.51. Next, the Start Printed Page 70127unscaled indirect charge-based cost for procedure 00002 of $59.07 (from NPWP Step 4—Table 11) is multiplied by the 1.51 scaling factor, resulting in scaled indirect costs for this procedure of $89.19.

Table 12.—Calculation and Application of Indirect Cost Scaling Factors

Standard methodologyIndirect costsDirect costSpecialty specific PE RVU (Sum of A and B)
(A)(B)(C)
(a) Total—NPWP “SMS” Pool$9,407,404
(b) Total NPWP Indirect Expense6,207,961
(c) Scaling Factor1.51
(d) CPT 00002—Unscaled Value59.07
(e) CPT 00002—Scaled Value89.19$59.07$148.26

NPWP Step 6—Budget Neutrality and Final RVU Calculation

Similar to the calculation for codes with physician work, the BNF is applied to (multiplied by) the scaled direct and indirect expenses for each code to set the PE RVU for the upcoming year.

In Table 13, the sum of the scaled direct and indirect expenses for hypothetical code 00002 ($148.26) is multiplied by the BNF (0.022 in this example) to yield a PE RVU of 3.26.

Table 13.—Budget Neutrality and Final RVU Calculation

Total scaled direct and indirect inputsBudget neutrality factorFinal PE RVU
Code 00002$148.260.0222.96

d. Facility/Nonfacility Costs

Procedures that can be performed in a physician's office as well as in a hospital have two PE RVUs; facility and nonfacility. The nonfacility setting includes physicians' offices, patients' homes, freestanding imaging centers, and independent pathology labs. Facility settings include hospitals, ambulatory surgery centers, and skilled nursing facilities (SNFs). The methodology for calculating the PE RVU is the same for both facility and nonfacility RVUs, but each is calculated independently to yield two separate PE RVUs. Because the PEs for services provided in a facility setting are generally included in the payment to the facility (rather than the payment to the physician under the fee schedule), the PE RVUs are generally lower for services provided in the facility setting.

2. PE Proposals for CY 2006

The following discussions outline the specific PE related proposals for CY 2006.

a. Supplemental PE Surveys

The following discussions outline the criteria for supplemental survey submission as well as information we have received for approval.

(1) Survey Criteria and Submission Dates

In accordance with section 212 of the BBRA, we established criteria to evaluate survey data collected by organizations to supplement the SMS survey data normally used in the calculation of the PE component of the PFS. In the final rule published November 7, 2003 (68 FR 63196), we provided that, beginning in 2004, supplemental survey data had to be submitted by March 1 to be considered for use in computing PE RVUs for the following year. This allows us to publish our decisions regarding survey data in the proposed rule and provides the opportunity for public comment on these results before implementation.

To continue to ensure the maximum opportunity for specialties to submit supplemental PE data, we extended until 2005 the period that we would accept survey data that meet the criteria set forth in the November 2000 PFS final rule. The deadline for submission of supplemental data to be considered in CY 2006 was March 1, 2005.

(2) Submission of Supplemental Survey Data

The following discussion outlines the survey data submitted for CY 2004 and CY 2005.

(a) Surveys Submitted in 2004

As discussed in the August 8, 2005 PFS proposed rule (70 FR 45774), we had received surveys by March 1, 2004 from the American College of Cardiology (ACC), the ACR, and the American Society for Therapeutic Radiation Oncology (ASTRO). The data submitted by the ACC and the ACR met our criteria. However, as requested by the ACC and the ACR, we deferred using their data until issues related to the NPWP could be addressed. In the August 8, 2005 proposed rule, we proposed to use the ACC and ACR survey data in the calculation of PE RVUs for CY 2006, but only as specified in the proposals relating to a revised methodology for establishing direct PE RVUs.

The survey data from ASTRO did not meet the precision criteria established for supplemental surveys, therefore, we indicated we would not use it in the calculation of PE RVUs for CY 2005. However, we proposed to use these data to blend with data submitted by the Association of Freestanding Radiation Oncology Centers (AFROC) for CY 2006, as described below.

(b) Surveys Submitted in 2005

In 2005 we received surveys from the AFROC, the American Urological Association (AUA), the American Academy of Dermatology Association (AADA), the Joint Council of Allergy, Asthma, and Immunology (JCAAI), the National Coalition of Quality Diagnostic Imaging Services (NCQDIS) and a joint survey from the American Gastroenterological Association (AGA), the American Society of Gastrointestinal Endoscopy (ASGE), and the American College of Gastroenterology (ACG). Start Printed Page 70128

As explained in the August 8, 2005 proposed rule, we contract with the Lewin Group to evaluate whether the supplemental survey data that are submitted meet our criteria and to make recommendations to us regarding their suitability for use in calculating PE RVUs. (The Lewin Group report on the 2005 submissions is available on the CMS Web site at http://www.cms.hhs.gov/​physicians/​pfs/​.) The report indicated that, except for the survey from NCQDIS, all met our criteria and we are proposing to accept these surveys. The survey data submitted by the NCQDIS on independent diagnostic testing facilities (IDTFs) did not meet the precision criterion of a 90 percent confidence interval with a range of plus or minus 15 percent of the mean (that is, 1.645 times the standard error of the mean, divided by the mean, is equal to or less than 15 percent of the mean). For the NCQDIS survey, the precision level was calculated at 16.3 percent of the mean PE/HR (weighted by the number of physicians in the practice). However, the Lewin Group has recommended that we accept the data from NCQDIS. The Lewin Group points out that PE data for IDTFs do not currently exist, and suggests that the need for data for the specialty should be weighed against the precision requirement.

We proposed not to accept the NCQDIS data to calculate the PE RVUs for services provided by IDTFs. As just noted, the NCQDIS data did not meet our precision requirements. We established the minimum precision standards because we believe it is necessary to ensure that the data used are valid and reliable, and the consistent application of the precision criteria is the best way to accomplish that objective.

Section 303(a)(1) of the MMA added section 1848(c)(2)(I) of the Act to require us to use survey data that include expenses for the administration of drugs and biologicals submitted by a specialty group for which at least 40 percent of the Part B payments are attributable to the administration of drugs in 2002 to adjust PE RVUs for drug administration services. The provision applies to surveys received by March 1, 2005 for determining the CY 2006 PE RVUs. Section 303(a)(1) of the MMA also amended section 1848(c)(2)(B)(iv)(II) of the Act to provide an exemption from budget neutrality for any additional expenditures resulting from the use of this survey data to adjust PE RVUs for drug administration services. In the Changes to Medicare Payment for Drugs and Physician Fee Schedule Payments for CY 2004 interim final rule published January 7, 2004 (69 FR 1084), we stated that the specialty of urology meets the above criteria, along with gynecology and rheumatology (69 FR 1094). Because we proposed to accept the new survey data from the AUA, we are required to exempt from the budget neutrality adjustment any impacts of accepting these data for purposes of calculating PE RVUs for drug administration services.

In addition, Lewin recommended blending the radiation oncology data from this year's AFROC survey data with last year's ASTRO survey data to calculate the PE/HR. According to the Lewin Group, the goal of the AFROC survey was to represent the population of freestanding radiation oncology centers only. In order to develop an overall average for the radiation oncology PE pool, the Lewin Group recommended we use the AFROC survey for freestanding radiation oncology centers, and the hospital-based subset of last year's ASTRO survey. Consistent with that recommendation, we proposed to use the new PE/HR calculated in this manner for radiation oncology.

As discussed in the August 8, 2005 PFS proposed rule and also in the preamble of this final rule with comment, we proposed to revise our methodology to calculate direct PE RVUs from the current top-down cost allocation methodology to a bottom-up methodology. Although we would continue to use the SMS data and the incorporated supplemental survey data for indirect PEs, we did not extend the deadline for submitting supplemental survey data but rather requested comments on the most appropriate way to proceed to ensure the indirect PEs per hour are accurate and consistent across specialties.

b. Revisions to the PE Methodology

As discussed in the August 8, 2005 proposed rule, since 1997, when we first proposed a resource-based PE methodology, we have had several major goals for this payment system and have encouraged the maximum input from the medical community regarding our PE data and methodology.

We also have had the following three specific goals for the resource-based PE methodology itself, which have also been supported in numerous comments we have received from the medical community:

  • To ensure that the PE payments reflect, to the greatest extent possible, the actual relative resources required for each of the services on the PFS. This could only be accomplished by using the best available data to calculate the PE RVUs.
  • To develop a payment system for PE that is understandable and at least somewhat intuitive, so that specialties could generally predict the impacts of changes in the PE data.
  • To stabilize the PE payments so that there are not large fluctuations in the payment for given procedures from year-to-year.

As we explained in the August 8, 2005 proposed rule, we believe that we have consistently made a good faith effort to ensure fairness in our PE payment system by using the best data available at any one time. The change from the originally proposed “bottom-up” to the “top-down” methodology came about because of a concern that the resource input data developed in 1995 by the CPEP were less reliable than the aggregate specialty cost data derived from the SMS process. The adoption of the top-down approach necessitated the creation of the NPWP. The NPWP is a separate pool created to allocate PEs for codes that have only a technical (rather than professional) component, or codes that are not performed by physicians.

However, the situation has now changed. As we explained in the August 8, 2005 proposed rule, refinement of the original CPEP data is complete and the refined PE inputs now, in general, accurately capture the relative direct costs of performing PFS services. Also, the major specialties comprising the NPWP (radiology, radiation oncology, and cardiology) submitted supplemental survey data that we proposed to accept, which would eliminate the need to treat these technical services outside the PE methodology applied to other services.

Due to the ongoing refinement by the RUC of the direct PE inputs, we had expected that the PE RVUs would necessarily fluctuate from year-to-year. However, it became apparent that certain aspects of our methodology exacerbated the yearly fluctuations. The services priced by the NPWP methodology have proven to be especially vulnerable to any change in the pool's composition. With the CPEP/RUC refinement of existing services virtually complete, we indicated this was an opportunity for us to propose a way to provide stability to the PE RVUs.

Therefore, consistent with our goals of using the most appropriate data, simplifying our methodology, and increasing the stability of the payment system, we proposed the following changes to our PE methodology and also requested suggestions that would assist us in further refinement of the indirect PE methodology. Start Printed Page 70129

(1) Use a Bottom-up Methodology To Calculate Direct PE Costs

Instead of using the top-down approach to calculate the direct PE RVUs, where the aggregate CPEP/RUC costs for each specialty are scaled to match the aggregate SMS costs, we proposed to adopt a bottom-up method of determining the relative direct costs for each service. Under this method, the direct costs would be determined by summing the costs of the resources—the clinical staff, equipment and supplies—typically required to provide the service. The costs of the resources, in turn, would be calculated from the refined CPEP/RUC inputs in our PE database.

(2) Eliminate the Nonphysician Work Pool (NPWP)

Since we proposed to incorporate new survey data for the major specialties that comprise the NPWP, we proposed to eliminate the pool and calculate the PE RVUs for the services currently in the pool by the same methodology used for all other services. This would allow the use of the refined CPEP/RUC data to price the direct costs of individual services, rather than utilizing the pre-1998 charge-based PE RVUs.

(3) Utilize the Current Indirect PE RVUs, Except for Those Services Affected by the Accepted Supplemental Survey Data

As described previously, the SMS and supplemental survey data are the source for the specialty-specific aggregate indirect costs used in our PE calculations. We then allocate to particular codes on the basis of the direct costs allocated to a code and the work RVUs. Although we now believe the CPEP/RUC data are preferable to the SMS data for determining direct costs, we have no information that would indicate that the current indirect PE methodology is inaccurate. We also are not aware of any alternative approaches or data sources that we could use to calculate more appropriately the indirect PE, other than the new supplemental survey data, which we proposed to incorporate into our PE calculations. Therefore, we proposed to use the current indirect PEs in our calculation incorporating the new survey data into the codes performed by the specialities submitting the surveys.

We specifically requested suggestions that would assist us in further refinement of the indirect PE methodology. For example, we noted in the proposed rule that we are considering whether we should continue to accept supplementary survey data or whether it would be preferable and feasible to have an SMS-type survey of only indirect costs for all specialties; or whether a more formula-based methodology independent of the SMS data should be adopted, perhaps using the specialty-specific indirect-to-total cost percentage as a basis of the calculation.

(4) Transition the Resulting Revised PE RVUs Over a 4-Year Period

We are concerned that, when combined with an expected negative update factor for CY 2006, the shifts in some of the PE RVUs resulting from our proposals could cause some measure of financial stress on medical practices. Therefore, we proposed to transition the proposed PE changes over a 4-year period. This would also give ample opportunity for us, as well as the medical specialties and the RUC, to identify any anomalies in the PE data, to make any further appropriate revisions, and to collect additional data, as needed prior to the full implementation of the proposed PE changes.

During this transition period, the PE RVUs would be calculated on the basis of a blend of RVUs calculated using our proposed methodology described above (weighted by 25 percent during CY 2006, 50 percent during CY 2007, 75 percent during CY 2008, and 100 percent thereafter), and the current CY 2005 PE RVUs for each existing code.

Now that the direct PE inputs have been refined, we believe that the CPEP/RUC direct input data are generally superior to the specialty-specific SMS PE/HR data for the purposes of determining the typical direct PE resources required to perform each service on the PFS. First, we have received recommendations on the procedure-specific inputs from the multi-specialty PEAC that were based on presentations from the relevant specialties after being closely scrutinized by the PEAC using standards and packages agreed to by all involved specialties. Second, the refined CPEP/RUC data are more current than the SMS data for the majority of specialties. Third, for direct costs, it appears more accurate to assume that the costs of the clinical staff, supplies and equipment are the same for a given service, regardless of the specialty that is performing it. This assumption does not hold true under the top-down direct cost methodology, where the specialty-specific scaling factors create widely differing costs for the same service.

We also would argue that the proposed methodology is less confusing and more intuitive than the current approach. For instance, the NPWP would be eliminated and all services would be priced using one methodology, eliminating the complicated calculations needed to price NPWP services. Also, any revisions made to the direct inputs would now have predictable results. Changes in the direct practice inputs for a service would proportionately change the PE RVUs for that service without significantly affecting the PE RVUs for unrelated services.

In addition, the proposed methodology would create a system that would be significantly more stable from year-to-year than the current approach. We recognized that there are still some outstanding issues that need further consideration, as well as input from the medical community. For example, although we believe that the elimination of the NPWP would be, on the whole, a positive step, some practitioner services, such as audiology and medical nutrition therapy (MNT), would be significantly impacted by the proposed change. In addition, there are still services, such as the end stage renal disease (ESRD) visit codes, for which we have no direct input information. Also, as mentioned above, we do not have current SMS or supplementary survey data to calculate the indirect costs for most specialties. Further, we do not yet have accurate utilization for the new drug administration codes that were created in response to the MMA provision on drug administration. Therefore, we did not propose to change the RVUs for these services at this time, but to include them under our proposed methodology in next year's rule when we have appropriate data. The proposed transition period would give us the opportunity to work with the affected specialties to collect the needed survey or other data or to determine whether further revisions to our PE methodology are needed.

We requested comments on these proposed changes, particularly those concerning additional modifications to the indirect PE methodology that might help us further our intended goals.

Comment: There were 3 main concerns raised in comments we received on our overall proposed PE methodology which included: (1) Many of the proposed decreases appeared anomalous and were not explained; (2) there was insufficient information given to allow specialties to review and analyze the proposal and its impact; and (3) the use of the new PE data from the seven accepted supplementary surveys caused an inequitable redistribution of PE RVUs. As a result of these concerns, many commenters also requested a Start Printed Page 70130delay in the implementation of our proposed methodology.

The following are examples of the comments detailing the above concerns.

The AMA and the RUC agreed with the goals that we have set for an accurate, intuitive and stable methodology to use for the calculation of PE RVUs. The RUC added that it looks forward to helping us meet these goals. However, the AMA urged us to provide more information, such as examples of how the new values were calculated, the PE/HR and source of the data for each specialty and the budget neutrality adjuster applied at the end of the process, so that the medical community would have the opportunity to review the values and impact of the proposal.

Medicare Payment Advisory Commission (MedPAC) stated its agreement with the concerns regarding the current PE methodology that motivated us to propose a change, but did request that we assess the impact of proposed changes by groups of services—evaluation and management services, major procedures, other procedures, laboratory tests and imaging services, as well as by physician specialty group.

A specialty society representing obstetrics and gynecology commended the goal of the new methodology, but suggested we offer two or more examples of how PE is calculated, starting with the inputs that are used and moving through the process of developing the final PE RVUs for those codes.

An optometric association expressed regret that the proposed rule does not provide service-specific examples of how PE RVUs would be calculated using the current and proposed methodologies because this made it difficult to provide detailed comments on the proposal. Therefore, the commenter concluded that we should issue a final with a comment period. Two emergency medicine societies also requested the same service-specific examples.

An ophthalmology society was troubled by our failure to make the indirect cost data used in determining the rates of change in PE values available to all specialties for review and by the lack of analysis explaining the significant impacts caused by the acceptance of the supplemental survey data.

A specialty society representing cardiology urged us to provide more data and a more detailed explanation of the methodology, along with examples of how RVUs for specific codes were determined, so that stakeholders can gain a thorough understanding of our proposal.

A dermatology association commented that it is pleased that we want to transition to a bottom-up approach. The association believes that this will result in a more easily understood and stable payment system, but it would be helpful to have more information in the final rule on the calculation of PE values under the new methodology. For example, the association asks for clarification of why the PE RVUs for several dermatology procedures decreased.

A specialty society representing physical medicine expressed concern regarding a number of the results with respect to several physical medicine and rehabilitation codes and requested that we provide a more detailed description of the new methodology and address anomalies in the final rule. The commenter suggested that we establish a percentage decrease threshold that would trigger an opportunity for expedited review to determine whether the direct cost inputs are accurate.

Four organizations representing radiation oncology submitted comments stating their concern that several radiation therapy codes, including those for intensity modulated radiation therapy, continuing medical physics consultation and brachytherapy, have inappropriate proposed reductions. Two of the commenters recommended that we examine the impact of the methodology on a code-specific basis and, if necessary, implement an adjustment factor that limits the reduction to no more than 15 percent of the 2005 global RVUs at the end of the 4-year transition period. Comments from societies representing nuclear cardiology and echocardiography also supported a cap on the maximum reduction applied to any procedure that resulted from the decision to adopt the new methodology.

A geriatrics society expressed concern that geriatrics will experience a 1 percent reduction under the new methodology and stated that the transition period is critical, as it will lessen the impact of the proposed reduction. The society suggested that, during the transition period, we should work with stakeholders to explain the new methodology, to identify non-intuitive decreases in payment and to identify better ways to pay for indirect expenses.

An association representing nursing facility medical directors expressed concern that the new methodology will reduce the PE RVUs for nearly all codes for nursing facility services. If we proceed with the changes, the association suggested that we provide a more detailed explanation of the new methodology in the final rule, with examples of the PE RVU calculations for specific services under the old and new methods.

A consulting company expressed concern that we failed to make needed data available, such as the time file, utilization file and scaling factors and pools file. The commenter also requested that, in the future, we consider making available the same files we use to produce the PE RVUs, the assumptions used, such as crosswalks or projected utilization for new services and the data needed to evaluate the methodology used to go from the survey data to a PE/HR.

The American Cancer Society expressed concern regarding the specific reductions in payment for screening mammography, pap smears, pelvic/breast exams and flexible sigmoidoscopies which could potentially reduce access to cancer screenings.

An oncology nursing society strongly urged us to include drug administration services in the phase-in of the new methodology and exempt them from budget neutrality requirements. A cancer and blood disorders center expressed the same concern and stated that this omission would skirt the MMA mandate to exempt from budget neutrality limits any 2006 fee schedule changes to drug administration codes.

An association representing medical colleges noted that, together with the negative update, the decrease in revenue across faculty practice groups will exceed −6 percent. The association recommended that this warrants further review by the medical community and CMS should make public examples of how the new values were calculated, the actual new PE values for each code, the PE per hour and source of the data for each specialty and the budget neutrality adjuster applied as a final step.

A medical technology company requested that we explain how we intend to scale PE when CPT codes, such as endogenous radiofrequency ablation procedures, include a vascular as well as a radiology imaging procedure. The commenter recommended we should calculate the costs according to the primary group furnishing the procedure. In addition, the commenter contended that a deflation factor should not be applied to new procedures that have been valued by the RUC and CMS in late 2004 for establishment of 2005 payment.

Following are examples of the comments explicitly requesting delay. Start Printed Page 70131

A comment from specialty societies representing general surgeons, anesthesiology, ophthalmology, hematology, emergency medicine, neurosurgery, cataract surgery, thoracic surgery, orthopaedic surgery, otolaryngology and hand surgery, supported by a letter from a member of the Congress, stated agreement with our goals for a PE methodology. However, the commenters requested that the implementation of the new methodology and data be delayed for 1 year, citing several concerns: First, commenters claimed that CMS did not provide sufficient data and information or time to allow adequate review of the validity of the new methodology, the supplementary survey data or the proposed impact. As a result, the comment argued that physicians have not had a reasonable opportunity to participate in the rule making process, in compliance with the Administrative Procedure Act. In addition, the comment cited the Practicing Physician Advisory Committee recommendation that we delay implementation of the new data and methodology for 1 year.

An oncology society commented that a final decision on the proposed revision to the PE methodology should be deferred 1 year until information is available on how the proposal will affect drug administration services. A large provider of oncology services was also troubled by the decision to exclude drug administration services from revisions to the PE methodology.

A psychological association stated that its primary concern is “the proposed rule's lack of clarity regarding the impacts that the change in methodology will have on each health care specialty.” Because of the lack of this data, the Association requested a 1 year delay for our proposal.

A specialty society representing surgeons stated that the proposed methodology apparently created many aberrant PE RVUs and gave examples: Closely related procedures with proposed RVUs that are inconsistent with their actual costs; services that contribute significantly to the increases in volume and intensity noted by MedPAC all receive significant increases; within specialties that should benefit from the higher PE/HR in their surveys, there are increases and decreases that cannot be explained; E/M services will be increased in the office setting, but decreased in the hospital setting. The college recommends that we withdraw the current proposal and republish it in a future PFS rule that includes a detailed description of the methodology.

Two specialty societies representing thoracic and chest physicians expressed concern with the significant shifts in the PE that would necessitate a 4-year transition and suggested that there should be no change in PE until all specialties can complete supplemental PE surveys.

A specialty society representing spine surgeons requested that we suspend the proposed PE changes until 2007, not because the methodology is flawed, but in order to allow all physicians an equal opportunity to submit data relevant to their specialties.

A specialty society representing anesthesiologists contended that lack of information on data and methodology behind the PE changes requires a delay in implementation. The Society requested that we provide information that clearly breaks out the impact of the proposed changes by specialty on the indirect and direct PE payments.

A medical group practice association fully supported the 4-year transition of the new PE values achieved under the new bottom-up calculation. However, because it believed that insufficient information has been made available, the association recommended that we delay implementation until the provider community has time to evaluate the methodology used to recalculate the PE RVUs.

The following commenters requested a delay in calculating the PE RVUs for their own specific services under the new methodology.

Several comments from a specialty society representing heart rhythm services, two manufacturers and a manufacturers association, as well as a provider of remote cardiac monitoring services expressed concern about the proposed cuts for remote cardiac monitoring services and requested that we not implement these proposed reductions, pending further study.

Two societies representing audiology and speech language pathology, supported by a comment from two senators, expressed concern about the large reductions in payment for audiology services and urged us to impose a 1 year moratorium on the proposed reductions for these services so that an equitable methodology for their services can be developed. One commenter suggested that if we do not implement a moratorium on payment decreases for audiology services, we should consider an alternative, such as assigning proxy work RVUs for indirect PE using the otolaryngology PE/HR.

The following commenters opposed any delay in implementing our proposed methodology.

A gastroenterology association commented that, since all medical specialties had equal opportunity to conduct supplemental PE studies, there should not be a delay in the implementation of our proposed changes.

A specialty society representing radiation oncology agreed that more information on the new methodology should be provided, but is opposed to any delay in the implementation of the proposed methodology as the transition provides sufficient opportunity for CMS to provide this information and resolve identified problems.

A sonography society commented that we should not delay the implementation of the revised TC component services with a 4-year transition. An alternative to the zero-work pool has been many years in the making and we should fully implement the new values this year.

An association representing urology disagrees with a 4-year phase in of the revised PE RVUs and strongly urged us to consider other options that will allow specialties with supplemental survey data to realize the full advantages of applying that data in 2006. The commenter claimed that a transition will allow specialties that did not conduct surveys to unfairly take a portion of the 4-year increases from specialties that did.

A specialty society representing allergists expressed concern that the RVUs based on the new accepted data will be phased in over 4 years. The commenter contended that we have not provided any rationale for why we are breaking with past policy or why we have decided to phase-in the specialty survey data. The commenter is concerned in particular about the continued applicability of the old and incorrect scaling factors which result in the discounting of the specialty's costs.

A pharmaceuticals company requested that we consider an immediate 100 percent transition to the 2009 proposed PE values for procedures like photodynamic therapy where access has been constrained due to the use of scaling factors.

A society representing family physicians commented that the original legislation mandating resource-based PE was enacted in 1994 and that we delayed the initial implementation by a year before entering a 4-year transition under our current methodology. The commenter therefore encouraged us to shorten or eliminate the transition and finally complete the process of implementing resource-based PE. However a society representing internists supported our proposal to transition PE RVU changes resulting Start Printed Page 70132from methodological changes in this proposed rule over a 4-year period.

Response: We very much appreciate all the thoughtful and helpful comments we received on our proposal to revise our PE methodology. In addition, we are pleased that so many commenters stated their agreement with the goals that we outlined for our PE methodology in order to implement a payment system for physician and practitioner practice costs that is accurate, understandable, and stable. We also still believe, despite all the concerns pointed out by commenters, that the implementation of a methodology that bases the PE calculations on the latest available data, that uses the PEAC-refined CPEP data to create a bottom-up approach for direct costs and that values all services using the same method will help us achieve those goals.

However, based on the comments we received, it appears that our PE proposal was not as clear and intuitive as we had intended. We continue to believe that the proposal for direct costs was straightforward; this proposal would do away with costs pools and scaling factors and merely add up the costs of the PEAC-refined input data assigned to each code to arrive at the direct PE RVUs (pre-PE budget neutrality). We had not anticipated that our indirect PE calculation would create difficulties since we intended that, except for those services for which the acceptance of the new supplementary survey data produced direct increases, to utilize the current indirect PE RVUs to develop the pre-PE budget neutrality indirect PE RVUs for 2006. However, due to an error in our indirect PE program, the indirect costs were not calculated as intended. As a result, almost all of the PE RVUs published in the August 8, 2005 proposed rule were incorrect.

Therefore, we are concerned that interested parties were not provided notice of the actual effect of the proposed changes in the PE RVU methodology and were not given the sufficient opportunity to submit meaningful comments on the proposal.

As a result, we are withdrawing our entire PE methodology proposal and instead, with only three exceptions, we will use the current 2005 PE RVUs to value all services for CY 2006. First, as we usually do each year, we will value the work and PE on an interim basis for all codes that are new in 2006. Second, as required by section 1848(c)(2)(I) of the Act, we will apply the PE/HR data from the urology supplementary survey to the calculation of the PE RVUs for all the drug administration codes performed by urology. Third, we will apply the savings from the implementation of the multiple procedure payment reduction for certain imaging services across all the PE RVUs that are discussed later in the preamble of this rule.

We understand that the withdrawal of this proposal will be welcomed by some and will be a disappointment to others, especially those specialties that undertook PE surveys that are not being used for 2006. We want to work with the medical community beginning now through the next proposed rule to exchange thoughts on all of the issues raised, to answer any questions and to provide additional data and corrected information. We hope to hold meetings on these topics early next year so that we can obtain maximum input from all interested parties to ensure that our next proposal does meet the goals we have set for our PE methodology.

Acceptance of Supplementary Surveys for 2006

Comment: Many commenters indicated their strong support for our proposal to accept the PE data from 7 supplementary surveys. Several specialty societies representing radiation therapy expressed approval for the proposal to blend the survey data submitted by ASTRO and AFROC to calculate a revised PE/HR for radiation oncology services. A specialty society representing interventional radiology stated support for the proposed use of the ACR's supplemental PE data for purposes of PE RVU determination. The ACC is pleased that we proposed to incorporate their supplemental PE survey data submitted for cardiology and other specialties that submitted data consistent with the acceptance criteria. The ACC commented that, given the rigorous and detailed analysis conducted by our contractor, these data are very likely superior to the SMS data that were used to calculate PE RVUs and that our acceptance of the supplemental PE data has been an important component of efforts to refine the resource-based PE RVUs. An echocardiography society and a commenter representing cardiovascular angiography also stated its support for use of the cardiology data. Two societies representing gastroenterology commented that they are pleased with our acceptance of the supplemental PE survey data for gastroenterology. The AUA strongly urged us to finalize our proposal to accept the AUA's supplemental survey data, as they believe language in the section 303(a)(1)(I) of the MMA requires us to accept supplemental data submitted by urology. In addition, the AUA stated that we are required by the MMA to update the 2006 PE RVUs for urology drug administration, applying the exemption from budget neutrality. A commenter representing prosthetic urology also agreed that we should use the urology supplemental data to allocate the indirect PE costs to each urology procedure.

However, other commenters had concerns with the proposal. An otolaryngology specialty society questioned the validity of the dramatic increases in the PE/HR for the specialties that have submitted surveys because this could create a two-tiered system between those specialties that have submitted surveys and those which have not. Therefore, the society recommended that use of this new PE data be delayed until such time as a multispecialty PE survey can be conducted. A comment from an occupational therapy association recognized the need to use SMS aggregate data in the indirect calculations, but questioned the impact on specialties who did not participate in the survey and suggested that the transition period be used to examine the atypical impact of this change. Two thoracic surgery groups commented that the PE fluctuations and disparities caused by the acceptance of these surveys are counter-intuitive and advantage those for whom we have accepted data at the expense of those from whom we have not. The specialty society representing surgeons stated that the dramatic increase in the proposed PE/HR figures could cause significant distortions in the relativity of PE payments across specialties and urged that we delay implementation of the new data until a multi-specialty PE survey, similar to the AMA's SMS survey can be conducted. However, the society also recommended that we use the urology PE/HR data because it would be required by the MMA. A provider group representing remote cardiac services recommended that we should refrain from incorporating any additional survey data until all supplemental data is submitted.

Conversely, a society representing echocardiographers stated that it is crucial for us to use the submitted survey meeting our criteria in order to retain the type of trust necessary for physician specialty groups to conduct this type of survey in the future. The commenters from the gastroenterology groups stated that use of these data should not be transitioned, but should be treated consistently with the manner in which all other supplemental data have been treated. Further, the commenter contended that, even if we agree to a delay in the implementation Start Printed Page 70133of our proposed methodology, the accepted supplemental PE/HR data should be implemented immediately for both direct and indirect expenses.

Response: We understand the considerable effort, time and money expended by the specialty societies that submitted surveys that met our criteria and are aware that there will be considerable disappointment that the new data will not be used for 2006. We also understand the concern of those specialties that have not undertaken a supplementary survey that now fear that they could be relatively disadvantaged if the accepted surveys are used. We would point out that for the last five years there has been an equal opportunity for all specialties to submit supplementary data and it could be presumed that those specialties that did not avail themselves of the opportunity believed the effort was not worth the probable result. In addition, all specialties had the opportunity to comment on our proposed criteria for acceptance of survey data and the medical community at large did not comment that the criteria needed to be more stringent. However, we will not be using the accepted supplementary data in our indirect PE calculations for 2006, with the exception of the urology PE/HR data that we are applying to the drug administration codes performed by urology as required by section 1848(c)(2)(I) of the Act. We are not using the other accepted supplementary PE data because, as explained above, we are not adopting the proposed changes to our PE methodology, we did not propose to use the survey data for calculating the direct PE RVUs and the use of the survey data would have caused significant changes in the PE RVUs for which there would have been no opportunity for comment.

Comment: We also received several comments with specific concerns regarding our handling of the submitted PE survey data. A specialty society representing radiation oncology asserted that the approach to blending survey data has inadvertently lowered the values for certain radiation oncology services by under-weighting the PE expenses for freestanding facilities from the AFROC survey and by overestimating the hours in the denominator of the PE/HR calculation. In addition, three commenters questioned an apparent discrepancy with the PE/HR for radiology, radiation oncology and cardiology recommended by the Lewin Group and the PE/HR in the proposed rule and the subsequent correction notice. The commenters requested a clarification on how we applied the deflators in order to ensure that all specialties submitting surveys were evaluated in the same way. A comment from specialty societies representing most major surgical groups, as well as emergency medicine and anesthesia, contended that over the years we have treated supplemental survey data with different standards and have blended some while not blending others. A medical technology company requested that we explain how the data were evaluated, especially because we did not accept some recommendations presented by the Lewin Group.

Response: Because we are not utilizing the new supplementary data for indirect PE calculations for 2006, we plan to discuss all of these issues with the relevant specialties in order to determine if adjustments are needed to our calculations of the PE/HR data. However, we do not believe that we have treated supplemental data with different standards, but would request specific information from the commenters. Currently, we are not using any blended data for any supplementary survey that we have accepted and used. Although we rely heavily on the analysis and evaluation of the survey data done by the Lewin Group, we are responsible for the final decision on whether or not to accept the data from a given survey. The Lewin Group did recommend that we accept the data from the NCQDIS survey, which did not meet our precision criteria, because we currently have no survey data for them. However, we believe that it is more equitable to apply the same standards to all who submit surveys and we proposed not to accept the survey data at this time.

Comment: The NCQDIS expressed concern that we did not accept their PE survey data for diagnostic imaging services in IDTFs because the precision criteria was not met. NCQDIS pointed out that the Lewin Group recommended that we accept the data in spite of the precision level because PE data for IDTFs do not currently exist. The commenter stated that, after further analysis of the data, NCQDIS determined that inclusion of one inaccurate record skewed the findings outside the acceptable precision range. Therefore, NCQDIS recommended that we accept the revised analysis from the Lewin Group that includes updated PE information for the record in question and that we allow the updated data to be used in development of PE RVUs for 2006. The NCQDIS recommendation was supported by a comment from a society representing diagnostic medical sonography that contended that no alternative data is available for these entities and the current PE data used understates their PE.

Response: There have been further discussions between NCQDIS and our contractor. We will be discussing this with the specialty in order to resolve the issue for a future proposal.

Comment: A nuclear medicine society stated that it cannot respond to our use of the radiology and cardiology surveys because it has not seen the data as it relates to nuclear medicine. The commenter requested that we make the nuclear medicine supplementary survey information and impact available. A specialty society representing radiation oncology expressed the belief that the new survey data do not reflect the costs of brachytherapy because providers of this service were not adequately represented in the sample.

Response: We would be willing to discuss the societies' concerns to determine an appropriate resolution.

Comment: A long term care association urged us to use the data from the ACR supplementary survey as the PE/HR proxy for the portable x-ray set-up code (Q0092) to prevent inconsistencies in the application of the new payment methodology.

Response: We do not believe it would be appropriate to use the same indirect costs associated with a free-standing radiology center, which incurs costs for such requirements as lead shielding and structural reinforcements for heavy equipment, as the costs for setting up a portable x-ray machine. Therefore, we will not apply the data from the radiology supplementary survey to the calculations of the PE RVUs for Q0092.

Comment: Because we had proposed to accept the supplementary survey data for radiology, radiation oncology and cardiology, the specialties that make up the bulk of the NPWP, we also proposed eliminating the pool and pricing all of the services in the NPWP under the new proposed PE methodology. We received comments from several organizations including those representing diagnostic sonography, urology, medical physicists, allergy geriatrics and a blood disorder center supporting this proposal. However, the specialty society representing audiology urged that, before we dismantle the protection provided by the NPWP, a reasonable formula should be developed to fairly and adequately reimburse audiologists for their services. The societies representing audiology, speech language pathology and medical nutrition all commented that we should assign work RVUs to their services, rather than treating their professional work as PE.

Response: We are pleased that most commenters approved of our proposal to Start Printed Page 70134eliminate the NPWP. However, because we will not be using the accepted new supplementary survey data in the calculation of PE RVUs for 2006, we believe it would be more equitable to defer the elimination of the pool as well. Therefore, we will not be implementing this proposal for 2006. This will also give us the additional time to work with audiology and other specialties to ensure that our future proposal will be equitable to all. Because we are maintaining the NPWP for 2006, we are deferring our decision regarding work RVUs for audiology, speech language pathology and medical nutrition pending further discussions with the specialties.

Bottom-up for Direct PE

Comment: We received many comments on our proposal to value the direct PE for all services by the bottom-up method, using the PEAC refined staff, supply and equipment costs associated with each procedure as the basis for calculating the direct PE RVUs. Almost all of these comments favored our proposal to modify our PE methodology. This support was expressed whether the commenter also requested a delay in the implementation of our proposed methodology or recommended immediate implementation with no transitioning of the new PE RVUs. Commenters who were pleased with the resulting PE RVUs and those concerned with specific reductions also showed support. Below are some specific examples of the supporting comments.

Two comments from specialty societies representing family physicians and internists agreed that the bottom-up approach will produce a more accurate, intuitive and stable PE methodology. One of the commenters contended that the proposed methodology would be more accurate because the bottom-up methodology assumes that the costs of the clinical labor, supplies and equipment are the same for a given service, regardless of the specialty performing it.

A urological association supported switching to a bottom-up methodology for calculating PE RVUs and believed it meets our stated goals of using the most appropriate data, simplifying the PE methodology and increasing the stability of the PE payments.

A major oncology center applauded our decision to implement a bottom-up approach because of the inequities that result when PE RVUs are set using a top-down approach which allows the frequent “leakage” of a specialty's costs to other specialties. This rationale was also stated by a society representing anesthesiologists and by a patient advocate foundation.

An oncology nursing society commented it has long advocated a bottom-up modification to help ensure that PE payments reflect the actual relative resources required for each service provided by oncology nurses.

An organization representing allergy supported our proposal to change to a bottom-up methodology for determining PE values because this is a more rational approach. This view was shared in a comment from a physical medicine and rehabilitation society, which added that a bottom-up approach would result in a more direct relationship between PE RVUs and direct costs.

A spine society commented that it welcomed the change to a “bottom-up methodology because any movement in the direction of stability and uniformity will have positive effects across providers.”

A specialty society representing neurology supported the proposed change to a bottom-up methodology for calculating direct costs. The society asserted that the top-down method is flawed as it unfairly raises the expenses for high-end procedures. The commenter also stated that the excellent work of the PEAC, and now the PERC, has produced reliable data for all the codes, making CPEP complete for all the codes and must be given primacy in any method we would chose to implement.

Two radiation therapy societies stated their strong support of the proposed bottom-up methodology and the proposed implementation for January 1, 2006. One society commented that eliminating the scaling factors, at least for direct costs, is a step in the right direction toward a simpler and more transparent PE methodology.

A respiratory care association stated support for our proposed bottom-up approach because this methodology would minimize aberrations that might inadvertently appear in the calculations, providing a more accurate representation of direct PE incurred by pulmonary physicians.

A psychological association commented that the refinements approved by the PEAC may allow CMS to utilize a more simplified PE methodology which will make PE more understandable.

An organization representing radiology contended that using the bottom-up methodology seems to be a simpler and easier way to make the transition with minimal impact. A medical sonography society stated that our efforts to help ensure a more accurate payment for healthcare services and create more year-to-year stability are to be commended.

An occupational therapy association and a physical therapy association both agreed that the bottom-up method would be a preferable methodology. First, because it would rely on actual inputs from the specialties providing each service and second because it would create a more stable and predictable system and would reflect the actual relative resources required for each service.

A specialty society representing hematology agreed that the top-down method for calculating the direct PE is extremely complex and not at all intuitive and stated that the bottom-up method will simplify the system and reduce the complexity of the calculations.

Other organizations that supported the adoption of the bottom-up approach to valuing direct costs included specialty societies representing podiatry, prosthetic urology, geriatrics, infectious diseases, chest physicians, a pharmaceutical company, and medical group practices.

Response: We are very pleased that so many in the medical community approve of the concept of using a bottom-up methodology to value the direct PE RVUs. We believe, along with these commenters, that the use of the bottom-up approach in the future would allow us to calculate more accurately the relative direct costs for each service in the PFS. The bottom-up approach would be simple to understand—we merely sum the costs of the PEAC-refined clinical staff, supply and equipment inputs that are assigned to each service. The bottom-up approach would be intuitive—any change in direct inputs would lead to a commensurate change in the direct PE RVUs. The bottom-up methodology should also be more stable—with no cost pools or scaling factors to complicate the computation, direct PE RVUs for a service would only change if there was a revision to the inputs assigned. It was the hard work put forth by the AMA, the PEAC, the RUC and specialty societies in refining the CPEP inputs that made it possible to propose using a bottom-up methodology. However, for reasons discussed in this section, we are not implementing the bottom-up methodology for direct costs for 2006. However, we will be working with the RUC and the medical community to ensure that the inputs assigned to each service are correct and that the overall methodology works as intended so that we can propose this improvement in the future. Start Printed Page 70135

Comment: Several commenters expressed concern regarding the future refinement of the direct PE inputs that would ensure that a bottom-up methodology continues to lead to appropriate PE RVUs. A radiation oncology specialty society recommended that the bottom-up methodology be reviewed to ensure that the full input amounts are recognized accurately. A specialty society representing podiatry commented that the codes refined in the early stages of the PEAC may have inputs not consistent with codes refined later and that they should be looked at again by PEAC or PERC. The specialty society representing allergy suggested that there needs to be a continuing mechanism, such as the PEAC and PERC, for addressing changes in PE. A physical medicine society asserted that it is essential that we establish a system for updating or revising direct cost inputs based on new data or changes in technology. A thoracic medicine society supported the bottom-up methodology for creating direct PE inputs with continued refinement by the PEAC or the PERC. A pharmaceutical company supported the bottom-up method of determining the relative direct costs of each service, but requested that we establish a system to accept and review external data during the notice and comment period to update the direct cost inputs as needed. A specialty society representing prosthetic urology recommended that we adopt the bottom-up method and establish a method to review external data to ensure that the inputs are updated appropriately.

Response: We agree with the commenters that there needs to be a continuing review process for the direct PE inputs to reflect changes in practice or new technology. In addition, it will be necessary to ensure that the clinical staff time standards and supply and equipment packages that have been developed through the refinement process are applied appropriately to all services. We are hopeful that the RUC will continue to play a role in this further review and will be discussing this with RUC staff. In addition, we will continue to encourage input from the medical community in general regarding the accuracy of the direct inputs and their pricing.

Comment: There were a few specific concerns raised by commenters regarding the bottom-up methodology. A specialty society representing radiation oncology stated that the bottom-up methodology may be unintentionally compressing higher-cost technology. A health care provider supported the bottom-up approach conceptually, but expressed concerns that aggregate budget neutrality would be more difficult to control using a bottom-up approach than using the top-down. A medical group practice association, as well as a large multi-specialty clinic, had concerns that the RUC recommendations we have accepted for new technical procedures have, because of budget neutrality, eroded the value attributed to cognitive services. MedPAC had concerns about dealing with overvalued services and with the assumptions we use to allocate the cost of equipment to a specific service. For example, MedPAC questioned whether our assumption of 50 percent utilization for all equipment is valid.

Response: We are not sure how the bottom-up methodology would compress higher cost technology, but would be willing to discuss this with the commenter as we develop our next proposal. For budget neutrality, we are not certain that it is harder to control under a bottom-up approach; it would depend on which data source—the aggregate SMS-type data or the PEAC-refined input data—produces the most accurate estimate of direct costs. We understand, in a budget neutral system, the concern about the effect that adding inputs for expensive technology has on cognitive services, but under a bottom-up methodology there would not be the issue of scaling factors exaggerating this effect. We would like very much to discuss the issue raised by MedPAC as we endeavor to improve our PE methodology.

Future Indirect PE Refinement

Comment: Although we did not propose any major change to the indirect PE methodology, other than incorporating the new PE survey data, we did indicate our interest in receiving suggestions on ways to continue to refine the indirect PE calculations. Most commenters focused on the need for us to acquire up-to-date survey information for all specialties so that the PE data for all specialties is as current as possible. Specialty societies representing infectious disease physicians, orthopaedists, remote cardiac services, chest physicians and physical medicine commented that we should extend the deadline to allow specialty societies to conduct supplemental PE surveys. A commenter representing otolaryngologists stated this would not be a preferred option since the high cost involved with conducting surveys would disadvantage smaller specialties.

Other specialty societies representing cataract surgeons, anesthesiologists, emergency medicine and otolaryngology recommended that an unbiased SMS-type survey that cuts across all specialties would be most appropriate for use in the future, instead of having data from different time periods. In arguing for this multi-specialty approach, an emergency medicine association commented that, as MedPAC reports have indicated, only specialty societies who are likely to gain ground have incentive to produce new surveys. The specialty society representing otolaryngology cited the discussion in the Lewin Group report, “Recommendations Regarding Supplemental Practice Expense Data Submitted for 2006,” that suggests that the increase in the surveyed PE/HR could indicate a “secular trend in rising physician PEs,” and the need for a multi-specialty PE survey. The commenter also suggested that a universal survey could be paid for by using funds reallocated from the oncology demonstration. A specialty society representing spine surgeons commented that all physicians should have the opportunity to submit data relevant to their specialties because it would be unfair to reduce PE reimbursement for providers such as neurosurgeons and orthopedic surgeons without allowing those providers that opportunity to submit accurate data. The society suggested that, as we have established a model for survey data, we could allow societies to survey their membership and submit the results, either directly to CMS or through the RUC. An association representing medical group practices recommended that a comprehensive study be initiated to accurately balance the relativity of overhead costs of practice for each service on a nationwide basis and that this include the costs of information technology (IT) implementation. An emergency medicine commenter recommended including survey questions on uncompensated care.

Response: We agree with all the commenters that, for the PE RVUs to reflect accurately the relative indirect costs for all services, it would be most preferable to have current data for all specialties. However, section 212 of the BBRA required that we establish a process to use data developed by entities and organizations to supplement the data we normally collect in determining the PE component. We established this process and set criteria and a timeline for submission of this data. Although we twice extended the period during which we would accept these supplemental data, we are not proposing to extend this period beyond this year. We believe Start Printed Page 70136that there has been sufficient time for individual specialties that had sufficient member support to do a survey, and that had reason to believe that the results of a survey would be helpful, to submit supplementary PE data to us. Therefore, we agree with the commenters who suggest that a multi-specialty survey done for a uniform time period would be most helpful. We are now planning to work with the AMA and the medical community to develop a strategy for funding and fielding a multi-specialty indirect PE survey that will help ensure that our PE methodology treats all specialties equitably.

Comment: Several commenters offered the following suggestions for revisions to the indirect methodology.

Comments from two associations representing speech language pathologists and audiologists argued that the current method of assigning indirect costs to their services results in a gross underestimation of these costs for both audiology and speech-language pathology services. One association suggested an alternative method of basing indirect costs on the ratio of the refined direct costs to the total costs for all physicians or for otolaryngologists.

A specialty society representing allergy expressed concern that the indirect costs of an allergy practice are not properly accounted for in the current methodology because most either are not assigned work RVUs or have very low work RVUs, but may have high actual indirect costs. The society recommended that we should either establish a mechanism for adjusting the indirect PE when the existing formula yields an inequitable result, or revise the direct costs to include administrative staff time.

A comment from a manufacturer stated that we should not use the “All Physician” indirect cost data for IDTFs and recommended using the radiology PE/HR figure for IDTF radiological services and the cardiology PE/HR for IDTF cardiology services, with the exception of the cardiac remote monitoring services which should be paid at current levels, pending the collection of additional data.

A comment from a clinical oncology society recommended that any revision in the methodology for direct costs should be accompanied by a revision in the methodology for allocating indirect costs. The society stated that both the Lewin Group and the Government Accountability Office have found that the current methodology for indirect costs is biased against services that lack a physician work component.

A family physician association questioned why we use physician work, rather than physician time, in our formula for allocating indirect expenses. The commenter stated that there is no evidence that PE would vary with physician intensity and recommended that we use physician time rather than work in the allocation of indirect expenses.

A group representing cardiac services providers recommended that if and when the new methodology is applied to remote cardiac monitoring, indirect costs for these services should be based on a survey of their group and not on the “All Physician” average PE/HR, which fails to reflect the actual practice costs incurred. The group also recommended that we allocated indirect costs solely on the basis of direct costs, without regard to physician work.

Response: We thank all the above commenters for their suggestions on improvements to our indirect PE methodology. We will certainly consider all of the above recommendations, as we work with the medical community to develop our next proposal for indirect PE.

Comment: The American College of Surgeons recommends that we convene a multi-stakeholder process to address indirect PE methodological issues so that we can make further changes before final implementation of our new methodology.

Response: As we have mentioned previously, we agree wholeheartedly with the above recommendation. We plan to initiate an open process with the medical community to exchange ideas, answer questions and provide information regarding changes to all aspects of our PE methodology before publication of the next PFS proposed rule. We recognize that in any payment system based on costs, indirect costs are always the most difficult to allocate fairly and accurately. Therefore, we will welcome all suggestions, including those recommended, to improve our indirect PE methodology.

Other Issues

Comment: A group representing community cancer centers requested that we review the PE RVUs for drug administration services as soon as the needed data are available to ensure that they accurately reflect all the costs associated with these services. The National Patient Advocate Foundation agreed because of concern that use of the current indirect PE RVUs will not be sufficient to reimburse oncologists for drug administration costs.

Response: We should have the utilization data needed for the 2006 proposed rule and plan to include the drug administration services in whatever PE methodology is proposed.

Comment: Several commenters recommended that we maintain budget neutrality for PE RVU changes by adjusting the CF proportionately, rather than decreasing only PE RVUs.

Response: Though there could be operational difficulties with adjusting the CF to account for PE budget neutrality, we would like to solicit comments on how best to reflect the budget neutrality for PE.

3. PE Recommendations on CPEP Inputs for CY 2006

Since 1999, the PEAC, an advisory committee of the AMA's RUC, provided us with recommendations for refining the direct PE inputs (clinical staff, supplies, and equipment) for existing CPT codes. The PEAC held its last meeting in March 2004 and the AMA established a new committee, the PERC, to assist the RUC in recommending PE inputs.

With the PERC's assistance, the RUC completed refinement of approximately 200 remaining codes at its meetings held in September 2004 and February 2005. A list of these codes appeared in Addendum C of proposed rule.

We reviewed the RUC-submitted PE recommendations and proposed to adopt nearly all of them. We worked with the AMA staff to correct any typographical errors and to make certain that the recommendations are in line with previously accepted standards.

As stated in the proposed rule, we revised the PE database to reflect these RUC recommendations which can be found on our web site. (See the “Supplementary Information” section of this rule for directions on accessing our web site.)

We disagreed with the RUC's recommendation for clinical labor time for CPT code 36522, Extracorporeal Photopheresis. In the CY 2005 final rule (69 FR 66236), we assigned, on an interim basis, 223 minutes of total clinical labor for the service period based on the typical treatment time of approximately 4 hours. The RUC, however, recommended 122 minutes total clinical labor time for the service period, which allowed for 90 minutes of nurse “intra service” time for the performance of the procedure (the society originally proposed 180 minutes). We believe that 135 minutes is a more appropriate estimation of the clinical staff time actually needed for the intra time, as it more closely approximates the time assigned to the other procedures in this family of codes, including CPT codes 36514, 36515, and 36516. Therefore, we proposed a total Start Printed Page 70137clinical labor time of 167 minutes for the service period. We did not receive specific comments for this revision and are finalizing this change to the clinical labor time. While we have made the change in the PE database, the PE RVUs for 2006 will not reflect the adjustment due to the decision concerning the PE methodology to maintain all PE RVUs at the 2005 level as discussed previously.

The RUC also recommended that no inputs be assigned to several codes because the services were not performed in the office setting. However, our utilization data shows that 4 of these codes (CPT codes 15852, 76975, 78350, and 86585) are currently priced in the office and are performed with sufficient frequency in the office to warrant this. Therefore, we proposed not to accept the RUC recommendations for these services at this time, but requested comments from the relevant specialties as to whether the recommendations should be accepted.

Comment: We received comments from one specialty society disagreeing with the RUC's recommendation for CPT 78350, single photon bone densitometry, as they believe this procedure is being performed in the office. They expressed their intentions to work with CMS as they develop appropriate PE inputs for this procedure in the nonfacility setting. The specialty society also expressed their agreement with the RUC's recommendation to eliminate the nonfacility PE RVUs for 76975 because virtually all of these exams are performed in the facility setting. In addition, a national organization representing medical directors of respiratory care, supported the retention of nonfacility PE RVUs for CPT 86585, TB tine test, because they believe it to be a legitimate office-based procedure. We did not receive comments on the appropriateness of nonfacility RVUs for CPT 15852.

Response: We will maintain the nonfacility setting PE RVUs for 78350 and look forward to working with the specialty society in their initiative to develop inputs for this procedure. We will remove the PE inputs for the nonfacility setting for CPT codes 76976 and 15852, although for the 2006 PFS these codes will reflect the 2005 PE RVU amounts. CPT 86585 has been deleted from CPT 2006 and will not appear on Addendum B.

4. Payment for Splint and Cast Supplies

In the Physician Fee Schedule (CY 2000); Payment Policies and Relative Value Unit Adjustment final rule, published November 2, 1999 (64 FR 59379) and the Physician Fee Schedule (CY 2002); Payment Policies and Relative Value Units Five-Year Review and Adjustments final rule, published November 1, 2000 (66 FR 55245), we removed cast and splint supplies from the PE database for the CPT codes for fracture management and cast/strapping application procedures. Because casting supplies could be separately billed using Healthcare Common Procedure Coding System (HCPCS) codes that were established for payment of these supplies under section 1861(s)(5) of the Act, we did not want to make duplicate payment under the PFS for these items.

However, in limiting payment of these supplies to the HCPCS codes Q4001 through Q4051, we unintentionally prohibited remuneration for these supplies when they are not used for reduction of a fracture or dislocation, but rather, are provided (and covered) as incident to a physician's service under section 1861(s)(2)(A) of the Act.

Because these casting supplies are covered in sections 1861(s)(5) or 1861(s)(2)(A) of the Act, we proposed to eliminate the separate HCPCS codes for these casting supplies and to again include these supplies in the PE database. This would allow for payment for these supplies whether based on section 1861(s)(5) or 1861(s)(2)(A) of the Act, while ensuring that no duplicate payments are made. In addition, by bundling the cost of the cast and splint supplies into the PE component of the applicable procedure codes under the PFS, physicians would no longer need to bill Q-codes in addition to the procedure codes to be paid for these materials.

Because these supplies were removed from the PE database prior to the refinement of these services by the PEAC, we proposed to add back the original CPEP supply data for casts and splints to each applicable CPT code and we requested that the relevant medical societies review the “Direct Practice Expense Inputs” on our web site and provide us with feedback regarding the appropriateness of the type and amount of casting and splinting supplies. We also requested specific information about the amount of casting supplies needed for the 10-day and 90-day global procedures, because these supplies may not be required at each follow-up visit; therefore, the number of follow-up visits may not reflect the typical number of cast changes required for each service.

We reincorporated the following cast and splint supplies as direct inputs: fiberglass roll, 3 inch and 4 inch; cast padding, 4 inch; webril (now designated as cast padding, 3 inch); cast shoe; stockingnet/stockinette, 4 inch and 6 inch; dome paste bandage; cast sole; elastoplast roll; fiberglass splint; ace wrap, 6 inch; and kerlix (now designated as bandage, kerlix, sterile, 4.5 inch) and malleable arch bars. The cast and splint supplies were added, where applicable, to the following CPT codes: 23500 through 23680, 24500 through 24685, 25500 through 25695, 26600 through 26785, 27500 through 27566, 27750 through 27848, 28400 through 28675, and 29000 through 29750.

Because we proposed to pay for splint and cast through the PE component of the PFS, we would no longer make separate payment for these items using the HCPCS Q-codes.

Comment: We received a comment on behalf of the American Osteopathic Academy of Orthopedics (AOAO) that provided specific information for the type and number of casts needed for the 10 or 90-day global period for each code in the relevant fracture management series. The AOAO also noted the type and amount of casting supplies, including stockinette, cast padding, fiberglass and post-op cast shoe, as appropriate.

We also received a comment from the RUC expressing their appreciation for the proposal to make coding and billing for fracture management and casting/strapping supplies easier by reducing the number of codes for physicians to submit. In addition, the RUC expressed interest in reviewing the data submitted in response to our proposal so that the resulting casts and strapping PE inputs can “enjoy the same level of scrutiny and cross-specialty refinement that all of the other PE inputs have”.

Other specialty societies supported our proposal to include casting material in the fracture care codes and the elimination of the Q codes. However, some of these societies expressed concerns about bundling all of the necessary casting/strapping supplies for the global period into the fracture management codes. These commenters related that only the initial cast/strapping supplies should be bundled into the relevant fracture care code series and that physicians should be able to continue to submit separate claims for the CPT codes for the application of casts and strapping procedures during the global period.

Many commenters, primarily from orthopedic practices, expressed concern about the proposal, but misunderstood that this proposal was separate from the anticipated negative update for 2006 based on the SGR methodology.

Response: We thank AOAO for submitting the information we requested in the proposed rule. The society submitted a clear, Start Printed Page 70138comprehensive and beautifully prepared spreadsheet detailing each CPT code in the various fracture management series. We commend them on their efforts to submit such a thorough and meticulous document in response to our proposed rule request.

For the 2006 fee schedule, based on the decision concerning PE methodology to maintain all PE RVUs at the 2005 level previously discussed, we have removed the CPEP inputs for casts and splints from the PE database and CMS will retain use of the Q-code fee schedule as done in the past. In addition, we will use the interim time period before the notice of proposed rulemaking for the 2007 fee schedule to work with the affected specialties and the RUC to clarify issues related to Medicare payment policy and establish more appropriate amounts of casting/strapping materials for the relevant series of fracture management codes and the casts and strapping application codes. Due to the temporary status and intended limited use of the Q-code fee schedule, it is our intention to resolve these important payment issues in the near future. A detailed discussion of the SGR and the update for 2006 is found later in this final rule with comment.

5. Miscellaneous PE Issues

In this section, we discuss our specific proposals related to PE inputs.

a. Supply Items for CPT Code 95015

We proposed to change the supply inputs for CPT code 95015, intracutaneous (intradermal) tests, sequential and incremental, with drugs, biologicals or venoms, immediate type reaction, specify number of tests, based on comments received from the JCAAI. JCAAI reported that “venom” is the most typical test substance used when performing this service and that “antigen”, currently listed in the PE database, is never used. They also suggested that the appropriate venom quantity should be 0.3 ml (instead of the 0.1 ml listed for CY 2005) because of the necessity to use all 5 venoms (honey bee, yellow jacket, yellow hornet, white face hornet and wasp) to perform this sensitivity testing; that is, 1 ml of each venom type for a total of 5 ml of venom. The diluted venoms are sequentially administered until sensitivity is shown, beginning with the lowest concentration of venom and subsequently administering increasing concentrations of each venom. We accepted the specialty's argument and proposed to change the test substance in CPT code 95015 to venom, at $10.70 (from single antigen, at $5.18) and the quantity to 0.3 ml (from 0.1 ml).

Comment: JCAAI expressed their appreciation for our proposal to change the supply item input for CPT 95015 from 0.1 ml antigen to .3 ml of venom.

Response: The appropriate changes have been made to our PE database. However, as discussed above, because we are making only limited, necessary changes to PE RVUs for the 2006 PFS, the PE RVUs for this code will continue to reflect the 2005 PE RVU amounts.

b. Flow Cytometry Services

In the CY 2005 final rule (69 FR 66236), we solicited comments on the interim RVUs and PE inputs for new and revised codes, including flow cytometry services. Based on comments received and additional discussions with representatives from the society representing independent laboratories, we proposed to revise the PE inputs for the flow cytometry CPT codes 88184 and 88185.

Based on information from the specialty society, we proposed to change the direct inputs used for PE as follows:

  • Clinical Labor: Change the staff type in the service (intra) period in both CPT codes 88184 and 88185 to cytotechnologist, at $0.45 per minute (currently lab technician, at $0.33 per minute).
  • Supplies: Change the antibody cost for both CPT codes 88184 and 88185 to $8.50 (from $3.544).
  • Equipment: Add a computer, printer, slide strainer, biohazard hood, and FACS wash assistant to CPT code 88184. Add a computer and printer to the equipment for CPT code 88185.

Comment: We received comments from several organizations including those representing professional services in clinical laboratories, manufacturers, clinical laboratories, and clinical pathologists. These commenters all supported our proposal to revise the PE inputs outlined above for the flow cytometry CPT codes 88184 and 88185.

Response: We appreciate the support extended to us by these national organizations in regards to the revision of direct inputs for the CPT codes for flow cytometry. The PE changes have been made, as indicated above, to the database. However, because we are making only limited, necessary changes to PE RVUs for the 2006 PFS, the PE RVUs for these codes will continue to reflect the 2005 PE RVU amounts.

c. Low Osmolar Contrast Media (LOCM) and High Osmolar Contrast Media (HOCM)

HOCM and LOCM are used to enhance images produced by various types of diagnostic radiological procedures. In the CY 2005 final rule (69 FR 66356), we eliminated the criteria for the payment of LOCM that had been included at § 414.38. Effective April 1, 2005, providers can receive separate payment for LOCM when used with procedures requiring contrast media through the use of separate Q-codes. Payment for HOCM is currently included as part of the PE component under the PFS. We proposed, effective January 1, 2006, to no longer include payment for HOCM under the PFS and to establish Q-codes for the separate payment of HOCM.

As noted in the proposed rule we reviewed the PE database and proposed to remove the following two supply items which we have identified as HOCM from the PE database:

  • Conray inj. iothalamate 43 percent(supply item #SH026, deleted from 64 procedures).
  • Diatrizoate sodium 50 percent (supply item #SH0238, deleted from 74 procedures).

We also identified 5 CPT codes (specifically CPT codes 42550, 70370, 93508, 93510 and 93526) that included omnipaque as a supply item, and proposed to remove this supply item from these 5 CPT codes since omnipaque is actually a type of LOCM.

Comment: We received several comments from organizations representing radiology physicians and manufacturers on our proposal to delete HOCM from the PE database. The commenters supported our proposal for separate payment for both HOCM and LOCM to ensure beneficiaries access to all the various types of medical imagining contrast media. The commenter representing the manufacturers requested that we notify carriers that separate payment for LOCM and HOCM is available.

Response: We thank the organizations for their comments in support of our proposal which would permit separate payment for HOCM in 2006. We have removed HOCM from the direct inputs in the PE database and also deleted LOCM from the 5 procedures as noted above. However, because we are not implementing the bottom-up methodology which utilizes the direct inputs to determine the PE RVUs, these imaging codes will again be valued in the NPWP where the PE RVUs are established using an appropriate crosswalked charge-based RVU containing HOCM as an inherent supply cost. We will delay separate payment for HOCM until such time the direct inputs are used to determine PE RVUs. For 2006, the PE RVUs will be retained at the 2005 level. We remind the commenters that the average sales price Start Printed Page 70139(ASP) quarterly values are published on our Web site at the following address: http://www.cms.hhs.gov/​providers/​drugs/​asp.asp.

d. Imaging Rooms

We include standardized “rooms” for certain services in our PE equipment database, rather than listing each item separately. We received pricing information from the ACR for the following rooms that are included in the database. We accepted most of the proposed items that met the $500 threshold for equipment and proposed to include the items in each specific room, as follows:

Basic Radiology Room: $127,750 (x-ray machine @ $125,550 and camera @ $2,200). The recommended viewbox was not included because most codes assigned this room have also been assigned an alternator (automated film viewer) or a 4-panel viewbox.

Radiographic-Flouroscopic Room: $367,664 (Radiographic machine @ $365,464 and camera @ $2,200). The recommended viewbox was not included because most codes assigned this room have also been assigned an alternator (automated film viewer) or a 4-panel viewbox.

Mammography Room: $168,214 (mammography unit @ $124,900; reporting system @ $16,690; mammography phantom @ $674; densitometer @ $3,660; sensitometer @ $2,750; desktop PC for monitoring @ $1,840; and processor @ $17,700. Separately listed equipment items (densitometer, mammography reporting system, sensitometer, mammography phantom, desktop computer, and the film processor) that duplicated items included in the mammography room were removed from the codes assigned the room, eliminating the reporting system, sensitometer and phantom from the PE database.

Computed tomography (CT) Room: $1,284,000 (16-slice CT scanner with power injector and monitoring system)

Magnetic Resonance Imaging (MRI) Room: $1,605,000 (1.5T MR scanner with power injector and monitoring system)

Comment: We received comments from one specialty society requesting that we add 4 cassettes to the composition and cost of the mammography room although each cassette does not meet the $500 equipment threshold. Another commenter representing a large radiology group practice agreed that our cost allowance for the mammography room was appropriate for the standard analog mammography room. However, this commenter asked us to develop a separately identified cost for a digital mammography room, costing approximately 3 to 4 times as much as the analog room, citing this digital system provides better diagnostic services.

Response: We appreciate the comments regarding the cost and composition of the mammography room. We are sympathetic to the commenter's request for the creation of a separate digital mammography room. However, the direct PE inputs for labor, supplies and equipment that are included in physicians' services reflect the costs involved in the typical procedure or service provided in the nonfacility setting. We believe that the mammography room we proposed represents the equipment used to provide the typical mammography service and was based on information provided by the specialty society.

We disagree with the specialty society in regards to adding the cost of the 4 cassettes to the room's price. The threshold for the inclusion of equipment for PE purposes remains at $500. For this reason, we will finalize the value of the mammography room as proposed, at $168,214.

In addition we will finalize the proposed values for all of the above imaging rooms in this final rule with comment. However, because we are adopting only limited, necessary changes to PE RVUs for CY 2006, and will continue to utilize the NPWP to value these services, the RVUs will remain the same as those for 2005.

e. Equipment Pricing for Select Services and Procedures From the CY 2005 Final Rule (69 FR 66236)

In the August 8, 2005 proposed rule, we presented information on pricing of equipment for select services and procedures based on specialty information and stated we would be accepting the prices. The specific equipment was as follows:

  • Equipment pricing for certain radiology services received from the ACR were presented in table 15 of the proposed rule.
  • Equipment pricing on the Ultrasound color Doppler transducers and vaginal probe received from the American College of Obstetrics and Gynecology was presented.
  • For CPT 36522, extracorporeal photopheresis, we discussed equipment pricing information specific to this procedure.
  • Pricing of EMG botox machine used in CPT code 92265 as presented by the American Academy of Ophthalmology.

No comments were received on these items, therefore, the prices discussed in the proposed rule will be used in the PE database. However, we will continue to use the 2005 PE RVUs for each of these codes for CY 2006.

f. Supply Item for In Situ Hybridization Codes (CPT 88365, 88367, and 88368)

As discussed in the August 8, 2005 proposed rule, we received comments in response to the CY 2005 final rule from the College of American Pathologists regarding the number of DNA probes assigned to the in situ hybridization codes, CPT codes 88365, 88367, and 88368. Currently, CPT codes 88365 and 88368 have 1.5 probes assigned, while CPT code 88367 has only 0.75 of a probe assigned. The College of American Pathologists requested that we assign 1.5 probes to CPT code 88367, and provided justification for this request. We accepted the College of American Pathologists' rationale and proposed to change the probe quantity for CPT code 88367 to 1.5.

Comment: A society representing clinical pathologists supports the proposed change to the probe quantity for CPT 88367.

Response: We have entered the number of probes, at 1.5, to our PE database. This change will not be expressed in the 2006 PE RVUs because as discussed above, we will retain the 2005 PE RVUs.

g. Supply Item for Percutaneous Vertebroplasty Procedures (CPT Codes 22520 and 22525)

The Society for Interventional Radiology (SIR) provided us with documentation for the price of the vertebroplasty kit used in CPT codes 22520 and 22525. We proposed to accept a new price of $696 for this supply, currently listed as $660.50, a placeholder price from the CY 2005 final rule.

Comment: Commenters supported the proposed $696 cost estimate for the vertebroplasty kit.

Response: We are finalizing our proposal to value the vertebroplasty kit price at $696 in the supply database, although, as discussed previously, this will not be reflected in the 2006 PE RVUs because we will retain the 2005 PE RVUs.

h. Clinical Labor for G-codes Related to Home Health and Hospice Physician Supervision, Certification and Recertification

As discussed in the August 8, 2005 PFS proposed rule, 4 G-codes related to home health and hospice physician supervision, certification and Start Printed Page 70140recertification, G0179, 180, 181, and 182, are incorrectly valued for clinical labor. These codes are cross-walked from CPT codes 99375 and 99378, which underwent PEAC refinement in January 2003 for the 2004 fee schedule. However, we did not apply the new refinements to these specific G-codes. This was an oversight on our part and we proposed to revise the PE database to reflect the new values in the 2006 physician fee schedule.

Comment: Commenters, including those representing the specialty societies for home care physicians and internists, expressed concern about the decrease in PE RVUs for the G-codes for hospice and home health supervision and care plan oversight services. One commenter requested that we elaborate on the sequence of events that lead to this decrease.

Response: We appreciate the concern expressed by the commenters and are providing additional information outlining the reason for this change. For the 2001 PFS, these G-codes were created in order to provide payment for these specific services. Changes made to the CPT codes (CPT codes 99375 and 99378) for 2001 did not enable us to recognize the CPT codes for Medicare payment purposes. Therefore, the PE inputs that had been applied to these CPT codes were cross-walked and used to establish the PE RVUS for the G codes that we established for these services. Subsequent to this, the CPT codes underwent refinement by the PEAC at its January 2003 meeting where a majority of the other E/M services were refined. CMS accepted these PE recommendations from the PEAC that included only a total of 36 minutes for clinical labor. The PEAC recommendations did not include supplies and equipment because they did not believe these were utilized in the typical services represented by these codes. These PE inputs were intended to be crosswalked to the G-codes for 2004, however, due to an oversight, this did not occur. We apologize to the specialties that this refinement was not done in a timely manner. Thus, we are finalizing the direct inputs for these G-codes in this rule and have changed the PE database accordingly. However in 2006, the PE RVUs for these 4 G-codes will remain at the 2005 level, as explained above.

i. Programmers for Implantable Neurostimulators and Intrathecal Drug Infusion Pumps

Subsequent to the CY 2005 final rule, we received comments from a manufacturer of programmers for implantable neurostimulators and intrathecal drug infusion pumps. The commenter indicated that the equipment costs for these programmers are not a direct expense for the physicians performing the programming of these devices and that the manufacturer furnishes these devices without cost because the programming device is considered a “necessary, ancillary item to the neurostimulator and drug pump and can only be used to program these devices.” Therefore, we proposed to remove the 2 programmers from the PE database: EQ208 for medication pump from 2 codes (CPT 62367 and 62368) and EQ209 for the neurostimulator from 8 codes (CPT 95970-97979). We also requested comments from the specialty societies performing these services as to whether this reflects typical practice.

Comment: Several commenters disagreed with this proposal indicating that not all programmers are provided without cost. Specifically, for the one manufacturer, the practice of providing physicians with these programmers free of charge is just a recent occurrence. In addition, one commenter informed us that there are other PE items that are not accounted for, including a printer, for 62367 and 62368. The RUC commented that several specialty societies conducted an email-based survey finding that the majority of the respondents reported paying for these programmers. The RUC asked us to reconsider our decision to delete the programmers from the PE direct inputs because it was based solely on the recommendation of one manufacturer.

Response: We are sympathetic to the commenters' concerns about the programmers used by pain medicine physicians. We have carefully reviewed our decision to delete the programmers from the PE database in light of the comments we received. Therefore, based on the uncertainty as to which brand product is typical, the survey results presented to us by the RUC, and the life, 7 years, of each programmer, we have determined that we will retain these programmers in the database. In addition, we have added “with printer” to the description of EQ208 to match that of EQ209 in order to assuage the commenter's concern that the price listed in the database, $1975, correctly reflects the cost of both the programmer and the printer. Because the PE RVUs for 2005 contained the price for these programmers, the PE RVUs for 2006 will continue to reflect their costs.

j. Pricing of New Supply and Equipment Items

As part of the CY 2005 final rule process, we reviewed and updated the prices for equipment items in our PE database and assigned a unique identifier to each equipment item with the first 2 elements corresponding to one of 7 categories. It was brought to our attention that we assigned the same category identifier (ELXXX) for both “lanes/rooms” as well as “laboratory equipment”. To correct this, we proposed assigning laboratory equipment items the new category identifier “EPXXX”, but the specific numbers associated with each item would remain the same. In addition, supply items were reviewed and updated in the rulemaking process for the 2004 PFS. During subsequent meetings of both the PEAC (now referred to as the PERC) and the RUC, supply and equipment items were added that were not included in the pricing updates. In the proposed rule we included 2 tables (Table 16: Proposed Practice Expense Supply Items and Table 17: Proposed Practice Expense Equipment Items) that listed the additional supply and equipment items for 2006 and the proposed associated prices that we would use in the PE calculation. The listing of new supplies and equipment in the proposed rule does not guarantee that the price listed for each item has been accepted. Rather, the new supply and equipment tables are to make specialties aware of the descriptors and assigned supply or equipment codes that can be used in future proposals to the RUC and HCPAC. As discussed below, the addition of an item to the tables for new supplies or equipment does not preclude the inclusion of the same item on the tables that require more detailed information and documentation from the specialty organization.

k. Supply and Equipment Items Needing Specialty Input

We also identified certain supply and equipment items for which we were unable to verify the pricing information, reflected in Table 18: Supply Items Needing Specialty Input for Pricing and Table 19: Equipment Items Needing Specialty Input for Pricing of the proposed rule. We stated that the items listed in these tables represent the outstanding items from last year and new items added from the RUC recommendations. Therefore, we requested that commenters, particularly specialty organizations, provide pricing information on items in these tables along with documentation to support the recommended price.

Tables 14 and 15 reflect the comments and documentation we received for each item. Specialty societies are asked to review these supplies and equipment, as Start Printed Page 70141appropriate, to assure that the item status is accurate and forward any necessary documentation. We would also like to reinforce the types of documents that meet the acceptable category. The following list includes examples of acceptable documentation:

  • Photocopy or actual vendor catalog listing, indicating price, accessories or components (if applicable), available quantity, company name, brand name, and catalog date. Scanned versions, if readable, can also be emailed.
  • Photocopy of web page with specific supply or equipment including the necessary information listed in above bullet.
  • Photocopy of invoice indicating the price paid for specific supply or equipment, as well as the specific contents of kit, pack or tray for supplies and component or accessory parts for the equipment item.
  • Letter, FAX or e-mail from manufacturer, vendor or distributor noting the ASP of the supply or equipment. The description of the item must list all contents, accessories or component parts that are included in the price.

The following information is not considered acceptable documentation, including:

  • Web site addresses.
  • Vendor, manufacturer, or distributor phone number and address.
  • Approximated values.
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l. Additional PE Issues Raised by Commenters

Comment: We received a comment from an equipment distributor and multiple comments from physicians asking us to add more clinical labor, supplies and equipment to CPT codes 78481 and 78483 for cardiac blood pool imaging using the first pass technique. The commenters emphasized that the labor costs are understated, and that additional supplies and equipment are necessary to perform these services. In particular, the commenters requested we add a nuclear medicine gamma camera to the equipment inputs or cross-walk the equipment listed for CPT 78465. The distributor presented supply and equipment tables for both codes, using direct PE inputs currently listed in the PE database, most of these are found in the PE for CPT 78465.

Response: The direct inputs for these “First Pass” services were presented by the specialty society to the PEAC at its January 2004 meeting. The RUC forwarded the PEAC's recommendations to CMS for consideration during the rulemaking process for the 2004 fee schedule at which time these recommendations were accepted. We do not believe that we are in a position to make the type of changes to the PE inputs for these 2 codes that the commenters have requested. We recommend that the commenters and the specialty society whose members perform these procedures, work together so that necessary changes can be considered through the usual RUC process.

Comment: We received comments from a specialty society and a manufacturer asking us to replace a supply item, a Tesio type dual catheter, with the Lifesite system in CPT 36566—a procedure described as the insertion of tunneled catheter with subcutaneous port(s). The specialty society explained that when the RUC valued this service in 2003, the incorrect catheter was included with their PE recommendations. The manufacturer asks for our assistance in correcting a “clerical error” in our database. The commenters explain that CPT codes 36565 and CPT 36566 are nearly identical in procedure, although CPT 36566 requires the insertion of “subcutaneous port(s)” and that the Tesio-type catheter, priced at $355, is currently listed for both of these procedures. The Lifesite system, containing a subcutaneous port, is priced at $1750. Both commenters noted that 2 Lifesite systems are necessary to perform this procedure instead of one for a total supply cost of $3500.

Response: We appreciate the commenters concerns about the specific supplies they believe are needed to perform this service. The work and PE values for CPT 36566 were forwarded by the RUC and accepted in our final rule, for the 2004 fee schedule. We believe that the RUC is the appropriate avenue to address correction of inputs to the PE database, particularly due to the expensive nature of this replacement, and are not revising the PE database to reflect this price change.

Comment: A specialty society commented that it believes the nonfacility PE RVUs were mistakenly deleted from CPT codes 59812, 59840, and 59841. The specialty also requested that nonfacility PE RVUs be added for CPT 58558.

Response: We have reviewed the specialty's request regarding nonfacility PE RVUs for the 4 codes noted above. The “NA” indicator for PE RVUs in the nonfacility setting is listed incorrectly for CPT codes 59840 and 59841 in Addendum B of our proposed rule. Both of these CPT codes should have PE RVUs listed in the nonfacility setting. The specialty society is mistaken, however, regarding the appropriateness of nonfacility PE RVUs for CPT 59812 and 58558. These codes have both undergone refinement by the PEAC at least once and the recommendations forwarded by the RUC clearly indicated that these procedures were not valued in the nonfacilty setting. We have changed our database, as appropriate, to reflect the changes for CPT 59840 and 59812.

Comment: We received comments from a specialty organization citing that the total RVUs for CPT 19298 are too low in comparison to those for CPT 19296—both new CPT codes for CY 2005. The specialty believes this difference is likely due to the supply PE inputs necessary to perform each procedure. The specialty states that the catheter supply expenses should be similar between the 2 services, yet the nonfacility PE RVUs for CPT 19298 (39.56) are significantly lower than those listed for CPT 19296 (117.96). The specialty stated that while the average number of catheters used for CPT 19298 is 25, ranging from 15-30, this cost should be comparable to the catheter required for CPT 19296. Finally, the specialty requests that we crosswalk the total RVUs for the nonfacility setting from CPT 19296 to CPT 19298 for 2006 while they gather detailed information to present to us.

Response: We have researched the specialty's concern about the supply cost differences between the 2 new CPT codes for 2005. Whereas the specialty contends that the catheter expenses are similar, or only somewhat greater for CPT 19296, we found that the differences between these 2 supply costs is significant. The mammosite tray, containing the catheter used for CPT 19296, is priced at $2,550 while the button-end implant catheters used for CPT 19298 are priced at $18.50 each. The PE database indicates that the RUC-recommended typical procedure would require 30 such catheters, opposed to 25 noted by the specialty, for a total cost of $555. Consequently, we will not change the PE RVUs for either procedure, although we remain puzzled as to the commenters' specific concerns. We look forward to the specialty's clarification regarding this issue and would urge them to address their concerns through the usual RUC process. We would also like to remind commenters that interim RVUs are published, for new and revised CPT codes, in our final rule each year and are subject to a 60-day comment period at that time. We encourage commenters to observe and utilize the respective comment periods during our annual rulemaking process in order that we may respond timely to issues and concerns.

Comment: We received many comments regarding the use of “NA” in Addendum B when used for the “Nonfacility PE RVUs” column, the “Facility PE RVUs” column, and the occasional code with NA noted in both PE RVU columns. These commenters asked us to provide a clear definition of how the service is paid when the NA is affixed to either PE RVU column in Addendum B which our rule for 2005 fee schedule had PE RVUs listed for the nonfacility. One commenter stated that private payors believe that payment is not made when the NA indicator is listed in Addendum B.

Response: We appreciate the commenters remarks regarding the uncertainty involved with interpreting Addendum B, particular regarding the use of the “NA” indicator for the PE RVUs nonfacility and facility columns. Due to the confusion expressed by the commenters surrounding the NA designations, we have added explanations to Addendum A in order to assist the readers of Addendum B. We are also including these definitions here because of this issue's importance. The following 2 explanations also appear in Addendum A of this rule:

  • An “NA” in the “Non-facility PE RVUs” column of Addendum B means that CMS has not developed a PE RVU in the nonfacility setting for the service because it is typically performed in the hospital (that is, for example, an open heart surgery is generally performed in Start Printed Page 70149the hospital setting and not a physician's office).
  • Services that have an “NA” in the “Facility PE RVUs” column of Addendum B are typically not paid using the PFS when provided in a facility setting. These services (which include “incident to” services and the technical portion of a diagnostic tests) are generally paid under either the outpatient hospital prospective payment system or bundled into the hospital inpatient prospective payment system payment.

Comment: Other commenters, including specialty organizations, device manufacturers and physicians, noted that CMS had either mistakenly removed PE RVUs in the nonfacility setting or that we had made a decision to stop paying for services where, in Addendum B, an “NA” appeared in the proposed rule in the PE RVUs nonfacility column. Another commenter believes that a series of codes for E/M services were incorrectly marked as “NA” in the facility setting. These commenters requested that the PE RVUs be restored to these codes.

Response: We apologize to those commenters who found that where, due to the use of a new PE methodology, some of the codes listed in Addendum B of the proposed rule were mistakenly marked with an “NA” in either the nonfacility or facility PE RVU column when the service is actually valued in this setting and PE RVUs were listed previously. These mistakes were corrected for Addendum B in this final rule with comment. Most of the commenters requesting the restoration of “missing” PE RVUs in the nonfacility setting, though, were mistaken because, in fact, we have not developed nonfacility PE RVUs for these services and Addendum B continues to properly reflect the “NA” for the nonfacility PE RVU column.

Comment: Several commenters asked us to create PE RVUs for their services by cross-walking the direct inputs from other services.

Response: All of the requests we received to establish PE RVUs in the nonfacility setting were for services that the PEAC/RUC had either refined or developed without recommendations for PE nonfacility inputs. We would like to remind the specialty organizations that the RUC has a long standing process for the establishment and refinement of PE inputs and encourage all organizations to follow this process.

Comment: A manufacturer requested that we add 15 minutes of clinical labor and a tilt table to the PE database for CPT codes 36475 and 36476—both new codes for CPT 2005.

Response: We agree that the tilt table, for Trendelenberg, is needed for these procedures and are adding this equipment, for the respective service period minutes for each code. However, the commenter's request for additional clinical labor is not timely because the RVUs for these new codes were published as interim in the CY 2005 PFS final rule with comment at that time. As stated in the response above, we remind commenters to observe and utilize the comment period for new and revised codes at the time they are issued in our final rule or utilize the established RUC process, as appropriate.

Comment: We received a comment from an organization representing radiation oncology informing us that equipment for CPT codes 77333 and 77470 was missing.

Response: For CPT 77470, we disagree with the commenter that this service should be assigned equipment. At the January 2004 PEAC meeting, this code was valued specifically to compensate for the clinical labor costs involved with certain high-intensity radiation procedures, such as combined chemotherapy and radiation treatment. CPT 77470 was valued to be billed once throughout the course of treatment, that is typically comprised of 25 fractions. On the other hand, we agree with the commenter that the lack of equipment for CPT codes 77333 and CPT 77332 appears to be an oversight. We believe that the PEAC, at their September 2002 meeting, when considering equipment inputs for CPT code 77334, intended to cross-walk this equipment to the other 2 codes in the family, CPT code 77332 and 77333. Therefore, we are adding this equipment to 77332 and 77333, on an interim basis, and have changed the PE database to reflect this addition for the correlating service period time for each service. However, as explained above, because these codes will be valued in the NPWP and the 2005 PE RVUs will be retained in 2006, this addition will be transparent until such time as the direct inputs are used to establish the PE RVUs for the NPWP services.

Comment: We received comments from several organizations, a specialty society, device manufacturers, IDTFs and physicians regarding concerns about the remote cardiac event monitoring services, including CPT codes 93012, 93226, 93232, 93271, 93733 and 93736, based on the significant reduction in PE RVUs for these services published in our proposed rule using the bottom-up methodology and the elimination of the NPWP. Two of these services, CPT codes 93012 and 90271, were reviewed by the RUC in April 2005 and forwarded as part of the PERC/RUC recommendations in the proposed rule. The commenters noted that these services are typically provided by IDTFs that are equipped for continuous monitoring capabilities 24 hours a day, 7 days a week and require highly trained staff to perform the monitoring of transmissions. The commenters all agreed that the uniqueness of these services makes a poor fit with the usual accounting for direct practice expenses in the physician office. A specialty society requested CMS to work with the involved provider community, that is, the specialty IDTFs, to ensure that the direct and indirect costs of providing these services are adequately reflected in the nonfacility PE RVUs.

Response: We are pleased that the commenters are in agreement that these cardiac event monitoring services may not fit the usual PE model. We are also happy that the specialty society has requested our assistance to work with the specialized provider community in order to ensure more appropriate PE inputs for these services. We look forward to working with the provider organizations before the issuance of our next proposed rule.

Comment: A manufacturer requested that we increase the work and PE values for G0166, external counterpulsation (ECP), because of the significant decrease in PE RVUs for the nonfacility setting in the proposed rule. Specifically, the commenter asked that the labor time be increased to include pre and post service time in addition to the 60 minutes allotted for actual ECP treatment time.

Response: We agree with the commenter that the 60 minutes is inadequate to account for the other activities that the RN performs in relationship to each ECP service. We have assigned some of the standardized times for the activities previously identified by the PEAC as appropriate to this service, as follows: 3 minutes for meet and greet; 2 minutes to prepare the room; 2 minutes to position the patient; 3 minutes for vitals; and 3 minutes for cleaning the room. This extra 13 minutes has been added to the service period in the PE database yielding a total of 73 minutes for the ECP service—although, as discussed previously, this increase will not take effect in 2006 because, with limited exceptions, we will retain the 2005 PE RVU values for existing codes.

Comment: Many commenters, including physicians and a device manufacturer, requested that we increase labor, supplies, and equipment PE values for CPT code 93701, thoracic Start Printed Page 70150electrical bioimpedance (TEB). Their concerns arose from the proposed reduction in PE RVUs in the proposed rule for this service. Some of the commenters told us that the average cost of the equipment from one manufacturer is $38,000, the electrodes are 10.95 ($8.95 with discount) and that the labor time for the TEB procedure ranges from 15-20 minutes. The commenters requested that we adjust the PE values accordingly.

Response: We are sympathetic to the commenters concerns regarding the decrease in PE RVUs reflected in the proposed rule that reflected both the elimination of the NPWP and the bottom-up methodology. For the labor time request, the PE database does contain 20 minutes, although this time was incorrectly cross-walked to the equipment time. We apologize to the commenters regarding this error, and have changed the equipment time to 20 minutes, from 10, in the database. We disagree with the commenters about the inaccuracy of the equipment cost. During the rulemaking process for the CY 2005 fee schedule, at which time we revalued all equipment in the PE database, we identified 2 different brands of equipment used for the TEB service. When the 2 prices are averaged (using $38,000 as noted above by the commenters), the cost of the TEB equipment is $28,625 which is the price listed in the database. We also repriced our supply database during rulemaking for the 2004 fee schedule. The TEB electrodes or sensors are listed at $9.95 in the database and that amount is based solely on a phone quote from the commenting manufacturer. TEB sensors from the other equipment manufacturer range from $4.43 to $6.00 for each patient application. Based on current valuation of the supplies and equipment in the PE database, we are not changing the price of equipment or supplies for the TEB service.

m. Additional PE Issues Raised by Commenters

Comment: We received 2 comments from specialty organizations requesting CMS to re-evaluate the lack of physician work value for the 3 G-codes (G0237, G0238, and G0239) CMS created to describe services to improve respiratory function to reflect the physician's work in overseeing these incident to services. The commenters contend that the addition of CPT 99755, assistive technology assessment, in 2004 created a rank-order anomaly for the respiratory function G-codes. The commenters requested that CMS ask the RUC to evaluate the work for these G-codes.

Response: We disagree with the commenter's contention that a rank order anomaly exists between the respiratory function G-codes and CPT 97755. We were clear when we created these codes during rulemaking for the 2002 fee schedule that the G-codes would make billing of CPT codes 97000-97799 inappropriate for professionals involved in treating respiratory conditions, unless these services are delivered by physical therapists (PTs) and occupational therapists (OTs) and meet other requirements for physical and occupational therapy services. We also disagree that these services are always provided incident to a physician's service because in the CORF setting, where respiratory therapy services are statutorily delineated as a CORF service, the physician's direct supervision is not a requirement and the incident to provisions do not apply. The G-codes enable us to distinguish CORF respiratory therapy and incident to services from the services provided by PTs and OTs under the therapy benefit. Consequently, these G-codes cannot be used to bill for services provided under the physical and occupational benefit category at section 1861(P) of the Act and, as such, cannot create a rank order anomaly with the 97000 series of CPT codes. Although we have not assigned any work values for this final rule with comment, we are still considering the merits of this request and are happy to meet with the commenters prior to the issuance of our next proposed rule to discuss this issue in greater detail. We remind the specialty societies that they can make requests to the RUC to review the G-codes with respect to work values. However, we believe the appropriate review entity would be the HCPAC.

Comment: Several commenters expressed their concern regarding the high-priced supply items in our practice expense database. In their comments, the RUC requested that we consider a different approach for payment of high-priced disposable medical supplies, particularly with respect to new technology supply items—where prices commonly decrease within 6-12 months after being distributed into a wider market—as these services move into the physician's office. As an alternative, the RUC strongly encourages CMS to review and re-price medical supplies, priced at or above $200, on an annual basis. Another commenter noted that our listed price of $677 for the endovenous laser kit used for CPT 36478 is apparently in error because it is readily available at $250-$350 and listed four suppliers who distribute this supply in the noted price range.

Response: We appreciate comments and remarks. The RUC's comments regarding high cost medical supplies and the need to review these prices on a more frequent basis than every 5 years. Because we are committed to ensuring that the prices for supplies and equipment in the PE database are accurate, we also want to account in some way for the volatile nature of prices for new technology. We will consider options for revaluing these high cost “new tech” supply items and include a discussion of this issue in the next proposed rule

Comment: We received a comment from an organization representing services of audiologists noting that the salary for audiologists and the equipment for their services are too low or out of date.

Response: During the rulemaking process for the 2005 fee schedule, we revalued all equipment in the PE database, and requested specialty input at that time. To the extent that there have been changes since last year, we recommend that the organization utilize the establish RUC process. We would also encourage the commenter to supply us with updated salary information so that we may better address their other concern.

Revisions to CPT Code Series 21076 Through 21087

We also want to note that, at the request of the RUC, we have been working directly with representatives of maxillofacial prosthetics to refine the PE inputs for the CPT code series 21076 through 21087. They have submitted spreadsheets to us for labor, supplies and equipment, and much of this information has been entered in the PE database although, as discussed above, the 2005 PE RVUs will be retained for 2006. We will continue to work with the specialty to refine these inputs, verifying prices and quantities, prior to the issuance of our next proposed rule.

B. Geographic Practice Cost Indices (GPCIs)

Section 1848(e)(1)(A) of the Act requires us to develop separate GPCIs to measure resource cost differences among localities compared to the national average for each of the three fee schedule components. While requiring that the PE and malpractice GPCIs reflect the full relative cost differences, section 1848(e)(1)(A)(iii) of the Act requires that the physician work GPCIs reflect only one-quarter of the relative cost differences compared to the national average. Start Printed Page 70151

As discussed in the August 8, 2005 proposed rule (70 FR 45783), section 1848(e)(1)(E) of the Act, as amended by section 412 of the MMA, established a floor of 1.0 for the work GPCI for any locality where the GPCI would otherwise fall below 1.0. This 1.0 work GPCI floor was used for purposes of payment for services furnished on or after January 1, 2004 and before January 1, 2007. This 1.0 floor will remain in effect in 2006.

Section 602 of the MMA added section 1848(e)(1)(G) of the Act, which sets a floor of 1.67 for the work, PE, and malpractice GPCIs for services furnished in Alaska between January 1, 2004 and December 31, 2005 for any locality where the GPCI would otherwise fall below 1.67. Effective January 1, 2006, this provision will end. In the proposed rule, we indicated the 2006 GPCIs for Alaska will be 1.017 for physician work, 1.103 for PE, and 1.029 for malpractice.

Payment Localities

In the August 8, 2005 proposed rule (70 FR 45783), we stated that we look for the support of a State medical society as the impetus for changes to existing payment localities. Because the GPCIs for each locality are calculated using the average of the county-specific data from all of the counties in the locality, removing high-cost counties from a locality will result in lower GPCIs for the remaining counties. Because of this redistributive impact, we have refrained, in the past, from making changes to payment localities unless the State medical association provides evidence that any proposed change has Statewide support.

After the publication of the CY 2005 final rule, the California Medical Association (CMA) submitted a proposal for a demonstration project that was the same as its proposal submitted in response to the August 5, 2004 PFS proposed rule. The CMS proposed removing ten counties from the existing “Rest of California” payment locality and creating ten new payment localities. Additionally, reductions to the payments to the Rest of California locality, would be balanced by payment contributions from the other payment localities in the State.

There were several aspects of the proposal that made implementation problematic for us under our demonstration authority. For example, physicians whose payments would decrease under the demonstration could challenge the validity of a new locality configuration established without providing them the opportunity to comment through the regulatory process (as is our normal process for making locality changes). In particular, physicians who are not members of county medical societies or the CMA, or did not agree to participate in the proposed demonstration may have challenged its implementation.

Also, the Medicare PFS currently uses identical GPCIs to pay for services provided in an area by both physicians and nonphysician providers (such as podiatrists, optometrists, physical therapists, and nurse practitioner). Changing the locality configuration for medical doctors and doctors of osteopathic medicine, but not for other professionals, would have some peculiar results that were not addressed in the CMA proposal. For example, in areas where the GPCIs would be reduced under the demonstration, some practitioners not participating under the demonstration (such as physical therapists) could be paid more than physicians in the same locality. Conversely, where the GPCIs would be increased under the demonstration, there would likely be complaints from the nonphysician practitioners not included in the demonstration.

Nonetheless, we do recognize the potential impact of wide variations in the practice costs within a single payment locality. In the CY 2005 final rule, we noted that we received many comments from physicians and individuals in Santa Cruz County expressing the opinion that Santa Cruz County should be removed from the Rest of California payment locality and placed in its own payment locality. The county-specific GAF of Santa Cruz County is 10 percent higher than the Rest of California locality GAF. Santa Cruz County is adjacent to Santa Clara County and San Mateo County. Santa Clara and San Mateo Counties have two of the highest GAFs in the nation. The published 2006 GAF for the Rest of California payment locality is 24 percent less than the GAFs of Santa Clara and San Mateo.

Sonoma County is also part of the Rest of California payment locality. The county-specific GAF of Sonoma County is 8 percent higher than the Rest of California locality GAF. Sonoma County is bordered by Marin County and Napa County. Using published 2006 values, the payment locality that includes Marin and Napa counties has the fourth highest GAF in the nation, and is 13 percent higher than the GAF of the Rest of California payment locality.

We recognize that changing demographics over time may lead to significant payment disparities in particular circumstances. We rely upon State medical societies to identify and propose consensus approaches to resolving these disparities, because there are redistributive impacts in the “budget neutral” process within a State when new localities are created (or existing ones reconfigured). Yet we also recognize our responsibility for establishing fee schedule areas. In the proposed rule, to assure the maximum opportunity for public discussion and comment to identify a consensus approach, we listed alternative locality configurations that we had examined, including:

  • The CMA demonstration approach comparing county-specific GAFs to the payment locality GAF, and designating any county with a county-specific GAF at least 5 percent higher than its locality GAF as a new locality;
  • An approach that sorts counties by descending GAFs and compares the highest county to the second highest county. If the difference between these two counties is 5 percent or less, they are included in the same locality. The third highest county GAF is then compared to the highest county GAF and so on, until the next county GAF is not within 5 percent of the highest county GAF. At that point, the county GAF that is more than 5 percent lower than the highest county GAF becomes the comparison for the next lowest county GAF, to create a second locality. This process is repeated down throughout all of the counties;
  • An approach that compares the county with the highest GAF to the Statewide average, removing counties that are 5 percent or more than the Statewide average; and
  • An approach that bases GPCI payment localities on Metropolitan Statistical Areas as defined by the Office of Management and Budget.

However, because these reconfigurations would result in significant redistributions across most California counties, we simply proposed the approach that would have the least impact on other counties. We proposed that Santa Cruz and Sonoma Counties (the two counties with the most significant disparity between the assigned Rest of California GAF and the county-specific GAF) be removed from the Rest of California payment locality and that each would be its own payment locality. We invited and received comments regarding this proposal and possible alternative approaches to address this issue. We were particularly interested in whether the CMA supported this approach. Those comments and our responses are discussed below.

The issue of payment locality designation in light of changing economic and population trends will be Start Printed Page 70152of importance to us for the foreseeable future. We also indicated in the proposed rule that we are interested in other solutions to the problem, and with any ideas or suggestions that will help resolve the problems associated with the designation and revision of payment localities. We would use those ideas and suggestions in developing any future proposal that would be subject to comment through the rulemaking process.

Comment: Numerous comments from the beneficiaries and health care providers in Santa Cruz and Sonoma Counties, and from several members of the Congress, including a U.S. Senator from California, supported our proposed change. These comments focused on the high costs of practicing in Santa Cruz and Sonoma Counties and were appreciative of the proposal. Most supporters referred to studies that have shown the high costs of working in Santa Cruz and Sonoma Counties have resulted in physicians restricting their practices or withdrawing from practice altogether. According to the commenters, this has made it more difficult for Medicare beneficiaries to find doctors in those counties. These commenters feel that our proposed change will encourage physicians to continue to treat Medicare patients in their Santa Cruz and Sonoma County practices.

Response: These two counties currently have the most significant disparities between their present GAFs and their county-specific GAFs. They are also bordered by counties with significantly higher GAFs. As we stated earlier in this section and in the proposed rule, we have received many comments in the past expressing concern that these disparities have led some practitioners to relocate their practices out of these counties, creating potential access problems.

The proposal was an attempt to balance the interests of physicians and nonphysician practitioners and their patients in Santa Cruz and Sonoma Counties with the interests of providers and patients in the other counties in the Rest of California. We noted in the proposed rule that the 2006 Rest of California GAF would be 1.011, compared to the 2005 GAF of 1.012. Absent this proposal, the 2006 Rest of California GAF would be 1.017 (2006 is the second year of the transition to the new GPCIs and GAFs incorporating updated data).

Comment: We also received comments opposing the proposal from numerous providers and medical associations in the current Rest of California payment locality. In addition, several members of the Congress wrote letters opposing the proposed change.

The CMA pointed to the fact, which is the result of the budget neutrality requirement for administrative actions to modify GPCIs, that the Rest of California locality would be negatively impacted. The CMA also notes that the proposal does not address the other localities it identified in its demonstration proposal. These views were echoed by the other commenters objecting to the proposal.

Response: It is indicative of the difficult nature of this issue that many of the same commenters who expressed disappointment that our proposal did not address all of the other counties that CMA identified in its demonstration proposal were also concerned that the proposal would simultaneously result in a reduction of the GPCIs for the Rest of California payment locality. Under our current statutory authority, it is well known that changes to the payment localities must be implemented in a budget neutral manner. Therefore, it is not possible to fully meet both objectives without legislation to provide additional funding for physician payments in California.

While we appreciate the situation of practitioners in Santa Cruz and Sonoma Counties as described above, we also acknowledge the concerns of those in the Rest of California payment locality about the negative payment impact of removing the GPCI data for Santa Cruz and Sonoma Counties, and the lack of support from the CMA for an administrative solution to these payment concerns. As we mentioned earlier in this section, our proposal was designed to balance these two interests.

As we have stated repeatedly in the past, we believe payment locality reconfigurations should be supported broadly across the State. It was our belief that the proposal we presented, which actually would have had the smallest possible negative impact on the Rest of California's GAF, might meet that criterion. However, based on the comments we received opposing the proposal, particularly those from the CMA, it is apparent that this proposed change is not acceptable to the majority of commenters at this time.

Comment: The CMA indicated that it supports a nationwide legislative solution that would provide additional funding for physicians in counties adversely affected by locality reconfigurations. The CMA states “this is the only GPCI solution that we are supporting at this time.”

The Medicare Payment Advisory Commission (MedPAC) comments that the locality boundaries have not had a complete review since 1997 and that economic and population trends are likely to have changed since that time. MedPAC is studying these issues, and encourages CMS to do so as well, with the goal of revisiting the boundaries of all payment localities nationwide.

We also received a comment from a member of the Congress urging us to conduct a national examination of the definitions of payment localities. The commenter recommended that we propose a method to reconfigure payment localities to be effective January 1, 2008. The commenter also recommended that we develop a process for periodically reviewing payment localities.

Response: As we stated earlier in this section and in the proposed rule, we are interested in all ideas that will help resolve the problems associated with the designation and revision of payment localities. Clearly, as illustrated by the situation discussed earlier in this section, one of the most significant issues to be addressed is the redistributive nature of changes to the payment localities in a budget neutral context.

There are currently 89 separate payment localities. Of these, 34 are Statewide localities. Our last comprehensive evaluation of the definition and composition of the payment localities was discussed in the July 2, 1996 proposed rule (61 FR 34615) and the November 22, 1996 final rule (61 FR 59494). The localities existing at that time, which were developed by the local Medicare contractors, served as building blocks for the current localities (at the time, there were 210 separate localities, 22 of them were Statewide localities).

We stated at the time that our major goals were to simplify payment areas and payment differences among adjacent geographic areas while maintaining accuracy in tracking input price differences among areas. There is an inherent trade-off between these two goals. Thus, at one extreme is a set of Statewide localities with no intra-state geographic adjustments; very simple, but less descriptive of input price differences. At the other extreme is a separate locality for each county; maximum input price adjustment for geographic variation, but operationally very cumbersome, expensive to develop and maintain, and potentially very confusing for providers.

We do not disagree with the view that a comprehensive evaluation of the current payment localities is due, and we look forward to working cooperatively with MedPAC in that regard. We are examining all viable Start Printed Page 70153options that will meet the general objectives discussed above. We would note, however, that our goals for this analysis are very similar to those we expressed in 1996.

Comment: A private insurer is opposed to our proposal because it increases the number of payment localities which increases commercial payer administrative costs. The insurer suggests we reduce the number of California payment localities from 10 to 3.

Response: While we appreciate and, as a matter of general policy, agree that it would be preferable to minimize the number of separate payment localities wherever possible, we do not believe that reducing the number of payment localities would resolve the issues discussed above.

Comment: We received comments from a medical clinic in Wisconsin and a research and management organization in Colorado. These commenters stated that CMS is using improper data to create the GPCIs. The commenters suggest we change the wage proxy categories to include physicians and remove physician work from the GPCI calculation. They further state that “Medicare payments are a primary stimulus in attracting greater numbers of physicians to high payment localities”. The commenters also suggest we look for alternative data sources for rent data.

Response: The CY 2005 final rule contained responses to commenters raising the same issues related to the data used to calculate the GPCIs as those noted above (69 FR 66260). Because the data used to calculate the GPCIs was not part of the proposed rule, we refer the commenter to that document rather than repeat that discussion here. We also note that we continue to evaluate other potential sources of data to use to calculate the GPCIs.

We are disappointed that there was limited support for the proposal to create new, separate payment localities for Santa Cruz and Sonoma Counties. As we noted above, the proposal was designed to balance concerns of practitioners in higher-cost Santa Cruz and Sonoma Counties with the concerns of those in the Rest of California payment locality about the negative payment impact resulting from removal of the GPCI data for Santa Cruz and Sonoma counties from the Rest of California GPCI calculation. Because of the nearly complete lack of support for this proposal outside the two positively impacted counties, we have decided to withdraw this proposal at this time. As noted above, we intend to work with MedPAC and other interested parties toward a more comprehensive evaluation of potential refinements of the payment localities.

Under section 1848(e)(1)(E) of the Act, the floor of 1.67 for the work, PE, and malpractice GPCIs for services furnished in Alaska ends as of January 1, 2006. Therefore, as of that date, the GPCIs for Alaska will be 1.017 for physician work, 1.103 for PE, and 1.029 for malpractice costs.

C. Malpractice Relative Value Units (RVUs)

We discussed several proposed technical changes and other issues related to the calculation of the malpractice RVUs in the proposed rule. These are summarized below, along with discussions of the comments we received and our responses.

1. Five Percent Specialty Threshold

We are concerned that the malpractice RVUs could be inappropriately inflated or deflated due to irregular data based upon incorrectly reported specialty classifications and have examined the impact of establishing a minimum percentage threshold for any procedure performed by any specialty before the risk factor of that specialty is included in the malpractice RVU calculation of a particular code. We proposed excluding data for any specialty that performs less than 5 percent of a particular service or procedure from the malpractice RVU calculation for that service or procedure and discussed the code-specific impact of implementing this proposed threshold. Our assumption was that the infrequent instances of these specialties in our data represent aberrant occurrences and removing the associated risk factor from the malpractice RVU calculation would improve the accuracy and stability of the RVUs. This was based on our belief that removing data attributable to specialties that occur in our data less than 5 percent of the time would most appropriately balance the objective to identify irregular data (claims with a specialty identified that is highly unlikely to have performed a particular procedure) while including specialties that perform a procedure a small percentage (but at least 5 percent)of the time.

We excluded evaluation and management (E&M) services from the analysis. Medicare claims data show that E&M services are performed by virtually all physician specialties. Therefore, in the case of E&M codes, it is likely that even the low relative percentages of performance by some specialties would accurately represent the provision of the service by those specialties.

For all services other than E&M services, we stated our belief that removing data attributable to specialties that occur in our data less than 5 percent of the time would most appropriately balance the objective to identify irregular data (claims with a specialty identified that is highly unlikely to have performed a particular procedure) while including specialties that perform a procedure a small percentage of the time. The higher the threshold, the more likely it would result in the removal of data for specialties actually performing the procedure, while a lower threshold would be more likely to fail to remove some irregular data, particularly for low-volume codes (fewer than 100 occurrences, where each claim represents 1 or more percentage points).

The overall impact of removing the risk factor for specialties that occur less than 5 percent of the time in our data for a procedure is minimal. There is no impact on the malpractice RVUs for over 5,280 codes, and there is an impact of less than 1 percent on the malpractice RVUs for over 1,300 additional codes. Only 16 codes decrease by at least 0.1 RVUs, with the biggest decrease being a negative 0.28 impact on the malpractice RVU for CPT code 17108, Destruction of skin lesions, from a current RVU of 0.82 to a proposed RVU of 0.54.

Conversely, there are 219 codes for which RVUs increase by at least 0.1, the largest increase being a positive 0.81 RVU increase for CPT code 61583, Craniofacial approach, skull, from a current RVU of 8.32 to a proposed RVU of 9.13. Among codes whose malpractice RVUs would increase under our proposal, 646 have increases of less than 1 percent. The impact analysis section of this proposed rule examines the effects of this proposed change by specialty.

Comment: Numerous commenters supported the 5 percent specialty threshold. Several commenters suggested that we apply the threshold to the E&M codes.

Response: We appreciate the commenters' support of this change to our methodology. Regarding the exclusion of E&M codes from our analysis, we note our rationale as stated above in this section. The comments we received did not address our concern that all specialties use these codes. Therefore, we still believe it is appropriate not to apply the 5 percent specialty threshold to the E&M codes.

Comment: We received a comment recommending the threshold be lowered to 1 percent. The commenter is concerned that a 5 percent threshold inappropriately removes some Start Printed Page 70154specialties actually performing interventional radiology services. The example of CPT code 35476 (percutaneous venous angioplasty) was provided. The commenter noted that CMS's proposed 5 percent threshold removed the risk factors for general surgeons and vascular surgeons, resulting in a decrease in the malpractice RVUs for this code. The commenter states this was contrary to our objective to remove irregular data because both of these specialties actually perform this procedure, and that a 1 percent threshold would better retain those specialties actually providing the service while still removing irregular data.

Response: In the case of CPT code 35476, the risk factors for the two specialties that were removed resulted in a decrease in the RVUs for this code; however, we review these data on a regular basis and if, in the future, the data support it, we will change the RVUs accordingly. We note that the majority of commenters supported a 5 percent threshold as reasonable. We do not believe a 1 percent threshold, as suggested by the commenter, is reasonable as this threshold would not be an effective screen for claims with a specialty identified that is highly unlikely to have performed a particular procedure. However, we will continue to assess whether a different threshold may ensure irregular data are removed without also removing data for specialties that actually perform the service.

2. Specialty Crosswalk Issues

Malpractice insurers generally use five-digit codes developed by the Insurance Services Office (ISO), an advisory body serving property and casualty insurers, to classify physician specialties into different risk classes for premium rating purposes. ISO codes classify physicians not only by specialty, but in many cases also by whether or not the specialty performs surgical procedures. A given specialty could thus have two ISO codes, one for use in rating a member of that specialty who performs surgical procedures and another for rating a member who does not perform surgery.

Medicare uses its own system of specialty classification for payment and data purposes. Therefore, to calculate the malpractice RVUs, it was necessary to map Medicare specialties to ISO codes and insurer risk classes, and in some instances to crosswalk unassigned specialties to the most approximate existing ISO codes and risk classes.

We stated in the CY 2005 final rule that we would continue to work with the AMA RUC's Professional Liability Insurance (PLI) Workgroup to address any potential inconsistencies that may still exist in our methodology. Based upon this commitment, the RUC PLI Workgroup forwarded various recommendations for our consideration. The RUC developed its recommendations based upon comments submitted to them by physician specialty organizations.

As discussed in the August 8, 2005 proposed rule, the Workgroup believes the risk factors assigned to certain professions overestimate the insurance premiums for these professions and, based on its recommendations, we proposed revising the risk factor for the following specialties to a risk factor of 1.00: clinical psychology; licensed clinical social work; psychology; occupational therapy; opticians and optometrists; chiropractic and physical therapy. We invited comment from representatives of the affected specialties and others regarding the appropriateness of this proposal, as well as other specialty crosswalks and suggestions for reliable sources of actual malpractice premium data for nonphysician groups.

The RUC PLI Workgroup also believed that a number of professions that were assigned to the average for all physicians risk factor should be removed from the calculation of malpractice RVUs altogether and recommended excluding data from the following professions: Certified clinical nurse specialist; clinical laboratory; multispecialty clinic or group practice; nurse practitioner; physician assistant; and physiological laboratory (independent). We agreed with this recommendation and proposed to establish malpractice RVUs based upon the mix of specialties exclusive of the above specialties and professions.

The PLI Workgroup also made recommendations for changing the crosswalks for risk factors for the following specialties which we did not accept: Certified registered nurse anesthetists; colorectal surgeons; gynecologists; and oncologists. We did not propose changes to the current crosswalks for these specialties and professions because we believe the current crosswalks we are using for these specialties appropriately reflect the types of services they provide.

Comment: One commenter objected to our proposed change in the crosswalk to the lowest current risk factor of 1.00 for opticians and optometrists. The commenter stated that the recommendation from the RUC was not based on examination of the premium data or any other objective evidence. However, another commenter supported the proposal to crosswalk optometrists and opticians to the lowest current risk factor of 1.00, arguing this more appropriately reflects the actual level of risk assumed during the performance of procedures.

A commenter objected to the proposed crosswalk change to 1.00 for clinical psychologists, licensed clinical social workers, and psychologists because the commenter believes that the malpractice insurance costs for these nonphysician practitioners are well below those paid by psychiatrists.

Response: The proposed changes to the risk adjustment factor crosswalks were based on our agreement with the RUC PLI Workgroup's assertion that these nonphysician professionals incur costs most similar to the lowest cost physician specialty. Because we do not have actual premium data for these professional groups, it is necessary to select an appropriate crosswalk category. We proposed to change the crosswalks for these specialties because, absent actual premium data, we agree with the RUC that these groups very likely do not incur malpractice costs on par with the average physician specialty.

In its comments, the RUC points out that each of the professions for which we proposed to change the malpractice crosswalk is represented on the RUC's Health Care Professional Advisory Committee (HCPAC). The HCPAC agreed that these professions should review their premium data and report back to the HCPAC at its September 29, 2005 meeting. Subsequently, on October 6, 2005 (after the close of the public comment period), the RUC submitted the results of these reviews.

The RUC submitted to us after the close of the public comment period malpractice insurance premium data from many of these nonphysician professional groups. Because these data were received after the close of the comment period, and we believe it is important to allow the affected specialties the opportunity to comment on changes to the crosswalks, we are not incorporating these data in this final rule with comment. However, we would note that the data suggest that the annual premiums paid by these groups are below the average amounts paid by allergists and immunologists, the lowest premium cost physician specialties.

We plan to continue to examine this issue in conjunction with the RUC's PLI Workgroup before the 2007 proposed rule. Based on the fact that commenters did not provide any alternative data to suggest the crosswalks we proposed Start Printed Page 70155were inappropriate, we will adopt our proposals for 2006 without change.

Comment: One commenter supported our proposal to change the crosswalk for services of occupational therapists to 1.00, but suggests that the crosswalk should not be to allergy and immunology. Instead, the commenter recommended a crosswalk to physical medicine and rehabilitation.

Response: We appreciate the commenter's support of our proposal. With regard to the commenter's recommendation to crosswalk to the specialty of physical medicine and rehabilitation, we would note that the risk factor for this specialty is 1.26 rather than 1.00. As noted above, because the comments we received did not contain any alternative data to suggest the crosswalks we proposed were inappropriate, we are adopting our proposals for 2006.

Comment: Several commenters urged us to reconsider our proposal to not accept the RUC PLI's recommendations to crosswalk: the specialty of gynecologist/oncologist to surgical oncology; certified registered nurse anesthetists (CRNAs) to anesthesiology; and, colorectal surgery to general surgery.

Commenters also suggested separate surgical and nonsurgical risk factors for urology, and that hand surgery be crosswalked to orthopedic surgery (without spine).

Response: With respect to the commenters' recommendation to crosswalk gynecologist/oncologist to surgical oncology, the commenters did not substantially justify the argument that the professional liability premiums of the specialty are similar to those of surgical oncologists; however, we will analyze the data for this suggestion for possible future consideration. Commenters noted that CRNAs are currently crosswalked to general surgery, which means that CRNAs have a higher risk factor than anesthesiologists. These commenters recommended that CRNAs be crosswalked to anesthesiology and we accept this recommendation.

For the request to crosswalk colorectal surgery to general surgery, the specialty of colorectal surgery was not crosswalked. Instead, we used actual premium liability insurance data collected for this specialty. Consequently, we disagree that this specialty should be crosswalked to another specialty. As stated previously and in the proposed rule, we only crosswalked specialties for which no premium data were collected.

With regard to the comments regarding separate surgical and nonsurgical risk factors for urology, we would be interested in further information regarding the appropriateness of this change.

For the request to crosswalk hand surgery to orthopedic surgery, we note that, similar to colorectal surgery above, we used actual premium liability insurance data collected for this specialty. Consequently, we disagree that this specialty should be crosswalked to another specialty.

Comment: The RUC supported our proposal to remove the risk adjustment data for the following professions and providers: certified clinical nurse specialist; clinical laboratory; multispecialty clinic or group practice; nurse practitioners, physician assistants; and physiological laboratory (independent).

Response: We appreciate these supportive comments for this proposed change.

3. Cardiac Catheterization and Angioplasty Exception

In the November 2, 1999 final PFS rule (64 FR 59384), we applied surgical risk factors to the following cardiology catheterization and angioplasty codes: 92980 to 92998 and 93501 to 93536. This exception was established because these procedures are quite invasive and more akin to surgical than nonsurgical procedures.

In the CY 2005 (69 FR 66275), we discussed changes to the list of codes that would fall under the exception. In response to a request from the RUC's PLI Workgroup, we proposed to add the following CPT codes to the existing list of codes under the exception: 92975; 92980 to 92998; and 93617 to 93641.

Comment: Several commenters supported the changes made for the cardiac catheterization and angioplasty exception.

Response: We appreciate the supportive comments for this proposed change.

4. Dominant Specialty for Low-Volume Codes

The final recommendation from the PLI Workgroup was to use the dominant specialty approach for services or procedures with fewer than 100 occurrences, and to apply this approach to the list of 1,844 services supplied by the workgroup. The PLI Workgroup worked in conjunction with various specialty organizations to identify the dominant specialty that performs each service.

We did not propose to adopt this methodology and noted that low volume procedures or services are not necessarily performed by only one specialty. As noted previously, we would distinguish between excluding data presumed to be erroneous from data reflecting utilization by specialties that perform a service but are not the dominant specialty. However, we acknowledge that there may be instances where irregular data exist that would not be identified and removed by our proposed 5 percent threshold discussed previously. We will continue to work with the RUC PLI Workgroup examine this issue in the future.

Comment: Numerous commenters opposed our policy to use actual specialty data rather than dominant specialties and suggested that we adopt the RUC recommendations.

Response: As we stated in the PFS proposed rule (70 FR 45786), we believe that basing payment on all specialties that perform a particular service ensures that the actual professional liability insurance costs of all specialties are included in the calculation of the malpractice RVUs. Therefore, we do not believe it would be appropriate, even for these low-volume services, to include only the dominant specialty if other specialties regularly provide the service.

5. Collection of Premium Data

Although this issue was not part of the proposed rule, many commenters suggested that we use alternative sources for our premium data.

Comment: Some commenters suggested we used data supplied by the Physicians Insurers Association of America (PIAA) or directly from physician providers.

Response: We are currently investigating the usefulness of the PIAA data and once our evaluation of the data is complete we will make a decision. We are not considering using physician provider self-reported premium costs.

Final Decision

We are implementing the proposed 5 percent threshold and specialty crosswalk changes discussed in the proposed rule. After considering all of the other comments received, we are not making other changes to the calculation of the malpractice RVUs.

D. Medicare Telehealth Services

1. Requests for Adding Services to the List of Medicare Telehealth Services

As discussed in the August 8, 2005 PFS proposed rule (70 FR 45786), section 1834(m) of the Act defines telehealth services as professional consultations, office and other outpatient visits, and office psychiatry services identified as of July 1, 2000 by CPT codes 99241 through 99275, 99201 Start Printed Page 70156through 99215, 90804 through 90809, and 90862. In addition, the statute requires us to establish a process for adding services to or deleting services from the list of telehealth services on an annual basis.

In the December 31, 2002 Federal Register (67 FR 79988), we established a process for adding or deleting services to the list of Medicare telehealth services. This process provides the public an ongoing opportunity to submit requests for adding services. We assign any request to make additions to the list of Medicare telehealth services to one of the following categories:

  • Category #1: Services that are similar to office and other outpatient visits, consultations, and office psychiatry services. In reviewing these requests, we look for similarities between the proposed and existing telehealth services for the roles of, and interactions among, the beneficiary, the physician (or other practitioner) at the distant site and, if necessary, the telepresenter. We also look for similarities in the telecommunications system used to deliver the proposed service (for example, the use of interactive audio and video equipment.)
  • Category #2: Services that are not similar to the current list of telehealth services. Our review of these requests includes an assessment of whether the use of a telecommunications system to deliver the service produces similar diagnostic findings or therapeutic interventions as compared with the face-to-face “hands on” delivery of the same service. Requestors should submit evidence showing that the use of a telecommunications system does not affect the diagnosis or treatment plan as compared to a face-to-face delivery of the requested service.

Since establishing the process, we have added the psychiatric diagnostic interview examination and ESRD services with 2 to 3 visits per month and 4 or more visits per month to the list of Medicare telehealth services (although we require at least one in-person visit a month by a physician, clinical nurse specialist, nurse practitioner, or physician assistant to examine the vascular access site).

Requests for adding services to the list of Medicare telehealth services must be submitted and received no later than December 31st of each year to be considered for the next proposed rule. For example, requests submitted before the end of CY 2004 are considered for the CY 2006 proposed rule. For more information on submitting a request for an addition to the list of Medicare telehealth services, visit our web site at www.cms.hhs.gov/​physicians/​telehealth.

We received the following public requests for additional approved services in CY 2004: (1) Individual medical nutritional therapy (MNT) as described by HCPCS codes G0270, 97802 and 97803; (2) group MNT (HCPCS codes G0271 and 97804); (3) individual diabetes outpatient self-management training (DSMT) services (HCPCS code G0108); (4) Group DSMT (HCPCS code G0109); and (5) modification of the definition of an interactive telecommunications system for purposes of furnishing a telehealth service.

After reviewing the public requests, we proposed to add individual MNT as represented by HCPCS codes G0270, 97802 and 97803 to the list of Medicare telehealth services. We also proposed to add individual MNT to the list of Medicare telehealth services at § 410.78 and § 414.65. Moreover, because a certified registered dietitian or other nutrition professional are the only practitioners permitted by law to furnish MNT, we proposed to revise § 410.78 to add a registered dietitian and nutrition professional as defined in § 410.134 to the list of practitioners who may furnish and receive payment for a telehealth service.

We did not propose to add any additional services to the list of Medicare telehealth services or to make any changes to the definition of an interactive telecommunications system for CY 2006.

For further information on our proposals, see the Federal Register dated August 8, 2005 (70 FR 45786).

Individual MNT

Comment: Many commenters supported our proposal to approve individual MNT for telehealth and to add a registered dietitian and nutrition professional to the list of practitioners authorized to furnish and receive payment for Medicare telehealth services. Commenters stated that adding MNT to the list of Medicare telehealth services would improve access and services for patients in remote areas where traditional MNT services may not be readily available. For example, a State dietetic association mentioned that in many cases, patients need to drive for more than an hour to receive MNT services and that the ability to furnish individual MNT as a telehealth service will provide great benefit to rural Medicare beneficiaries. Furthermore, a renal association stated that limited access to nutritional therapists is problematic for patients with stage 3 and 4 kidney disease who are located in rural or isolated areas. The commenter explained that nutritional counseling is an important tool for helping beneficiaries improve their nutritional status and in controlling levels of key electrolytes such as potassium and phosphorous. Several MNT practices also urged us to adopt our proposal to approve individual MNT for telehealth. Another commenter supported the addition of individual MNT, however stated that more conclusive data regarding efficacy is needed before further expansion.

Response: We agree with the commenters that approving individual MNT for telehealth would help provide greater access to registered dietitians and other nutritional professionals for beneficiaries in rural and or isolated areas.

Comment: A few commenters believe that MNT should not be approved as a Medicare telehealth service. For instance, a certified diabetes educator (CDE) stated that it would be very difficult to accurately assess cognitive and literacy levels, emotional state and motivation without seeing the patient. The commenter also believes that face-to-face interaction for assessment, establishment of goals, and reviewing written materials is essential. The commenter expressed support for using telehealth to furnish MNT in very limited circumstances, for example if there was no access to an educator within 50 miles or if the patient was homebound. One commenter contends that it would be difficult to assess a patient's understanding of the dietary prescription, nutrient content of each food group, portion control and information provided by food labels, especially for beneficiaries who cannot read and or have a vision impairment that prevents them from reading fine print. Moreover, another commenter believes that individual MNT includes skill-based training beyond an individual assessment, not unlike teaching insulin administration or blood glucose monitoring. The commenter stated that the skills taught in MNT cannot be verbally assessed through distance education.

Response: As discussed in the proposed rule, we believe that individual MNT is similar in nature to an office or other outpatient visit (which is defined in the law as a Medicare telehealth service). We believe that the components of an E/M office visit involve a similar level of patient counseling for following a treatment plan as compared to individual MNT. We also believe that a registered dietitian at the distant site, along with an appropriate medical professional Start Printed Page 70157with the beneficiary at the originating site, could adequately assess and adjust to the beneficiary's ability to understand and follow his or her nutritional plan.

We do not agree with the commenter that the same level of physical, skill-based training that is required in an individual DSMT session, (for example, teaching a Medicare beneficiary the skills necessary for the self-injection of insulin), is a requirement for individual MNT.

Comment: One commenter requested that we clarify whether we would pay a physician practice for individual MNT furnished as a telehealth service when a registered dietitian or other nutrition professional reassigns his or her right to bill for payment to the physician practice as an employer.

Response: As discussed in the CMS claims processing manual (Pub. 100-04, chapter 1, section 30.2.6), if the employer/employee reassignment exception is met, and the person furnishing the service and the entity wishing to bill are both enrolled in Medicare and each have their own billing number, then we could make payment to the physician practice for the MNT service.

Group Medical Nutritional Therapy (MNT) and Diabetes Self-Management Training Services (DSMT)

Comment: Some commenters agreed with our proposal not to add DSMT to the list of Medicare telehealth services. For instance, one commenter wrote that DSMT can not be done as a telehealth service because in-person interaction with the client is crucial for assessing the skill development necessary for managing diabetes. Additionally, two certified diabetic educators (CDE) stated that DSMT can not be adequately furnished as a telehealth service and agreed with our proposal not to add DSMT to the list of Medicare telehealth services. Furthermore, another commenter stated that face-to-face interaction for assessment, establishment of goals, and reviewing written materials is essential for DSMT.

Response: As discussed in the proposed rule, we believe that DSMT is not similar to the current list of Medicare telehealth services and requires conclusive evidence showing that the use of a telecommunications system is an adequate substitute for the in-person delivery of DSMT.

Comment: A few commenters believe group MNT and group DSMT are similar in nature to the current list of Medicare telehealth services and therefore should be approved for telehealth under category 1 criteria. The commenters contend that the same presentation material, text books, manuals, DVD's and on site support staff are used whether group DSMT or group MNT is furnished in-person or through an interactive audio and video telecommunications system. The commenters stated that the practitioner would conduct the same training session for a telehealth service as they would in-person, and they believe that the interactive differences between group MNT and group DSMT and the current Medicare telehealth services should not be used as a basis for denying these services. The commenters believe that the criteria for approving group MNT and group DSMT should be based on whether the use of a telecommunications system is equivalent to the in-person delivery of the requested service. Moreover, commenters argue that no group services would ever be approved if we base approval upon whether the interactive dynamic of the requested service is similar to existing telehealth services and requested us to add group MNT and group DSMT as a precedent by which other future group service requests could be measured.

Response: Category 1 requests are reviewed to ensure that the roles of, and interaction among, the beneficiary and physician (or other practitioner) of the requested service are similar to the current telehealth services, for example office and other outpatient visits and consultation services. In other words, the roles of, and interaction among, the beneficiary and physician (or practitioner) is the criterion used to determine whether the requested service is similar to the current telehealth services.

Since the interactive dynamic of group MNT and group DSMT is not similar to the current list of telehealth services, the request to add these services was assigned to category 2. For category 2 services, we assess whether the use of an interactive audio and video telecommunications system to deliver the requested service is equivalent to the in-person delivery of the service. To that end, we review any comparative analyses submitted by the requestor illustrating that the use of a telecommunications system is an adequate substitute for the in-person delivery of the requested service. If the requestor were to submit studies indicating that beneficiaries receiving group MNT and group DSMT comprehend and apply the training material as well by telehealth as in person, we would reconsider approving group MNT and group DSMT for telehealth.

Comment: The same group of commenters also believe that individual DSMT is similar to the existing list of telehealth services and should be approved as a category 1 request. The commenters contend that a telepresenter would be able to facilitate the “hands on” aspects of training a patient how to inject insulin. For example, a telepresenter with a patient at the originating site (who is not a certified CDE) could assist with filling syringes, mixing doses, and showing the injection site location through illustration or pointing to areas on the body. Commenters also argue that the use of a large video monitor to show gradient markings on a syringe could be beneficial for patients with poor vision.

Response: As discussed in the proposed rule, we considered individual DSMT as a category 2 request because the components included in training a Medicare beneficiary to administer insulin injections are typically not part of the services currently on the list of telehealth services. We did not propose to add individual DSMT because the requestors did not submit any comparative analyses illustrating that the use of an interactive audio and video telecommunications system is an adequate substitute for individual DSMT furnished in-person.

Comment: Several commenters submitted summaries of studies and or articles regarding group psychiatry, individual psychotherapy, and medication management furnished as telehealth services. Additionally, an individual practitioner mentioned a study that compared diabetes education furnished through telemedicine with diabetes education furnished in-person.

Response: For category 2 services, we require evidence showing that the requested telehealth service is equivalent to the in-person delivery of the same service. The articles regarding mental health services and pharmacologic management do not address whether the use of a telecommunications system is an adequate substitute for the in-person delivery of MNT or DSMT. Additionally, individual psychotherapy and pharmacologic management are already on the list of Medicare telehealth services.

The comparison study regarding diabetes education focused on certain aspects of individual DSMT (but, as noted below, not on training patients to inject insulin), and therefore is irrelevant to the request to add group DSMT. The study conclusions mentioned that the “diabetes nurse educator was even successful in Start Printed Page 70158teaching insulin administration via telemedicine to a patient who had very high blood glucose levels”. However, training patients on the self-administration of injectable drugs (which typically occurs during an individual training session) was not the focus of this study and no conclusive evidence was provided showing that insulin administration can routinely be taught as a telehealth service.

Comment: Some commenters suggested that we approve the majority of DSMT for telehealth and require selected aspects of the training such as the instruction of insulin injections to be furnished in person by a CDE. For instance, one CDE stated that the use of telehealth would not be appropriate for teaching selected skills (such as the administration of self-injectable drugs, glucometer testing, or insulin pump therapy), and should not replace the initial assessment or all follow-up visits. Some CDE's and DSMT programs stated that a combination of in-person and telehealth training works well for their patients. However, commenters stated that the majority of the curriculum for an American Diabetes Association (ADA) recognized DSMT program can be successfully provided as a telehealth service. For instance, a CDE stated that curriculum components such as nutritional management, foot care, ketone testing, sick day management, use of a supplemental insulin scale, and treatment of hypoglycemia or hyperglycemia could be furnished as a telehealth service.

Response: DSMT is furnished either as an individual or group service as described by HCPCS codes G0108 and G0109 respectively. As many commenters mentioned, teaching a patient how to inject insulin is typically furnished as part of an individual DSMT session rather than in a group setting. Additionally, as discussed at § 410.141(c)(1), Medicare payment for initial DSMT may not exceed 10 hours of beneficiary training in which 9 hours of the training are usually furnished as a group service. Since teaching a patient how to inject insulin is typically an integral component of an individual training session, and comprises only 1 hour of a maximum of 10 hours of initial training, we do not believe that it would be appropriate to carve out selected skill-based training from an individual DSMT service.

We agree that skill-based training such as teaching patients how to inject insulin would be difficult to accomplish without the physical in-person presence of the teaching practitioner and believe this is not a common aspect of the current list of telehealth services. Given that teaching patients the skills required for insulin injection and blood glucose monitoring are typically furnished during an individual DSMT session we assigned the request to add individual DSMT to category 2. Moreover, as discussed previously, since the interactive dynamic of group DSMT is not similar to the current list of telehealth services, it does not meet the criteria for category 1. Therefore, we require evidence showing that the use of an interactive audio and video telecommunications system in furnishing DSMT is an adequate substitute for DSMT furnished in-person.

Comment: Some commenters believed that we compared group MNT to group psychiatric therapy or mental health counseling. The commenters suggest this is not a fair comparison because patients participating in a group MNT session typically do not discuss specific personal health information with the nutrition professional because the group “therapy” is a discussion of nutrition and is centered on a specific medical disease topic (for example, diabetes). Commenters contend that in the case of group MNT, the dietitian presents educational material to many beneficiaries at once and that the level of intense personal interaction found in group mental health services is not necessary in group MNT.

Response: As discussed previously, we compared the roles of, and interaction among, the beneficiary and physician (or other practitioner) in furnishing MNT and DSMT to the existing telehealth services. We did not compare group MNT to group psychiatric therapy or to group mental health counseling.

Comment: A few commenters stated that furnishing MNT for a diabetic patient is intended to be an adjunct to DSMT. For example, one group of commenters stated that without receiving DSMT, patients would not have an overall understanding of diabetes, how the disease develops and changes, and would not be taught additional methods for controlling glucose beyond those presented in MNT.

Response: Approving individual MNT for telehealth is one step along the way to helping more beneficiaries gain access to a collaborative skill-based DSMT program. As discussed earlier, we believe there should be conclusive evidence showing that DSMT can be as effective when furnished as a telehealth service as in a face-to-face encounter before we approve this service for telehealth.

Additionally, we conduct and sponsor a number of innovative demonstration projects to test and measure the effect of potential program changes. Our demonstrations study the likely impact of new methods of service delivery, coverage of new types of service, and new payment approaches on beneficiaries, providers, health plans, states, and the Medicare Trust Funds. We would encourage the commenters to take advantage of other programs that the agency has set up to increase medical quality and reduce cost. For more information on demonstration projects visit our web site at www.cms.hhs.gov/​researchers/​demos.

Comment: A few commenters requested that we pay for DSMT education provided to patients over the phone. One commenter submitted several studies and articles regarding telephone-based interventions for diabetes care, (for example, telephone counseling).

Response: Patient education provided over the phone is beyond the scope of this provision. Telephone calls do not meet the definition of an interactive telecommunications system and are not on the list of Medicare telehealth services. Additionally, as discussed in the Medicare benefits policy manual, publication 100-2, chapter 15, section 30, no separate payment is made for phone calls under the Medicare program.

Comment: One commenter requested us to recognize CDE's as a Medicare practitioner and allow them to bill the Medicare program directly.

Response: The statute does not permit a CDE to bill and receive direct payment for Medicare services. The statute defines a certified DSMT provider as a physician, other individual, or entity who, in addition to providing DSMT services, provides other items or services for which direct payment may be made. We do not have the statutory authority to establish a separate CDE benefit category.

Definition of an Interactive Telecommunications System

We received many comments regarding the use of an interactive audio and one-way video telecommunications system for delivering a Medicare telehealth consultation. Several commenters expressed qualified support for the use of an interactive audio and one-way video telecommunication for purposes of furnishing a telehealth consultation. For instance, some commenters believe that allowing one-way video would be appropriate in situations when it enables the consulting physician to add value to the Start Printed Page 70159diagnosis and decision making capabilities of the patient care team at the originating site which includes, at a minimum, a treating physician; and where observation of the consulting physician by the patient is either unnecessary or not possible (for example, when the patient is unconscious).

Some commenters also suggested that we allow one-way video specifically for assessing suitability for stroke thrombolytic tissue-type plasminogen activator (tPA) therapy and compared the remote evaluation of a stroke patient for purposes of determining tPA treatment to a confirmatory consultation. For instance, the treating physician at the originating site would make a determination regarding the use of tPA and request a consultation to confirm his or her decision to use tPA therapy. Another commenter, who currently provides stroke consultation as a Medicare telehealth service, believes this service is an outpatient or inpatient consultation (where the neurologist at the distant site determines the treatment plan rather than offering a second or third opinion). The commenter also explained that they use an interactive audio and video telecommunications system that allows two-way real time video interaction between the consulting physician at the distant site and the originating site medical team.

One organization stated that payment should be made for physicians' services that are safe, effective, medically appropriate, and provided under accepted standards of medical practice. The commenter believes that the critical factor in determining whether to pay for a service should be medical necessity rather than the technology used to furnish the service. The commenter also compared the use of one-way video and two-way audio to a physician furnishing a visit to a blind patient. The commenter contends that we would not deny payment for a face-to-face consultation on the basis that the patient could not see the physician, and therefore we should not deny a telehealth consultation on the same basis.

Another commenter requested that we allow the use of one-way video equipment for delivering infectious disease telehealth consultations for ICU patients. The commenter explained that the hospital ICU is currently equipped with a one-way video, two-way audio telecommunications system and contends that moving interactive audio and video teleconferencing equipment to the ICU patient is very cumbersome and is only possible if appropriate technical staff are available.

We received a few comments regarding the added clinical value of two-way video versus one-way video and whether one-way video is appropriate for a broad range of specialty consultations. One commenter made the point that two-way video would allow the patient to see the physician or practitioner at the distant site when a greater degree of interaction is necessary. One organization believes that two-way video may add value to a telehealth consultation by allowing the patient and presenting practitioner (if necessary) to see the body language and other non-verbal communication of the physician or practitioner at the distant site. However, the commenter stated that payment should not be denied for using a one-way video telecommunications system. Another commenter supported using one-way video in limited emergent circumstances, but also stated that additional research should be conducted to determine whether the use of one-way video is appropriate for a broad range of specialty consultations.

Some commenters did not support the use of one-way video for furnishing a telehealth consultation. For instance, one commenter stated that face-to-face (interactive video) is a better method for obtaining patient compliance and results in a higher level of patient confidence with the health care team.

Response: We appreciate the comments on the use of an interactive audio and one-way video telecommunications system for purposes of furnishing a telehealth consultation. We intend to consider the suggestions raised by the commenters as we continue to evaluate conditions of payment for Medicare telehealth services. We continue to believe that the interaction between the consulting physician and the clinical staff at the originating site is important and it is not clear to us that one-way video is as effective in that regard as two-way video. With regard to the commenter who stated that the critical factor in determining whether to pay for a telehealth service should be based on medical necessity, we believe that the method used to furnish the service, for example the use of an appropriate telecommunications system, is just as critical as whether the service itself is medically necessary.

2. Definition of an Originating Site

As discussed in the August 8, 2005 proposed rule, section 418 of the MMA required the Health Resources Services Administration (HRSA) within HHS, in consultation with CMS, to conduct an evaluation of demonstration projects under which SNFs, as defined in section 1819(a) of the Act, are treated as originating sites for Medicare telehealth services. The MMA also required HRSA to submit a report to the Congress that would include recommendations on “mechanisms to ensure that permitting a SNF to serve as an originating site for the use of telehealth services or any other service delivered via a telecommunications system does not serve as a substitute for in-person visits furnished by a physician, or for in-person visits furnished by a PA, NP or CNS, as is otherwise required by the Secretary.” We indicated that this report was currently under development and that if the Secretary concludes in the report that it is advisable to include a SNF as a Medicare telehealth originating site under section 1834(m) of the Act, we would consider the recommendations of the report to determine whether to add SNFs to the list of approved originating sites. We also solicited comments on this topic.

Comment: We received many comments supporting the use of telehealth in a SNF. The commenters noted that adding a SNF to the definition of an originating site would provide increased access to specialty physicians and practitioners, most notably mental health services, and decrease unnecessary travel for both the beneficiary and nursing facility staff.

For example, one mental health practitioner stated that research studies indicate a critical shortage of psychiatrists in non-MSA areas and a lack of appropriate mental health care in rural SNF's as compared to their urban counterparts. As such, the commenter believes that many rural SNFs do not provide professional psychiatric or mental health care and that telehealth is one method that could be used to meet the mental health needs of the rural SNF population. Furthermore, the commenter stated that the lack of appropriate mental health care results in higher rates of psychiatric hospitalizations and the inability to effectively manage medications.

Another commenter believes that allowing telehealth services to be furnished in a SNF would increase access to follow-up care and would result in cost savings. For example, the commenter contends that addressing acute medical conditions earlier before they develop into a crisis could save money by reducing transportation costs and decrease the number of hospital admissions. The commenter also mentioned that traveling and waiting in an unfamiliar waiting room is often Start Printed Page 70160confusing and uncomfortable for the patient. The use of telehealth for SNF residents could result in less travel hardships for both the patient and SNF staff.

Response: We appreciate the comments regarding the addition of SNFs to the definition of an originating site. At this time the telehealth report to the Congress, as required by section 418 of the MMA, is under development within HHS. As discussed previously, we have the authority to approve telehealth furnished in a SNF if the Secretary concludes in the report that it is advisable to include a SNF as a Medicare telehealth originating site under section 1834(m) of the Act.

Comment: A few commenters requested us to add other facilities in addition to a SNF to the definition of an originating site. For example, one organization requested that we expand the definition of an originating site to include domiciliary care facilities and other congregate-living arrangements if SNFs are approved as an originating site. Another commenter requested that we expand the definition of an originating site to allow all community hospitals regardless of their location (for purposes of furnishing a telehealth consultation for stroke patients). The commenter noted that a timely evaluation of a stroke patient is crucial for effective stroke treatment and argued that beyond three hours after onset, resuscitation of injured brain cells becomes increasingly unlikely. The commenter contends that timely access to a critical care neurologist remains a concern for the majority of community hospitals. Moreover, a national society of nephrology requested that we add a dialysis facility to the list of originating sites.

Response: The statute defines an originating site facility as a physician's or practitioner's office, hospital, critical access hospital, rural health clinic, or FQHC. Additionally, the statute only permits telehealth services to be furnished at an originating site located in a rural health professional shortage area as defined in section 332(a)(1)(A) of the Public Health Service Act or within a county that is not included in a metropolitan statistical area. We do not have the legislative authority (except for SNFs as indicated previously) to expand the definition of an originating site facility or to allow telehealth services to be furnished in a hospital regardless of geographic location.

3. Other Issues

Comment: One association urged us to pay for asynchronous “store and forward” dermatology consultations. The commenter explained that a store and forward consultation involves the transmission of dermatological photographs and other medical information to the consulting practitioner without interaction between the patient and practitioner at the distant site; the patient is not present for the consultation. The commenter contends that store and forward consultation is more convenient for the patient, originating site and consulting physician.

Response: Medicare telehealth services include office and other outpatient visits (99201 through 99215), professional consultations (99241 through 99275), individual psychotherapy (90804 through 90809), pharmacologic management (90862), psychiatric diagnostic interview examination (90801), and ESRD-related services included in the MCP (except for one visit per month to examine the access site). As a condition of payment under Medicare, these services require an in-person patient encounter. We believe that the patient's presence, and the use of an interactive audio and video telecommunications system permitting the distant site practitioner to interact with the patient, provides a reasonable substitute for an in-person encounter. The statute provides for the use of asynchronous, store and forward technologies for delivering telehealth services only for Federal telemedicine demonstration programs conducted in Alaska or Hawaii. We do not have the authority to expand the use of store and forward technology in delivering telehealth services.

Comment: Two commenters urged us to consider adding speech-language pathologist and audiologists as practitioners allowed to furnish and receive payment for telehealth services and noted that we have not submitted the telehealth report to the Congress on additional sites, geographic areas and practitioners that may be appropriate for Medicare telehealth payment. The commenters also mentioned that the American Speech-Hearing Association (ASHA) previously submitted a request for consideration in the CY 2005 physician rule to add various speech and audiology services to the list of Medicare telehealth services. The commenters believe that we have not responded specifically to ASHA's request to approve speech and audiology services for telehealth.

Response: The report to the Congress (as required by section 223(d) of the Medicare, Medicaid and State Child Health Insurance Program Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554)) on additional sites and settings, practitioners, and geographic areas that may be appropriate for Medicare telehealth payment is under development. We are considering the suggestions raised by the commenter as we formulate our recommendations to the Congress. Moreover, since speech language pathologists and audiologists are not permitted under current law to provide and receive payment for Medicare telehealth services at the distant site, we can not fully consider ASHA's request to add speech and audiology services to the list of Medicare telehealth services.

Comment: One commenter requested that we replace the term face-to-face with “in-person”. The commenter believes that the term “in-person” is a better description of an encounter where the patient and practitioner are in the physical presence of each other.

Response: The commenter's suggestion to use the term “in-person” to describe an encounter where the physician or practitioner and the beneficiary are physically in the same room has been noted. We will consider the commenter's suggestion as we discuss Medicare telehealth payment policy.

Result of Evaluation of Comments

We will add individual MNT as represented by HCPCS codes G0270, 97802 and 97803 to the list of Medicare telehealth services. We also will add individual MNT to the list of Medicare telehealth services at § 410.78 and § 414.65. Moreover, since a certified registered dietitian or other nutrition professional are the only practitioners permitted by statute to furnish MNT, we will revise § 410.78 to add a registered dietitian and nutrition professional as defined in § 410.134 to the list of practitioners that may furnish and receive payment for a telehealth service.

E. Contractor Pricing of Unlisted Therapy Modalities and Procedures

We recognize that there may be services or procedures performed that have no specific CPT codes assigned. In these situations, it is appropriate to use one of the CPT codes designated for reporting unlisted procedures. These unlisted codes do not typically have RVUs assigned to them.

For services coded using these unlisted codes, the provider includes a description of the specific procedure(s) that was furnished. The contractor uses this information to determine an appropriate valuation.

As explained in the August 8, 2005 PFS proposed rule (70 FR 45788), currently, there are two unlisted CPT Start Printed Page 70161codes with assigned RVUs, CPT 97039, Unlisted modality (specify and time if constant attendance), and 97139 Unlisted therapeutic procedure.

To make the pricing methodology consistent with our policy for other unlisted services, and to more appropriately match payments with the actual resources expended to deliver the services provided, we proposed to have our contractors value CPT codes 97039 and 97139.

We received several comments on this proposal and provide the following summary of the comments and our response below.

Comment: Two commenters were opposed to the proposal. These commenters stated they were concerned that contractor pricing would create inconsistencies in the payment for these services or would lower payment resulting in the services no longer being provided, potentially increasing the administrative burden and resulting in delayed payments. One of these commenters suggested that we work with interested specialties to better understand the services billed under these codes. Another commenter expressed concern that obtaining new CPT codes requires a good deal of research and investigation to ensure accurate payment.

Other commenters supported this proposed change, indicating that because these codes are used for widely different services they should be evaluated separately and there is no basis for assigning the code a set fee schedule rate.

Response: While it is true that having these codes priced by the contractors may result in some increase in administrative burden and impact the timeliness of payments, it will not necessarily result in lower payments. Our goal is to ensure appropriate payment for the actual services provided and we believe that our contractors will work with the provider community to make certain that this occurs. To the extent that providers believe that new codes are needed they might want to work with the specialty organizations to achieve this objective.

Final Decision: We are finalizing our proposal and our contractors will value CPT codes 97039 and 97139. We are assigning a status indicator of “C” to these two CPT codes.

F. Payment for Teaching Anesthesiologists

In the August 8, 2005 PFS proposed rule (70 FR 45789), we summarized the current policy for the payment for services provided by teaching anesthesiologists, including the revisions to the policy published November 7, 2003 (68 FR 63196 through 63395), where we revised § 414.46 of our regulations to allow teaching anesthesiologists to bill in a similar manner to teaching certified registered nurse anesthetists (CRNAs) for the teaching anesthesiologist's involvement in two concurrent cases involving residents. This policy took effect for services furnished on or after January 1, 2004 and was intended as an alternative to the “medical direction” payment policy applicable to concurrent cases involving teaching anesthesiologists and residents.

As noted in the August 8, 2005 proposed rule, despite the higher level of payment available under this policy, the American Society of Anesthesiologists (ASA) has informed us that it is not aware of any teaching anesthesia programs that have arranged their practices to meet the conditions necessary to bill under the revised policy. The ASA suggests that the teaching physician regulations for teaching anesthesiologists should be similar to those for teaching surgeons for overlapping complex surgery procedures. The ASA thinks that anesthesia is similar to complex surgery in terms of critical periods, overlap, and availability of teaching physicians. However, as we noted in the August 8, 2005 proposed rule, the critical portions of the teaching anesthesia service and the critical portions of the teaching surgeon service are not the same. The ASA believes that inadequate payment levels have contributed to the loss of teaching anesthesiologists and an inability to recruit new faculty.

In the August 8, 2005 proposed rule, we requested comments on a teaching physician policy for anesthesiologists that could build on the policy announced in the November 7, 2003 PFS final rule, but could provide the appropriate revisions that would allow it to be more flexible for teaching anesthesia programs. We also indicated we would be interested in receiving data and studies relevant to this issue as well as any offsetting savings that could be made to account for any potential costs that could be incurred if there was a policy change.

Discussion of Comments Received

As discussed previously in this section, we did not present a formal proposal, but asked for comments from interested stakeholders on these issues. While we have not fully analyzed all the relevant information and data, we have been provided anecdotal evidence that some anesthesiologists may be leaving academic practice for better compensated positions in private practice. While we recognize that Medicare payment policies are an important consideration in these decisions, they are not the only factor.

In contrast, as pointed out by a commenter, there has been an increase in the number of nurse anesthesia programs from 83 programs in 2000 to 105 programs projected for 2006. The number of nurse anesthesia graduates has surged from 1075 nurse anesthetists in 2000 to 2035 projected for 2006. Despite these increases, nurse anesthesia programs had reported similar financial problems, such as levels of teachers' salaries, in recruiting faculty to teaching nurse anesthetists.

In terms of anesthesia manpower, we did not receive any information from surgical groups indicating difficulty in getting anesthesiologists or CRNAs to provide anesthesia services. Additionally, we did not receive any comments identifying areas of offsetting savings that might be used to fund any change in the teaching anesthesia payment policy.

We will continue to review the information and relevant data presented by the commenters and consult with the stakeholders before we move forward with any proposal.

G. End Stage Renal Disease (ESRD) Related Provisions

On August 8, 2005, we published the Revisions to Payment Policies Under the Physician Fee Schedule for CY 2006 proposed rule in the Federal Register (70 FR 45789), revising payments to ESRD facilities under the provisions of the MMA. The proposed rule implements section 1881(b) of the Act, as amended by section 623 of the MMA, which directs the Secretary to make a number of revisions to the composite rate payment system, as well as payment for separately billable drugs furnished by ESRD facilities.

Under section 1881(b)(12) of the Act, the add-on adjustment must reflect both the effect of the new payment methodology and estimate growth in ESRD drug expenditures. We proposed an add-on adjustment of 8.1 percent to the composite payment rate to account for the difference between previous payments for separately billed drugs and biologicals and the revised pricing that will take effect January 1, 2006.

We updated that add-on adjustment to reflect estimated growth in ESRD drug expenditures of 0.7 percent. We combined the add-on adjustment of 8.1 percent that reflects the payment methodology we will be using for ESRD drugs with the 0.7 percent increase for expenditures in 2006 to produce one Start Printed Page 70162proposed drug add-on adjustment for CY 2006 of 8.9 percent.

Following publication of the proposed rule, it came to our attention that 3 codes had been omitted in our analysis of drug payments and utilization for the top ten ESRD drugs that affected our calculation of the proposed add-on adjustment. On September 1, 2005, we issued a correction notice on the CMS Web site, to correct our omission of the 3 J Codes in the estimation of the market shares for the top ten ESRD drugs used in our calculation of the proposed drug add-on adjustment for 2006. The “Correction to the Proposed ESRD Drug Add-on Adjustment: Revised Table 22” is available at http://www.cms.hhs.gov/​providers/​esrd/​090105_​ESRD_​Correction.pdf. The corrected table shows the revised weights compared to the weights included in the proposed rule and resulted in a revised proposed total drug add-on adjustment to the composite payment rate of 11.3 percent for 2006.

We also proposed to revise the drug pricing for ESRD drugs to ASP+6 percent for the top ten drugs furnished by independent facilities and EPO furnished by hospital-based facilities.

In addition, section 1881(b)(12) of the Act as amended by section 623 of the MMA provided authority to the Secretary to revise the geographic index applied to the composite payment rate and phase in any changes to the index over a multi-year period. Accordingly, we proposed to revise the geographic classifications and wage indexes currently in effect for adjusting composite rate payments and to implement these changes over a 2-year transition period.

We also proposed to revise the regulations applicable to the composite rate exceptions process to reflect section 623 of the MMA provisions that restricts exceptions to pediatric facilities.

No changes to the current case-mix adjustments were proposed.

We received a total of 37 comments from the ESRD community that represented major organizations, pharmaceutical companies, beneficiaries, and concerned individuals. The comments and responses are summarized in the following sections.

1. Revised Pricing Methodology for Separately Billable Drugs and Biologicals Furnished by ESRD Facilities

In the August 8, 2005 proposed rule, we proposed that payment for drugs furnished in connection with renal dialysis services and separately billed by independent renal dialysis facilities would be based on payment amounts determined under section 1847A of the Act which are 106 percent of the ASP. We proposed to update the payment allowances quarterly, based on the ASP reported to us by drug manufacturers. We also proposed to pay for EPO in hospital-based facilities at the ASP+6 percent. We stated that we are interested in moving to the ASP+6 percent methodology for all separately billed drugs and solicited comments on a drug add-on estimation methodology that would allow us pay hospital-based facilities ASP+6 percent for all separately billable drugs.

In this final rule with comment, we are implementing payment of ASP+6 percent for all ESRD drugs furnished by both independent and hospital-based ESRD facilities. A discussion of the final drug payment methodology and related comments and responses can be found in section II.H.2.

2. Adjustment to Account for Changes in the Pricing of Separately Billable Drugs and Biologicals, and the Estimated Increase in Expenditures for Drugs and Biologicals

Section 1881(b)(12) of the Act, as added by section 623(d) of the MMA, contains two provisions that describe how the drug add-on adjustment will be implemented in the ESRD payment system. First, the add-on adjustment must reflect the difference between the payment methodology for separately billed drugs under the drug price in effect in CY 2004 and current drug pricing and, second, the aggregate payments for CY 2005 must equal aggregate payments absent this MMA provision.

Prior to 2005, separately billable ESRD drugs and biologicals other than EPO furnished in independent facilities were paid under the average wholesale price (AWP) methodology. In 2005, section 1881(b)(13)(A)(ii) of the Act required that we pay the acquisition cost for separately billable ESRD drugs (including EPO) as determined by the Office of the Inspector General (OIG). If the OIG did not determine an acquisition cost for a separately billable drug or biological, then the Secretary was given discretion to determine the payment rate. In the CY 2005 final rule (69 FR 66322-66323), we described the methodology that we used for developing the drug add-on adjustment to the composite rate to account for the difference between estimated drug payments under the AWP payment system and the acquisition costs as determined by the OIG. This adjustment was developed so that aggregate spending for composite rates plus separately billed drugs would remain budget neutral for CY 2005.

Section 1881(b)(12) of the Act, as added by section 623 (d) of the MMA, also contains two provisions related to adjustments to payments for drugs and biologicals for CY 2006. Section 1881(b)(12)(C)(ii) of the Act requires that we recalculate the 2005 add-on adjustment to reflect the difference between estimated payments using the AWP payment methodology and the payment methodology for 2006 which we proposed to be ASP+6 percent.

In addition, section 1881(b)(12)(F) of the Act requires that, beginning in 2006, we establish an annual update adjustment to reflect estimated growth in expenditures for separately billable drugs and biologicals furnished by ESRD facilities. This update would be applied only to the drug add-on portion of the composite payment rate. In order to meet both requirements, we proposed to develop the CY 2006 drug add-on adjustment in two steps.

First, we proposed to recalculate the CY 2005 add-on adjustment to reflect the difference in drug payments using 95 percent AWP pricing and payments using ASP+6 pricing. The result of this calculation would replace the current 8.7 percent adjustment and would be budget neutral to CY 2005 payments. Next, we proposed to develop a proposed annual update methodology that we would first use in CY 2006 to reflect the estimated growth in drug expenditures each year. As stated previously, this update would be applied only to the drug add-on portion of the composite payment rate. For specific details regarding the proposed adjustments, see the August 8, 2005 Federal Register (70 FR 45793 through 45800).

As noted previously, we issued a correction to the proposed ESRD drug add-on adjustment contained in the proposed rule. In this notice we acknowledged that our estimation of the market shares for the top ten ESRD drugs that we used in the calculation of the proposed drug add-on for 2006 was incorrect. After further analysis of the 2003 expenditure data used to assign weights to the top ten ESRD drugs, we determined that our data did not account for 3 new “J” codes that were implemented in 2003. As a result, the weights for Iron Sucrose, Sodium Ferric Gluconate and Paricalcitol were understated.

In addition, we noted that the weight for EPO incorrectly included expenditures for hospital-based facilities. Since the purpose of the weighting was to allocate the drug spread to all other drugs paid using the Start Printed Page 70163proposed ASP+6 percent pricing, hospital-based data should not have been included because we paid for other hospital-based drugs based on cost. Table 16 shows the revised weights compared to the weights included in the proposed rule.

Table 16.—Revised to Reflect Correction

DrugsPublished proposed weightsRevised proposed weights
Epogen78.8369.33
Calcitriol0.130.84
Doxercalciferol1.741.48
Iron dextran0.380.23
Iron sucrose0.717.03
Levocarnitine0.890.77
Paricalcitol17.3714.61
Sodium ferric glut0.534.96
Alteplase, Recombinant0.180.56
Vancomycin0.240.19

We note that as a result of these data corrections, the top ten drugs account for 98 percent of total ESRD drug expenditures, rather than 92 percent as stated in the proposed rule.

Using these revised weights, the proposed recalculated 2005 drug add-on adjustment was corrected to 10.4 percent, and the proposed 2006 update was corrected to 0.8 percent. The corrected total drug add-on adjustment proposed for 2006 was 11.3 percent.

The proposed rule also discussed a method to estimate the drug spread applicable to hospital-based facilities for non-EPO drugs if we decided to implement ASP+6 percent pricing for all hospital-based drugs. This methodology would use the weighted average drug spread percent for independent facilities to estimate the drug spread for non-EPO drugs furnished by hospital-based ESRD facilities.

The following sections discuss the comments we received on these issues and provide a detailed description of the final drug add-on adjustment to the ESRD composite payment rate that will be implemented January 1, 2006.

Comment: We received a number of comments advocating that drug payments to hospital based facilities should be the same as to independent facilities. However, most of these comments raised no concerns regarding our proposed methodology for computing the drug spread applicable to hospital-based facilities. Two comments specifically supported our proposal to use the drug pricing drug spread from independent facilities to estimate the spread for hospital-based facilities. Two comments stated we should follow MedPAC's suggestion that we collect data to estimate hospital-based facilities' cost and Medicare payment per unit for ESRD drugs, but did not raise concerns with our proposed alternative method for estimating the drug spread applicable to hospital-based facilities if we implemented ASP+6 percent pricing. MedPAC recommended that we use the same methodology to pay for all drugs (regardless of setting) and suggested that we could use dosing data from independent facilities to estimate ASP+6 payments for hospital-based facilities to compute the drug spread related to hospital-based facility drug payments.

Response: Given both the MedPAC recommendation that ASP should be the basis of payment for all separately billable ESRD drugs and the overall support for providing consistent drug payments for both hospital-based and independent facilities, we have decided, in light of section 1881(b)(13)(A)(iii) of the Act, to implement ASP+6 percent pricing for hospital-based facilities beginning January 1, 2006. See section II.H.2 for a more detailed discussion of this issue. We are adopting the methodology outlined in the proposed rule to determine the drug spread applicable to hospital-based facilities and to calculate a drug add-on adjustment. We are also adopting the proposed methodology which would permit us to implement a change in payment to ASP+6 percent for all non-EPO drugs provided by hospital-based ESRD facilities.

While we agree that the ideal approach would be to collect data from hospital-based facilities, this data collection would significantly delay implementation of a consistent ESRD drug payment policy. Absent the collection of data, we believe that using the estimation methodology described in the proposed rule brings us closer to the actual price of hospital drugs (ASP+6 percent) than does the policy of continuing to rely on reasonable costs.

In response to MedPAC's suggestion, we did an analysis of drug dosing units from the billing data of independent facilities and were unable to determine accurate monthly average units from those bills, because facilities do not bill individual line items by date of service. As a result, the average monthly dose we computed for some drugs was significantly below the FDA expected monthly dose. In other words, the average monthly dose for the top ten ESRD drugs from independent facility data that we could use as a proxy for pricing the hospital-based bills was problematic. We believe the statute contemplates a single payment approach for separately billable ESRD drugs. Therefore, using our estimation proposal is a start towards MedPAC's principle that the same prices should be paid for the same services across all settings which we believe is consistent with the statute. Furthermore, moving to ASP+6 percent pricing for hospital-based facilities evens out the effect of the drug add-on adjustment between independent and hospital-based facilities.

Therefore, we have computed the drug spread for non-EPO hospital based drugs using the weighted average drug spread percentage from independent facilities. We applied that percentage to the total hospital-based drug payments in order to estimate the amount of the drug spread as a result of revising the drug pricing methodology to ASP+6 percent for hospital-based facilities.

We believe this method provides a reasonable estimation of the drug spread because, as explained previously, all drugs in both settings are based on ASP+6 pricing. Moreover, we believe that the benefits of implementing a consistent drug payment methodology outweighs any potential drawbacks that may result from estimating the drug spread without more precise data. We intend to pursue options for obtaining additional data to more accurately Start Printed Page 70164compute and update the drug add-on adjustment. Once more complete hospital-based ESRD drug data become available, we will re-examine the computation of the drug add-on adjustment and make any necessary revisions to our estimations.

Comment: We received comments from two associations representing ESRD facilities that expressed concern about our interpretation of the statutory provision related to the drug add-on adjustment. These comments presented legal arguments challenging our decision to apply a single drug add-on adjustment that is applicable to both hospital-based and independent ESRD facilities. Both comments indicated that as long as separate drug payment methodologies are in place for hospital-based facilities and independent facilities, the statutory text, structure, and legislative history requires that we establish distinct drug add-on adjustments. Another commenter recommended that the add-on adjustment should be directly linked to hospital-based and independent facilities based on the actual loss of revenue due to changes in reimbursement for separately billed drugs.

Response: We continue to believe that our interpretation of this statutory provision represents the best reading of the statute as we explained, for reasons, discussed, in the CY 2005 final rule (see 69 FR 66319 through 66320). Accordingly, rather than adopting separate add-on adjustments for independent and hospital-based ESRD facilities, we are addressing the payment inequities expressed in the comments and pointed out in the MedPAC report that result from differential drug payment methodologies for hospital-based and independent facilities. As discussed previously, we are implementing a consistent drug payment methodology for all ESRD provider settings. In this way, we believe we have resolved the concerns expressed by these commenters in a manner consistent with the statute.

a. Recalculation of the CY 2005 Drug Add-on Adjustment

For CY 2006, we proposed to use the same method that we used to develop the drug add-on adjustment for CY 2005 to recalculate the 2005 adjustment to reflect the proposed revision to the ESRD drug payment methodology from acquisition costs to ASP+6 percent. That is, we proposed to calculate the spread based on the difference in aggregate payments between estimated payment based on AWP pricing and estimated payment based on ASP+6 pricing. Although we proposed to use pricing data from the second quarter of CY 2005, we indicated that all of the data used to develop the proposed add-on adjustment would be updated for the final rule with comment, as more current data would be available.

(1) Historical Drug Expenditure Data

To develop the drug add-on adjustment for this final rule with comment, we used historical total aggregate payments for separately billed ESRD drugs for calendar years 2001, 2002, 2003, and 2004. For EPO, these payments were broken down according to type of ESRD facility (hospital-based versus independent). We also used the number of dialysis treatments performed by these two types of facilities over the same period.

(2) ASP+6 Percent Prices

In the proposed rule we used the ASP+6 percent prices for the second quarter of CY 2005. However, we indicated that we would use all four quarters of CY 2005 prices to develop the CY 2005 ASP payments.

Comment: One commenter raised concerns regarding using four quarters of the ASP to determine an annual average. This commenter indicated that the most recent available quarter, specifically, the fourth quarter ASP prices of any CY represents the ASP for the entire year. This commenter recommended that, instead of using all four quarter of CY 2005, we use only the fourth quarter of CY 2005 ASP to calculate the difference in the aggregate payments based on 95 percent AWP pricing and the estimated payment based on ASP+6 percent.

Response: We do not agree with this recommendation and have used the average of ASP prices in all four quarters of 2005 to calculate the add-on adjustment. The fourth quarter of the ASP represents only the most current ASP prices, and does not represent an aggregate annual average. Therefore, our calculation for ASP+6 percent includes not only the most current quarter (that is, the fourth quarter ASP) but also the previous three quarters of ASP pricing data for 2005). We believe this calculation provides the most accurate estimation of 2005 actual ASP+6 percent payments.

We used four quarters of 2005 ASP+6 percent prices for the drugs listed in Table 17. We averaged these to develop prices representing the average 2005 ASP payments.

Table 17

DrugAverage sales price plus 6% 2005
Epogen$9.30
Calcitriol0.75
Doxercalciferol2.19
Iron dextran11.21
Iron sucrose0.36
Levocarnitine12.30
Paricalcitol3.92
Sodium ferric glut4.74
Alteplase, Recombinant30.61
Vancomycin2.95

(3) Estimated Medicare Payments Using 95 Percent of AWP

In the proposed rule, we used the first quarter 2005 AWP prices and updated them to the second quarter by applying, for drugs other than EPO, an estimated AWP quarterly growth of approximately 0.74 percent. In order to estimate AWP payments for this final rule with comment, we used 4 quarters of 2005 AWP prices and averaged them to obtain prices representative of 2005 payment amounts. This methodology was not applied to the price for Epogen since payment was maintained at $10.00 per thousand units prior to MMA (see Table 18).

Table 18

Drugs2005 average estimated medicare payments using 95% of AWP
Epogen$10.00
Calcitriol1.36
Doxercalciferol3.98
Iron dextran17.91
Iron sucrose0.65
Levocarnitine36.48
Paricalcitol5.32
Sodium ferric glut8.17
Alteplase, Recombinant31.89
Vancomycin3.79

(4) Dialysis Treatments

In the proposed rule, using the most complete data available at the time, we estimated total dialysis treatments for 2005 at 34.5 million.

Comment: We received comments suggesting that our estimate of dialysis treatments was overstated.

Response: Using more recent data that has become available since we issued the proposed rule, we increased our projection of total number of dialysis treatments based on actuarially projected growth in the number of ESRD beneficiaries. Since Medicare covers a maximum of three treatments per week, utilization growth is limited, and, therefore, any increase in the number of Start Printed Page 70165treatments should be due to beneficiary enrollment. The actual 2004 data we used in this final rule with comment, showed higher treatment counts than we had projected for 2004 in the proposed rule. Therefore, for CY 2005, we estimate there will be a total of 34.7 million treatments performed.

(5) Drug Payments

In the proposed rule, we updated drug payments for both EPO and non-EPO drugs using the estimated trend factor for EPO of 9.0 percent. We proposed using the EPO 9.0 percent trend factor for all drugs (not just for EPO) because EPO constitutes the largest proportion of drugs furnished by ESRD facilities and because we determined that the extremely varied growth in spending for non-EPO drugs between 2000 and 2003 prohibited a reliable trend analysis. As we indicated we would do in the proposed rule, we used later 2004 drug payment data for the final rule with comment and trended those data forward to 2005.

Comment: We received a number of comments concerning our use of the EPO trend factor to update drug payments to 2005. These comments expressed concern that this resulted in understating the growth in ESRD drug payments. We also received comments that we should correlate the growth of EPO and other separately billable ESRD drugs.

Response: Since we now have 2004 data, we have modified the trend factor to more accurately reflect the growth in drug payments. In addition, we have calculated trend factors for non-EPO drugs independently of those for EPO.

We updated the total aggregate EPO drug payments for both hospital-based and independent facilities by using historical trend factors using data from 2001 through 2004. For CY 2005, the CY 2004 payment level was increased by a trend factor of 11.0 percent.

Similarly, we updated the aggregate spending for separately billable drugs, other than EPO, for both hospital-based and independent facilities by using a historical trend factor of 15 percent.

In addition, we deducted 50 cents for each administration of EPO from the total EPO spending for both hospital-based and independent facilities to account for payment for syringes that were included in the EPO payments prior to the implementation of the MMA drug payment provisions.

In the proposed rule, we estimated the cost of syringes at $1.6 million for hospital-based facilities and $26.8 million for independent facilities.

Comment: We received comments that the proposed $26.8 million dollars estimated for syringe payments to independent facilities was too high, because the estimated number of administrations of EPO exceeded the number of treatments.

Response: We have re-estimated the syringe payments to take into account problems we encountered related to the administrations field on the dialysis bills. Thus for the final rule with comment, we are calculating syringe payments as 50 cents multiplied by 90 percent of estimated treatments for 2005. The 90 percent represents the percent of dialysis patients that receive EPO. Since we only pay for one administration per treatment we applied this 90 percent to total treatments in order to estimate the number of EPO administrations.

Using this methodology, for CY 2005, we estimate payments for these syringes will amount to $1.8 million for hospital-based facilities and $13.8 million for independent facilities.

For CY 2005, we estimate that total spending for separately billable drugs will reach $462 million for drugs provided in hospital-based facilities ($217 million for EPO and $245 million for other drugs), and $3.102 billion for drugs provided in independent facilities ($2.082 billion for EPO and $1.019 billion for other drugs).

Comment: One comment indicated that we were eliminating separate payments for syringes.

Response: We believe the commenter misunderstood our payment policy. We currently pay separately for syringes used to administer ESRD drugs, and will continue to do so. We began paying separately for the syringes associated with administration of EPO when EPO payment was revised from payment at $10 per 1,000 units in 2005. While the previous $10 payment included payment for syringes, the new payment methodology does not. We have not modified our approach to paying for syringes in general, but now also pay separately for syringes associated with the administration of EPO.

(6) Add-On Calculation and Budget Neutrality

In the August 8, 2005 proposed rule (70 FR 45789), we acknowledged a mistake in our calculation of the proposed drug add-on adjustment. The proposed 2005 recalculated add-on adjustment was 10.4 percent. In addition, we indicated in the proposed rule that we intended to include more recent 2004 billing data in the calculation of the final drug add-on adjustment.

Comment: We received a number of comments commending us for responding to industry concerns by making the corrections to the proposed add-on calculation and urging us to use the most accurate, up-to-date data and trends available to compute the 2005 budget-neutral add-on adjustment.

Response: We have taken these comments into consideration and have updated all of the data and assumptions used to calculate the add-on adjustment as described below.

For each of the top ten drugs, we calculated the percent by which ASP+6 percent is projected to be less than payment amounts under the 95 percent of AWP pricing system for 2005. We then calculated a weighted average of the percentages by which ASP+6 percent would be below 95 percent of AWP payment amounts, for the top 10 ESRD drugs for independent facilities. We weighted these percentages by using the 2005 estimated Medicare payment amounts for the top ten drugs. This procedure resulted in a weighted average payment difference of 16 percent.

Table 19

Drugs2005 estimated medicare payment weights as a percentage of total drug expendituresPercent by which ASP+6% prices are below 95% of AWP prices
Epogen67.967.03
Calcitriol0.4544.74
Doxercalciferol3.6244.94
Iron dextran0.1137.40
Iron sucrose7.7944.50
Start Printed Page 70166
Levocarnitine1.1166.27
Paricalcitol13.3826.44
Sodium ferric glut4.6441.96
Alteplase, Recombinant0.754.00
Vancomycin0.2022.20

Since we estimate that these 10 drugs represent nearly 98 percent of total 2005 drug payments to both hospital-based and independent facilities, we applied the weighted average to 100 percent or all of aggregate drug spending projections for hospital-based and independent facilities, producing a projected difference of $585 million (the sum of $76 million for hospital-based and $509 for independent facilities). Since we do not currently have reliable data on dosing units from hospital-based bills, we believe it is reasonable, as discussed above, to proxy the drug spread for hospital-based facilities using the spread for independent facilities. The weighted average is applied to 100 percent of drug spending projections for hospital-based and independent facilities.

Distributing the total 2005 figure of $585 million over a total projected 34.7 million treatments results in a revised 2005 add-on to the per treatment composite rate of 13.1 percent. This compares to the proposed adjustment of 10.4 percent. By making this adjustment to the composite rate, we estimate that the aggregate payments to ESRD facilities would be budget neutral for drug payments for 2005, as required by the MMA. We note that, beginning January 1, 2006, this 13.1 percent adjustment replaces the 8.7 percent adjustment currently in effect for CY 2005.

b. Calculation of the Proposed CY 2006 Inflation Update to the Drug Add-On Adjustment

The proposed rule described the approach we proposed to use to update the drug add-on adjustment to account for the estimated growth in drug expenditures between 2005 and 2006. Based on the most recent, complete data that was available at the time, we proposed a 2006 inflation adjustment of 0.8 percent to the drug add-on to the composite payment to reflect the estimated growth in drug expenditures between 2005 and 2006. While we received no comments specific to the add-on inflation adjustment, we did receive comment about our growth projections used to calculate the adjustment. Those comments were addressed in the previous section.

(1) Drug Payments and Dialysis Treatments

Similar to the above mentioned process, we updated the total aggregate EPO drug spending for hospital-based and independent facilities using historical trend factors. For 2006, the EPO payment level was increased from 2005 by a trend factor of 11.0 percent. We also updated aggregate spending for separately billable drugs, other than EPO, for both hospital-based and independent facilities by a trend factor of 15 percent. This procedure resulted in projected drug expenditures of $523 million for drugs provided in hospital based facilities ($240 million for EPO and $283 million for other drugs) and $3.481 billion for drugs provided in independent facilities ($2.306 billion for EPO and $1.175 billion for other drugs). These numbers include an estimated reduction for the 50 cent payment for syringes of $1.9 million for hospital-based facilities and $14.1 million for independent facilities. We also updated the projected number of dialysis treatments using actuarial enrollment projections. This resulted in total of 35.6 million treatments for 2006.

(2) Adjustment to Composite Rate Add-On

The proposed computation of the 2006 inflation adjustment to the composite rate was 0.8 percent. We have updated our projected inflation adjustment for the drug add-on and have included data for non-EPO hospital-based drugs into the computation.

Since EPO is updated at an average trend of 11 percent and other separately billable drugs are updated by a trend factor of 15 percent, for both hospital-based and independent facilities, for 2006 we computed a combined weighted average growth in total drug expenditures of 12.3 percent, based on the relative proportions of EPO and non-EPO drugs. We then applied the 12.3 percent projected growth in aggregate drug expenditures between 2005 and 2006 to the 2005 drug add-on figure of $585 million. This resulted in a projected incremental increase in the drug spread for 2006 of $72 million ($9 million for drugs furnished by hospital-based facilities and $63 million for drugs furnished by independent facilities). We distributed the $72 million over 35.6 million projected treatments, resulting in a 1.4 percent increase to the 2005 composite payment rate.

Comment: We received a number of comments regarding an annual update factor. Several comments recommended that we should provide an annual update to the composite rate. The specific recommendation suggested an annual market basket update in the composite rate equivalent to the MedPAC recommendation of an increase to the composite payment rate of 2.5 percent in 2006. The comments further acknowledged that the creation of an annual market basket update requires Congressional action.

Response: Because Congressional action is required, there is no specific provision in the current statute or regulations for an annual update for the composite payment rate based on the ESRD market basket rate of increase. However, the statute does, in effect, provide for an annual update to the drug add-on to the composite payment rate. As discussed previously, the statute requires that we annually update the amount of the drug spread included in the composite payment rate, based on the projected growth in drug expenditure between 2005 and 2006. We are providing an inflation adjustment to the composite payment rate of 1.4 percent. Even though this inflation adjustment is part of the overall add-on adjustment, the overall effect for 2006 is equal to an update of 1.4 percent. Start Printed Page 70167

In addition, we note that as part of our work on the development of a fully bundled prospective payment system (PPS) for ESRD facilities, we will be developing an update framework that would include an ESRD market basket factor. We expect to include a discussion of this update framework as part of a Report to Congress on a fully bundled PPS for outpatient ESRD facilities. This report is still under development.

Comment: One comment stated that the add-on adjustment to the composite rate should be reflected as an absolute dollar amount rather than a percentage, stating that there is no logical reason why the drug add-on component should be adjusted by a wage index.

Response: Section 1881(b)(12)(A) of the Act which was added by the MMA, required the establishment of a “case-mix adjusted prospective payment system for dialysis services” that included: (1) The composite rate; (2) case-mix adjustment for a limited number of patient characteristics; and (3) a drug add-on adjustment to the composite rate to account for the difference in drug payments compared to the previous drug pricing methodology. Section 1881(b)(12)(D) requires that payments under this system be adjusted by a geographic index. Therefore, we are required to apply the wage index to all components of the case-mix adjusted composite rate system.

c. Drug Add-On Adjustment for 2006

With the CY 2005 add-on to the per treatment composite rate being 13.1 percent and the additional increment for expenditures in CY 2006 being 1.4 percent, the combined drug add-on adjustment for 2006 is 14.7 percent (1.131 × 1.014).

3. Revisions to Geographic Designations and Wage Indexes Applied to the ESRD Composite Payment Rate

Section 1881(b)(12)(D) of the Act, as added by section 623(d) of the MMA, gave the Secretary the discretionary authority to revise the current wage index incorporated in the ESRD composite payment rates. That provision also requires that any revised wage index be phased in over a multiyear period. We proposed to adopt OMB's revised geographic definitions (announced in OMB Bulletin No. 03-04, issued June 6, 2003) to determine urban and rural locales for purposes of calculating ESRD composite payment rates, beginning January 1, 2006. In conjunction with using OMB's geographic designations, we proposed to recalculate the ESRD wage index based on acute care hospital wage and employment data for FY 2002, as reported to us in connection with development of the wage index used in the inpatient hospital prospective payment system (IPPS). We also proposed to update the labor portion of the ESRD composite rate to which the wage index is applied. Below we discuss comments we received on these proposals and our final determinations regarding CY 2006 revisions to the wage index adjustment as it is applied to the ESRD composite payment rate.

a. Use of Revised OMB Geographic Area Designations To Determine Urban and Rural Locales for ESRD Composite Payment Rates

In the August 8, 2005 proposed rule, we proposed to use OMB's revised core-based statistical area (CBSA)-based definitions for Metropolitan Statistical Areas, New England County Metropolitan Areas, and Micropolitan Statistical Areas, announced in OMB Bulletin 03-04 (June 6, 2003) as the basis for revising the urban/rural locales and corresponding wage index values reflected in the composite payment rates. The definitions we proposed are the same urban and rural definitions used for the Medicare IPPS, but without regard to geographic reclassifications authorized under section 1886(d)(8) and (d)(10) of the Act. In conjunction with adopting OMB's geographic classifications, we proposed replacing the current weighted wage index based on a 60/40 blend of Bureau of Labor Statistics (BLS) and hospital wage index values with one developed exclusively from acute care hospital wage and employment data obtained from the Medicare hospital cost reports. We proposed to update the wage index annually. For a full discussion of our proposals, see the August 8, 2005 proposed rule (70 FR 45793 through 45800). The following section contains a summary of the comments that we received on the proposed wage index revisions.

Comment: Several commenters, generally those representing independent ESRD facilities located in rural areas, opposed implementation of the CBSA based wage index. The commenters expressed concern that the proposed wage index would jeopardize beneficiary access to care, and left little protection for rural facilities. Some commenters pointed out the amount of the reduction in composite payments that specific providers would incur based on the proposed urban/rural definitions and revised wage index values.

Response: The current urban/rural definitions reflected in the composite payment rates have been in effect for over 20 years, and needed to be updated. By revising those definitions to conform with the latest available OMB geographic designations as explained in the August 8, 2005 proposed rule, we believe that we are complying with the express intent of the Congress permitting revision of those designations, as set forth in section 1881(b)(12)(D) of the Act. While our authority to revise the current ESRD wage index is discretionary, we believe this revision is essential if the composite rates are to reflect accurately the costs of providing ESRD services.

None of the commenters proposed an alternative to our proposed geographic classification system. Because we must have a national classification system built on clear objective standards, we are adopting the CBSA based urban/rural definitions, as described in our proposed rule. As to commenters' concerns about any reductions in the base composite payment rates, we have taken these concerns into consideration and have adopted a transition policy concerning the wage index. We address commenter's comments and provide a more detailed discussion of our transition policy in section II.3.c. of this final rule with comment.

Comment: While several commenters supported the implementation of the new CBSA based wage index, they expressed concern over the potential impact on independent ESRD facilities, particularly those located in rural areas. The most frequent recommendations to reduce the impact of any payment reductions were to extend the proposed transition period from 2 to 5 years, and provide annual updates of the wage index in each of those years.

Response: We agree that the new CBSA based wage index should be revised periodically to account for not only changes in labor market conditions, but also any future revisions in the definitions of the Metropolitan Statistical Areas and other geographic designations which may be announced by OMB. We will revise the ESRD wage index annually using the most recent Medicare cost report data as is used in the Medicare hospital IPPS. We also agree that the proposed transition period of 2 years may not be sufficiently long to provide ESRD facilities with enough time to adapt to the new wage index and have extended the transition period to 4 years. For a more complete discussion of our policies to help ESRD facilities adapt to the OMB geographic designations and wage index revisions Start Printed Page 70168we have adopted for ESRD purposes (see section C of this preamble).

Comment: Several commenters endorsed our adoption of the proposed wage index based on the revised OMB definitions. However, the commenters were critical of what they perceived to be a lack of transparency in the data and methodology used to develop the new wage index, especially the budget neutrality adjustment. The commenters requested that we provide the data and methodology used to calculate the new wage index values and BNF.

Response: For purposes of adjusting the labor-related portion of the CY 2006 ESRD composite rate, we are using the most recent hospital wage data applicable to FY 2006 payments as discussed previously in this section. We start with the wage index used by the Skilled Nursing Home Prospective Payment System (SNF PPS) and multiply this index by a numeric factor, which is the budget neutrality adjustment. We use the SNF PPS wage index because we believe it reflects the most recent data, and is consistent with all other non-acute care facility payment systems.

As explained earlier in this section, we begin with the same wage index values as those used by the SNF and multiply those values by the BNF (See Tables 21 and 22). The methodology for creating this wage index BNF is explained in further detail below.

The wage index measures relative differences in the average hourly wage for the hospitals in each labor market area compared to the national average hourly wage. As stated previously, for ESRD payment purposes the wage index values are based on wage data as reported by hospitals on their Medicare cost reports. The wage data used to construct the wage index are updated annually, based on the most current data available. Accordingly, 2002 wage data were used to construct the wage index values used in this final rule with comment and 2003 wage data will be used to construct the wage index that we intend to use for the ESRD composite rate for CY 2007.

For each geographic area, wage data for all providers in that area are combined. The sum of all wages for all providers in that geographic area is divided by the total hours for all providers in that geographic area. The result is the average hourly rate for that geographic area. This data can be found at the following link: http://www.cms.hhs.gov/​providers/​hipps/​ippswage.asp.

The data will be found under the section labeled, “FY 2006 Wage Index Public Use Files”, and contains average hourly rate data and wage index. The index is computed by dividing the average hourly rate for each geographic area within the CBSA by the national average hourly wage.

As we noted earlier, for the ESRD wage index we are using hospital wage data without regard to any approved geographic reclassification authorized under sections 1886(d)(8) and (d)(10) of the Act or other provision that only applies to hospitals paid under the IPPS. For purposes of the ESRD wage index methodology, the data we use is pre-reclassified, pre-floor hospital data and unadjusted by occupational mix.

The final step is to multiply each wage index value by the wage index budget neutrality factor (BNF) (see section 4 for details about this adjustment).

Comment: One commenter strongly objected to our proposed implementation of the CBSA based wage index. The commenter maintained that we have failed to examine the entire dialysis patient delivery system taken as a whole. Specifically, we have not recognized that rural facilities generally have lower utilization, and consequently higher costs per treatment, especially for overhead and supplies, compared to urban facilities. The commenter offered three options for consideration-the establishment of one composite rate for all dialysis facilities, the creation of a special composite rate adjustment factor that compensates rural facilities for their higher overhead costs due to lower utilization, or the creation of an explicit exception for higher rural facility overhead costs.

Response: We recognize that large chain dialysis providers operate with the benefit of economies of scale, and may be better able to adapt to the impact of policy changes to the composite payment rates. However, we have no evidence to indicate that rural facilities have higher overhead and supply costs per treatment. Payments to rural facilities are lower compared to urban facilities because rural facility composite rate costs, including labor costs, are generally lower. We do not believe our use of a CBSA-based wage index would change our conclusion, however, as noted below, we will continue to monitor provider cost data.

Moreover, section 623(b) of the MMA and section 422(a)(2) of BIPA prohibit the granting of new exceptions for the composite rate, except for pediatric ESRD facilities.

b. Revised Labor-Related Portion

The current composite rate wage index is applied to two different labor-related shares, 40.65 percent for independent facilities and 36.78 percent for hospital-based facilities. Given the age of the cost data used to develop these shares, we proposed revising the labor-related portion of the composite rate based on the ESRD composite rate market basket contained in our May 2003 Report to Congress on developing a bundled outpatient ESRD payment system. We proposed the use of a single labor-related share of 53.711 percent that would apply to both hospital-based and independent facilities. This proportion was based on the sum of the labor-related categories of costs that comprise the ESRD market basket. (70 FR 45796 through 45798). We received the following comments on this proposal.

Comment: One commenter criticized our use of the ESRD composite rate market basket developed from CY 1997 data to revise the labor related-portion of composite rate costs subject to wage index adjustment. The commenter maintained that the use of more recent cost report data to develop a revised labor-related share would be more reflective of current economic realities. Another commenter recommended that we use the hospital market basket, which was developed from fiscal year 2002 data, instead. The commenter reasoned that the hospital market basket would be a more appropriate measure, not only because it reflects more recent data, but also because ESRD facilities compete with hospitals for labor and use the same vendors for supplies.

Response: Calendar year 1997 was the most recent year for which relatively complete data were available when the ESRD composite rate market basket was developed in 2003. Until the ESRD market basket is rebased to incorporate later data, we believe it is proper to use the 1997-based ESRD composite rate market basket to determine the labor-related share because it reflects the cost structures of ESRD facilities serving Medicare beneficiaries. We will continue to evaluate the available data on ESRD facilities and expect to periodically rebase the ESRD market basket when appropriate.

We disagree with the commenter's recommendation to use the 2002-based hospital market basket to determine the labor-related share for ESRD facilities. We believe the 1997-based ESRD market basket best reflects the types of medical services and cost structures used by ESRD facilities. This is consistent with other payment systems that use individually tailored market baskets to determine their labor-related share.

Comment: One commenter attempted to replicate the basic composite payment rate (that is, the payment rate Start Printed Page 70169prior to application of the drug add on and patient specific case-mix adjustments) for the Orlando, Florida MSA. The commenter inquired whether the proposed revised wage index for each urban/rural area is applied to 40 percent or 100 percent of the wage adjustment reflected in the current composite payment rates.

Response: The published wage index applicable to each urban/rural area is neither applied to 40 percent nor 100 percent of the composite payment rate's current wage adjustment. We currently multiply the current wage index by one of two different labor-related portions of the composite payment rates, depending on the type of ESRD facility. The portion is 40.65 percent for independent facilities and 36.78 percent for hospital-based facilities. However, the composite rate wage index itself is a blend of two separate wage index values. Of the current measure, 40 percent, is based on the hospital wage index calculated from fiscal year 1986 data, and 60 percent is based on the hospital wage index calculated from 1980 BLS data.

However, in our August 8, 2005 proposed rule, we proposed making the labor-related portion the same for both hospital-based and independent ESRD facilities. That proportion (53.711 percent) was developed from the labor-related components of the ESRD composite rate market basket. Moreover, the proposed wage index is not a blended measure. It was developed exclusively from hospital wage and employment data for fiscal year 2002 obtained from the Medicare hospital cost reports. We proposed to apply the proposed wage index values to 100 percent of the 53.711 percent labor-related share. The revised labor-related shares applicable to hospital-based and independent ESRD facilities were contained in Table 26 of our proposed rule. Using data contained in Table 26 in our proposed rule, we calculated that the basic composite payment rate for hospital-based ESRD facilities in the Orlando MSA would have been $71.12 × 0.9677 + $61.29 or $130.11. For independent facilities the rate would have been $68.94 × 0.9677 + $59.41 or $126.12.

c. Adoption of Floor/Ceiling Wage Index Values and Transition Policies for Implementation of Revised Wage Index

The wage index values in the current composite payment rates reflect a floor of 0.90 and a cap of 1.30. In the August 8, 2005 rule, we proposed eliminating the cap because of the effect it has had on restricting payments in high wage areas. While we stated that we would like to remove the floor as well, we were concerned that its immediate elimination could adversely affect beneficiary access to dialysis. To mitigate any potential adverse impact, we proposed a gradual reduction in the floor to 0.85 for 2006 and 0.80 in 2007, with a reevaluation of continued need for the floor in 2008.

We also proposed a 2-year transition for implementation of the new composite payment rates, but only for those facilities whose CBSA based payment decreased. Under the proposed transition, facilities would be paid the higher of the new wage adjusted composite rate, or a 50-50 blend of the current wage adjusted rate and the new wage adjusted rate (70 FR 45798 through 45799). We received the following comments regarding the proposed ceiling and floor wage index values and the 2-year transition period.

Comment: Several commenters representing facilities whose payment rates would increase as a result of the revised urban/rural definitions and wage index values, endorsed the immediate introduction of the new basic composite payment rates. Other commenters either supported the proposed 2-year transition period, or recommended longer transitions of varying duration to mitigate further the impact of reduced composite payments.

Response: Most commenters endorsed our proposal to provide for a transition period to mitigate the impact of the revised CBSA based composite payment rates, but believed that a 2-year transition was too short. The recommended transition periods, generally ranged from 3 to 5 years, with several commenters supporting a transition period of 5 years. We agree that a longer transition period is appropriate to allow ESRD facilities sufficient time to adjust to the new CBSA based wage index, and have selected 4 years as a reasonable compromise among the recommended alternatives. While a 4-year transition is longer than the transition in other payment systems, we believe it is justified in the case of ESRD facilities because the wage data currently used for the wage index is over 20 years old. Thus, facilities need more than the usual transition. However, we will apply the 4-year transition period to all ESRD facilities, those whose base composite payment rates compared to those currently in effect increase as well as decrease. This represents a change from our proposed policy of applying a transition period only to those facilities whose composite payment rates decreased. We believe that a transition period of 4 years applied to all ESRD facilities achieves a reasonable balance between cushioning the impact for providers whose CBSA based composite payment rates decrease, and implementing the CBSA based wage index as quickly as possible.

Comment: We received several comments on our proposal to reduce gradually the wage index floor from its current level of 0.90, to 0.85 in 2006 and 0.80 in 2007. The comments included keeping the floor at 0.90, maintaining the floor at 0.90 but simultaneously increasing the ceiling from its current level of 1.30 to 1.40, and phasing out the floor as proposed, but also extending the phase out to the wage index ceiling as well.

Response: We recognize that only immediate elimination of the 0.90 floor could substantially reduce composite payments in locales where prevailing labor costs are lower. Although ESRD facilities in areas with wage levels below 0.90 have benefited from the application of the floor, we are concerned that its sudden elimination could adversely affect ESRD beneficiary access to care.

In the August 8, 2005 rule, we proposed lifting the wage index cap of 1.30 entirely in 2006 because it has restricted payments in areas with high labor costs. Under our proposal ESRD facilities whose base composite payment rate increased would receive the full payment amount per treatment without regard to the cap.

We have carefully reconsidered our proposal in light of concerns over the potential impact of the use of new CBSA-based geographic designations and wage index values on ESRD facilities that will experience a decrease in their composite payments. We believe that it would be more consistent and equitable for all ESRD facilities if we phased out the wage index floor and eliminated the ceiling. Accordingly, we are implementing a 4-year transition period that will apply to all ESRD facilities, those experiencing either an increase or decrease in their base composite payment rate for 2006. Although the present wage index ceiling of 1.30 will be eliminated in 2006, facilities whose payments have been restricted by the ceiling would not receive 100 percent of their otherwise applicable base composite payment per treatment without the ceiling until 2009. This occurs as a result of blending the proportion of old MSA and new CBSA based wage adjusted composite rates over the 4-year transition period as shown in Table 20. By applying blended shares during the 4-year transition period to all ESRD facilities, we believe we can achieve a balance between our goals of preserving access to care in low Start Printed Page 70170wage areas and the ultimate elimination of constraints on the wage index. The wage index floors, caps, and blended shares of the base composite payment rates applicable to all ESRD facilities for CYs 2006 through 2009 are detailed in Table 20.

Table 20.—Wage Index Transition Blend

CY paymentFloorCeilingOld MSANew CBSA
20060.85 *None7525
20070.80 *None5050
2008ReassessNone2575
2009ReassessNone0100
* Each wage index floor is multiplied by a budget neutrality adjustment factor. For CY 2006 the budget neutrality adjustment is 1.045287 resulting in an actual wage index floor of .8885.

We plan to reassess the continuing application of the wage index floor in connection with the 2008 update to the composite payment rates.

An example of how the base composite payment rates would be blended during the 4 year transition period to reflect the old MSA and new CBSA based geographic designating follows.

Assume an ESRD facility whose base composite payment rate (that is, without regard to any case-mix adjustments) is $135.00 per treatment in 2005. Based on the new CBSA wage index designations, its base composite payment rate is $145.00 for 2006. This facility's blended rate during each year of the 4 year transition period would be as follows:

CY 2006—.75 × $135.00 + .25 × $145.00 = $137.50

CY 2007—.50 × $135.00 + .50 × $145.00 = $140.00

CY 2008—.25 × $135.00 + .75 × $145.00 = $142.00

CY 2009—0 × $135.00 + 1.0 × $145.00 = $145.00

Of course, this hypothetical assumes that the calculated rate of $145.00 for 2006 will not change in 2007 and the following years. In actuality, it would because of annual revisions to the wage index. However, the example serves to illustrate how the new CBSA-based composite payment rates will be phased-in during the 4 year transition period, regardless of whether an ESRD facility's base composite payment increases or decreases in 2006 compared to 2005.

Comment: One commenter endorsed our proposed elimination of the wage index cap, but was concerned that isolated rural ESRD facilities, whose wage levels are generally lower than those prevailing in urban locales, could be adversely affected, even with the proposed floor wage index values. The commenter recommended that these facilities continue to be permitted to receive the isolated essential facility exception to their otherwise applicable composite payment rate under § 413.186.

Response: ESRD facilities which have been granted exceptions to their composite payment rates, including those granted under the authority of § 413.186, have the option of either retaining their exceptions, or becoming subject to the case-mix adjusted composite payments, at any time. Beyond this option, we have no discretion to grant new exceptions under § 413.186. Section 422(a)(2) of BIPA, as amended by section 623(b) of the MMA, eliminated the granting of new exceptions to the composite payment rates except for ESRD facilities qualifying as pediatric facilities. We believe that the wage index floors of 0.85 for 2006 and 0.80 for 2007, the extension of the transition period from 2 to 4 years, and affording facilities the option of retaining previously granted exceptions, should help cushion any potential adverse impact to ESRD facilities located in isolated rural areas.

Comment: Several commenters expressed particular concern over the relatively large reduction in payment rates for dialysis facilities in certain rural areas and in certain States. While most of these locales were unspecified, some commenters used Ohio out as an example, noting that implementation of the revised wage index would reduce payment rates in Ohio by more than $14.00 per treatment. The commenters requested that we provide a State specific impact analysis, delay implementation of the proposed revised composite payment rates for a 6-month period, and engage in dialysis community discussions to determine whether changes to the proposed wage index floor values and modification of the proposed 2-year transition period, would be necessary.

Response: We strive to engage in discussions with the dialysis community concerning ESRD payment policies, such as our open door forums where the dialysis community can provide input to CMS on ESRD issues. Moreover, as noted previously, based in part on the comments received we are implementing revisions to our proposed policies regarding continuation of the wage index floor and ceiling, and the duration of the transition period. These changes should lessen the impact of our adoption of CBSA-based geographic designations and revised wage index values for ESRD services. We believe that no 6-month delay in implementing the revised composite payment rates is necessary. To respond to the commenter's suggestion that we provide a State-specific impact analysis, we have provided this information in Table 52. We are extending the proposed 2-year transition to a 4-year transition to allow affected facilities to adjust to the revised wage indices.

Comment: We received several comments which endorsed a phase in of the new CBSA based wage index based on a 50/50 split, similar to the wage index adopted in connection with the FY 2006 SNF PPS.

Response: The FY 2006 SNF PPS, published in the Federal Register on August 4, 2005 (70 FR 45026), adopted a wage index consisting of a blend of 50 percent of the FY 2006 MSA-based wage index, and 50 percent of the FY 2006 CBSA-based wage index, both of which were developed from FY 2002 hospital wage data (70 FR 45041). This blended wage index is effective for a 1 year period. As the current ESRD wage index is obsolete, we see no reason to use it as a part of a blended measure which would then reflect an outdated wage index as part of a transition mechanism.

4. ESRD Wage Index Budget Neutrality

Section 623(d) of MMA added section 1881(b)(12)(E)(i) to the Act which requires that any revisions to the ESRD composite rate payment system as a result of the MMA provision (including the geographic adjustment) be made in a budget neutral manner. This means that aggregate payments to ESRD facilities in CY 2006 should be the same aggregate payments that would have Start Printed Page 70171been made if we had not made any changes to the geographic adjusters. We proposed to apply a budget neutrality adjustment factor directly to the revised ESRD wage index values, rather than applying the adjustment to the base composite payment rates. We believe this is the simplest approach since it allows us to maintain a base composite rate for hospital-based facilities and one for independent facilities during the transition from the current wage adjustments to the revised wage adjustments. The proposed budget neutrality adjustment was 1.023024.

For CY 2006, we will apply the budget neutrality adjustment factor directly to the revised ESRD wage index values. Since we will be transitioning to the new wage index over a 4-year period, the computation of the adjustment factor varies slightly from our proposal. However, the basic method and concept is still the same as we proposed.

In order to compute the proposed wage index BNF, we used treatment counts from CY 2004 billing data and facility-specific CY 2005 composite payment rates. For purposes of adjusting the labor-related portion of the CY 2006 ESRD composite rate, we are using the most recent hospital wage data applicable to FY 2006 payments as discussed previously in this section.

Using treatment counts from the 2004 claims and facility-specific CY 2005 composite payment rates, we computed the estimated dollar amount each ESRD provider would have received had there been no changes to the ESRD wage index. This becomes the target amount of expenditures for all ESRD facilities. Then we computed the estimated dollar amount that would have been paid to the same ESRD facilities using the revised ESRD wage index (including the 4-year transition). In the first year of the transition, ESRD facilities receive 25 percent of the CBSA wage adjusted composite rate and 75 percent of the current composite rate. This becomes the first year new amount of expenditures for all ESRD facilities.

After comparing these two dollar amounts (target amount divided by first year new amount), we calculate an adjustment factor that, when multiplied by the ESRD wage index, will result in the target amount of expenditures for all ESRD facilities. Since the ESRD wage index is only applied to the labor-related portion of the composite rate payment, we computed the adjustment based on that proportion (53.711 percent). We apply the estimated budget neutrality adjustment factor to the revised wage index values for CY 2006 to ensure that estimated aggregate payments to ESRD facilities would remain budget neutral. The final wage index BNF adjustment factor is 1.045287.

Applying this budget neutrality to the wage index floor of 0.8500, results in a wage index floor for 2006 of 0.8885.

As stated earlier, the data used to compute the BNF are the wage index values in Table 21 and 22, the 2004 100 percent Outpatient Standard Analytic File (SAF) Claims, and geographic location information for each facility which may be found through Dialysis Facility Compare.

Comment: Several commenters requested that we provide the data and methodology used to compute the wage index BNF.

Response: The purpose of the wage index BNF is to achieve budget neutrality as required by section 623(d) of the MMA, which added section 1881(b)(12)(E)(i) to the Act. That provision of the Act requires that any revisions to the ESRD composite rate payment system (including the geographic adjustment) must be made in a budget neutral manner. This means that aggregate payments to ESRD facilities in CY 2006 should be the same as aggregate payments that would have been made if we had not made any changes to the geographic adjusters. The methodology for computing the wage index BNF is described earlier in this section.

The data used to compute the BNF are the wage index values in Tables 21 and 22, the 2004 100 percent Outpatient Standard Analytic File (SAF) Claims, and geographic location information for each provider which may be found through Dialysis Facility Compare. Dialysis Facility Compare can be found by going to the following link: http://www.medicare/​Download/​DOWNLOADDB.asp.

d. Wage Index Table

The following two tables show the ESRD wage indexes for urban areas (Table 21) and rural areas (Table 22).

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4. Miscellaneous Comments on ESRD Issues

We propose to make no changes to the existing case-mix adjustment system. We proposed to maintain the existing system as established in the CY 2005 final rule (69 FR 66238) and implemented on April 1, 2005.

Comment: One commenter recommended that we stop the implementation of the basic case-mix adjustment. The commenter was critical of the case-mix adjustment because this commenter could not calculate the impact on their payment of one of the case-mix variables, specifically, weight. This commenter did not want to report weight as a case-mix variable because of the fluctuations in this variable, that is, weight changes.

Response: Section 623(d)(1) of the MMA added section 1881(b)(12)(A) of the Act requiring that the outpatient dialysis services included in the composite rate be case-mix adjusted. Case-mix variables are characteristics of the patients served that enable payment systems to reflect the resources needed by patients. The statute required adjustments to the composite payment rate for a limited number of patient characteristics. We implemented the case-mix adjustments required by the statute in April 2005, using research on case-mix variables to support our selection of a limited number of case-mix adjusters. A report on that research, entitled, “Methodology for Developing a Basic Case-mix Adjustment for the Medicare ESRD Prospective Payment System” is available on www.sph.umich.edu/​kecc. The selected case-mix adjusters are age, low body mass index (BMI), and body surface area (BSA). BSA and low BMI were selected because they are a better predictor of cost of care than using weight alone. Height and weight are the case-mix variables that we use to calculate BMI and BSA adjusters. For this reason, and because we think that facilities should be easily able to report a case-mix variable that should be part of each patient's ongoing care plan, we will continue to require reporting of the patient's weight for purposes of calculating the case-mix adjusters.

Comment: There were several comments recommending that we explore the option of adding variables to the existing basic case-mix adjustments. Commenters recommended including variables that measured improved survival rates, creating a new code for ESRD patients with diabetes, and adding measures that reflect improvements in the quality of life for ESRD patients. Comments indicated that the current case-mix adjustments do not adequately compensate providers for resources used or the intensity of care that is required to provide services to the frail elderly, and patients with ambulatory limitations or selected comorbid conditions. In addition, commenters recommended that we should consider a variable that adjusts for time in treatment; specifically recommending that we consider the potential predictive power of a variable that exported the interval following the initial 6 months of ESRD treatments because the intensity of care and resources could increase.

Response: We indicated in the proposed rule that we anticipated maintaining the basic case-mix adjustment as established in the CY 2005 final rule (69 FR 66238) and implemented on April 1, 2005. Although we understand the comments that we explore additional case-mix variables, we do not currently have the data that would be necessary to analyze the current case-mix adjustment variables and refine the basic system. Therefore, we believe that it is premature at this time to add additional variables to the basic case-mix adjustment system. Several of the variables recommended, including intensity of care, survival rates and quality of life improvement, are excellent recommendations as variables for exploration.

As we stated in the CY 2005 final rule, the basic case-mix system is adjusts for a limited number of patient characteristics, consistent with the provisions of section 1881(b)(12)(A) of the Act as added by section 623 of the MMA. The MMA legislation anticipated that work would continue toward the development of a more fully bundled case-mix payment system for ESRD. We are continuing to work towards a more fully bundled case-mix system through ongoing research and development of a demonstration project required by the MMA.

We have a contract with the University of Michigan to continue the research that was initiated in 2001 to explore a number of variables that could be predictive of resource use in a fully bundled case-mix adjusted system. This research will include exploring the predictive potential of variables available from existing data sources, including assessing the potential impact of comorbid conditions to predict payments. Several of the suggestions, specifically, survival rates, assessing improvements in the quality of life for ESRD patients, developing frailty/ambulatory limitation measures, require the construction of classification measures of functioning for disability and health. These are beyond the scope of our existing research efforts; however, over time, HHS may include efforts to develop classifications of functioning for disability and health measures, as well as add quality measurements as part of our payment systems.

In addition, we will be assessing the data submitted under the existing basic case-mix system. As the analysis of this data progresses, we will consider potential refinements to the basic case-mix system.

We are also working on a demonstration project that will assess the use of a fully case-mix adjusted payment system. Both the demonstration and the ongoing research will examine the impact of comorbid conditions on case-mix and payment.

Regarding the comment that we should create a reimbursement code for ESRD patients with diabetes, we note that we did analyze comorbid conditions as part of the research for the basic case-mix system. At that time diabetes was not found to be a significant predictor. In addition, our staff found that the reporting of comorbid conditions, including diabetes, was frequently limited. Therefore, as part of our training effort, we have encouraged facilities to report all comorbid conditions, and plan to use the reported data in our ongoing research related to refining the basic case-mix system. Thus, we will continue to assess the impact of diabetes as a case-mix variable and a predictor of resource use, but we will not be requesting, at this time, the creation of a new code for diabetic ESRD patients for payment.

Comment: One commenter expressed concern regarding the reporting of height and weight for individuals who are double amputees. The comments indicated because of the case-mix adjustments for these individuals, the average reimbursement was reduced by an average of $20 per treatment even though these patients generally require the same or additional treatment because they could be in a wheel chair or possibly transported by stretcher.

Response: We concur that there may be issues surrounding the reporting of the height and weight variables associated with double amputees. We have explored a number of reporting options for these patients in an attempt to resolve both clinical and operational issues related to the reporting of these values. We agree that requiring that the height for double amputees be measured “as they present” may not accurately measure the necessary dialysis dose, we also believe that the reported weight for Start Printed Page 70214these patients would require adjusting if we instructed facilities to report height “pre-amputation.”

Based on the available literature related to height and weight measurements for double amputees, we believe there is sufficient data from which to appropriately adjust weight if height is reported pre-amputation. We relied on the methodology in the K-DOQI “Guidelines for Peritoneal Dialysis Adequacy.” Appendix E, Guideline 9 contains instructions related to adjustments to weight for amputees. Based on those guidelines, we are adopting the following formula for adjusting weight using the adjustment factor for below the knee (BKA) double amputees which is the most common type of double amputation:

Pre-Amputation Weight = Actual Weight × 1.15

Therefore, for dialysis treatments provided on or after January 1, 2006, we will revise our claims processing instructions related to the reporting of height and weight for double amputee dialysis patients. Height would be reported “pre-amputation” and weight would be adjusted by 1.15 to reflect the “pre-amputation” weight.

Comment: We received a number of comments from ESRD patients expressing concern regarding the impact that any reductions in payment could have on their care. One ESRD patient expressed concern that if there were payment cuts, the facilities could be adversely impacted resulting in facilities closing.

Response: The intent of the changes in payments to ESRD facilities was to appropriately pay facilities based on the characteristics of the patients they treat, as well as the wage levels for the areas in which they are located. We note that all of the changes in payments as a result of the MMA legislation were done in a budget neutral manner. That is, aggregate payments to ESRD facilities remain constant. While the result of the changes we have made to the wage adjustment will result in redistributing payments to individual facilities, these changes more accurately pay facilities based on local wage levels. We understand the concerns expressed by these patients and have provided for a transition from the old, outdated wage adjustment to the revised adjustment to help mitigate any adverse impact to individual facilities. In addition, we have provided a 1.4 percent increase to the payment facilities receive for 2006 based on the projected increase in drug expenditure between 2005 and 2006.

5. Revisions to the Composite Payment Rate Exceptions Process

In response to the changes made by section 422 of BIPA and section 623 of MMA, in the August 8, 2005 proposed rule (70 FR 45840 through 45842), we proposed changes to the existing regulations at § 413.180 through § 413.192 (42 CFR Part 413, Subpart H) regarding criteria and application procedures for requesting an exception to the ESRD composite rate payment. We also proposed to revise § 413.170(b) to specify that subpart H provides procedures and criteria under which only a pediatric ESRD facility as specified in the statute may receive an exception.

a. Pediatric ESRD Facility Exception

Existing exception rates are protected under section 422(a)(2)(C) of BIPA. The “protection” clause for existing exception rates provides that exception rates in effect on December 1, 2000 (or approved based on an application by July 1, 2001) remain in effect as long as the facility's exception rate is higher than the updated composite rate. Pediatric ESRD facility exception rates granted under the provisions of section 623 of the MMA (hereinafter referred to as “pediatric facility exception rates”) are not subject to the “protection” clause for existing exception rates. However, we proposed to change our regulations to continue pediatric facility exception rates in the same way as existing nonpediatric exception rates. Specifically, we proposed that both nonpediatric and pediatric facility exception rates would remain in effect until the facility notifies its fiscal intermediary that it wishes to give up its rate because its case-mix adjusted composite rate is higher. As section 422(a)(2)(B) of BIPA allows existing nonpediatric exception rates to continue in effect as long as the exception rate exceeds the facility's updated composite payment rate, we expected that each facility would compare its existing exception rates to its basic case-mix adjusted composite rates to determine which is the higher rate. We believe the determination as to whether an ESRD facility's exception rate per treatment will exceed its average case-mix adjusted composite rate per treatment is best left to the affected entity.

In the past, an ESRD facility could request an exception to its prospective composite payment rate within 180 days of the effective date of its new composite rate (s) or the date on which we opened a specific exception window. We proposed to revise § 413.180(d) to remove the requirement that an application for an exception must be filed within the 180-day window because we believe that the small volume of applications will make it feasible for us to accept applications on a rolling basis. Therefore, we proposed to revise § 413.180(d) to state that a pediatric ESRD facility may request an exception to its composite payment rate at any time after it has been in operation for at least 12 consecutive months. For a full discussion of our proposal, see the August 8, 2005 proposed rule (70 FR 45840 through 45842). We received the following comments on these issues:

Comment: Several commenters asked for clarification that CMS will continue to recognize the exceptions status of non pediatric ESRD facilities. The commenters stated that the proposed rule presents conflicting statements about the continuing validity of these exceptions.

Response: We agree, and we are revising proposed § 413.180(i) to include the statement that “ESRD facilities electing to retain their nonpediatric or pediatric exception rates (including self-dialysis training) do not need to notify their intermediaries.” An ESRD facility may notify its fiscal intermediary at any time if it wishes to give up its nonpediatric or pediatric exception rate. Thirty days after written notice is received by the intermediary, the facility will become subject to the new basic case-mix adjusted composite payment rate methodology. A facility's decision to give up its exception rate can not be subsequently rescinded or reversed.

Comment: One commenter is concerned that the composite rate as modified by the MMA will be maintained for patients under age 18 in many facilities that do not qualify for a pediatric exception because the pediatric population is below 50 percent of all patients dialyzed. Patients under age 18 require additional resources. The commenter recommends that a facility should qualify for a pediatric exception if 25 percent of its patients are under 21 years of age.

Response: Section 623 of the MMA amended BIPA to allow a pediatric ESRD facility that did not have an approved exception rate as of October 1, 2002, to file for an exception to its updated prospective payment rate. To apply for the exception rate, the MMA requires that the pediatric facility has to demonstrate that at least 50 percent of its patients are individuals under 18 years of age.

We believe the statute is very specific regarding the criteria a pediatric ESRD facility must satisfy in order to apply for Start Printed Page 70215an exception rate. We have incorporated these statutory provisions in our proposed regulatory changes to § 413.170, § 413.182, and § 413.184. However, we note, that regardless of whether the pediatric exception is available to a facility, pediatric ESRD patients (defined as those under the age of 18) receive a specific case-mix adjustment factor when the composite payment rate is determined. None of the other case-mix adjustors that apply to nonpediatric patients (that is, the five age groups, low BMI, and BSA) is applicable to pediatric ESRD patients.

Comment: We received two comments supporting the proposed change to allow pediatric ESRD facilities to file an exception at anytime after it is in operation for at least 12 consecutive months.

Response: Previously, a pediatric ESRD facility that has been denied its exception would have to wait until a subsequent exception request. We have revised § 413.180(d) to provide that a pediatric ESRD facility that has been denied an exception may immediately file another exception request. However, a subsequent exception request must address the deficiencies cited in our determination letter.

b. Pediatric Facility Exception Request Process

Section 422 of BIPA prohibited CMS from providing exceptions to ESRD facilities on or after December 31, 2000. Section 623 of the MMA amended BIPA by restoring the exception process, but only for pediatric facilities that that did not have an approved exception rate as of October 1, 2002. To file for an exception, the pediatric facility would have to demonstrate that at least 50 percent of its patients are individuals under 18 years of age. Since the MMA restored the exception process only for pediatric facilities, we proposed to remove existing exception criteria that are not applicable to the newly defined pediatric facilities, including exceptions for isolated essential facilities, extraordinary circumstances, and frequency of dialysis as specified in regulations at § 413.182(b), (c), and (e). However, we proposed to retain the exception criterion for self-dialysis training costs under § 413.182(d) because some pediatric facilities may qualify for an exception on that basis. For a full discussion of our proposal, see the August 8, 2005 proposed rule (70 FR 45841). The comments received on these issues and our response to those comments are as follows:

Comment: Several commenters asked that we retain the exceptions process for all five previous exception criteria in order to preserve access to care for dialysis patients and to foster evolution in the patterns of dialysis care. Commenters pointed out that the recent experience with Hurricane Katrina underscores the need for an exception process to provide for continuity of dialysis care during extraordinary circumstances. Commenters included a recommendation that self-dialysis and more frequent dialysis should be preserved as exception options, noting that patients with congestive heart failure may require four dialysis treatments per week, and this is a growing segment of the ESRD population. Finally, the commenters stated that the exception for isolated essential facilities should be retained because of the potential impact on access to care resulting from the proposed changes in the composite payment rate wage index and reimbursement for ESRD drugs.

Response: We have determined that pediatric facilities would not qualify for an exception under most of the existing exception criteria because of the uniqueness of their patient population (at least 50 percent under age 18). In the past, ESRD facilities with high percentages of pediatric patients only qualified for exceptions under the “atypical patient mix” criterion specified at § 413.182(a) and § 413.184. We have, therefore, proposed to replace the “atypical patient mix” criteria with a more specific “pediatric patient mix” criteria and to retain this exception at proposed §§ 413.182 and 413.184. We proposed to eliminate the exception criteria that we believe do not apply to facilities with large numbers of pediatric patients (that is, exceptions on the basis of isolated essential facilities, extraordinary circumstances, and frequency of dialysis). Based on our experience in granting ESRD exceptions, we do not believe that a situation exists where any newly defined pediatric facility with the required volume of pediatric patients would qualify for an exception under the isolated essential facilities criterion. Further, we note that previous exception requests for “frequency of dialysis” were granted to ESRD facilities that dialyzed their patients less frequently than 3 times a week and not more frequently as suggested by the commenter. However, we proposed to retain the exception criterion for self-dialysis training costs under § 413.182(d) because we have found that some pediatric facilities may qualify for an exception on that basis.

With respect to Hurricane Katrina, we have taken into consideration that, in this type of emergency (an extraordinary circumstance), alternatives exist to ensure that ESRD patients will have continuing access to services in other ESRD facilities. Any ESRD facility that has adequate treatment capacity, and is located close to a displaced patient's home, would be glad to offer its dialysis services. However, if there are no remaining ESRD facilities nearby to voluntarily accept displaced patients, dialysis service will be made available to these patients that have been temporarily relocated to a local shelter or to another town. Displaced patients relocated to another town that are healthy enough to drive or to be driven to a dialysis facility, will receive dialysis services there. Displaced patients in temporary shelters will receive dialysis from providers or suppliers that will send the necessary equipment, personnel, and supplies to the shelter.

We are finalizing the changes to § 413.180 through § 413.192 as proposed. However, we have added language to § 413.180 regarding the intermediary notification discussed above. In addition, we are adding a technical clarification to proposed § 413.170 to cross-reference § 413.184 which specifies pediatric patient-mix requirements that pediatric ESRD facilities must meet to qualify for an exception.

H. Payment for Covered Outpatient Drugs and Biologicals

Medicare Part B covers a limited number of prescription drugs and biologicals. For the purposes of this rule, the term “drugs” will hereafter refer to both drugs and biologicals. Medicare Part B covered drugs not paid on a cost or prospective payment basis generally fall into three categories:

  • Drugs furnished incident to a physician's service.
  • DME drugs.
  • Drugs specifically covered by statute (immunosuppressive drugs, for example).

Beginning in CY 2005, the vast majority of Medicare Part B drugs not paid on a cost or prospective payment basis are paid under the ASP methodology. The ASP methodology is based on data submitted to us quarterly by manufacturers. In addition to the payment for the drug, Medicare currently pays a dispensing fee for inhalation drugs, a furnishing fee for blood clotting factors, and a supplying fee for certain Part B drugs.

In this section of the preamble we discuss the August 8, 2005 (70 FR 45843) proposed changes and issues related to the determination of the payment amounts for covered Part B drugs and the separate payments Start Printed Page 70216allowable for dispensing inhalation drugs, furnishing blood clotting factor, and supplying certain other Part B drugs. We also discussed proposed changes in how manufacturers calculate the ASP and in the ASP data reported to us.

1. ASP Issues

Section 303(c) of the MMA amended Title XVIII of the Act by adding new section 1847A. This new section establishes the use of the ASP methodology for payment for most drugs and biologicals not paid on a cost or prospective payment basis furnished on or after January 1, 2005. The ASP reporting requirements are set forth in section 1927(b) of the Act. Manufacturers must submit ASP data to us quarterly. The manufacturers' submissions are due to us not later than 30 days after the last day of each calendar quarter. The methodology for developing Medicare drug payment allowances based on the manufacturers' submitted ASP data is specified in the regulations in part 414, subpart K. Based on the data we receive, we update the Part B drug payment amounts quarterly.

In this section of the preamble, we discuss: Our proposed changes related to the methodology manufacturers use to calculate the ASP and apply the estimate of lagged price concessions in the ASP calculation; the reporting of ASP data; the weighting methodology we follow to establish the Medicare payment amounts using the ASP data; the comments received and our responses; and our final policy with respect to these issues.

a. Estimation Methodology for Lagged Price Concessions

Section 1847A(c)(5)(A) of the Act states that the ASP is to be calculated by the manufacturer on a quarterly basis. As a part of that calculation, manufacturers are to take into account price concessions such as—

  • Volume discounts.
  • Prompt pay discounts.
  • Cash discounts.
  • Free goods that are contingent on any purchase requirement.
  • Chargebacks.
  • Rebates (other than rebates under the Medicaid drug rebate program).

If the data on these price concessions are lagged, then the manufacturer is required to estimate costs attributable to these price concessions. Specifically, the manufacturer sums the price concessions for the most recent 12-month period available associated with all sales subject to the ASP reporting requirements. The manufacturer then calculates a percentage using this summed amount as the numerator and the corresponding total sales data as the denominator. This results in a 12-month rolling average price concession percentage that is applied to the total in dollars for the sales subject to the ASP reporting requirement for the quarter being submitted to determine the price concession estimate for the quarter. The methodology is specified in § 414.804(a)(3).

We identified a refinement of the ASP calculation and lagged price concession estimation methodology related to chargebacks that we believe improves the accuracy of the estimate. As a result, we proposed to clarify the ASP calculation in the August 8, 2005 proposed rule (70 FR 5843).

b. Price Concessions: Wholesaler Chargebacks

Wholesaler chargebacks are a type of price concession, generally paid on a lagged basis, that apply to sales to customers (for example, physicians) via a wholesaler (or distributor). Wholesaler chargeback arrangements may vary in scope and complexity. Under the current estimation methodology for lagged price concessions, total lagged price concessions, including lagged wholesaler chargebacks, for the 12-month period are divided by total sales for that same period to determine a ratio that is applied to the total sales for the reporting period. The ratio of lagged price concessions to sales is calculated over all sales, both indirect sales (sales to wholesalers and distributors and other similar entities that sells to others in the distribution chain) and direct sales (sales directly from manufacturer to providers, such as hospitals or HMOs). To the extent that the relationship between total dollars for indirect sales and total dollars for all sales is different for the reporting quarter and the 12-month period used, the current ratio methodology for estimating lagged price concessions may overstate or understate wholesaler chargebacks expected for the reporting period. A more accurate estimation of lagged price concessions would minimize the effect of quarter to quarter variations in the relationship between indirect sales and all sales. As a result, we proposed to revise § 414.804 to require manufacturers to calculate the ASP for direct sales independently from the ASP for all other sales subject to the ASP reporting requirement (indirect sales). Then, the manufacturer would calculate a weighted average of the direct sales ASP and the indirect sales ASP to submit to us.

We believed that the weighted average of direct sales ASP and indirect sales ASP would improve the overall accuracy of the ASP calculation, particularly for NDCs with significant fluctuations in the percentage of sales that are direct sales.

We proposed conforming changes to § 414.804 for the methodology for calculating the lagged price concessions percentage. We also proposed to revise the regulation to clarify that the estimation ratio methodology relates to lagged price concessions and also define “direct sales” and “indirect sales” in § 414.802. In addition, we requested comments about the advisability and potential effects of requiring manufacturers to calculate the ASP for direct sales, including price concessions, independently from the ASP for indirect sales and then calculating a weighted average of these ASPs to submit to us, as well as the proposed definitions of direct sales and indirect sales.

Comment: We received many comments on our proposed refinement to the ASP calculation. Nearly all of these commenters opposed this proposal and many asked for clarification of the proposed terminology.

All but one of the comments received from drug manufacturers stated that the proposed change to the ASP calculation would require significant modifications to manufacturers' accounting and reporting data systems while resulting in minimal change or benefit to the ASP-based payment. Many commenters stated that the proposed modification to the ASP calculation would not result in more accurate payments. Further, comments from groups representing drug and biological manufacturers stated that they do not believe the proposed methodology will have a material impact on the overall ASP or the accuracy of the calculation. Many of the commenters opposing the proposal stated that the expense and burden of implementing the proposed change to the ASP calculation would be unjustified because direct and indirect sales and price concessions for a given product are stable over time, particularly for generic products, and further breakdown of the calculation would not have a significant impact on the ASP calculation. Many commenters also noted that implementing the proposed weighted average approach would increase both the complexity of the ASP calculation and the potential for calculation error.

We received comments from manufacturers of oncology, inhalation, contrast media, and other drugs and biologicals that included estimates of the potential impacts of the proposed Start Printed Page 70217modification to the ASP calculation for a limited number of NDCs chosen as examples. These estimates ranged from a slight decrease (less than one half of a percent) to a 4.3 percent increase in the overall ASP for the NDC. One manufacturer estimated that sales would have to vary 20 percent from the 12-month lag period to change the ASP by more than 1 percent. Notwithstanding the potential change in the overall ASP, all but one manufacturer, which reports ASP for a single product, recommended that we not adopt the proposed change. However, some of these commenters suggested that the weighted average approach be voluntary or applicable only in cases where significant fluctuations exist in the proportion of sales that are direct and indirect and there is a compelling need to apply the proposed methodology. Other commenters from the manufacturing community were concerned about consistency across manufacturers and recommended that we not leave it up to each manufacturer to choose whether to use the proposed methodology or not. One commenter suggested that the proposed methodology be mandatory for a manufacturer that has at least one NDC with direct sales of 33 percent or more of gross sales for the prior year. The manufacturer would then be required to calculate the ASP for all of its NDCs using the proposed methodology.

Several commenters expressed concern that the proposed definitions of direct and indirect sales were unclear and required further clarification to ensure consistent application across manufacturers. Several commenters noted that our use of the term supplier was confusing; that it was unclear whether GPO sales would be considered direct or indirect; and it was unclear how utilization rebates to PBMs should be categorized. Several commenters noted that certain purchasers (for example, specialty pharmacies) may purchase both directly and indirectly during a given reporting period. Similarly, we received a comment from a drug manufacturer requesting greater clarification on how to allocate price concessions across direct and indirect sales when a customer purchases under both of these channels. Several manufacturers noted that their current data systems were not capable of capturing data at the level of detail necessary to accurately segregate sales into the direct and indirect categories. Other commenters noted that, in general, manufacturers do not track price concessions associated with direct or indirect sales. As a result, several commenters recommended that, if the proposed methodology is adopted, we implement the change prospectively to allow for a phase-in period and to delay implementation until April 2006 or later to provide time for systems changes to be implemented and tested.

We received a few comments from drug manufacturers expressing their belief that other market issues cause fluctuation in the ASP, and that it would be more beneficial to receive guidance on how to resolve these issues.

A few commenters were concerned with the time frame for implementation of the proposed modification of the ASP calculation. These commenters recommended that we consider delaying implementation until after a trial period or at least until April 2006.

We also received comments from providers who have experienced difficulty acquiring drugs at or below the payment amount. These commenters, as well as comments from physician organizations, support changes to the ASP calculation insofar as they will result in more appropriate reimbursements for Part B drugs.

Response: Our goal is to ensure continued beneficiary access to care through implementation of accurate and sufficient payment systems. To this end, we proposed to refine the ASP calculation because the weighted average of direct sales ASP and indirect sales ASP could potentially improve the overall accuracy of the ASP calculation. We greatly appreciate the efforts undertaken by commenters to examine the potential impacts of the proposed method on the overall ASP calculation. Based on the comments received, we find compelling the commenters' concerns about the challenges and increased burden associated with calculating the ASP independently for direct and indirect sales and then calculating the weighted average ASP. Although we continue to have interest in the potential impacts of quarter to quarter variations in estimates of price concessions, we will not adopt the proposed change at this time.

In reaching our decision, we noted that all of the drug manufacturers that submitted comments reported that the impact of the proposed refinement of the ASP calculation would be minimal or not material. We note that these commenters are in a position to assess the impacts of the proposed methodology on their customers and to weigh the potential benefits and burdens inherent with the proposed change. In all but one case (a manufacturer which reports ASP for only one product), they did not support the proposal because they believe the burden would outweigh the benefit.

Among the comments received that specified potential percentage changes in the overall ASP, a range of potential impacts was reported. One of the examples submitted suggested that the impact could extend to upwards of a 4 percent increase in the ASP for an NDC, while another example showed a slight decrease. We cannot determine whether the reported examples are representative of other or all NDCs subject to the ASP reporting requirements.

We also noted the concerns expressed by manufacturers regarding the significant additional burdens associated with the proposed methodology, the potential for inconsistent application of the proposed methodology across manufacturers, and the potential effects of the proposed methodology on manufacturers' systems. In addition, we carefully considered the comments from the physician community in support of refinements to the ASP calculation that would increase payments.

Although we are not implementing the proposed refinement to the ASP calculation at this time, we will continue to work with manufacturer to better understand the instances in which the proposed methodology may benefit the program and the potential for appropriate use of that methodology for certain or all NDCs, and whether such an approach would be sustainable.

We did not receive any comments on our proposal to revise the regulations at § 414.804 to clarify that the estimation ratio methodology published on September 16, 2004 (69 FR 55763), relates to lagged price concessions; therefore, we will implement the revised regulatory language as proposed.

c. Determining the Payment Amount Based on ASP Data

As explained in the August 8, 2005 proposed rule (70 FR 45844) in response to inquiries we have received related to the formula we use to calculate the payment amount for each billing code we posted information on our web site (http://www.questions.cms.hhs.gov) earlier this year. We included this information (which follows) in the proposed rule to ensure greater public access to this information.

  • For each billing code, we calculate a weighted ASP using the ASP data submitted by manufacturers.
  • Manufacturers submit ASP data at the 11-digit NDC level.
  • Manufacturers submit the number of units of the 11-digit NDC sold and the ASP for those units. Start Printed Page 70218
  • We convert the manufacturers' ASP for each NDC into the ASP per billing unit by dividing the manufacturer's ASP for that NDC by the number of billing units in that NDC. For example, a manufacturer sells a box of 4 vials of a drug. Each vial contains 20 milligrams (mg). The billing code is per 10 mg. The conversion formula is: manufacturer's ASP/[(4 vials × 20 mg)/10 mg = 8 billable units per NDC].
  • Then, the ASP per billing unit and the number of units (11-digit NDCs) sold for each NDC assigned to the Billing Code are used to calculate a weighted ASP for the billing code. We sum the ASP per billing unit times the number of 11-digit NDCs sold for each NDC assigned to the billing code, and then divide by the total number of NDCs sold. The ASP per billing unit for each NDC is weighted equally regardless of package size.

Comment: Several manufacturers and other commenters representing the manufacturing community recommended that the formula be revised so that the payment limit is calculated based on the weighted ASP of the number of billing units sold rather than the number of NDCs sold. These commenters noted that products are available in different package sizes and that a billing code may encompass multiple NDCs. As a result, these commenters contend that weighting the ASP payment amount by NDCs sold does not reflect the true weighted average price per billing unit. Several commenters, including manufacturers and their trade associations, noted that altering the formula to weight by the number of billing units sold may increase or decrease the overall ASP. Nonetheless, these commenters recommend adoption of their recommended alternative formula. One commenter suggested that the alternative formula be adopted along with an exception process that would be applicable to billing codes that represent therapies of differing weights or dosage. We also received comments from manufacturers that supported continued use of the current formula.

Response: In establishing the formula used to calculate the payment amounts based on the manufacturers' ASP data, we considered various approaches, including the alternative approach recommended by some commenters. For the initial implementation of the ASP methodology, we operationalized the calculation of ASP by weighting the formula by the number of NDCs sold. As we gain more experience with the ASP data and other sources of information become available about the purchasing patterns of providers and their acquisition costs, we may consider altering the methodology or establishing exceptions, if we find good reason to do so. If we decided such a change is warranted, we would implement the change at the next quarterly update.

Comment: Although not directly related to the formula used to calculate the ASP payment amounts, we received several comments from oncology physician practices and other commenters related to the adequacy of the ASP+6 percent payment methodology and other topics. We received several comments from oncology and other providers contending that the Medicare payment amount does not always cover their acquisition costs for certain drugs. A mid-sized oncology practice reported that it is unable to obtain nearly half of the drugs it administers at a price below the Medicare reimbursement rate. This commenter believes that larger practices may not face drug acquisition costs that exceed ASP+6 percent. One oncology practice reported that the ASP+6 percent payment would cover its drug costs if beneficiaries could always afford their cost sharing amounts. A large oncology practice stated that its average Medicare reimbursement, which is 2 percent more than its acquisition costs, was insufficient and would cause it to discontinue treatment for beneficiaries.

On the topic of price concessions, several commenters, including a drug manufacturer, suggested that prompt pay and other discounts given to wholesalers and distributors should not be included in the calculation of the manufacturers' ASP so that the payment amounts would be increased.

Response: It is true for all payment systems based on averages that the payment amount may not equal a specific provider's cost for every service. Section 1847A of the Act specifies that the Medicare payment is at 106 percent of ASP for the majority of Part B drugs and biologicals not paid on a cost or prospective payment basis. The statute requires use of the ASP+6 percent payment methodology except in limited instances. Although several commenters (most of which represent oncology practices) reported that the ASP+6 percent methodology was insufficient to cover their drug acquisition costs for certain drugs, these commenters also acknowledged that the Medicare payment exceeds their drug acquisition costs for other drugs. This is consistent with the findings of recent studies by the General Accountability Office (GAO) (GAO-05-142R), Office of Inspector General (OIG) (“Adequacy of Medicare Part B Drug Reimbursement to Physician Practices for the Treatment of Cancer Patients”, (A-06-05-00024), and MedPAC (October 6, 2005, public meeting report on oncology site visits). These studies have found that physicians generally can obtain oncology drugs for prices below Medicare reimbursement.

We did not propose a change to the price concessions manufacturers must include in the ASP calculation. Section 1847A(c)(3) of the Act specifically identifies prompt pay discounts as a type of price concession that must be included in the manufacturer's calculation of the ASP.

Comment: We received comments from a few drug manufacturers requesting clarification and more detailed guidance on the treatment of administrative fees, service fees, and data fees in the ASP calculation.

Response: These issues are beyond the scope of this rule. We will continue to work with manufacturers to more fully understand these issues. We expect to publish a final rule on the ASP reporting requirements and will consider these comments in the course of preparing that rule.

Comment: We received comments from oncology practices, ESRD facilities and retail pharmacies, as well as IVIG manufacturers and stakeholders, indicating that manufacturer price increases are not reflected timely in the ASP+6 percent payment amounts due to the necessary lag time for calculating the rates and updating the payment systems. One commenter suggested that we implement a “true up” mechanism that immediately reconciles the historic reimbursement rate to reflect manufacturer price increases. Several IVIG stakeholders suggested that we issue payment rates on a retroactive basis.

Response: Section 1847A(c)(5)(B) specifies a prospective update in the payment amounts. We agree with the commenters' observations that there is a necessary time frame after the close of a calendar quarter for manufacturers to calculate and submit the ASP data to CMS, for CMS to prepare and issue the payment rates, and for the claims processing contractors to implement the updated payment files. As we stated in the CY 2005 final rule (69 FR 66300), we implement these new prices through program instructions or otherwise at the first opportunity after we receive the data, which is the calendar quarter after receipt.

Comment: Several commenters, including patient and industry representatives and physicians as well as manufacturers, requested that we take steps to improve the availability of IVIG. Many of these commenters noted their Start Printed Page 70219ongoing collaboration with the Congress, HHS, CMS and others to better understand the market forces and dynamics influencing the current IVIG situation. These commenters reported that numerous patients and physician practices have been adversely impacted by the change in reimbursement to the ASP+6 percent methodology. These impacts include postponed infusions, increasing intervals between infusions, having to receive treatment in the hospital setting rather than in the physician office, possible unintended reactions as a result of switching brands of IVIG, and increased level of effort to obtain product and schedule services. Several commenters restated suggestions previously communicated to us, including concerns about our proposed changes for IVIG reimbursement in the outpatient setting. Comments from an industry group referenced its new study that it is conducting to help clarify the marketplace and provide insight into the costs for providing IVIG services. The study will examine IVIG acquisition costs and related services. Citing the adverse effects of patients migrating from physician offices to hospitals for treatment, several commenters requested that we consider an interim add-on payment for the complex activities related to furnishing IVIG until the industry study is completed. These commenters noted that the add-on payment would ensure that providers are paid sufficiently for IVIG under Part B so that their provision of IVIG remains viable and beneficiaries' access to IVIG is not reduced.

Response: We will continue to work with the IVIG community, manufacturers, the Congress, and other entities to seek better understanding of the supply and market issues influencing the current IVIG market. We look forward to learning of the industry's study findings as that work progresses. We have discussed the accuracy of the ASP data with the manufacturers and have been assured by these manufacturers that their ASPs have been developed in accordance with applicable guidance and that the resulting price reflects the current IVIG market in aggregate. At the same time, the IVIG manufacturers' association, the Plasma Protein Therapeutics Association, reports that the overall supply of IVIG is adequate and has improved in the past several months. However, based on the comments received and our ongoing work with manufacturers, patient groups, and other stakeholders, we continue to be concerned about reports of patients experiencing difficulties in accessing timely IVIG treatments and reports of providers experiencing difficulties in obtaining adequate amounts of IVIG products on a consistent basis to meet their patients' needs in the current marketplace. Most brands of IVIG have been put on allocation by manufacturers and some manufacturers have reported allocating products to a smaller number of distributors and reducing the size of inventories. In addition, there have been reports of diversion of products to the secondary market and secondary distributors raising prices markedly. The Secretary's Advisory Committee on Blood Safety and Availability has recommended immediate steps be taken to ensure access to IVIG so that patients' needs are being met. However, the complexity of the IVIG marketplace makes it unclear what particular systematic approaches would be most effective in addressing the many individual circumstances that have been shared with us while not exacerbating what appears to be a temporary disruption in the marketplace.

IVIG is a complicated biological product that is purified from human plasma obtained from human plasma donors. Its purification is a complex process that occurs along a very long timeline, and only a small number of manufacturers provide commercially available products. Historically, numerous factors, including decreased manufacturing capacity, increased usage, more sophisticated processing steps, and low demand for byproducts from IVIG fractionation have affected the supply of IVIG. For CY 2006, there are 2 HCPCS codes that describe all IVIG products, based on their lyophilized versus liquid preparation.

The recent patterns of utilization of IVIG also are unusual in comparison with most other drugs and biologicals. Different IVIG products are FDA-approved in a number of therapeutic areas for various specific conditions which include: anti-infective therapy (bone marrow transplant); immune globulin replacement therapy (primary immune deficiencies and chronic lymphocytic leukemia); anti-inflammatory therapy (Kawasaki disease); and immunomodulation therapy (idiopathic thrombocytopenic purpura). IVIG therapy, which has been available for about 25 years, was initially reserved for the treatment of these FDA-approved indications. More recently, IVIG has been increasingly used off-label so that off-label uses now significantly exceed on-label uses. Many of these off-label uses are for autoimmune, neurological, or systemic inflammatory conditions. Some off-label uses of IVIG are supported by a robust evidence base, while for other medical conditions the evidence has not demonstrated that IVIG infusions are of significant therapeutic benefit. There are also new emerging indications for IVIG treatment, including those based on recommendations from various professional associations and advisory groups. In addition, despite the growing uses of IVIG there are definite risks associated with IVIG treatment, including both early inflammatory reactions and more rare but serious renal and thromboembolic complications, as well as the inherent risk associated with receipt of any biological product even with the ongoing improvements in the safety of these types of products.

Medicare currently has one national coverage determination in place since CY 2002 regarding IVIG infusions to treat autoimmune blistering diseases, and there are numerous local coverage policies that describe Medicare coverage for specific off-label indications. In the context of these national and local coverage policies, IVIG use in hospital outpatient departments has climbed steeply over the most recent years for which data are available, from about 40,000 infusion days in CY 2002, to 60,000 days in CY 2003, and again to over 70,000 days in CY 2004. The infusion of IVIG in physician offices increased from about 2.3 million grams in CY 2003 to 4.0 million grams in CY 2004. In the face of growing demand for IVIG in the absence of significant changes in the prevalence of medical conditions for which there is high quality evidence regarding the effectiveness of IVIG therapy, we are concerned that all patients with medical need for IVIG continue to have access to this expensive and valuable therapy. Over the upcoming year, we will be using our historical claims databases to study the epidemiology of IVIG treatment of Medicare beneficiaries in outpatient settings. We expect that the health system as a whole should encourage an accountable and scientifically-grounded use of IVIG, and we welcome discussions with industry, providers, and other interested entities regarding efforts to ensure that IVIG is responsibly utilized for evidence-based clinical indications so that optimal benefit is obtained.

Commenters have indicated to us that the infusion of IVIG in physician offices is more complex and resource intensive, particularly during the actual infusion, than many other types of infusions currently reported using the same drug administration CPT codes. They have described the specific resources Start Printed Page 70220required for initiating and monitoring infusions of IVIG for patients under various clinical circumstances. We encourage commenters to discuss their concerns with the CPT Editorial Panel to assess whether alternative coding or additional CPT guidance would be appropriate. In addition, they may wish to discuss their resource concerns with the AMA/Specialty Society RVS Update Committee that provides advice regarding the resources associated with physician services.

Based on the potential access concerns, the growing demand for IVIG, and the unique features of IVIG detailed above, as we seek to gain improved understanding of the contemporary volatile IVIG marketplace, we will employ a two-pronged approach during CY 2006 to help ensure the availability of IVIG to physicians and hospital outpatient departments who care for Medicare beneficiaries and will be paid ASP+6 percent for the IVIG products.

First, in addition to the ongoing monitoring and outreach activities within the HHS, the Office of the Inspector General (OIG) is studying the availability and pricing of IVIG as part of its monitoring of market prices pursuant to section 1847A(d)(2)(A) of the Act. We expect the OIG's work to provide a significant contribution to the analysis of the current situation with respect to the specific activities of manufacturers and distributors that may be contributing to possible access problems for IVIG as we move to the ASP methodology in both physician office and hospital outpatient settings. We hope to understand those particular market behaviors that may have led to such public alarm about the availability of IVIG and the adequacy of our payment rate of ASP+6 percent, concerns that have been particularly strong and persistent for IVIG in comparison with other drugs paid under the same ASP methodology.

Second, we will provide additional payment in CY 2006. Presently the IVIG marketplace is a dynamic one, where a significant portion of IVIG products previously available in CY 2005 are being discontinued and other products are expected to enter the market over the next year. In light of this temporary market instability, we understand that manufacturers have continued allocation procedures aimed at stabilizing the supply of IVIG. Even so, we understand that providers may face purchasing whichever brand of IVIG is available, even if it is not a brand the patient is known to tolerate. Many patients treated with IVIG receive regular infusions on a predictable schedule. To meet this need, physicians' office staff must conduct significant preadministration services prior to IVIG infusions to monitor and manage their inventory, locate available IVIG products, reschedule infusions according to product availability and patients' needs, and implement physicians' determinations regarding whether the available formulations are appropriate for patients and whether specific dosing adjustments are required. Product-specific factors must be evaluated in light of patients' clinical indications for the IVIG infusions, their underlying medical conditions, and their past reactions to various IVIG products, and office staff must locate appropriate doses of IVIG products in light of these considerations. If the appropriate IVIG product formulations were more widely and reliably available, we do not believe that routine IVIG infusions would require these extensive preadministration-related services prior to each infusion.

To continue to ensure appropriate patient access to IVIG in CY 2006 during this short-term period of market instability for IVIG, beginning for dates of service on or after January 1, 2006 through December 31, 2006, we will temporarily allow a separate payment to physicians to reflect the substantial additional resources that are associated with locating and acquiring adequate IVIG product and preparing for an office infusion of IVIG in the current environment. We expect that making separate payment for these additional necessary services will help insure that physicians are able to continue to provide IVIG infusions to their patients who depend upon them. We will also provide an additional payment to hospital outpatient departments for these special services, to ensure that patients continue to have access to IVIG infusions in the most medically appropriate settings, without undesirable shifts in sites of service for their care.

Because the resources associated with the preadministration-related services for intravenous infusion of immunoglobulin are not accounted for in the physician office practice expense associated with the CY 2006 drug administration codes that will be billed for IVIG infusions, we are creating a temporary G-code to describe these additional preadministration services related to the intravenous infusion of immunoglobulin. We have established the following G-code for physician office billing for CY 2006:

G0332; Preadministration-related services for intravenous infusion of immunoglobulin, per infusion encounter (This service is to be billed in conjunction with administration of immunoglobulin).

Physicians may bill this service once per day in association with a patient encounter for administration of IVIG, in addition to billing for the appropriate drug administration service(s) and for appropriate units of the HCPCS code that describes the IVIG product infused. In addition, physicians may also bill for any significant and separately identifiable evaluation and management (E/M) service they perform at a level 2 through 5 in association with the infusion encounter, appending modifier -25 to the E/M service. We have established the payment level for this service in physician offices by cross-walking the RVUs for the new G-code to the practice expense RVUs of 1.90 for G0319, ESRD related services during the course of treatment, for patients 20 years of age and over; with 1 face-to-face physician visit per month. We do not believe there is increased preadministration physician work associated with preparation for intravenous infusion of immunoglobulin, so we have not allocated the physician work RVUs assigned to G0319 to G0332. Physician work associated with preparation for the intravenous infusion of immunoglobulin is already included in the physician work allocated to the drug administration services associated with the infusion and to the evaluation and management services (including the pre- and post-work already included in the relative values for evaluation and management services) provided to patients receiving intravenous immunoglobulin treatments. However, we think G0332 requires additional resources from the physician practice, particularly clinical labor, that are comparable to the practice expense for the ESRD management code. We expect that in many cases IVIG infusions will be provided once per month, with activities in preparation for the infusion, including consulting with patients and distributors, conducted over the course of a month as are the ESRD related services described by G0319. In addition, preparation for the IVIG infusion will generally not require a face-to-face visit with the patient prior to the infusion, so we have selected the ESRD related services G code that includes only one physician visit for the practice expense crosswalk.

We believe that this temporary separate payment provided through G0332 in CY 2006 for the physician office and hospital outpatient resources associated with additional IVIG preadministration-related services due to the present significant fluctuations in Start Printed Page 70221the IVIG marketplace will ensure that Medicare beneficiaries depending on IVIG experience no adverse health consequences from the market instability for IVIG products. In the meantime, we will continue to evaluate the market factors affecting the pricing and availability of IVIG products in the context of our ASP+6 percent payment methodology and our separate payment for G0332 in CY 2006. We expect that in CY 2006 with continued collection of updated ASP data for IVIG; improved understanding of the IVIG marketplace; more focused attention on the medical necessity of the utilization of IVIG; ongoing collaboration between CMS, the IVIG community, manufacturers, providers, and other interested entities; and this temporary separate payment for hospital and physician office resources required for the intensive preadministration services related to IVIG infusion, the IVIG marketplace should stabilize over the upcoming year. Substantial preadministration-related services for IVIG infusions should no longer be required of physician offices and hospital outpatient departments that provide IVIG infusions to patients who need them. Therefore, this additional payment for G0332 is effective for CY 2006 only. Thus, we will be closely monitoring this issue once again in the context of our rulemaking for CY 2007.

Comment: Several commenters representing providers of community cancer care and manufacturers noted that physicians do not receive separate payment for pharmaceutical management and related pharmacy and handling costs (such as drug inventory, disposal of toxic waste, and spillage and breakage), and that in the 2006 proposed rule for HOPD we proposed a 2 percent add-on payment to the ASP+6 percent payment for drugs. These commenters stated the costs for handling pharmaceuticals are similar across settings and that physicians should receive the same add-on.

Response: The costs for handling pharmaceuticals are paid through the PE RVUs for the drug administration code.

d. Reporting WAC

As explained in the August 8, 2005 proposed rule (70 FR 45844) we have provided information on our web site (http://www.questions.cms.hhs.gov) concerning reporting WAC. We state that manufacturers must report the WAC for a single source drug or biological if it is less than the ASP for a quarter and in cases where the ASP during the first quarter of sales is unavailable. Upon further review, we have determined that the WAC must be reported each quarter if required for payment to be made under section 1847A of the Act, in addition to the ASP, if available.

Section 1927(b)(3)(A)(iii) of the Act specifies the ASP data manufacturers must report. Section 1927(b)(3)(A)(iii)(II) of the Act specifies that the manufacturer must report the WAC, if it is required in order for payment to be made under section 1847A of the Act. Under section 1847A of the Act, the payment is based on WAC (as opposed to ASP) in the following cases:

  • For a single source drug or biological, when the WAC-based calculated payment is less than the ASP-based calculated payment for all NDCs assigned to such drug or biological product. (See section 1847A(b)(4) of the Act.)
  • During an initial period in which data on the prices for sales for the drug or biological is not sufficiently available from the manufacturer to compute an ASP. (See section 1847A(c)(4) of the Act.)

In these instances, we must make the determination of whether the payment amount is based on ASP or WAC. Therefore, WAC is required for payment in all of these instances.

As explained in the August 8, 2005 proposed rule (70 FR 45844), we had previously published a template which manufacturers must use to report ASP data to us; however, the WAC was not included in that template. Therefore, because of the requirement to report the WAC and the confusion manufacturers have experienced in submitting the WAC data we proposed, in a separate information collection notice published August 19, 2005 (70 FR 48770), to revise the reporting template to include a place to report WAC.

To clarify the instances when manufacturers are required to report the WAC, in the August 8, 2005 proposed rule (70 FR 45844), we stated that manufacturers are required to report quarterly both the ASP and the WAC for NDCs assigned to a single source drug or biological billing code. Manufacturers are also required to report the WAC for use in determining the payment during the initial period under section 1847A(c)(4) of the Act. That is, the WAC is reported for the reporting period prior to reporting the ASP based on a full quarter of sales.

Because the WAC could change during a reporting period, we proposed that in reporting the WAC, manufacturers would be required to report the WAC in effect on the last day of the reporting period.

Comment: Some commenters noted that requiring manufacturers to report WAC for all single source drugs each quarter encompasses the requirement for manufacturers to report WAC for new drugs during the initial period. Separately specifying these instances in the preamble led some commenters to request clarification of how the proposed policy differs from the existing requirements posted on our web site. Several manufacturers requested that we clarify in the final rule with comment that the WAC in effect on the last day of the reporting period is the value to be submitted for that reporting period.

Response: We agree with the commenters who noted that new drugs are a subset of single source drugs. We separately specified the requirements for reporting WAC in these two instances so that manufacturers would be aware of the reporting requirement and because we have discussed these instances separately in past rulemaking.

The proposed change is different from existing guidance previously posted on our web site in that we clarify that submission of the WAC in these instances is always necessary for payment to be made. The manufacturer does not decide if the WAC is to be submitted and the WAC is not submitted only if it is less than the ASP as previously posted on our web site. We interpret section 1927(b)(3)(A)(iii)(II) of the Act to apply to all NDCs of single source drugs.

Final Decision

Manufacturers must report WAC for all single source drugs (including new drugs) each reporting period. In submitting the WAC, manufacturers must report the WAC in effect on the last day of the reporting period. We will update our web site to include this decision.

e. Revised Format for Submitting ASP Data

The August 8, 2005 proposed rule (70 FR 45845) included a discussion of the format manufacturers are required to use to report the ASP data to us. However, as discussed above, the current template does not provide adequate instructions for manufacturers to report both the ASP and the WAC. Therefore, we published a separate information collection notice on August 19, 2005 (70 FR 48770) and proposed to revise the ASP reporting format to accommodate submission of both, the ASP and the WAC as well as collect the following additional information:

  • Drug name. Start Printed Page 70222
  • Package size (strength of product, volume per item, and number of items per NDC).
  • Expiration date for last lot manufactured.
  • Date the NDC was first marketed (for products first marketed on or after October 1, 2005).
  • Date of first sale for products first sold on or after October 1, 2005.

Comment: We received several comments in response to the proposed rule related to our separate information collection notice on the proposed changes to the ASP reporting format (CMS-10110; see 70 FR 48770). The commenters generally supported inclusion of the WAC and drug name within the reporting format. Some commenters expressed concerns related to the level of burden that would be necessary to report some of the proposed additional data elements, particularly the date the NDC was first marketed. Some commenters suggested refinements to the definitions of the proposed data elements and the frequency of their collection. In addition, commenters suggested that we consider using data elements collected by Medicaid in lieu of the proposed data elements pertaining to first marketing date, first date of sale, and expiration date. In addition, commenters stated that they were uncertain when the proposed changes to the reporting requirements would be effective.

Response: We appreciate receiving the comments on the proposed additional data elements and the proposed revisions to Addendum A used to report ASP data. To be considered timely, comments on the proposed modification to ASP reporting format must have been mailed within 60 days of that notice (by October 18, 2005). All timely comments were not available for consideration at the time of the preparation of this final rule with comment. Changes to the ASP information collection (CMS-10110; OMB control number 0938-0921), if adopted by CMS and approved by the OMB, would be effective as of the approval date of the information collection submission Manufacturers would begin reporting the additional data elements with the next reporting deadline.

f. Limitations on ASP

Section 1847A(d)(1) of the Act states that “the Inspector General of HHS shall conduct studies, which may include surveys to determine the widely available market prices (WAMP) of drugs and biologicals to which this section applies, as the Inspector General, in consultation with the Secretary determines to be appropriate.” Section 1847A(d)(2) of the Act states that “Based upon such studies and other data for drugs and biologicals, the Inspector General shall compare the ASP under this section for drugs and biologicals with—

  • The widely available market price (WAMP) for these drugs and biologicals (if any); and
  • The average manufacturer price (AMP) (as determined under section 1927(k)(1) of the Act for such drugs and biologicals.”

Section 1847A(d)(3)(A) of the Act states that “The Secretary may disregard the ASP for a drug or biological that exceeds the WAMP or the AMP for such drug or biological by the applicable threshold percentage (as defined in subparagraph (B)).” The applicable threshold is specified as 5 percent for CY 2005. For CY 2006 and subsequent years, section 1847A(d)(3)(B) of the Act establishes that the applicable threshold is “the percentage applied under this subparagraph subject to such adjustment as the Secretary may specify for the WAMP or the AMP, or both.”

For CY 2006, we proposed to specify an applicable threshold percentage of 5 percent for both the WAMP and AMP. We did not receive the OIG's final report in time for consideration before developing the proposed rule. Thus, we believe that continuing the CY 2005 threshold percentage applicable to both the WAMP and AMP is most appropriate.

Comment: One commenter stated its support of credible drug rates that are based upon widely accepted health care industry standards, and that are established using methodologies that are clear and readily understood by persons with health care industry knowledge. In this context, the commenter expressed concern about how well the terms WAMP and AMP are understood across the health care industry. Several commenters supported our proposal to retain 5 percent as the applicable threshold for 2006, while strongly urging that we not implement the provisions relating to substitution of the ASP until notice and comment rulemaking is conducted. Many commenters referred to the language in the Conference Report accompanying the MMA that discusses rulemaking in connection with this issue and requested that we follow the intent of that language and provide the public the opportunity to evaluate the validity of the processes used and the data obtained by OIG.

Response: We appreciate the commenter's acknowledgement that we are required to specify the threshold percentage applicable in 2006. Section 1847A(d)(3)(B)(i) of the Act specified the applicable threshold percentage for 2005. Section 1847A(d)(1) of the Act requires that the OIG conduct studies to determine the WAMPs, and the OIG began its study activities shortly after the passage of the MMA. Upon completion, the OIG's findings and methodology will be available to the public. We are aware of the Conference Report language; however, given the statutory requirements in section 1847A(d), we do not believe rulemaking is appropriate at this time.

Final Decision

We will establish 5 percent as the applicable threshold for 2006.

2. Payment for Drugs Furnished During CY 2006 in Connection With the Furnishing of Renal Dialysis Services if Separately Billed by Renal Dialysis Facilities

Section 1881(b)(13)(A)(iii) of the Act indicates that payment for a drug furnished during CY 2006 and subsequent years in connection with the furnishing of renal dialysis services, if separately billed by renal dialysis facilities, will be based on the acquisition cost of the drug as determined by the OIG report to the Secretary as required by section 623(c) of the MMA or, the amount determined under section 1847A of the Act for the drug, as the Secretary may specify. In the report entitled, “Medicare Reimbursement for Existing End Stage Renal Disease Drugs,” the OIG obtained the drug acquisition costs for the top 10 ESRD drugs for the 4 largest ESRD chains as well as a sampling of the remaining independent facilities. Based on the information obtained from this report, for CY 2005, payment for the top 10 ESRD drugs billed by freestanding facilities and payment for EPO billed by hospital-based facilities was based on acquisition costs as determined by the OIG. Due to the lag in the data obtained by the OIG, we updated the acquisition costs for the top 10 ESRD drugs to 2005 by the PPI. The separately billable ESRD drugs not contained in the OIG report were paid at the ASP+6 percent for freestanding facilities. The payment allowances for these remaining drugs were updated on a quarterly basis during 2005.

Section 1881(b)(13)(A)(iii) of the Act gives the Secretary the authority to establish the payment amounts for separately billable ESRD drugs beginning in 2006 based on acquisition costs or the amount determined under section 1847A of the Act. As discussed in the proposed rule, we do not believe that it is appropriate to continue to use Start Printed Page 702232002 acquisition costs updated by the PPI for another year as the basis for payment. The acquisition costs are based on 2002 data which, despite updates by the PPI do not necessarily reflect current market conditions. Thus, the chances increase that Medicare payments will either overpay or underpay for drugs resulting in payments that are inconsistent with the goal of making accurate payments for drugs. We also considered whether actual acquisition cost data could be periodically updated. However, we do not believe that it would be feasible to base Medicare payments over the long term on continually acquiring data on actual acquisition costs from ESRD facilities. This approach would provide incentives for manufacturers and facilities to increase acquisition costs without constraint. It also would not necessarily provide data regarding current market rates. Therefore, we proposed that the payment methodology for all ESRD drugs when separately billed by freestanding ESRD facilities during CY 2006 be the amount determined under section 1847A of the Act. This payment amount is the ASP+6 percent rate.

Based on an analysis of the 2002 acquisition costs for the top 10 separately billable ESRD drugs, when updated by the PPI for CY 2006, it is our contention that relying on 2002 acquisition cost data updated for a number of years as would be necessary to establish a payment amount for 2006 is not the most appropriate option for determining Medicare payment rates when other drug-specific pricing is available. Further, we contend that relying on the ASP+6 percent as the payment rate for all separately billable ESRD drugs when billed by freestanding ESRD facilities for CY 2006 is a more reliable indicator of the market transaction prices for these drugs. The ASP is reflective of manufacturer sales for specific drug products and is more indicative of market and sales trends for those specific products than the 2002 OIG acquisition cost data.

We also note MedPAC's recommendation in its June 2005 report that the ASP be the basis of payment for all separately billable ESRD drugs provided by both freestanding and hospital-based facilities in CY 2006 (MedPAC, “Report to the Congress: Issues in a Modernized Medicare Program,” June 2005). In making this recommendation, MedPAC states that the ASP data are more current (updated quarterly) and more likely to reflect actual transaction prices when compared with acquisition cost data which are not regularly collected by the OIG or CMS. Furthermore, the report indicated that utilizing the same payment policy for both freestanding and hospital-based facilities would ensure uniformity across the various settings irrespective of the site of care. In addition, MedPAC recommends in its report that we obtain, “* * * data to estimate hospitals” costs and Medicare's payment per unit for these drugs. No published source identifies the unit payment for these drugs because Medicare pays hospitals their reasonable costs.” MedPAC further states: “We attempted to calculate the unit payment from 2003 claims data, but the accuracy of the data fields we needed to make this calculation was unclear, particularly the number of units furnished and Medicare's payment to the hospital.” MedPAC also recommends that CMS or the OIG collect acquisition cost data periodically in the future to gauge the appropriate percentage of ASP for the payment amount.

We acknowledged MedPAC's recommendations regarding uniformity across the various settings irrespective of the site of care and believe it is more appropriate to pay for separately billed drugs furnished in hospital-based facilities under the ASP+6 percent methodology rather than on a reasonable cost basis.

Therefore, for CY 2006, we proposed that payment for a drug furnished in connection with renal dialysis services and separately billed by freestanding renal dialysis facilities and EPO billed by hospital-based facilities be based on section 1847A of the Act. We proposed to update the payment allowances quarterly based on the ASP reported to us by drug manufacturers. We sought comment on our proposed decision to revise the payment methodology for separately billable ESRD drugs and about the potential method we have discussed in other sections of this final rule with comment which would permit us to pay hospital-based facilities under the ASP+6 percent methodology for 2006. We also sought comment on how this proposed decision could affect beneficiaries' or providers' access to these drugs.

We received numerous comments regarding our proposal to pay for drugs furnished in connection with renal dialysis services and separately billed by free-standing renal dialysis facilities as well as EPO billed by hospital-based facilities at the ASP+6 percent payment methodology. We also received comments on our proposal to continue to pay hospital-based facilities reasonable cost for separately billable ESRD drugs. Those comments and responses are provided below.

Comment: Several commenters agreed with our proposal to use the ASP+6 percent methodology as the basis for payment for drugs furnished in connection with renal dialysis services and separately billed by free-standing renal dialysis facilities as well as EPO billed by hospital-based facilities and our decision to update the payment allowances on a quarterly basis. These commenters viewed the ASP+6 percent payment methodology as superior to the average acquisition payment methodology as the ASP+6 percent methodology enables payment to reflect the actual market transaction prices for ESRD drugs. Commenters stated that reliance on the ASP+6 percent methodology will lead to a more uniform payment policy across care settings. These commenters strongly recommended that we finalize our proposal to pay all ESRD drugs when separately billed by freestanding ESRD facilities, as well as EPO when furnished in hospital-based facilities at ASP+6 percent. It was noted that the ASP+6 percent methodology is easier for us to administer as we already collect and update ASP data on a quarterly basis. Other commenters were cautious in regards to the ASP system, indicating that although the shift from average acquisition cost to ASP+6 percent appeared rational, the ASP would be largely influenced by the lower large provider price. As a result, the ASP prices would not reflect the acquisition costs for all providers. Small dialysis facilities would be unable to purchase ESRD drugs at the proposed prices and would be at risk of being paid well below their acquisition costs, as they lack the same buying power or economics of scale that larger facilities possess. Some commenters focused on statements we made in the past in which we stated that we expected smaller providers to join buying groups in order to reduce acquisition costs. These commenters stated that although almost all small dialysis providers belong to such buying groups, such arrangements have not reduced the disparity between the large providers' acquisition prices and the small providers' acquisition prices. Commenters suggested that this “market dynamic” with extremely different buying power among providers does not exist in any other market where we have established drug payment policies.

Response: We agree with the commenters who suggested that we establish the 2006 payment rates for drug furnished in connection with renal dialysis services and separately billed Start Printed Page 70224by freestanding renal dialysis facilities and EPO billed by hospital-based facilities using the ASP, rather than use the 2002 average acquisition costs updated by the PPI. We also agree for 2006 to apply the quarterly update of ASP data to payment for drugs furnished by freestanding renal dialysis facilities and EPO billed by hospital-based facilities.

After consideration of the feasibility of continuing to use 2002 acquisition costs updated by the PPI for another year, we have determined that the ASP+6 percent methodology is the most accurate measure for paying for EPO furnished in hospital-based facilities and for separately billable ESRD drugs provided in freestanding dialysis facilities.

Implemented in 2005 by the MMA of 2003, the ASP methodology is based on data submitted by manufacturers of Medicare Part B drugs. The ASP for all drug products included within the same billing and payment code is the volume-weighted average of the manufacturers' ASPs reported to us across all the NDCs assigned to the billing or payment code. Therefore, the ASP is a more accurate indicator of market trends for specific drugs.

We do not agree with commenters who suggest that varying buying power only exists among providers of ESRD drugs. Other purchasers of Part B drugs have expressed concerns to us regarding a variation in buying power. We will continue to support groups representing Medicare Part B drug purchasers, especially small and rural purchasers, to help them identify the most favorable drug prices possible.

Comment: Many commenters requested that if we implemented the ASP-based methodology for separately billable ESRD drugs, we should utilize the most recently available ASP data and update that data quarterly. These commenters expressed concern about the significant lag time apparent in the current ASP methodology, indicating the lag time results in a decrease in payment that no dialysis facility has the ability to make up. Commenters encouraged us to provide retrospective payments to dialysis facilities, particularly small or independent dialysis providers to prevent such facilities from reducing services or from closing. One large drug manufacturer suggested that we consider an alternative drug payment option for small providers and we assure that these providers are not negatively affected by changes in the payment policy for drugs. Commenters suggested that we utilize a methodology that uses average acquisition price for small providers as the marker for ESRD drug reimbursement, citing section 1881(b)(13)(A)(ii) of the Act as the authority. Under this system, we would collect acquisition cost data from small providers, update the data for the current year and establish payment rates on these acquisition costs. Other commenters suggested that we consider establishing an exception process whereby rural or inner city ESRD facilities could request an alternate payment based on their actual drug acquisition costs as a result of unique economic circumstances. Some commenters suggested that we exclude EPO from the ASP payment methodology, stating that EPO has only one manufacturer and accounts for a large proportion of drug payment to independent dialysis facilities. Some commenters suggested that contracts of large providers are able to influence the ASP for EPO and for these providers; the acquisition price will be close to ASP. The inclusion of EPO in the ASP methodology will create disparity in patient care.

Response: In response to concerns regarding the significant lag time apparent in the ASP methodology, the ASP methodology is based on ASPs reported by manufacturers quarterly. Manufacturers must report to us no later than 30 days after the close of the quarter. We implement these new prices through program instructions or otherwise at the first opportunity after we receive the data, which is the calendar quarter after receipt.

We do not agree with commenters who suggested that we permit small, rural, or inner city ESRD facilities to request an alternate payment based on their actual drug acquisition costs, or that we exclude EPO from the ASP payment methodology. We do not have that authority. Section 1881(b)(13)(A)(iii) of the Social Security Act states that the Secretary chooses the methodology to determine payment rates for all drugs separately billed by ESRD facilities. The language refers to the choice of acquisition costs as determined by the Inspector General of the ASP rates. Section 1881(b)(13)(A)(ii) does not provide authority for individual providers to choose whether to be paid on the basis of costs or the ASP method.

Comment: Several organizations stated that payment differences should be eliminated for separately billable drugs furnished in independent and hospital-based facilities and the ASP payment methodology should be used for all drugs provided in hospital-based facilities. One commenter agreed with our concerns regarding the lack of available data from hospital claims and recommended that the Secretary collect data on the acquisition cost and payment per unit for drugs furnished by hospital-based providers, or consider using the unit dosing information obtained from claims submitted by freestanding dialysis facilities and consult with clinical experts regarding the appropriateness of the dose data.

Response: We agree with commenters who suggested that we utilize the same payment methodology for separately billable drugs furnished in independent facilities and hospital-based facilities. For reasons discussed in the ESRD section of this final rule with comment, we believe it is appropriate to implement the ASP payment methodology for all drugs provided in hospital-based facilities.

Comment: Prompt pay discounts are included in the calculation of the ASP; however, commenters stated that small customers do not normally receive such discounts. Rather, these customers are charged an additional service fee to the price of the product. Thus, by including prompt pay discounts in the calculation of the ASP, the ASP is lowered, but the small providers are not privy to such discounts. Commenter also stated that sales to cutomers outside of independent dialysis facilities are included in the calculation of the ASP and thus, contribute to the difference between manufacturer-provided ASPs and provider acquisition costs. They stated that we have established a distinct methodology for drug payment for hospital-based dialysis facilities, and therefore, it is inappropriate to include such customers in the ASP payment system for independent dialysis facilities.

Response: In the calculation of the ASP, as specified in Section 1847A(c)(3), a manufacturer should include volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirements, chargebacks, and rebates (other than rebates under the Medicaid rebate statute). We lack the statutory authority to permit manufacturers to exclude prompt pay discounts from the calculation of the ASP. Further, the statute does not permit the exclusion of or differentiation by classes of trade in the calculation of the ASP payment rates, except for the specific statutory exceptions described in the Medicaid best price calculation under sections 1927(c)(1)(C)(i) and 1927(c)(1)(C)(ii)(III) of the Act.

Comment: Several commenters stated that the ASP methodology does not take into consideration provider costs for storage, handling, and wastage. Small Start Printed Page 70225providers will be disadvantaged as they have less efficient and more costly systems for storage and handling.

Response: The ASP+6 percent payment methodology was not intended to cover the handling and storage of drugs.

3. Clotting Factor Furnishing Fee

Section 303(e)(1) of the MMA added section 1842(o)(5) of the Act which requires the Secretary, beginning in CY 2005, to pay a furnishing fee in an amount the Secretary determines to be appropriate to hemophilia treatment centers and homecare companies for the items and services associated with the furnishing of blood clotting factor. In the CY 2005 final rule (69 FR 66236), we established a furnishing fee of $0.14 per unit of clotting factor for CY 2005. Section 1842(o)(5) of the Act specifies that the furnishing fee for clotting factor for years after CY 2005 will be equal to the fee for the previous year increased by the percentage increase in the consumer price index (CPI) for medical care for the 12-month period ending with June of the previous year. The percent increase for the 12 months ending June 2005 is 4.2 percent. Consequently, the furnishing fee will be $0.146 per unit clotting factor for CY 2006. While the furnishing fee payment rate is calculated at 3 digits, the actual amount paid to providers and suppliers is rounded to 2 digits. The requests to publish the 2006 furnishing fee in the final rule with comment were the only comments we received on the clotting factor section in the proposed rule.

4. Payment for Inhalation Drugs and Dispensing Fee

Medicare Part B pays for inhalation drugs administered via a nebulizer, a covered item of DME. Beginning in CY 2006, coverage for inhalation drugs administered through metered dose inhalers will generally be available through the Medicare Part D benefit. This represents an important expansion in the options available to beneficiaries for inhalation drug coverage under Medicare. We expect that both modes of inhalation drug delivery will play an important role in the Medicare program in the years to come.

Prior to CY 2004, most Medicare Part B covered drugs, including inhalation drugs administered by a nebulizer (hereafter referred to as inhalation drugs), were paid at 95 percent of the AWP. Numerous studies by the OIG and GAO indicated that 95 percent of AWP substantially exceeded suppliers' acquisition costs for Medicare Part B drugs, particularly for the high volume inhalation drugs, albuterol and ipratropium bromide.[1] The MMA changed the Medicare payment methodology for many Part B covered drugs, including inhalation drugs. As an interim step, in CY 2004, Medicare paid a reduced percentage of AWP, 80 percent of AWP in the case of albuterol and ipratropium bromide. Beginning with CY 2005, Medicare paid for inhalation drugs at 106 percent of the average sales price (ASP+6 percent).

In addition to making payment for the drug itself, Medicare also pays a dispensing fee to suppliers of inhalation drugs. Prior to CY 2005, Medicare paid a monthly $5 dispensing fee for each covered inhalation drug or combination of drugs used. In the August 5, 2004 proposed rule (69 FR 47488), we sought comment on an appropriate dispensing fee level to cover the shipping, handling, compounding, and other pharmacy activities required to get these medications to beneficiaries. We received many comments asserting that a substantial fee was needed to compensate suppliers for a wide range of costs associated with dispensing drugs to beneficiaries, with many citing a 2004 report prepared by a consultant for the American Association for Homecare (AAH) that recommended a $68 fee.[2] The 2004 AAH report provided information for 10 cost categories: clinical intake; establishing/revising the plan of care; delivery of services; compliance monitoring/refill calls; billing/collections; other direct costs; patient education; caregiver training; care coordination; and in-home visits. In addition, as discussed in the August 8, 2005, proposed rule, a 2004 study by the GAO showed substantial variation in supplier costs of dispensing inhalation drugs.[3] With the wide variation in the reported costs and services provided by inhalation drug suppliers suggested by the comments and the GAO study, we stated in the CY 2005 final rule (69 FR 66338) that we would establish an interim dispensing fee for inhalation drugs applicable for CY 2005 and reconsider the issue for CY 2006. The 2005 dispensing fee for a 30-day supply of inhalation drugs was based on the industry recommended $68 fee from the 2004 AAH study, excluding certain costs that Medicare generally does not reimburse regardless of the Medicare Part B benefit category (that is, sales and marketing, bad debt, and an explicit profit margin). The resulting fee established for a 30-day supply of inhalation drugs was $57 for CY 2005. Because the 2004 AAH study did not establish a fee for a 90-day supply, we applied the methodology used in the 2004 GAO report to convert the 30-day fee to a 90-day fee. Accordingly, the 2005 fee established for a 90-day supply was $80. In establishing the dispensing fee rates for 2005, we indicated in the CY 2005 final rule that although the AAH study contained costs related to services that may be of potential benefit to our beneficiaries, we were concerned that these services may be outside the scope of a dispensing fee. We indicated that we would consider this issue further in order to establish an appropriate dispensing fee for CY 2006.

As discussed in the August 8, 2005 proposed rule (70 FR 45847), we indicated that we intend to establish a dispensing fee amount for 2006 that is appropriate to cover the costs of those services that fall within the scope of a dispensing fee. Furthermore, we indicated that we thought this fee amount likely would be lower than the current fee of $57 per 30-day period in 2005. In the proposed rule we solicited public comments and information on a number of issues including the following:

  • What services appropriately fall within the scope of a dispensing fee; the cost of providing those services; and, whether any of the services being provided by inhalation drug suppliers may be covered through another part of the Medicare program, such as the PFS or the DME benefit.
  • An appropriate dispensing fee level for 2006 as well as data and information on the various services inhalation drug suppliers are currently providing to Medicare beneficiaries and the associated costs, and typical dispensing costs for an efficient, high-quality supplier.
  • The extent to which inhalation drug suppliers have utilized the newly available 90-day scripts in order to reduce unit shipping costs and any reasons as to why 90-day supplies may not have been utilized.
  • How revised guidelines regarding the timeframe for delivery of refills has affected the need for overnight delivery services as well as the extent to which suppliers have shifted their shipping to ground services.
  • Comments on the potential impact on beneficiaries and providers of possible changes to the inhalation drug dispensing fee in 2006, as well as the Start Printed Page 70226impact of the new drug benefit on inhalation drug access.

Comment: Many commenters suggested that dispensing inhalation drugs to Medicare beneficiaries involves a wide range of services that should be compensated through the dispensing fee. A number of commenters referenced a 2005 report by an industry consultant sponsored by the AAH.[4] The 2005 AAH report indicated that suppliers provide services in seven broad categories: Intake; compounding, dispensing, and pharmacy assessment; delivery, set-up, and patient education; follow-up and compliance monitoring; quality assurance, accreditation, licensing, and regulatory compliance; Medicare billing and compliance; and other direct and indirect costs and expenses. Within these seven categories, the 2005 AAH report indicated that there were “117 discrete services” provided to or on behalf of Medicare beneficiaries. The 2005 report surveyed 82 homecare pharmacies. The vast majority of survey respondents thought the 117 discrete services outlined by the consultant fell within the scope of a dispensing fee, and the vast majority of respondents indicated they were providing these services. Several commenters suggested that the survey demonstrated there was widespread agreement that the standard of care for inhalation drug suppliers involved a wide range of services. In addition, one commenter asserted that the 117 services identified in the 2005 AAH report encompassed all of the functions identified in the 2004 AAH report prepared by the same consultant, which formed the basis of the 2005 fee.

Response: We established the interim dispensing fee for 2005 based on cost data from the 2004 AAH report. That report provided cost data for 10 service categories: Clinical intake; establishing/revising the plan of care; delivery of services; compliance monitoring/refill calls; billing/collections; other direct costs; patient education; caregiver training; care-coordination; and in-home visits. In using this data to establish the 2005 fee in the CY 2005 final rule, we indicated that we were concerned that some of the services in the industry cost data may be outside the scope of a dispensing fee and we would revisit this issue further in order to establish an appropriate dispensing fee for CY 2006. As discussed in the August 8, 2005, proposed rule, we continue to have concerns with respect to what services should be included within the dispensing fee payment.

Authority for a dispensing fee for inhalation drugs is based on section 1842(o)(2) of the Act, which provides that if payment is made to a licensed pharmacy for a drug or biological under Medicare Part B, the Secretary may pay a dispensing fee (less the applicable deductible and coinsurance) to the pharmacy. The statute did not define the term dispensing fee or set parameters as to what activities should be included within the scope of that definition. However, as discussed below, we do not believe the Congress intended us to adopt the broad reading of dispensing fee suggested by commenters.

We are not persuaded by suggestions that Medicare should broadly define the definition of dispensing fees for inhalation drugs to include pharmacy care management services such as patient education, caregiver training, care coordination, and in-home visits. A number of commenters suggested the dispensing fee be based on the total costs of supplying inhalation drugs indicated by the 2004 AAH report data. That data indicated that suppliers expend on average 63.5 minutes per new patient and 50 minutes per established patient per month on patient education, caregiver training, care coordination, and in-home visits. Such services represent pharmacy care management services, which (if included in dispensing fee payments) would extend the definition of dispensing fee beyond what we believe should be reasonably included within the scope this benefit. As an initial matter, we do not believe that there is any indication that the Congress intended these care management activities to be included in the definition of dispensing fees. Where the Congress wished for us to cover the costs of such training and management services under Medicare, it specifically directed us to do so (for example, by amending the statute to recognize diabetes outpatient self management training under Medicare Part B and medication therapy management programs under Medicare Part D (see sections 1861(qq) and 1860D-4(c) of the Social Security Act). Therefore, in accordance with our interpretation of the statute, we do not believe it is reasonable for us to define the term dispensing fee under Medicare Part B to include the costs of such services.

In addition, we also believe that the inclusion of beneficiary education and training about use of nebulizers would raise duplicate payment issues. Payment for DME is based on fee schedule amounts which include, in part, amounts for training beneficiaries on the use of nebulizer equipment. Thus, the equipment supplier is responsible for educating the beneficiary on the use of the DME or ensuring that “another qualified party” has done so as specified in § 424.57(c)(12). In addition, under the physician fee schedule Medicare makes a separate payment for beneficiary training by a physician or physician's staff regarding use of a nebulizer (CPT code 94664, demonstration and/or evaluation of patient utilization of an aerosol generator, nebulizer, metered dose inhaler or IPPB device). We believe that physicians can play an important role in beneficiary training concerning the use of nebulizers, as they are ultimately responsible for directing beneficiary care, and determining what drug treatment regimen is most effective for an individual patient. Accordingly, because payment for education, training, and management concerning use of nebulizer equipment may be separately recognized under Medicare, we are concerned that the inclusion of such services within the definition of dispensing fee would increase the potential for double billing.

We are also not persuaded by commenters' suggestions that the 2005 AAH report demonstrates that the standard of care for supplying inhalation drugs includes a broad range of services. The 2005 AAH report presented results from a survey of homecare companies, in which the companies were asked whether 117 activities or overhead items should be included in the dispensing fee and whether the companies currently provide or undertake each activity/item (although the frequency and extent to which each activity/item was provided was not asked). The 2005 report identified services provided but failed to provide any information on the proportion of beneficiaries actually receiving various services (for example, patient education, caregiver training, in-home visits). It also did not provide any information on the cost of various services (other than delivery), or the amount of time involved in providing these services to the typical beneficiary. Consequently, the 2005 AAH report fails to demonstrate that the 117 activities/overhead items outlined in the 2005 report translate into an average of 63.5 minutes per new patient and 50 minutes per established patient each month for the care management services of patient education, caregiver training, in-home visits, and care coordination in the 2004 AAH report. Since the 2005 report did Start Printed Page 70227not include information on costs, the 2004 AAH report is the only information we have on average cost and time per activity. However, even the 2004 AAH report does not contain information on the proportion of beneficiaries that actually receive the care management services. Accordingly, given the data identified in the reports, we are not persuaded by the AAH reports that the standard of care for supplying inhalation drugs includes extensive care management services for patient education, caregiver training, in-home visits, and care coordination.

Furthermore, a September 2005 OIG study entitled “Review of Services Provided by Inhalation Drug Suppliers” [5] found little evidence that inhalation drug suppliers provide care management services to many beneficiaries. The OIG report sought to ascertain the nature and extent of services provided by inhalation drug suppliers. The OIG examined services such as clinical intake, revising the plan of care, patient/caregiver education, responding to patient/caregiver inquiries about the drug, contacting the physician's office, contacting a patient for a refill, reviewing medication compliance, and other certain services. The OIG did not focus on certain core activities such as filling prescriptions, delivery, and billing that they indicated were necessary for suppliers to dispense drugs and receive reimbursement. They also indicated that they excluded equipment related services because Medicare pays suppliers separately for equipment.

The OIG report concluded that beneficiaries receive few services from their inhalation drug supplier beyond calls to ask if they need a drug refill. The OIG report found that among beneficiaries with at least 2 months of claims in 2003, 16 percent received no services (that is, no educational services, refill calls, or other adjunct services the OIG examined) from their inhalation drug supplier during the entire year. The OIG found that refill calls accounted for the majority of services provided by inhalation drug suppliers. In addition, the OIG found that only 16 percent of beneficiaries received an educational service from their drug supplier, 8 percent made a non-billing inquiry to their drug supplier, 8 percent received an in-home visit, 5 percent had a care plan revision, and 3 percent received a respiratory assessment from their drug supplier at least once during 2003. Furthermore, the OIG report indicated that only 27 percent of beneficiaries had their medication compliance reviewed by drug supplier at least once in 2003, with 89 percent of these reviews occurring during refill calls. Accordingly, in light of the OIG findings regarding services actually provided, we remain unconvinced regarding the standard of care contentions set forth in comments concerning the 2004 and 2005 AAH reports.

As mentioned previously, we do not believe it is appropriate to include care management services such as patient education, caregiver training, care coordination, and in-home visits in the inhalation drug dispensing fee. Furthermore, the OIG found that few care management services were actually provided to a typical beneficiary. While it is possible that some types of care management services may be of potential benefit to some beneficiaries, at this time there is not clear evidence that such services are widely provided to beneficiaries nor have there been studies evaluating the effect of such services on beneficiary outcomes. Given such concerns, we do not believe it is appropriate for us to define dispensing fee under Medicare Part B to include care management services. However, we believe it is very important that the Medicare program support better patient care outcomes, particularly for beneficiaries with chronic respiratory conditions. We plan to explore how the Medicare program can engage physicians and their partners on issues of quality and performance to foster high quality of care for Medicare beneficiaries using respiratory drugs. For example, we believe there may be an opportunity under our demonstration authority to implement a demonstration program to test whether care management and care coordination services by physicians and their partners can improve health outcomes and reduce Medicare costs for beneficiaries who use inhalation drugs.

Comment: Some commenters criticized the OIG report as being too narrow in scope. A few commenters suggested that the OIG study excluded many essential services such as drug deliveries and billing activity that account for the bulk of services and costs. Another commenter suggested that the study did not capture all the services inhalation drug suppliers provide, including many that are required by State and Federal regulations (for example, Food and Drug Administration and State Pharmacy Boards), and standards of care for pharmacy practice. The commenters also criticized the OIG report for excluding billing services and not taking into account the substantial amounts of time spent doing the following: Collecting and processing the relevant billing information from the beneficiary and beneficiary's physician, which the commenter indicated often requires multiple on-site visits to doctors offices; verifying eligibility and processing reimbursement from secondary insurers responsible for payment of coinsurance; and researching and on-site verification of beneficiary financial and living circumstances in order to validate a waiver of coinsurance for hardship. The commenters also criticized the OIG report for not taking into account non-payment of coinsurance by Medicaid, the costs of Medicare billing requirements, and costs of oversight by multiple carriers. Furthermore, several commenters suggested that the OIG study undercounted services because the OIG survey instrument requested documentation for each service provided and the report focused on documented services. Some commenters suggested that this approach left out those services for which suppliers did not have documentation, either because they had discarded the documentation after it was no longer useful or because they had not documented services since there was no requirement to do so. Some commenters indicated that the mandatory refill calls require two telephone contacts on average before contact is made with the beneficiary. One commenter indicated that it maintains documentation of failed call attempts only for several months, and is not required to maintain long-term documentation of repeated calls and visits to patient homes and physicians' offices to gather documentation and information. In addition, one commenter noted that the OIG report expanded the categories of services it analyzed in its report based on information submitted by respondents in the survey instrument's “other” category. The commenter believed that this meant participants in the OIG report may not have always been explicitly asked about certain types of services. This commenter also criticized the OIG report for not conducting field work to observe the activities of inhalation drug suppliers, and indicated its belief that the GAO and 2004 AAH report included a more thorough analysis. Another commenter stated that the OIG report does not address the issue that the costs of dispensing drugs are higher than the current $57 fee for high quality suppliers in compliance with applicable requirements. Furthermore, the commenter stated that Start Printed Page 70228the service levels suggested in the OIG report are not representative of high quality suppliers. The commenter also stated that the behavior of noncompliant suppliers should not serve as a basis for reducing the fee because they contend the various services are required to comply with the regulations of Medicare, other government entities, and accrediting or quality assurance organizations.

Response: We do not find the criticisms of the OIG report persuasive. While a number of commenters criticized the methodology and findings of the OIG study, we believe that the results of the OIG study are credible. The OIG study examined the extent to which certain services such as patient/caregiver education, responding to patient/caregiver inquiries about drugs, revising the plan of care, contacting the physician's office, contacting a patient for a refill, reviewing medication compliance, and certain other services were actually being provided to beneficiaries by inhalation drug suppliers. The OIG failed to find evidence that many beneficiaries received such services from their inhalation drug suppliers, with the exception of drug refill calls.

Although some commenters criticized the OIG report for not including core dispensing activities such as filling the prescription and billing, the OIG report indicated that it did not focus on those activities because it did not have cause to question that they are necessary to dispense drugs and be reimbursed. The OIG instead focused on those services where less was known about the extent to which the services were actually being provided to beneficiaries. The OIG report examined a set of services that accounted for 60 percent of costs included in the 2004 AAH data. In addition, some costs cited by one commenter as being improperly excluded from the OIG study, such as non-payment of coinsurance by Medicaid, costs associated with waivers of coinsurance for indigent beneficiaries, and assessment of the beneficiary's situation for coinsurance waiver, are not generally reimbursed under Medicare Part B as a matter of general policy.

We are not persuaded by those commenters who suggested that the OIG study should be disregarded because the OIG undercounted the number of services suppliers actually provide due to the OIG's focus on documented services. Although the OIG focused its analysis on documented services, the OIG report indicated that if they had included undocumented services reported by suppliers in their analysis, the average number of services per beneficiary would still have been low (increasing from an average of 1.2 to 1.59 services per beneficiary per month). In addition, if various services are essential to dispensing these drugs to beneficiaries as some have suggested, we would have expected that suppliers would have documented the content and frequency of the services in patient records in order to track patient progress and maintain continuity of care. Furthermore, although some contend that the OIG study suggests that some suppliers are non-compliant in their provision of required services, as commenters pointed out, the OIG study did not generally collect information on the core services required to furnish inhalation drugs, with the exception of refill recalls. The OIG report found that not all beneficiaries who should have received a refill call actually got one. We plan to study the issue of refill call compliance further, and we believe it is important to reflect the costs of refills call in the dispensing fee.

In terms of the comment that the OIG study added several service categories based on information submitted by commenters, the survey instrument included an “other” category under which suppliers could report any services that were not captured by the categories provided. We do not view the opportunity for suppliers to elaborate on the types of services provided to be a weakness but rather a strength of the study. Although the OIG study was criticized by some for not conducting field work, the OIG adopted a methodology that was designed to provide information on a representative sample of beneficiaries receiving inhalation drugs.

While the OIG report does not provide information on supplier costs, that was not the objective of the OIG study. The OIG report provides information on the percent of beneficiaries that received various services from their drug suppliers, and as a result, and we believe it offers helpful information in our consideration of the inhalation drug dispensing fee.

Comment: We received a number of comments recommending either an increase or no reduction in the dispensing fee for 2006. Several commenters suggested the 2005 AAH report provided an appropriate fee for 2006. For that report, a consultant surveyed homecare pharmacies about what fee level they thought was appropriate for 2006. Survey respondents on average suggested a fee of $66.55 for a 30-day supply and a fee of $138.80 a 90-day supply. Suggested fees from other commenters ranged from $57 to $68, with a few commenters suggesting an inflation adjustment on top of those levels. One insurer commented that the current dispensing fee appears high.

Some commenters provided cost information as part of their contention that the fee should not be reduced or should be increased. One large supplier indicated that its costs were about $75 per beneficiary for a 30-day period, with the 3 cost categories accounting for the largest share being delivery, setup, and patient education ($20); clinical intake ($15); and compounding, dispensing, and assessment ($14). Another supplier indicated its costs broke out as follows: delivery, set-up, and patient education (27.3 percent); compounding, dispensing, pharmacy assessment (19.0 percent); patient intake (17.8 percent); follow-up and compliance monitoring (11.6 percent); quality assurance, accreditation, licensing and regulatory compliance (9.1 percent), other direct and indirect costs (4.2 percent). The supplier indicated that its costs were largely for salaries, freight and other delivery charges, and business infrastructure.

A number of commenters stated that the dispensing fee should not be based on retail pharmacy costs, stating that retail pharmacies do not provide the array of services that homecare pharmacies do. One retail pharmacy clarified its comments from the prior year cited in the proposed rule. By suggesting a fee of 5 to 6 times the current fee last year, the retail pharmacy said they meant 5 to 6 times the $10 proposed supplying fee (for immunosuppressive, oral anticancer, and oral anti-emetic drugs) for 2005 (that is, $50 to $60). In addition, a respiratory company stated that a comment received on the August 5, 2004 proposed rule from another retail pharmacy, which was cited in the August 8, 2005 proposed rule, may have been intended to mean $25 per prescription rather than $25 per 30-day period. Also, the commenter stated that the prior cost data was irrelevant because it preceded experience with the ASP system. Comments from retail pharmacies and a pharmacy association indicated support for the dispensing fee level urged by the 2005 AAH report.

A number of commenters stated there would be adverse effects on beneficiary access to inhalation drugs if the fee were reduced. Some suppliers asserted that they would reduce the services offered to beneficiaries or cease supplying inhalation drugs to Medicare beneficiaries. A number of commenters pointed to the 2005 AAH survey, which indicated that 45 percent of providers Start Printed Page 70229would not accept Medicare patients if the dispensing fee were reduced more than a nominal amount, while 50 percent indicated they would reduce services provided to beneficiaries, and 2.5 percent indicated they would close. One commenter maintained that some providers had already closed or are seeking acquisition by other companies under current reimbursement rates. Another commenter speculated that a reduction in the dispensing fee would cause a shift away from small home care pharmacies to retail pharmacies, and asserted that these pharmacies would have to gear up by increasing inventories or directing patients to their mail order pharmacies. Some commenters suggested that a fee reduction could lead to adverse health effect for beneficiaries, reduced quality, or use of more intensive Medicare services. Others raised concerns that a reduction could create adverse incentives for substituting MDIs for nebulizers, even for patients where nebulizers are the preferred delivery mechanism.

Some commenters suggested that it is premature to reduce the dispensing fee. Some of these commenters asserted that CMS did not provide any new cost data in the proposed rule that would warrant a reduction. Several commenters stated costs had increased due to higher fuel prices, unforeseen natural disasters, and wage inflation. Several commenters pointed to the 2005 AAH study which indicated that the average cost of shipping increased from $12.13 in 2004 to $14.41 in 2005. One commenter indicated that its overnight shipping costs were between $27 to $40 per shipment. Another commenter cited a 12.5 percent increase in the fuel surcharge cap for one large shipping company, which they indicated would cause their delivery costs to increase an additional 4 percent on top of prior increases. One commenter indicated that its cost per shipment had increased by $0.40 due to increased fuel costs in 2005, and it expected additional future increases. In urging an increase in the fee to take into account inflation, another commenter mentioned that it had consolidated the number of pharmacies it operated to increase efficiency, but indicated that the number of costs that could be reduced was limited. Another commenter stated that we should not reduce the fee because the agency indicated in a October 8, 2004 letter to GAO that a fee of $55 to $64 was a reasonable range for a 2005 fee. Other commenters asserted that experience with the ASP system and the current dispensing fee is too limited to conclude there are overpayments. One commenter stated that the payment reduction in 2005 was greater than the Congressional Budget Office or the CMS Actuaries Office had projected prior to passage of the Medicare Modernization Act. This commenter suggested actual levels in 2005 claims data be compared to original estimates before taking any action.

Response: As noted previously, we established the 2005 dispensing fee using data from the 2004 AAH report. That report included costs for a wide range of services beyond basic dispensing, such as patient education, caregiver training, care coordination, and in-home visits. As discussed previously, we believe these activities represent care management services that should not fall within the scope of a dispensing fee. Furthermore, the September 2005 OIG report found little evidence that many beneficiaries receive these care management services. Consequently, we are establishing a dispensing fee for 2006 using the 2004 AAH cost data excluding separable costs for care management services. We believe this interpretation represents an appropriate reading of the statute. Based on the 2004 AAH data for homecare pharmacies, excluding costs for care coordination, in-home visits, patient education, and caregiver training (as well as sales, marketing, bad debt and profit which were also excluded last year because Medicare does not generally reimburse those costs with respect to Part B services), we are establishing a dispensing fee of $33 for a 30-day supply of inhalation drugs. Because greater levels of effort may be involved in dispensing inhalation drugs when a patient begins these drugs for the first time, we have decided to maintain the current $57 dispensing fee for the first 30-day period in which an individual uses inhalation drugs as a Medicare beneficiary. Thus, beginning in 2006, we will pay a dispensing fee of $57 for the first month an individual uses inhalation drugs as a Medicare beneficiary, and $33 for a 30-day supply of inhalation drugs for all other months.

Although some commenters urged an inflation adjustment, we do not believe it is warranted for 2006 because we do not believe it is clear that total dispensing costs have increased since the 2004 industry cost data was collected. Although data from the 2004 industry report may not reflect wage inflation or increased delivery costs due to fuel price increases, it would also not include any efficiencies that providers may have achieved as they have adjusted to the new payment system in 2005. The 2005 AAH report did not provide updated cost data for the service categories included in the 2004 AAH report. Given that the 2004 AAH cost data would not reflect inflationary pressures, nor increased efficiencies in business operations, it is uncertain whether an upward or downward adjustment to the 2004 cost data should be made. As a result, we believe it is best to use the 2004 AAH data as is. We will consider the appropriateness of an inflation adjustment for the future.

Regarding concerns raised by some commenters about beneficiary access, we believe, as discussed previously, that the fee level we are establishing is appropriate to cover suppliers' dispensing costs, and beneficiaries will maintain good access to inhalation drugs. The fee amount is based on the 2004 AAH cost data for clinical intake, establishing/revising the plan of care, delivery of services, refill calls/compliance monitoring, billing/collections, “other” direct costs, and indirect costs, excluding sales, marketing, bad debt, and profit which are not reimbursed by Medicare. Having based the 2006 dispensing fee on industry cost data for those activities that we believe fall within the scope of a dispensing fee, we believe the fees are appropriate to cover providers' costs and will not impair access. In addition, we will continue to monitor access to care.

Regarding concerns raised by some commenters about CMS lowering the fee without the benefit of new cost data, we believe it is our fiduciary responsibility to establish an appropriate payment for 2006. As discussed previously, our decision is based on our determination that certain services should not fall within the scope of the dispensing fee and the OIG report which found that these services are furnished infrequently to beneficiaries. We believe our decision to lower the fee for 2006 is consistent with our October 8, 2004 letter to the GAO, in which we stated that a dispensing fee in the range of $55 to $64 would be appropriate for the interim 2005 fee. Regarding the comment that the savings from the ASP system are greater for inhalation drugs than the savings projected by CBO or the CMS actuaries prior to enactment of the MMA, we recognize the concerns regarding the shift from a payment system based on AWP; however, we do not believe such concerns are an appropriate consideration in determining the dispensing fee for 2006. Medicare does not generally establish payment rates based on budget projections. Rather, we use the most reliable cost data available to establish Start Printed Page 70230a payment rate that is consistent with the statute and appropriate for Medicare covered services.

Comment: In response to our request for comments on providers' experience with the dispensing fee for a 90-day supply, we received a number of comments. One commenter pointed to the 2005 AAH survey, which found that most respondents (77 percent) do not provide a 90-day supply, and among those that do it represents 3 percent of their business. Reasons cited by survey respondents for non-use of a 90-day supply included—(1) 30-day supply promotes more contact with patients and compliance monitoring; (2) patient prescriptions often change; and (3) many suppliers believed the 90-day dispensing fee ($80 in 2005) was not adequate to cover costs. Less than 1 percent indicated they do not provide a 90-day supply because it is less profitable than a 30-day supply. A few other commenters raised concerns about the 90-day dispensing fee and provided similar reasons for non-use of the 90-day supply as the 2005 AAH survey. In addition, one commenter cited Medicare's refund requirements for unused drugs as being another reason for non-use of the 90-day supply. However, one commenter suggested that the 90-day supply is not used because it receives less reimbursement overall than using the 30-day supply. A physician specialty group supported the 90-day prescription because it reduces paperwork and redundant efforts by patients, physicians, and DME suppliers.

Response: We agree with the physician specialty group that dispensing a 90-day supply has merit; thus, we have continued the 90-day dispensing fee for 2006. As cited by respondents to the 2005 AAH study, a 30-day supply may be most appropriate for certain beneficiaries such as those with changing prescriptions. However, for those situations where it is medically appropriate, we believe it is important to have a 90-day option available.

In the CY 2005 final rule, we calculated the 90-day dispensing fee by taking direct costs for the 30-day fee and tripling indirect costs (which was based on the methodology used in the October 2004 GAO report). However, as discussed, some commenters voiced concern about the adequacy of the 2005 90-day dispensing fee. Some commenters supported the reimbursement amounts suggested by respondents in the 2005 AAH survey. In that survey, respondents suggested an average fee for a 90-day supply ($138.80) that was roughly twice the amount they suggested for a 30-day supply ($66.55). For 2006 using a 2 to 1 ratio for the 90-day versus 30-day fee would yield a 90-day fee about 40 percent higher than our previous methodology. We believe it is important that adequate reimbursement be available for the 90-day option, as well as, the 30-day option. Therefore, using the 2 to 1 ratio recommended by commenters for the 90-day versus 30-day supply payment rates, we are establishing a fee of $66 for a 90-day supply of inhalation drugs for 2006.

Although we established two levels of dispensing fees for a 30-day supply, an initial 30-day fee of $57 and a 30-day fee of $33 for all other months, we do not believe a higher initial fee is warranted for a 90-day supply given that we do not believe a 90-day supply is generally used when a beneficiary first begins inhalation drugs. A number of commenters noted that the 90-day supply is not well-suited for patients whose prescriptions are likely to change. We recognize that beneficiaries who begin using inhalation drugs for the first time are more likely than established patients to experience changes in drugs or dosages, or to discontinue use altogether. Accordingly, we do not believe it is appropriate to encourage use of a 90-day supply when a beneficiary first begins using inhalation drugs by establishing a higher initial 90-day fee. Consequently, given such concerns, we have not provided two levels of dispensing fees with the 90-day option.

Comment: Some commenters noted that refill calls are a service required by Medicare.

Response: We agree that Medicare requires that a supplier confirm that a beneficiary needs a refill before sending a new shipment, and we have included the costs of refill calls from the 2004 AAH report within the dispensing fee.

Comment: A few commenters suggested that many of the activities they carry out are required to maintain compliance with FDA, Medicare, and State regulations, and with standards imposed by accrediting bodies such as JCAHO. Some commenters noted that CMS has issued draft supplier quality standards, and that they are required to provide certain services as part of those standards. The commenters suggested that the dispensing fee should accommodate their costs in these areas.

Response: With the exception of certain guidelines concerning compounding, we do not believe that the requirements applicable to inhalation drug suppliers are in general substantially different from the requirements applicable to pharmacies dispensing other drugs. Furthermore, we view costs such as regulatory compliance and quality assurance as part of overhead, which we have included in the dispensing fee based on the 2004 AAH cost data for overhead and other direct costs. We also do not believe that the costs associated with regulatory requirements applicable to equipment suppliers should be compensated through the inhalation drug dispensing fee. The Medicare program makes separate payments to equipment suppliers for rental/purchase of nebulizers and maintenance, and regulatory requirements applicable to equipment suppliers would be covered through the basic payment rates for the equipment, not the Medicare payment rate for drugs or dispensing.

Regarding the draft supplier quality standards that have been released for comment, we note that the agency has adopted a two-step process for developing those standards. An initial document with draft quality standards for suppliers of several types of durable medical equipment has been released for public comment. We expect to release a second document that will clarify which quality standards apply to inhalation drug suppliers. We expect that the standards applying to inhalation drug suppliers will be consistent with accepted quality standards for pharmacies. Furthermore, the standards will establish minimum requirements for being a supplier, which we consider to be part of the standard cost of doing business that is covered through our basic payment rates. As with conditions of participations (COP) for providers, we do not increase our payment rate as a result of a change in COP requirements.

Comment: One commenter stated that section 1842(b)(3) of the Act requires Medicare payments be reasonable. The commenter asserted that the agency has established in § 405.502(a) criteria for determining what is reasonable, and stated that Medicare has a history of recognizing and reimbursing services related to patient care.

Response: We recognize the commenter's concern regarding the reasonableness of Medicare payments. We have based the dispensing fee payment rates on industry cost data from the 2004 AAH report, which was submitted as part of comments by AAH on the CY 2005 proposed rule, and used in the CY 2005 final rule, to establish the 2005 dispensing fee. To establish the 2006 dispensing fee, we have used the 2004 AAH cost data excluding those services that fall outside the scope of a dispensing fee. Start Printed Page 70231

Comment: Some commenters cited Medicare's drug payment rates (ASP+6 percent) as a reason the dispensing fee should remain the same or be increased. One homecare pharmacy indicated that it could not obtain drugs at ASP+6 percent. A few commenters stated that their costs exceed reimbursement for drugs in cases where a physician writes brand medically necessary and the drug is in a billing code that contains both brand and generic drugs. An inhalation drug supplier indicated that for three inhalation drugs its acquisition costs exceeded Medicare reimbursement. Some commenters indicated Medicare drug payments (ASP+6 percent) were inadequate for a variety of reasons such as exclusion of wholesaler markup from ASP, the lag time between sales for a quarter and the inclusion of such information in the Medicare ASP+6 drug payment rates, volatility in ASP+6 reimbursement from quarter to quarter, and class of trade differences in pricing. One commenter suggested that Medicare had addressed concerns about the adequacy of ASP+6 percent reimbursement for oncology patients by implementing the Demonstration of Improved Quality of Care for Cancer Patients Undergoing Chemotherapy. They also suggested that the ASP+6 percent cap on reimbursement for the upcoming Part B drug competitive acquisition program (CAP) was a reason for its delay, because they asserted vendors did not want to commit to a program where ASP+6 percent was the reimbursement limit. The commenter stated that the issues it has encountered with ASP+6 percent are similar to the issues faced by oncologists and vendors under CAP program and therefore should be addressed through the inhalation drug dispensing fee.

In addition, a few commenters suggested that Medicare payments for equipment were inadequate, necessitating a substantial dispensing fee.

Response: Although some commenters stated that the dispensing fee should account for drug acquisition costs in excess of the ASP+6 percent payment, we disagree. Section 1847A of the Act specifies that the Medicare payment for inhalation drugs is at 106 percent of the ASP. We believe the Congress established the ASP based payment for inhalation drugs and separate authority for dispensing of these drugs for good reason, namely to pay appropriately for each service and to eliminate cross subsidization of services. Similarly, we believe payment for nebulizer equipment is a distinct policy separate from the dispensing fee, and one should not cross subsidize the other. In establishing the dispensing fee of $33 for a 30-day supply of inhalation drugs (and higher first month payment), we are focusing on what we believe is the appropriate scope and payment for the dispensing fee.

Although one commenter suggested that we had addressed perceived issues about ASP+6 percent payment adequacy by implementing the Demonstration of Improved Quality of Care for Cancer Patients Undergoing Chemotherapy, we disagree. The purpose of the demonstration program is to promote improvements in quality by measuring patient outcomes in several areas of concern often cited by patients undergoing chemotherapy, which can then be traced to treatments and outcomes. In addition, we believe that the commenter's statement that the change in the timeframe for implementation of the Medicare Part B drug CAP was a result of the ASP+6 percent cap on vendor reimbursement is not accurate and not related to the inhalation drug dispensing fee.

Comment: A few commenters expressed concern that the 30-day dispensing fee is the same regardless of the number of prescriptions dispensed. They noted that if a prescription is changed in the middle of the 30-day period they do not receive an additional fee. They suggested CMS consider a per script fee.

Response: The dispensing fee amount we have established is based on the 2004 AAH report data, which presented average costs for a month. Consequently, we believe our payment rate should be adequate to cover situations where multiple prescriptions are provided. We will consider the suggestion of a per script fee in future rulemaking, as necessary.

Comment: Several commenters indicated that our revised guidelines concerning the timeframe for shipping refills had not reduced their need to use of overnight shipping. An industry association indicated that several factors often force overnight shipping such as hospitals giving beneficiaries only a one or two dose supply and beneficiaries waiting until they are out of medication to reorder. The 2005 AAH survey indicated that the percent of shipments that were overnight increased slightly from 56.3 percent in 2004 to 56.9 percent in 2005. One commenter indicated that 60 percent of its shipments occur on an overnight basis because of several factors such as needing multiple calls to reach a beneficiary and new prescriptions reportedly needing to be shipped overnight. The commenter urged us to permit refill calls as needed to be ready to ship refill orders at least 7 days before the patient's medication runs out. The commenter believes that this would allow for ground shipping in most cases, including refill dates that fall on weekends and 3-day holidays. One commenter suggested that the 30-day dispensing fee reimbursement guideline had reduced the amount of drugs that they could ship in a month, necessitating more use of overnight shipping. In addition, one commenter asserted if beneficiaries come in for a refill before the end of the month, then the pharmacy would receive no fee. While most commenters indicated that the revised delivery timeframes had not had a substantial impact on their delivery practices, one commenter indicated that 70 percent of its shipment through the third quarter of 2005 were ground deliveries, and they hoped to transition an additional 20 percent of shipments to ground delivery in the fourth quarter of 2005 as a result of Medicare's extension of the patient notification and shipment window.

Response: In the CY 2005 final rule, we made several administrative changes aimed at reducing inhalation drug supplier costs, including providing more flexible refill timeframes. We currently allow refills to be sent up to approximately 5 days before the end of the current usage period. To further facilitate the use of ground delivery, we are in the process of working to expand this timeframe to allow refills to be sent up to 7 days before the end of the current usage period. Under this new delivery timeframe, we will allow a dispensing fee to be paid up to 7 days before the end of current usage period, with up to 12 months of dispensing fees payable per year per beneficiary.

In addition, we note that for 2006, we are establishing a dispensing fee of $57 for the first month an individual uses inhalation drugs as a Medicare beneficiary because greater levels of effort may be involved in dispensing inhalation drugs when a patient begins these drugs for the first time, for example, following hospital discharge.

Comment: Many commenters responded to our request for comments on the impact of Medicare Part D coverage of metered dose inhalers on beneficiary access to care. A number of commenters asserted that they did not believe there would be a substantial shift to MDIs when they become covered under Medicare Part D. One commenter said that MDIs are not a substitute for nebulizers, as many patients require nebulizers due to inability to use MDIs properly, or physicians' experience has shown nebulizers are more effective than MDIs. Start Printed Page 70232Another commenter said that although research has not been able to demonstrate the superiority of nebulizers to MDIs, nebulizers are the standard of care for COPD and chronic lung diseases in the moderate to severe stages. Other reasons commenters cited for their belief that there would not be a substantial shift to MDIs include: Physician inability to properly train patients on MDIs; patient familiarity with nebulizer use gained during hospital stays; research suggesting patient preference for nebulizers; potential use of nebulizers and MDIs by the same patient; and potential differences in cost-sharing across Medicare Part B and Part D. However, one physician specialty group said that it anticipates many Medicare beneficiaries will migrate to MDIs, and those that remain on nebulizers will be more frail and in need of more personalized service.

Response: We believe expansion of Medicare coverage of inhalation drugs to include MDIs under Medicare Part D will provide additional options for treatment and positively impact access to care. As we indicated in the proposed rule, we recognize that nebulizers are required by many beneficiaries because of their individual circumstances. We believe that physicians will choose the treatment option that best meets a beneficiary's needs, and both nebulizers and MDIs will play an important role in the Medicare program in the years to come.

Comment: A health professional association asserted that individuals that provide patient education on use of nebulizers, MDIs, and dry powder inhalers (DPIs) should be qualified by virtue of education, training, and competency testing. It also urged CMS to pay a separate education fee to physicians when prescribing an MDI or dry powder inhaler. The commenter also proposed various levels of fees for initial and follow-up services.

Another commenter raised concerns about what it asserts is a trend toward drop shipping respiratory related devices. The commenter expressed concern that contact between a respiratory patient and provider may disappear, raising potential concerns about correct usage of the respiratory device.

Response: We agree that it is important that beneficiaries are properly trained in the use of nebulizers. The Medicare program provides that equipment suppliers either directly train the beneficiary in the use of the nebulizer or ensure that the beneficiary has been trained by other qualified individuals (§ 424.57(c)(12)). In addition, under the physician fee schedule, Medicare will pay physicians to train the beneficiary in the use of a nebulizer, MDI, or inhalation device (CPT code 94664, demonstration and/or evaluation of patient utilization of an aerosol generator, nebulizer, metered dose inhaler or IPPB device).

Comment: One commenter stated that CMS evaded its notice and comment rulemaking obligations under the Administrative Procedures Act (APA) to collect meaningful data in support of an appropriate dispensing fee. The commenter urged us to publish data in a subsequent rule, and seek comment, before publishing a final payment rate for 2006.

Response: In the August 8, 2005 proposed rule, we identified and reviewed available studies and data on the cost of providing inhalation drugs, sought comment as well as additional data and information concerning an appropriate payment amount and scope, and indicated that we thought it likely that the payment amount for 2006 would be lower than the current amount. Furthermore, in establishing the 2006 dispensing fee, we analyzed the available studies and data in response to comments received on the proposed rule and based on that analysis have continued to use the 2004 AAH data that was identified in the proposed rule and also used to establish the 2005 fee. Furthermore, as discussed previously, it is our opinion that the rates established in this rule are appropriate in light of the statute and our understanding of Congressional intent. We believe, therefore, this met our obligations under the APA.

Comment: One commenter took issue with our description in the proposed rule of inhalation drugs as supplies.

Response: Medicare coverage of inhalation drugs is derived from their use in covered nebulizers. For Medicare coverage purposes, they are considered covered supplies.

Comment: A few commenters expressed concern about precedents Medicare Part B will set for Medicare Part D. They asserted that 90-day scripts are not appropriate for nursing home patients.

Response: The Medicare Part B policy concerning a 90-day dispensing fee does not carry over to Medicare Part D.

Comment: Although the assignment of benefits form (AOB) has been eliminated, one commenter noted that the requirement to obtain a payment authorization signed by the beneficiary before submitting the claim diminishes the benefit of eliminating the AOB. The commenter urged CMS to eliminate the requirement for signed payment authorization for providers and those reimbursed based on assignment only.

Response: We thank the commenter for the comment. CMS is reviewing the beneficiary signature requirement for claims submission in light of the elimination of the AOB form in instances of mandatory assignment. However, CMS currently requires a beneficiary signature for claims submission.

Comment: One drug manufacturer suggested that compounding that attempts to mimic production of commercially available products threatens patient safety. The commenter urged CMS to structure the dispensing fee to reduce the likelihood of inappropriate compounding. The commenter also suggested code modifiers for pharmacy-compounded medications to help identify their occurrence. Another drug manufacturer suggested that reducing the dispensing fee could spur suppliers to provide compounded versions of commercially available products without physician or patient authorization. The commenter suggested that we review supplier documentation to ensure compounded solutions are only furnished where documentation supports medical necessity of a customized product.

Response: The inclusion of costs for pharmacy compounding in the dispensing fee is not in any way an endorsement of compounding that is inconsistent with FDA guidelines. Furthermore, Medicare expects that pharmacies comply with FDA guidelines irrespective of the dispensing fee payment amount established. We understand the concerns the commenters raised and will consider the issues further.

Comment: One commenter urged us to require code modifiers for claims associated with patient compounding of inhalation drugs. The commenter asserts that when a physician writes a prescription for a compounded drug, the inhalation drug supplier has an incentive to dispense the drugs separately in order to obtain two dispensing fees. The commenter asserts that implementing the modifiers would allow us to pay only one dispensing fee, instead of two, under these circumstances.

Response: Medicare pays only one dispensing fee per 30-day (or 90-day) period, regardless of the number of drugs dispensed. As a result, these modifiers would not affect Medicare expenditures.

Comment: We received some comments in response to our request for information about why there is substantial variation in costs across Start Printed Page 70233suppliers. A few commenters suggested that many beneficiaries receive services from small providers who may have higher costs.

Response: We appreciate the comments. We note that the GAO report, which showed wide cost variation, found that larger suppliers did not necessarily have lower costs than small suppliers. We continue to believe that this is an issue that might benefit from further study.

5. Supplying Fee

Section 303(e)(2) of the MMA added section 1842(o)(6) of the Act which requires the Secretary to pay a supplying fee (less applicable deductible and coinsurance) to pharmacies for certain Medicare Part B drugs and biologicals, as determined appropriate by the Secretary. The types of Medicare Part B drugs and biologicals eligible for a supplying fee are immunosuppressive drugs described in section 1861(s)(2)(J) of the Act, oral anticancer chemotherapeutic drugs described in section 1861(s)(2)(Q) of the Act, and oral anti-emetic drugs used as part of an anticancer chemotherapeutic regimen described in section 1861(s)(2)(T) of the Act.

Beginning with CY 2005, Medicare established a supplying fee of $24 per prescription for these categories of drugs, with a higher fee of $50 for the initial oral immunosuppressive prescription supplied in the first month after a transplant. When multiple drugs are supplied to a beneficiary, a separate supplying fee is paid for each prescription, except when different strengths of the same drug are supplied on a single day. When we established the $24 supplying fee in the CY 2005 final rule (69 FR 66236), we indicated that we were establishing a rate higher than that of other payers due to the additional costs associated with Medicare Part B's lack of online claims adjudication.

As part of the August 8, 2005 proposed rule (70 FR 45848), we proposed changes to the supplying fee for multiple prescriptions supplied during the same month. We proposed to continue paying $24 for the first prescription supplied during a month (or $50 for the first oral immunosuppressive prescription supplied in the first month after a transplant) and a supplying fee of $8 for each additional prescription the pharmacy supplied to the beneficiary during the same month. Each pharmacy supplying these drugs to a beneficiary during a month would be entitled to one $24 supplying fee per beneficiary during that month. In making this proposal, we indicated that when a pharmacy supplies multiple drugs to a beneficiary during the same month, many of which are likely to be supplied on the same day, we were concerned that we were overpaying for the costs associated with our lack of online claims adjudication. Furthermore, we indicated that we believe that the $24 supplying fee for the first prescription would adequately compensate a supplier for the billing costs associated with the lack of on-line claims adjudication, and that the cost of supplying additional prescriptions in the same month should be comparable to that of other payers.

We also proposed to expand the circumstances under which we pay supplying fees for multiple prescriptions filled on the same day. Currently, we pay a supplying fee for each prescription supplied on the same day as long as the prescriptions are for different drugs. We proposed to pay a supplying fee for each prescription, even if the prescriptions are for different strengths of the same drug.

We requested comments about the appropriateness of our proposed supplying fee for multiple prescriptions supplied during a single month along with data and information about the incremental costs of supplying additional prescriptions to a Medicare beneficiary during a single month. We also asked for comments about how pharmacy costs and reimbursement for supplying oral drugs under Medicare compares to that of other payers.

We received numerous comments regarding our supplying fee proposals. Those comments and responses are provided below.

Comment: Numerous commenters were supportive of our proposal to expand the circumstances under which we pay a supplying fee to include paying separate fees when multiple strengths of the same drug are supplied on the same day. However, many commenters expressed concern about our proposal to pay a supplying fee of $24 to a pharmacy for the first prescription and $8 for all subsequent prescriptions supplied in a 30-day period. Commenters generally urged no reduction in the supplying fee when multiple prescriptions are provided in the same month, and a few urged a payment increase. In opposing the $8 subsequent fee, some commenters stated that the agency had included no new cost data in the proposed rule to support a reduction. At the same time, some commenters provided cost information as part of their comments.

A few commenters indicated that the cost of supplying a drug for an insurer with online claims adjudication had increased from $8 (as cited in the proposed rule) to $9 to $10 based on new studies. An association representing chain drug stores provided information from a few large chains indicating that the average cost to supply a Medicare Part B prescription was between $19 and $21, noting that small chains or independent pharmacies may have higher costs. The association asserted that the current $24 fee was reasonable considering the fact that Medicare currently does not pay separate supplying fees for different strengths of the same drug supplied on the same day. The association urged us to consider an increase in the $24 fee to take into account inflation, and an increase in the $50 fee for the first prescription after a transplant to compensate for the intense patient monitoring that the association indicated was needed. A large chain pharmacy indicated its average cost of supplying a Medicare prescription was $19.02, which included $5.54 for bad debt.

An association for specialty transplant pharmacies submitted data suggesting that Medicare's reimbursement (combined payment for the drug and supplying fee) to these pharmacies for 2 large volume immunosuppressive drugs is comparable or lower than that of Medicaid or private payers. This association pointed to a 2004 report prepared by a consultant, which indicated that specialty pharmacy costs for immunosuppressive drugs for Medicare patients averaged about $35. This association also indicated that transplant pharmacies have higher costs because they offer more extensive services, routinely stock specialty medicines and maintain regular and consistent contact with their Medicare clients. The association suggested that these services should be compensated through the supplying fee. In addition, this association also claimed that chain pharmacy data collected in a similar manner to the specialty pharmacy data yield costs of $21. The group asserted that the chain costs appear lower than the specialty pharmacy costs in part because chains supply items such as diabetic test-strips, which they indicate cost less to supply.

In opposing a reduction in the supplying fee for subsequent prescriptions in a month, a number of commenters took issue with the rationale provided in the proposed rule for the reduction, saying that there are not economies of scale in processing Medicare claims when multiple prescriptions are provided in the same month. Many commenters outlined costs associated with billing Medicare. Start Printed Page 70234Because of the lack of online claims adjudication, some stated that there was more bad debt associated with Medicare Part B claims. Other commenters indicated that it takes longer to process a Medicare claim because of the requirement of a signed order from the physician as well as the lack of online claims adjudication. Some commenters indicated that without online claims adjudication, pharmacies must call the DMERC to check the beneficiary's deductible as well as verify whether the beneficiary is still enrolled in traditional Medicare as opposed to Medicare Advantage. Other commenters indicated that the lack of online claims adjudication and automatic cross over claims means that they may have to refund a beneficiary's coinsurance if it is later determined that the beneficiary has supplemental insurance. Other billing activities and requirements that commenters cited as creating added costs include: contracting with a special entity to convert Medicare Part B claims from the NCPDP format to ANSI X837; working with physicians to determine whether oral anticancer or anti-emetic drugs are being prescribed for Medicare Part B covered indications; having to submit the unique physician identifying number (UPIN) on the claim; and Medicare's requirement that the date of service and date of prescription be the same.

Although most commenters did not support the proposal for a reduced fee when multiple prescriptions are supplied in a month, one health insurer commented that the current supplying fee payment amounts appear high, and put upward pressure on commercial rates.

Response: As we indicated in the CY 2005 final rule (69 FR 66236), we recognize that the cost of supplying Medicare Part B drugs is somewhat higher than that of other payers because of the lack of on-line claims adjudication for Medicare Part B claims. We believe it is appropriate for Medicare's supplying fee to compensate for the Medicare billing costs associated with the lack of online claims adjudication. However, as we indicated last year, we do not believe the supplying fee for these drugs should be higher than other payers for reasons other than the lack of on-line claims adjudication.

The comments included information on the costs of supplying Medicare Part B drugs for some chain pharmacies. One chain reported Medicare costs of $14.48 ($19.02 - $5.54 non-reimbursed bad debt). A retail pharmacy association commented that a few chains had indicated that their costs of supplying a Medicare Part B prescription were between $19-$21 per prescription (without indicating whether bad debt was included). Furthermore, as we indicated in the August 14, 2004 final rule (69 FR 66236), our analysis of data from a 2004 survey of specialty pharmacies yields a supplying fee in the range of $13-$27 depending on the proportion of personnel costs assumed to be associated with Medicare billing. This range was developed by using a figure of $5 or $10 for the payment rates of payers with on-line adjudication, and adding to that Medicare claims processing costs from the specialty pharmacy data ($8), and a portion of personnel costs from the specialty pharmacy data (total was $9) assumed to be related to Medicare billing. This results in supplying fee between $13 ($5 + $8) and $27 ($10 + $8 + $9), depending on the portion of personnel costs associated with Medicare billings.

Based on this information from chains and specialty pharmacies, we agree that an $8 fee for subsequent prescriptions is too low. However, as discussed in more detail subsequently, our analysis of the cost information from the comments has led us to believe that a subsequent prescription supplying fee that is slightly lower than $24 would be appropriate. Based on our analysis, we believe that a $24 fee for the first prescription in a 30-day period, and a $16 fee per prescription for all subsequent prescriptions in the 30-day period would be consistent with the cost information included in the comments. Under this fee structure, reimbursement to a pharmacy for the supplying fee would average $24 for a patient with 1 prescription in a 30-day period, $20 per prescription for patients with 2 prescriptions, $18.67 per prescription for a patient with 3 prescriptions, and $18 per prescription for a patient with 4 prescriptions, for example. Our claims data currently indicate that beneficiaries receiving immunosuppressive, oral anticancer, or oral anti-emetic drugs under Medicare Part B average 2.2 prescriptions per month, with a majority receiving 4 or fewer. We believe average supplying fee payments ranging from $18 to $24 are consistent with the chain drug store costs indicated in the comments and falls within the mid-range of the potential supply fee amounts we calculated based on the specialty pharmacy data survey.

Because we continue to believe that there are some economies of scale for Medicare billing costs when multiple prescriptions are supplied in the same month, particularly when they are billed on the same claim form, we believe it is appropriate to pay a higher fee for the first prescription in a 30-day period, and the somewhat lower fee for all subsequent prescriptions in the 30-day period. For example, several activities related to Medicare billing that commenters cited as being costly including calling the DMERC to verify the beneficiary's Medicare fee for service eligibility, locating the physician's UPIN to include on the Medicare Part B claim form, handling coinsurance refunds for crossover claims, and completing other information on the claim form would only have to be performed once, rather than twice, when multiple prescriptions are submitted on the same claim. Moreover, following through on our proposal to expand payment of the supplying fee to include paying separate fees when multiple strengths of the same drug are supplied on the same day, we believe it is important that the subsequent prescription supplying fee reflect lower incremental costs.

Consequently, beginning in 2006, we are establishing a supplying fee of $24 for the first prescription in a 30-day period, and $16 for each subsequent prescription in the period. Each pharmacy will be eligible for one $24 fee per beneficiary per 30-day period. As mentioned previously, beginning in 2006 we are also expanding the circumstances under which we pay the supplying fee to include paying separate fees for different strengths of the same drug that are a supplied on the same day. We are not altering the current policy of paying a $50 supplying fee for the first immunosuppressive prescription after a transplant. If a supplier receives a $50 supplying fee for the initial prescription after a transplant, a supplying fee of $16 will be paid for all subsequent prescriptions, after the initial prescription, furnished by that supplier to the beneficiary during that 30-day period.

We are making conforming changes to § 414.1001(b) to reflect this policy concerning subsequent prescriptions supplied during the same 30-day period as the initial immunosuppressive prescription after a transplant.

Comment: A number of commenters expressed concerns about beneficiary access if the supplying fee were reduced. Some suggested that pharmacies may stop providing these drugs to beneficiaries if the supplying fee is lowered. Others believe that a reduction in the fee could lead specialty pharmacies to stop providing support services to transplant patients, which they assert could adversely impact transplant success for some patients. Start Printed Page 70235

Response: We believe the supplying fee payment amounts we have established are appropriate based on the cost information available from the comments, and beneficiaries will continue to have good access to these drugs. Furthermore, we note that the reduction in Medicare payments resulting from the supplying fee changes are expected to represent at most 1 percent of Medicare total payments to pharmacies for these drugs.

Comment: Some commenters expressed concern about the reduction in reimbursement that would result from the subsequent prescription supplying fee in certain situations (for example, for drugs that have a 3-week prescription cycle or for patients with 3 prescriptions per month).

Response: Under the supplying fee rates established for 2006, Medicare reimbursement for the supplying fee would in the majority of cases average from $24 (patient with 1 Medicare Part B prescription) to $18 (patient with 4 Medicare Part B prescriptions). As mentioned previously, we believe this range of average reimbursement is consistent with the chain pharmacy cost information in the comments and falls near the mid-range of the potential supplying fee payment amounts we calculated based on the 2004 survey data for specialty pharmacies. Furthermore, we believe the supplying fee payment rates appropriately reflect the potential for economies of scale when multiple prescriptions are supplied in the same month.

Comment: A few commenters stated that a lower subsequent prescription fee may encourage pharmacies to send patients to affiliate locations in order to receive the $24 fee.

Response: We disagree. As mentioned previously, we believe that the supplying fee payment rates established are adequate to cover pharmacies' supplying costs based on the cost information included in the comments. We do not believe that these reimbursement changes would spur pharmacies to take actions that would cause inconvenience to the beneficiaries they serve.

Comment: Some commenters maintained Medicare's drug payment rates (the average sales price + 6 percent) were below their acquisition costs for certain drugs, and stated that the current $24 per prescription supplying fee should be unchanged or increased to compensate for this.

Response: Although some commenters stated that the supplying fee should account for drug acquisition costs in excess of the ASP+6 percent payment, we disagree. Section 1847A of the Act specifies that the Medicare payment for these drugs is at 106 percent of the ASP. We believe the Congress established the ASP based payment for these drugs and separate payment for the supplying of these drugs for good reason, namely to pay appropriately for each distinct service. In expanding the circumstances under which we pay a supplying fee and establishing the supplying fee payment amounts ($24 for the first prescription in a 30-day period and $16 for all subsequent prescriptions in a 30-day period, as well as the $50 fee for first immunosuppressive prescription after a transplant), we are focusing on the appropriate scope and payment for the supplying fee.

Comment: A few commenters suggested that for 2006 the current supplying fee payment amounts ($50 for initial prescription after a transplant, and $24 per prescription otherwise) be increased for inflation or to ensure adequate reimbursement for services provided by suppliers.

Response: We believe that the supplying fee payment amounts we have established for 2006 are consistent with the cost information from the comments this year. We will consider an inflation adjustment for the future.

Comment: Some commenters raised concern that if a beneficiary sought a refill before the end of the month, the pharmacy would not be eligible for a $24 fee for that refill.

Response: We understand the commenters' concern. We are taking several steps to address this potential issue. First, we have decided to use a 30-day period rather than a calendar month as the basis for determining whether a $24 or $16 supplying fee is payable. Thus, we will pay a $24 supplying fee for the first prescription supplied by a pharmacy in a 30-day period (or a $50 supplying fee for the first immunosuppressive prescription after a transplant), and a $16 supplying fee for each subsequent prescription supplied by that pharmacy to the beneficiary in the 30-day period. We believe using a 30-day period avoids arbitrary fluctuations in payment that might otherwise occur as a result of variation in the number of days per month. In addition, in our instructions to implement the 2006 supplying fee, we will allow a $24 supplying fee to be paid for a refill prescription up to 7 days before the end of the 30-day period for which the last $24 supplying fee was paid to that pharmacy, with up to twelve $24 supplying fees payable per beneficiary per year.

Comment: A number of commenters expressed concern that the assignment of benefits (AOB) forms, which the August 14, 2004 final rule indicated would be eliminated, has not yet been eliminated.

Response: The requirement that a pharmacy obtain an AOB form when supplying drugs to a beneficiary was eliminated for dates of services on or after January 1, 2005. Because of technical issues, the claims processing contractors did not immediately implement this change. We published a change request in August 2005 clarifying that the requirement for an AOB form was eliminated effective January 1, 2005 for pharmacies supplying Medicare Part B drugs to beneficiaries (as well as in other circumstances where assignment is mandatory). This change request will be implemented on November 14, 2005. The change request can be found at: http://www.cms.hhs.gov/​manuals/​pm_​trans/​R643CP.pdf.

Comment: Several commenters expressed concern that the DMERC Information Form (DIF), which the August 14, 2004 final rule indicated would be eliminated, had not been eliminated yet. A commenter also mentioned some suppliers having difficulty with the rejection of claims for immunosuppressives for “DIFs not on file,” when they are on file. In addition, one commenter urged us to not only eliminate the DIF, but also to eliminate the requirement that pharmacies collect and submit the DIF information with each claim. The commenter suggests that most of this information can be obtained by information submitted to Medicare by the transplant facility or transplant physician, and the requirement for pharmacies to submit the information is duplicative.

Response: The elimination of the DIF will be implemented with the quarterly systems release that occurs April 2006. A number of systems issues makes the elimination of the DIF more involved than anticipated. We regret the delay in the elimination of this requirement, and remain committed to implementing the change in April 2006. Regarding the other issues concerning the DIF raised in the comments, these billing issues are outside the scope of this final rule; however, we encourage commenters to continue to bring these concerns to our attention.

Comment: A specialty pharmacy group indicated that some pharmacies had encountered situations where Medicaid or other third party payers were not covering the beneficiary's coinsurance on the supplying fee. The commenter requested that the final rule include an explanation of these parties' Start Printed Page 70236responsibilities concerning beneficiary coinsurance on the supplying fee.

Response: The supplying fee is covered under Medicare Part B. Like all other Medicare Part B benefit categories, standardized Medigap plans are responsible for paying all (plans A-J) or a specified proportion (plans K and L) of a beneficiary's Part B coinsurance once the Part B deductible has been met.

With some exceptions, State Medicaid programs are responsible for beneficiary cost-sharing for the supplying fee for beneficiaries who are dually eligible for both Medicare and Medicaid. State Medicaid programs can limit coinsurance payments to the extent that any payment, when combined with Medicare payments, equals the amount of reimbursement payable under the State Medicaid program. A State Medicaid program may deem a pharmacy to be paid in full even if it has received either no coinsurance payment or a reduced payment from the State. Beneficiaries have no liability beyond the State's payment amount as set forth in section 1902(n)(2) of the Act.

Comment: One commenter suggested that physicians be allowed to bill for the supplying fee for immunosuppressive, oral anti-cancer, and oral anti-emetic drugs. The commenter suggested we could define a pharmacy, for the purposes of the supplying fee, to include physicians acting as pharmacists. As another approach, they suggested we could use our inherent reasonableness authority to extend the supplying fee to physicians.

Response: As we indicated in the CY 2005 final rule, given our understanding of Congressional intent, we do not believe it would be appropriate to pay a supplying fee to physicians. In addition, at this time, we do not have sufficient data to determine if our inherent reasonableness authority would apply in this instance.

Comment: A specialty pharmacy group requested that we include clarification in the final rule concerning whether temporary billing codes for the supplying fee G0369 and G0370 will be replaced with permanent codes.

Response: Effective January 2006, we intend to replace the G-codes for the supplying fee with Q-codes.

6. Competitive Acquisition of Outpatient Drugs and Biologicals Under Part B

In this section of the preamble, we discuss the Competitive Acquisition Program (CAP) for Part B drugs; summarize the requirements established in the July 6, 2005 interim final rule with comment titled “Competitive Acquisition of Outpatient Drugs and Biologicals Under Medicare Part B” (70 FR 39022); respond to comments on selected issues in that rule and finalize the associated policies; and discuss the next steps in the implementation of the CAP program. We are addressing the issue of inclusion of CAP drug units in the ASP calculation in separate rulemaking.

General Overview of CAP

Section 303(d) of the MMA amended the Act by adding a new section 1847B, which establishes a program for the acquisition of and payment for competitively biddable Part B covered drugs and biologicals furnished on or after January 1, 2006. Implementation of the CAP will provide physicians with a choice between—

  • Obtaining these drugs from entities selected to participate in the CAP in a competitive bidding process; or
  • Acquiring and billing for Part B covered drugs under the ASP drug payment methodology.

In our July 6, 2005 interim final rule with comment, we finalized provisions set forth in the Competitive Acquisition of Outpatient Drugs and Biologicals Under Part B proposed rule published on March 4, 2005 in the Federal Register (70 FR 10746), but also provided the public an additional opportunity to comment on the final provisions established for the CAP. We codified the requirements and provisions for the CAP in regulations at 42 CFR part 414, subpart K, with § 414.906 through § 414.920 containing requirements for payment under the CAP as follows:

  • Section 414.906 (Competitive acquisition program as the basis for payment). This section specifies how payment for CAP drugs is determined, including vendor responsibilities for billing, shipment and delivery; computation of the payment amount; substitution of CAP drugs and resupply of a participating CAP physician's drug inventory.
  • Section 414.908 (Competitive acquisition program). This section specifies the process for a physician to select an approved CAP vendor and the responsibilities of a participating CAP physician, including the specific information that must be included on the prescription order as well as notification and the timeframe for submission of claims. This section also specifies the process for selecting approved CAP vendors, as well as factors that are considered in the selection process such as exclusion under section 1128 of the Act from participation in Medicare or other Federal health care programs.
  • Section 414.910 (Bidding process). This section outlines the specific criteria for submission of a bidding price for a CAP drug, and specifies what costs should be included in the bid price.
  • Section 414.912 (Conflicts of interest). This section discusses requirements and standards for conflict of interest that applicants that bid to participate and approved CAP vendors must meet.
  • Section 414.914 (Terms of contract). This section outlines the contract provisions between CMS and the approved CAP vendor including contract length and termination, and specific requirements the approved CAP vendor must comply with.
  • Section 414.916 (Dispute resolution for vendors and beneficiaries). This section discusses the process available to an approved CAP vendor and beneficiaries for resolution of denied drug claims, outlining the steps, timeframes and requirements that must be met.
  • Section 414.917 (Dispute resolution and process for suspension or termination of approved CAP contract). This section discusses the process available to participating CAP physicians for resolution of quality or service issues concerning an approved CAP vendor, including steps and timeframes that are to be followed.
  • Section 414.918 (Assignment) and § 414.920 (Judicial review). Application of assignment and administrative and judicial review for the CAP are discussed in these sections of the regulation, respectively.

In the July 6, 2005, interim final rule with comment for the CAP published as CMS 1325-IFC, we also defined terms used for the CAP in § 414.902. We also established that for initial implementation, the competitive acquisition area, in which approved CAP vendors supply drugs, will be on a national level and include all 50 States, the District of Columbia, Puerto Rico, and the U.S. territories. In addition, we established a single drug category consisting of approximately 180 drugs commonly provided “incident to” a physician's service and included these in the addenda to the July 6, 2005 interim final rule with comment. These drugs represent about 40 percent of the approximately 440 drugs that may be billed “incident to” physician services and about 85 percent of physicians’ Part B drugs by billed charges, as reflected in our Part B billing data.

Effective August 3, 2005, we suspended the vendor bidding process that began with publication of the July Start Printed Page 702376, 2005 interim final rule with comment to allow us more time to fully review public comments on the interim final rule with comment and also to further refine the bidding process. We provided notification of the suspension on the CMS Web site http://www.cms.hhs.gov/​providers/​drugs/​compbid/​ and through the pharmacy and physician Listservs. We also announced the suspension of the bid process in the Competitive Acquisition of Outpatient Drugs and Biologicals Under Part B: Interpretation and Correction interim final rule with comment, published on September 6, 2005 in the Federal Register (70 FR 52930). In that document, we stated we would publish a final rule for implementing the CAP after we analyzed the additional comments on the July 6, 2005 interim final rule with comment and determined the best manner for improving the efficiency of the CAP and increasing potential participation of both vendors and physicians in the program. We also indicated that we would announce the dates for the new vendor bidding period as well as a special physician election period with the publication of the final rule. As noted earlier in this section of the preamble and as discussed in more detail below, in this final rule with comment, we are addressing certain issues raised by commenters responding to the July 6, 2005 interim final rule with comment. We believe it is critical to address these specific concerns we have identified through review of the comments and finalize or clarify specific policy issues raised to allow us to effectively implement the CAP. Other issues raised by commenters that are not addressed in this final rule with comment will be addressed in future rulemaking, once we have fully reviewed all of the comments not addressed in this rulemaking. Specific information concerning implementation of the CAP, including vendor bidding and physician election are discussed later in this section.

Analysis of and Response to Public Comments

We received a total of 225 timely comments in response to the July 6, 2005 interim final rule with comment (70 FR 39022). Commenters included trade associations, medical societies and organizations, a health insurance company, pharmaceutical manufacturers and wholesalers, specialty pharmacies and pharmacy benefits management groups, as well as practitioners, private citizens and patient advocates, and a member of the Congress. All public comments were reviewed and grouped by related topics and focused on various aspects of the CAP interim final rule with comment. In this final rule with comment, we are responding to comments related to certain aspects of the CAP, and making modifications to the regulation text where necessary so that an improved implementation can be achieved. We will be responding to the remaining comments and issues raised in future rulemaking after we have had the opportunity to fully review those comments and issues. The specific areas being addressed are discussed below.

a. Design of the Program

In this section, we discuss the policy and process for changes to the original CAP Single Drug Category List (Addendum A) and changes in the original New Drugs for the CAP Bidding for 2006 (Addendum B). These changes are reflected in Addendum F and Addendum G of this final rule with comment. We also clarify issues related to drugs included in the CAP and updated certain requirements for bidding. We discuss the process for when and how an approved CAP vendor may request that we approve a change to its CAP drug list. Finally we discuss CAP drug weighting for the single drug category.

(1) Changes to the List of Drugs Supplied Under the CAP

The CAP is intended to provide beneficiaries with access to Medicare Part B drugs and maintain physician flexibility when prescribing medications. In the July 6, 2005 interim final rule with comment, we described how the single drug category list was developed and how newer agents and substitute products could be incorporated into the CAP. In this section of the preamble, we will respond to comments relating to drugs supplied under the CAP.

We developed the single drug category list by developing criteria based on Part B drug utilization. This list was published in Addendum A of the July 6, 2005 interim final rule with comment and contains the majority of drugs that a prospective CAP vendor will bid on. Newer drugs without utilization data were listed in Addendum B—New Drugs for CAP Bidding in 2006 in the July 6, 2005 interim final rule with comment. Development of these lists began with the statutory definition of competitively biddable drugs and biologicals (section 1847B(a)(2) of the Act) and then the application of specific steps described in the July 6, 2005 interim final rule with comment (70 FR 39030) to narrow the list of possible drugs based on utilization and other factors, as described in the interim final rule with comment, that we believe made inclusion of the drug in the CAP drug category appropriate for the initial implementation stage of the CAP. Section 1847B(a)(1)(B) of the Act requires that the Secretary establish categories of drugs that will be included under the CAP, and requires the Secretary to phase-in the program with respect to these categories. The statute also defines “competitively biddable drugs and biologicals” for the purposes of the CAP by referring to section 1842(o)(1)(C) of the Act.

Relying on our authority to phase in the CAP drug categories as appropriate, we narrowed our focus to drugs furnished “incident to” a physician's service. In response to comments, and in an effort to offer the CAP to as many physicians as possible, we chose not to phase-in the CAP on the basis of drugs typically used by any one particular specialty; however, we realized that certain types of drugs may be better suited for inclusion in early stages of the CAP than others. During our review of comments on the July 6, 2005 interim final rule with comment and subsequent review of the single drug category list published in Addendum A, we became aware of supply issues with one specific drug. These issues have prompted us to make changes to the Single Drug Category List in Addendum A of the interim final rule with comment (included with this rule as Addendum F). We have deleted a HCPCS code (J1710) for a drug that is being phased out of the market and revised the addenda that comprise the CAP drug category to account for upcoming changes to HCPCS codes. Also, before the CAP is implemented, several new permanent HCPCS codes will be approved and several others modified. A number of these newly approved codes would have been included in the CAP drug category identified in our July 6, 2005 interim final rule with comment, had permanent HCPCS codes been available at that time. Therefore, we are amending the list of drugs published in the New Drugs for CAP Bidding for 2006 in Addendum B of the interim final rule with comment to account for drugs in the new HCPCS codes, and to account for HCPCS codes that appeared in Addendum A of the July 6, 2005 interim final rule with comment that have since been split into separate HCPCS codes for which we are unable to calculate new weights. Updated lists of drugs that are included in the initial CAP drug category appear Start Printed Page 70238in Addendum F and Addendum G of this rule.

(a) Changes to the Single Drug Category List—Addendum A of the July 6, 2005 Interim Final Rule With Comment

The July 6, 2005 interim final rule with comment discussed criteria for developing the Single Drug Category List (Addendum A of the interim final rule with comment). In the following section, we describe factors that led us to revise this list.

After suspending the bidding process, we reviewed the drugs included in the Single Drug Category List that was published in Addendum A of the July 6, 2005 interim final rule with comment (70 FR 39101). During this process, we found that the brand name product under HCPCS code J1710 (hydrocortisone sodium phosphate injection) was withdrawn from the market and that generic products for this code are not reliably available. This drug's weight in the CAP's Single Drug Category List as published in Addendum A is 0.000060285401. Because of the availability issue associated with this drug we will remove J1710 from the Single Drug Category List and recalculate weights for the remaining drugs. The impact on other drugs' weights will be minimal because of J1710's very low weight.

Yearly updates to the HCPCS codes also impacted the CAP drug lists in several ways. One code J7051 Sterile saline or water up to 5cc (CAP weight = 0.006953978284) was modified to A4218 Sterile saline or water, metered dose dispenser, 10 ml. “A codes” are primarily medical and surgical supplies, and we believe that the change reflects usage that is primarily through a means other than incident to a physician's service. Therefore, we will remove this code from the Single Drug Category list and recalculate weights for the remaining drugs.

Revisions to the Single Drug list also reflect modifications to several HCPCS codes. These modifications will not affect the weighting calculation because they are either changes in names or consolidation of multiple codes into one. The previous codes' utilization data will be used in the updated calculation. Table 23 illustrates the affected HCPCS codes.

Table 23

New HCPCS codeNew descriptionOld HCPCS code
J0881Injection, darbepoetin alfa, 1 microgram (non-esrd use)J0880 Q0137
J0885Injection, epoetin alfa, (for non-esrd use), 1000 unitsQ0136
J7318Hyaluronan (Sodium Hyaluronate) or derivative, intra-articular injection, 1 mgJ7317 J7320

The changes to the HCPCS codes also affected iron dextran. A discussion of iron dextran's removal from the single drug category list and the addition of the two new iron dextran HCPCS codes to the Revised New Drugs for CAP Bidding For 2006 appears in the following section.

(b) Changes to New Drugs for CAP Bidding for 2006—Addendum B of July 6, 2005 Interim Final Rule With Comment (See Addendum G in This Final Rule With Comment)

Addendum B, published in the July 6, 2005 interim final rule with comment (70 FR 39102), was developed in response to comments on the proposed rule that urged us to provide a means to include newer drugs. We are updating Addendum B with drugs that have been recently assigned new HCPCS codes, and drugs that were previously listed in Addendum A of the July 6, 2005 interim final rule with comment, but because of HCPCS code changes, cannot be re-weighted. These changes appear in Addendum G of this rule. Further details are provided below.

Comment: We received numerous comments asking that individual drugs that were recently approved and introduced to the United States market be included in the CAP. Improving the selection of products that could be supplied through the CAP was commonly given as a reason for the request.

Response: We agree that it is desirable for the CAP to include a wide variety of drugs and to maintain the flexibility to adapt to a rapidly changing marketplace. Therefore, we are adding additional procedures to the CAP that will allow approved CAP vendors to adjust and update their drug lists. These changes are described below.

In the July 6, 2005 interim final rule with comment, we stated that we intended to provide the physician with choice and flexibility within groups of drugs that might be used by different specialties for the treatment of various conditions. The drugs available under the CAP are intended to accommodate a variety of physician practice patterns and a variety of specialties. As discussed in other sections of this rule, the CAP also seeks to provide access to new drug therapies.

As a part of the annual HCPCS code update, several new permanent HCPCS codes were issued. Billing with these codes will begin on January 1, 2006. In order to keep the CAP list of drugs as comprehensive and complete as possible, we have updated the New Drugs for CAP Bidding that was originally published in Addendum B of the July 6, 2005 interim final rule with comment to account for the coding changes. This list of newly issued HCPCS codes provided us with an opportunity to add drugs to the CAP drug category; the additions include several recently approved drugs. Examination of the new HCPCS codes also revealed that several codes for drugs listed in Addendum A of the July 6, 2005 interim final rule with comment had undergone modification. For example, beginning in January 2006, the HCPCS code for iron dextran will be split into two codes, and the HCPCS code for darbepoetin alfa when used for non-end stage renal disease will be revised.

We are unable to recalculate the weights for these split HCPCS codes because it is not possible to estimate the new codes' utilization. Therefore, we are including these drugs in a revised version of Addendum B—New Drugs for CAP Bidding 2006, which was published in the July 6, 2005 in the interim final rule with comment. The list of New Drugs for CAP Bidding 2006 is now Addendum G of this rule. We believe this change is appropriate because we had already decided to include these drugs in the CAP drug category, and adding them to Addendum G will avoid a recalculation of the other CAP drugs' weights based on an imprecise estimate of utilization. Addenda F and G published in this final rule with comment supersede Addenda A and B from the July 6, 2005 interim final rule with comment. Note that HCPCS code modifications as they Start Printed Page 70239relate to the Single Drug Category list were discussed in section II.H.6.a.(1).(a) of this final rule with comment.

In order to be included in Addendum G—Revised List of New Drugs for CAP Bidding for 2006, we determined that a drug must not appear in the Revised Single Drug Category List (Addendum F of this rule) and must meet at least one of the following three criteria:

  • Criterion 1: The drug must have been listed in Addendum B of the July 6, 2005 interim final rule with comment, “New drugs for CAP Bidding for 2006”.
  • Criterion 2: The drug must have a new J or Q HCPCS code effective January 1, 2006, and meet the three following conditions:

+ Be administered incident to a physician's service.

+ Have had a previous C, S or “NOC” (Not Otherwise Classified or Miscellaneous) code.

+ Have one national published ASP payment price and not meet either of the following two conditions:

++ Be primarily billed through the DME process.

++ Be primarily used as a diagnostic agent.

  • Criterion 3: The drug must be listed in Addendum A—Single Drug Category List published in the July 6, 2005 interim final rule with comment, but had its HCPCS code terminated effective January 1, 2006 and split into J or Q Codes that become effective January 1, 2006.

Criterion 1 describes drugs listed in Addendum B of the July 6, 2005 interim final rule with comment. Tables 24 and 25 list drugs that meet criteria 2 and 3. Table 24 lists drugs that will have new HCPCS codes beginning January 1, 2006 and Table 25 is a list of drugs that were previously included in Addendum A but whose HCPCS codes were split. Combining these three lists will yield Addendum G—Revised New Drugs for CAP Bidding for 2006, which is published in this rule.

Table 24.—CAP Drugs With New HCPCS Codes Effective January 1, 2006

HCPCS (effective 1/1/2006)Long description
J0128Abarelix injection.
J0180Agalsidase beta injection.
J0878Daptomycin injection.
J1931Laronidase injection.
J2357Omalizumab injection.
J2469Palonosetron HCl.
J2794Risperidone, long acting.
J9035Bevacizumab injection.
J9041Bortezomib injection.
J9055Cetuximab injection.
J9305Pemetrexed injection.
J9264Paclitaxel protein bound particles.
J2503Pegaptanib.
J0278Amikacin.
J9225Histrelin implant.

Table 25.—HCPCS Codes From Addendum A That Have Been Split

HCPCS (effective 1/1/2006)2006 Long descriptionDiscontinued HCPCS
J1751Iron Dextran 165J1750
J1752Iron Dextran 267J1750

The drugs identified in Addendum G will be bid and paid for as described in the July 6, 2005 interim final rule with comment (70 FR 39072). In the July 6, 2005 interim final rule with comment, we stated that we will require that prospective vendors include bids for all of these drugs in their submissions and provide these drugs to physicians who elect to participate in the CAP. However, we will not incorporate the bids for these drugs into the composite bid methodology, because we lack sufficient utilization data to compute appropriate weights for these drugs. Instead, we will consider these bids separately from, but parallel to, evaluation of the composite bid for the other drugs for which we have adequate utilization data. Specifically, we will require bidders to submit a separate bid for each drug in the list. We will also impose a ceiling on acceptable bids. As in the case of the composite bids, that ceiling will be tied to the ASP payment methodology. Specifically, we will not accept any bid for a drug listed in Addendum G that is higher than 106 percent of the ASP for that drug (as determined at the time when the bidding begins). In order to be eligible for selection as an approved CAP vendor, a bidder must meet all of the criteria outlined in § 414.908 of the regulation text and must submit acceptable bids on each of the drugs listed in Addenda F and G of this final rule with comment.

(c) Process for Adding NDCs Within a HCPCS Code in an Approved CAP Vendor's Drug List

We acknowledge that given the 3-year CAP contract duration, some changes to the approved CAP vendors' CAP drug lists are anticipated during the life of the contract. In the July 6, 2005 interim final rule with comment (70 FR 39075), we described a mechanism where approved CAP vendors could request CMS approval to add new drugs to their CAP drug lists once the drug had a permanent HCPCS code. We also described a mechanism (70 FR 39044 and § 414.906(f)(2)(i)) where, if a particular NDC becomes unavailable or goes through a period of short supply an approved CAP vendor could substitute a different NDC within the HCPCS code for the NDC currently supplied by the approved CAP vendor for an extended period of time (2 weeks or longer) if the approved CAP vendor identifies the replacement product, CMS approval for the substitution is obtained, and all participating CAP physicians who have selected the approved CAP vendor are notified of the change.

Comment: Numerous commenters recommended that we develop a mechanism to allow approved CAP vendors to add drug products (identified by an NDC) to those already supplied within a HCPCS code during the CAP contract period. Potential vendors indicated in their comments that they would like the flexibility to add NDCs because, as experience with the CAP grows, they may encounter situations where the addition of certain drugs supplied under a HCPCS code may improve beneficiary access, reduce waste, and improve the vendor's cost efficiency.

Response: We agree that additional mechanisms to expand an approved CAP vendor's drug list at the NDC level are desirable. The current requirements state that an approved CAP vendor must offer at least one NDC within each HCPCS code in the CAP drug category. We encourage potential vendors to bid more than the minimum of one NDC per HCPCS code. However, we also understand that, as the 3-year contract period progresses, opportunities to modify the initial list of NDCs supplied under a HCPCS code will occur. Examples of these opportunities could include introduction of a new package size, the introduction of a new manufacturer's products (including new multisource products), and price changes in existing NDCs.

We believe that in order for an approved CAP vendor to continue to meet participating CAP physicians' Start Printed Page 70240needs, it is in the approved CAP vendor's best interest to provide and maintain a satisfactory range of products, and to improve the range of available products as experience with the program increases. We agree that a mechanism to increase the number of CAP drugs offered by an approved CAP vendor is expected to improve access to Part B drugs and to improve prescribing flexibility for physicians who obtain drugs through the CAP. We believe that the process to add NDCs to the existing list of NDCs supplied by an approved CAP vendor is appropriate, provided that the additions to the approved CAP vendor's list undergo an approval process.

In the July 6, 2005 interim final rule with comment, in § 414.906(f)(2), we stated that the designated carrier's medical director will approve long-term substitutions to the list of drugs supplied by an approved CAP vendor “on behalf of CMS.” As described in the following sections of this rule and based on comments on the interim final rule with comment, we have expanded this request and approval process for incorporating changes into the list of drugs supplied by the CAP vendor to include new NDCs, and new HCPCS codes. In addition, beginning in 2007, approved CAP vendors will be able to request approval to add newly approved drugs to their CAP drug list before the drug is assigned a HCPCS code.

In order to provide flexibility for managing this task and consistency for these processes, we are amending § 414.906 to allow CMS or its designee to approve long-term substitutions and additions to approved CAP vendors' CAP drug lists. We are also revising § 414.906(f)(4)(iii) to specify that substitutions that are due to a drug shortage, or other exigent circumstance, may become effective immediately provided that the approved CAP vendor's participating CAP physicians are notified of the substitution immediately following CMS approval.

We are modeling the process of adding new NDCs within a HCPCS code on the substitution mechanism described in the July 6, 2005 interim final rule with comment (70 FR 39044) and specified in § 414.906(f). We note that because this is a mechanism for the addition of drugs to an approved CAP vendor's CAP drug list, the approved CAP vendor will be required to continue supplying all NDCs from its most recently updated CAP drug list. (The substitution process should be used if the approved CAP vendor is seeking approval to remove an NDC from its CAP drug list and replace it with another NDC.) In order to add a new NDC within a HCPCS code being offered in the approved CAP vendor's CAP drug list, the approved CAP vendor must make a written request to CMS or its designee. Requests for approval must include a rationale and discussion of impact on the CAP, including safety, waste, and potential for cost savings. The requests will be reviewed and, if approved, changes will become effective as of the beginning of the next quarter.

Like the substitution procedure, the addition of new NDCs to an approved CAP vendor's CAP drug list will not affect the CAP payment amount for that particular HCPCS, as the payment amount will have been set during the initial bidding (or approval process for adding an additional HCPCS code) and, if applicable, updated as outlined in § 414.906. This application process is reflected in the amended § 414.906(f)(2)(ii).

Participating CAP physicians who have selected the approved CAP vendor must be notified of additions to the approved CAP vendor's CAP drug list at least on a quarterly basis (at least 30 days or earlier before the approved changes are due to take effect). Both the approved CAP drug vendor and CMS (or its designee) will be responsible for maintaining this information and disseminating it. Approved CAP vendors must provide direct (for example, mail or e-mail) notification of updates to the participating CAP physicians enrolled with them on a quarterly basis. The entire list of drugs supplied by the approved CAP vendor should be disseminated at least once yearly; and approved CAP vendors must make a complete list that incorporates the most recent updates available to participating CAP physicians on an ongoing basis. We will post the updated drug lists on our web site. The approved CAP vendor may also post the complete, updated, and approved list on its web site. We have added these requirements to new § 414.914(f)(15). We will issue additional instructions for this process at a later date.

(d) Process for Expediting the Addition of Newly Approved Drugs to the CAP (“NOC” Codes)

The July 6, 2005 interim final rule with comment outlined a process that approved CAP vendors can use to add new drugs to the list of drugs supplied under the CAP once the new drug has been assigned a permanent HCPCS code, provided the drug would have been properly assigned to the single drug category and that CMS determines that the drug is appropriate for inclusion. This mechanism was intended to provide an opportunity for vendors to supply drugs that were introduced too late to be incorporated into the Addendum B—New Drugs for CAP bidding for 2006 published in the July 6, 2005 interim final rule with comment.

Comment: Several commenters have requested that we develop a process to further expedite the addition of newly approved or marketed drugs to an approved CAP vendor's drug list. Commenters stated that access to newly approved drugs should be immediate. These commenters further stated that participating CAP physicians should not have to go outside of the CAP to acquire new drugs. Several commenters suggested a mechanism that uses the miscellaneous (“NOC”) HCPCS codes for physicians and vendors to bill CAP drugs that do not have a permanent HCPCS code. Certain commenters also suggested that approved CAP vendors be required to offer the new drugs as soon as they are on the market.

Response: We agree with the commenters that the earlier addition of newly approved or newly marketed drugs to the CAP is desirable, to the extent these drugs are appropriate for inclusion in the CAP. The tight timeframe for CAP implementation and the requirement for additional system changes prevent us from implementing the process suggested by the commenters at this time. In 2007, approved CAP vendors will be able to request CMS approval to add new drugs without a permanent HCPCS code to their CAP drug lists. This process will be similar to the process established in the July 6, 2005 interim final rule with comment that allows approved CAP vendors to add new drugs that are assigned a permanent HCPCS code to their CAP drug lists. Approved CAP vendors will submit a request to add these drugs, and CMS or its designee will determine whether the particular drugs are appropriate for inclusion in the CAP using a process that parallels the development of the Single Drug Category List and the List of New Drugs for CAP bidding for 2006. Updates to the approved CAP vendors' CAP drug lists will be made on a quarterly basis; we anticipate that all approved CAP vendors' updates will be posted on the CMS Web site simultaneously.

Payment for new CAP drugs approved for inclusion in the approved CAP vendor's CAP drug list before they are assigned a HCPCS code would be at the price published in the ASP's “not otherwise classified” (NOC) price file consistent with the next quarterly update. And we note that these drugs would be considered for inclusion in the CAP only if CMS is able to identify Start Printed Page 70241a single ASP payment amount for the drug. At a future date, we will issue additional guidance to approved CAP vendors on the application procedures for requesting approval to add these changes to the approved CAP vendor's CAP drug list, and we will issue additional guidance to participating CAP physicians on how to order these particular drugs once they are added to the approved CAP vendor's CAP drug list.

We do not believe that requiring approved CAP vendors to add all new drugs to their CAP lists is advisable. Instead, we believe that a request and approval process as described for other changes to an approved CAP vendor's drug list would be appropriate because it would allow for flexibility while ensuring that only those that are appropriate for inclusion in the CAP are added to an approved CAP vendor's CAP drug list. As discussed in the July 6, 2005 interim final rule with comment (70 FR 39027 through 39031) some drugs may not be good candidates for the CAP, for instance, some new drugs are not typically administered “incident to” a physician's services, some new drugs may have very low utilization, and some may have special storage, distribution, or handling requirements that would make these drugs inappropriate for inclusion in the CAP. The existing procedures for adding new NDCs within the HCPCS codes that are on an approved CAP vendor's CAP drug list, and the new procedures for adding new HCPCS codes to an approved CAP vendor's CAP drug list also rely on approved CAP vendors' voluntary requests and our approval of these requests. Simply put, we want to expand the number of CAP drugs that approved CAP vendors offer, but we do not believe that all new drugs should be added to the CAP, or that addition of certain drugs should be mandatory, especially at the beginning of this program. As we gain experience with the program we may consider other approaches to the addition of drugs that a vendor supplies under the CAP.

Beginning in 2007, approved CAP vendors will be able to request approval to add new “NOC” drugs to their CAP drug lists. The procedures will parallel those for addition of new HCPCS codes and new NDCs within a HCPCS code, as specified in § 414.906(f)(2)(iv). In each case, the approved CAP vendor must make a written request to CMS (or its designee). Requests for approval must include a rationale and discussion of impact on the CAP, including safety, waste, and potential for cost savings. The requests will be reviewed and, if approved, changes will become effective on a quarterly basis.

We remind physicians that an approved CAP vendor's CAP drug list is subject to change over the contract period. Upon electing to participate in the CAP and selecting an approved CAP vendor, participating CAP physicians are agreeing to accept, in most cases, the particular NDCs listed and shipped by the selected approved CAP vendor for the duration of the participating CAP physician's election period with the approved CAP vendor. By electing to participate with a particular approved CAP vendor, the participating CAP physician also is agreeing to accept the approved changes to the approved CAP vendor's CAP drug list and drugs supplied under the updated and approved lists. We believe that the changes in the approved CAP vendor's CAP drug list will improve (or at least maintain) a participating CAP physician's selection of available drugs and will likewise improve (or maintain) Medicare beneficiaries' access to drugs supplied under the CAP. We are revising § 414.908(a)(3)(vi) to state this requirement.

We remind physicians that routine orders for CAP drugs should be placed at the HCPCS level, unless the participating CAP physician determines that a particular product that is on the approved CAP vendor's CAP drug list is medically necessary for a patient. In this case, a participating CAP physician may order that specific NDC from the approved CAP vendor under the “furnish as written” process. Documentation of medical necessity in the medical record is also required; this information may be subject to medical review. We are revising § 414.908(a)(3)(vii) to reflect this requirement.

(e) Process for Adding Drugs With a New HCPCS Code to the CAP

In the July 6, 2005 interim final rule with comment (70 FR 39075), we stated that we would allow approved CAP vendors to petition CMS to add drugs with a new HCPCS code to their CAP drug lists; however, we did not include regulation text to implement this section. In order to implement this process we are amending regulation text at § 414.906(f)(2)(iii).

(f) Process for Adding Single Indication Orphan Drugs to the CAP

Table 26 is a brief summary of methods that an approved vendor may use to amend the list of drugs it supplies under the CAP. Please note that all of these methods require approval from CMS or its designee.

Comment: We received several comments from manufacturers requesting inclusion of their single indication orphan drugs in the CAP. Most commenters stated that these low volume products were quite suitable for the CAP because availability through the CAP would minimize the associated administrative burden for physicians who choose to administer them. Inclusion of one product (thyrotropin alfa) was also requested by a number of physicians who treat patients with thyroid cancer and by patients who had been treated for thyroid cancer. One manufacturer specifically requested that its orphan drug (azacitidine) not be included in the CAP, citing concern about timely access to the drug.

Response: We appreciate the comments that we received regarding single indication orphan drugs. Improving access to Part B drugs is a desirable quality for this program. For example, we have endeavored to improve access by allowing the addition of new NDCs and new HCPCS codes to a drug vendor's list. During this initial stage of the CAP, as described in the July 6, 2005 interim final rule with comment (70 FR 39032), we also have sought to strike a balance that would allow for a sufficiently sized market volume for approved CAP vendors, while making the CAP a meaningful alternative for most physician specialties. In order to decrease the inventory burden for approved CAP vendors, we wanted to minimize the number of drugs included in the CAP drug category that are billed in very low volumes, so we applied dollar value thresholds to the CAP.

As noted by commenters, the addition of the single indication orphan drugs to the CAP drug category may decrease administrative burden on the participating CAP physicians, and we agree that a decreased burden is desirable. We are persuaded by the number of commenters that asked us to include single indication orphan drugs in the CAP drug category that a mechanism for their addition to an approved CAP vendor's CAP drug list is desirable. However, for the reasons that prompted us not to include single indication orphan drugs in the initial drug category (as described in the July 6, 2005 interim final rule with comment), we continue to believe that we should not require approved CAP vendors to supply these drugs.

Therefore, we are specifying that approved CAP vendors may request CMS approval to add single indication orphan drugs (as described in the July 6, 2005 interim final rule with comment) to their CAP drug lists. The Start Printed Page 70242single indication drugs covered by this provision are the following: J0205, J0256. J9300, J1785, J2355, J3240, J7513, J9010, J9015, J9017, J9160, J9216 and their successor codes. Payment for single indication orphan drugs that vendors voluntarily add to the CAP will be based on ASP+6 percent.

Table 26.—Methods for Changing an Approved CAP Vendor's CAP Drug List

DescriptionRegulation text
Substitution: Approved CAP vendor may request approval to replace one or more NDCs in a HCPCS code supplied by the approved CAP vendor with one or more other NDCs§ 414.906(f)(2)(i).
Add newly issued HCPCS Codes: Approved CAP vendor may request that CMS allow it to supply additional HCPCS codes under the CAP§ 414.906(f)(2)(iii).
Additional NDCs: Approved CAP vendor may request that CMS allow it to supply additional NDCs under a HCPCS code that the approved CAP vendor already supplies under the CAP§ 414.906(f)(2)(ii).
Newly approved drugs without HCPCS codes (“NOC” dugs”): Beginning in 2007, approved CAP vendor may request that CMS allow it to supply a newly approved drug under the CAP before a permanent HCPCS code is assigned to the drug§ 414.906(f)(2)(iv).
Single Indication Orphan Drugs: Approved CAP vendor may request that CMS allowed it to supply single indication orphan drugs under the CAP§ 414.906(f)(2)(iii).

(g) Other Issues Related to Drugs Supplied Under the CAP

(i) Addition of Other Specific Drugs

We received comments regarding the addition of low volume drugs, and dermal tissue biologicals to the CAP. Specific comments and responses for each type of drug follow.

Comment: One commenter asked whether we would allow approved CAP vendors to voluntarily supply drugs with low utilization volumes through the CAP. The commenter was specifically referring to drugs that were not included in the CAP category because of utilization criteria described in the interim final rule with comment (70 FR 39031-39032).

Response: Drugs included in the initial CAP drug category account for about 85 percent of Part B drugs billed by physicians. In other sections of this rule we have described methods that an approved CAP vendor may use to request the addition of new NDCs or new HCPCS codes to the CAP. Although we appreciate the request to add drugs with low utilization volumes to the CAP drug category, we believe it is appropriate to allow additions to an approved CAP vendor's CAP drug list through the case-by-case approval process we have described above and specified in § 414.906. Once we gain experience with the CAP, we anticipate being able to consider broadening the scope of drugs included in future CAP drug categories.

Comment: The manufacturers of two dermal tissue products expressed concern about language in the July 6, 2005 interim final rule with comment that stated “tissues are not considered drug products.” One manufacturer asked that its product be included in the CAP, while the other stated other reasons for excluding its product were appropriate and did not ask that its product be included in the CAP.

Response: We thank the commenters for providing us with the opportunity to clarify the discussion about dermal tissue found in the July 6, 2005 interim final rule with comment (70 FR 39031). During development of the criteria used to create Addendum A—Single Drug Category List of the July 6, 2005 interim final rule with comment, we attempted to allow for a sufficiently sized market for approved CAP vendors, while making the CAP a meaningful alternative for most physician specialties. The statement that the commenter references above was intended to explain why we did not include dermal tissue products in the initial CAP drug category and was not intended to reflect overall Medicare policy for dermal tissue products. We are not including tissues in the initial CAP drug category at this time because the products do not have sufficient documented utilization, and some products may require specialized handling. As we gain experience with the CAP, we anticipate reevaluating exclusion criteria applied to bidding for the initial phase of this program.

(ii) Formularies and the CAP

In the July 6, 2005 interim final rule with comment, we responded to comments on the subject of formularies. We respond to additional comments on the subject from the July 6, 2005 interim final rule with comment below.

Comment: We received several comments that encouraged us to refrain from creating formularies in the CAP and to avoid situations where a formulary-like process could be created. Commenters raised concerns about a formulary's likelihood to limit beneficiaries' access to a wide selection of drugs and the impact on a physician's choice in prescribing medications.

Response: In the July 6, 2005 interim final rule, we stated that we were not accepting the recommendation that vendors be permitted to establish formularies because the statute expressly requires that for multiple source drugs, a competition be conducted for the acquisition of at least one drug per billing code within that category (70 FR 39034). We agree that in an effort to provide physicians with maximum flexibility in prescribing, we should avoid the use of formularies in the CAP. Furthermore, we believe that making the CAP less restrictive will increase physician interest and, therefore, improve vendor participation.

In the July 6, 2005 interim final rule with comment (70 FR 39033 through 39034 and 39068), we stated that “we do not expect there to be a creation of a drug formulary,” and we further discussed our belief that vendors would find it prudent to structure their bids in a way to supply more than one NDC per HCPCS code. We wish to emphasize that this is still our position on formularies in the CAP. It is our opinion that approved CAP vendors who offer more than one product per HCPCS code would be selected by a greater number of participating CAP physicians.

(iii) Physicians Regulatory Issues Team Drugs

The July 6, 2005 interim final rule with comment also discussed issues regarding drugs that have posed acquisition problems for some physicians under the ASP system. We received additional comments on this topic.

Comment: Commenters asked whether drugs included on the Physicians Regulatory Issues Team (PRIT) list (drugs reported to be difficult for physicians to obtain for less than ASP+6 percent) have been included in the CAP. Commenters also asked that Start Printed Page 70243the PRIT list be made available to the public.

Response: The PRIT is a group of CMS subject matter experts who work to reduce the regulatory burden on Medicare physicians. Since the inception of the ASP payment system, individual physicians have reported difficulty in acquiring certain drugs for less than ASP+6 percent. At the request of the Physicians Practice Advisory Committee, the PRIT began compiling reports of these situations. More information about the PRIT may be found at the following web site: http://www.cms.hhs.gov/​physicians/​prit/​.

Because the PRIT list is based on voluntary reporting, and information is received on an ad-hoc, nonrepresentative basis, the PRIT list may not fully describe overall drug pricing or availability patterns; therefore, we have chosen not to use the PRIT list as a specific criterion for the CAP. However, as stated in of the July 6, 2006 interim final rule with comment (70 FR 39033), we did review drugs that had been associated with access problems under the ASP payment system during the development of the CAP single drug category and we have subsequently examined the PRIT list during the writing of this rule. We have found that the CAP includes most drugs reported to the PRIT. PRIT list drugs not in the CAP are drugs that were not included for specific reasons described in the July 6, 2005 interim final rule with comment, such as -single indication orphan drugs, drugs without permanent HCPCS codes, oral medications, and drugs with low utilization.

(iv) Discussion of Intrathecal Pain Management

The July 6, 2005 interim final rule with comment's discussion of specific drugs contained a comment and response on ziconotide (Prialt®).

Comment: One commenter stated that, in our discussion of intrathecal pain management, we mischaracterized ziconotide as an opioid analgesic. The commenter points out our inconsistency in referring to ziconotide as an opioid, but following with a discussion that demonstrates understanding that ziconotide is not an opiate. The commenter asked if non-opiate pain medications administered intrathecally through an implanted pump or external infusion device would be suitable for inclusion in the CAP. The commenter also asked whether ziconotide could be added to Addendum B—New Drugs for CAP Bidding for 2006 of the drug bidding list if a permanent HCPCS code were assigned in the Fall of 2005. The commenter also noted that baclofen and clonidine, two other medications that can be administered intrathecally through a pump, are included in the CAP drug category.

Response: We appreciate the opportunity to clarify our discussion. Ziconotide is not an opiate analgesic and it is not a controlled substance. Neither the comment nor the corresponding response were intended to describe ziconotide as an opioid or to limit the discussion to intrathecally administered opioids.

Our response to the comment in the interim final rule with comment was intended to address two points. First, we did not consider opioids and ziconotide for inclusion into the bid list for different reasons. Opioids are controlled substances and are subject to extra record keeping requirements as stated in the July 6, 2005 interim final rule with comment (70 FR 39028); ziconotide was not included in the CAP drug category because it had not yet been assigned a HCPCS code. Second, we agreed in principle that opioid medications administered intrathecally through implanted variable-rate infusion devices could be included under the CAP, when they are administered by physicians in their offices incident to their services. Although we specifically referred to opioid medications in this discussion, the statement applies to non-opioid medications as well. However in the interim final rule with comment, we described our methodology for determining whether a drug would be included in the initial CAP drug category. (70 FR 39028 and 39031 through 39032).

Although ziconotide generally appears to meet the criteria for inclusion in the initial CAP drug category, we have become aware of an unresolved payment methodology issue with this drug resulting in the lack of a consistent ASP for ziconotide. It is important that drugs included in the CAP drug category have an ASP that we can determine, because a drug's ASP is used to calculate the overall price ceiling for the composite bid and the maximum payment amount for CAP drugs not included in the composite bidding process. For this reason, we are not including this drug in the CAP at this time.

(v) Leuprolide and Related Drugs

During the development of the Single Drug Category List published in Addendum A of the July 6, 2005 interim final rule with comment, we chose not to include injectable forms of leuprolide acetate (J9217 and J9218) in the initial CAP drug category. We provide a discussion of local coverage determinations (LCDs) and LCA policy as it relates to the CAP in the July 6, 2005 interim final rule with comment (70 FR 39039). We note that leuprolide acetate implant (J9219) remains in the CAP's Single Drug Category List.

Comment: We received several comments about leuprolide and other luteinizing hormone-releasing hormone (LHRH) analogues, which include goserelin, triptorelin, and histrelin. Commenters acknowledged the complexity of applying LCA policies to the CAP for both physicians and vendors. They also questioned whether all regions of the United States were subject to LCA policies for this leuprolide, and commenters expressed concern that the policies may extend to LHRH other than leuprolide and goserelin, such as histrelin and triptorelin. Two commenters suggested that the CAP not use LCA policies, and failing that the commenter suggested that drugs covered by LCA policies be “carved out” of the CAP. Another commenter stated that LCA policies varied so much that not including leuprolide in the CAP drug category was an incomplete solution to the LCA issue because the entire group of LHRH analogues was in the process of becoming affected by LCAs, and that continuing price changes could not guarantee that goserelin would remain the least costly alternative drug among the LHRH analogues.

Response: We appreciate the concerns raised by the commenters. However, we do not believe that we have the authority to specify that CAP prices supersede an LCA policy. As we stated in the July 6, 2005 interim final rule with comment, nothing in this rule is intended to disrupt the longstanding ability of contractors to apply an LCA policy under section 1862(a)(1)(A) of the Act. Section 1862(a)(1)(A) of the Act provides that notwithstanding any other provision in the Medicare statute (that is, including section 1847B of the Act), no payment may be made under Part A or Part B for any expenses incurred for items and services that are not medically necessary. As a result, if a carrier applies an LCA policy to a particular drug, a claim submitted to the carrier for that drug is subject to LCA.

After considering the comments, we continue to believe that the decisions outlined in the July 6, 2005 interim final rule with comment pertaining to which drugs are included in the CAP drug category maintain a balance between physician access to LHRH analogues Start Printed Page 70244and vendor risk associated with the application of LCAs for these drugs.

(h) Drug Weighting

In the July 6, 2005 interim final rule with comment (70 FR 39069), we finalized our proposal to employ a “composite bid” for selecting bidders. The composite bid will be constructed by weighting each HCPCS bid by the HCPCS code's share of volume (measured in HCPCS units) of drugs in our single drug category during the prior year. Within the single category, the drugs weights will sum to one.

Comment: Some commenters suggested that instead of using only utilization data to derive weights, we should use both utilization and allowed charges data so that products with high utilization, but low charges, are not over weighted.

Response: We appreciate the suggestion of an alternative weighting methodology, and we recognize that the weighting methodology could be developed in a number of ways. We are also aware that changing the weighting methodology from utilization volume to dollar volume could impact overall weighting.

For the initial bidding cycle, we chose to use a relatively simple weighting methodology based on claims volume, but corrected for the appearance of multiple identical claim lines on a given day of service. We also believe that the creation of a single drug category further minimizes some effects associated with using utilization data as the only weighting parameter. We do not believe that a change in weighting methodology would result in significantly different weights than those derived under the current weighting methodology for the majority of drugs in the single drug category list. Therefore, we will implement CAP using the same weighting methodology described in the July 6, 2005 interim final rule with comment (70 FR 39069 through 39071) and will consider alternatives for future bidding cycles.

Earlier in this section we have discussed the need to make changes to the Single Drug Category List published in Addendum A of the July 6 2005 interim final rule with comment. The resulting change in the composition of the Single Drug List required us to recalculate the drug weights. A complete discussion of the reasons for this revision is included in section II.H.6.a.(1)(a), Changes to the Single Drug Category List—Addendum A of the July 6, 2005 interim final rule with comment.

b. Vendor/Bidding Issues

In this section we discuss issues related to vendor bidding such as drug quality, vendor subcontracting, confidentiality of the bids, vendor call center requirements, the inclusion of prompt pay discounts in vendor net acquisition costs, and the mechanics of the bidding process.

(1) Quality/Product Integrity

In the July 6, 2005 interim final rule with comment (70 FR 390660 through 390662), we discussed product integrity and the requirement to comply with existing State and Federal laws regarding adulteration, misbranding, spoilage, contamination, expiration, and counterfeiting of products. We stated that although we do not propose to require applicants or potential CAP vendors to employ measures beyond those required for licensure and regulatory compliance, we believe these measures set a minimum standard, and we requested that applicants discuss any additional measures they have taken to ensure product integrity. We also provided examples of additional measures that pose minimal burden but enhance the ability to detect adulterated, misbranded, or counterfeit drugs. We further stated that the approved CAP vendor application process, the maintenance of appropriate licensure, and Medicare supplier status form the framework for product integrity. We also noted that potential CAP vendors are required to submit a compliance plan as part of the bidding process that contains policies and procedures for the prevention of fraud, waste, and abuse, and provides detailed information on steps to ensure product integrity as specified in § 414.914.

Comment: Many commenters supported the steps outlined in the July 6, 2005 interim final rule with comment to ensure quality and product integrity. There were some commenters, however, who expressed concern that the provisions in the interim final rule with comment will not be adequate to prevent fraud and abuse and ensure product integrity. One commenter believed that patient health and safety could be compromised by the imposition of a third party (the approved CAP vendor) for drug acquisition, preparation, and delivery. This commenter was also concerned about the possibility that certain drugs could be reconstituted in their vials by the approved CAP vendor. Another commenter suggested that the Verified-Accredited Wholesale Distributors TM Program could play a key role in adherence to quality and performance standards among approved CAP vendors. This is a program developed by the Task Force on Counterfeit Drugs and Wholesale Distributors that was convened in 2003 by the National Association of Boards of Pharmacy to ensure that a wholesale distribution facility is licensed and operating under best practices for drug distribution.

Response: We appreciate and share the commenters' concerns about ensuring quality and product integrity. However, we do not agree that the approved CAP vendor's role in drug acquisition, preparation, and delivery will compromise patient health and safety. We addressed the issue of reconstituted vials in the July 6, 2005 interim final rule with comment (70 FR 39061) by stating that approved CAP vendors may split vial trays, but cannot ship opened vials.

As we gain more experience with the CAP, we will explore the Verified-Accredited Wholesale Distributors TM Program and other options to further protect product integrity.

Comments: Several commenters recommended that CMS establish standards and survey procedures for approved CAP vendors and their subcontractors to inspect the chain of custody of the drugs delivered to participating CAP physicians. These commenters also requested that CMS establish and disseminate information about the procedure that participating CAP physicians should follow to report a suspected delivery of counterfeit drugs, and suggested that a web-based quality reporting system be available on various aspects of the approved CAP vendor's performance. These commenters also wanted clarification that one substantiated instance of purchase or distribution of a counterfeit drug by an approved CAP vendor will result in the automatic termination of the vendor's Part B supplier contract and the CAP contract.

Response: We continue to believe that existing Federal and State requirements, along with the specific requirements for approved CAP vendors outlined in the bidding and selection process, provide an adequate framework for protecting product integrity. Participating CAP Physicians should notify the approved CAP vendor immediately if there are any questions regarding the integrity of a CAP drug, and report any violations to the appropriate Federal and State authorities, as well as to the designated carrier's dispute resolution staff. In addition, the designated carrier will act promptly to investigate CAP quality complaints under the process outlined for dispute resolution as described in § 414.916. Start Printed Page 70245

As we gain experience with the CAP, we will assess whether additional steps are needed to ensure product quality. We are committed to ensuring that approved CAP vendors ship only high quality products and any reports of compromised quality will be addressed promptly.

(2) Subcontracting

In the July 6, 2005 interim final rule with comment (70 FR 39060, 39064, and 39065), we stated that a vendor could subcontract with another entity as long as that entity met all of our approved CAP vendor requirements, is in compliance with all applicable laws and regulations, has a demonstrable record of integrity regarding fraud and abuse and conflict of interest, and has adequate administrative arrangements in place to ensure effective operations. Information on specific requirements for subcontractors was provided in the July 6, 2005 interim final rule with comment and is a required part of the vendor's CAP application.

In § 414.914(f)(9), we also stated that it is the approved CAP vendor's responsibility to determine that subcontractors remain compliant with these standards. It was further noted that we intend that subcontractors or other entities associated with furnishing CAP drugs under an approved CAP vendor's contract maintain the same standards as the approved CAP vendor for the role that they play in supplying CAP drugs.

Comment: Many commenters expressed support that we intend to hold any subcontractors to the same standards as the approved CAP vendors. However, some commenters requested clarification on certain aspects of subcontracts or requested more stringent requirements. Two commenters requested that approved CAP vendors include in their subcontractor agreements a covenant binding on the subcontractor to comply with all rules applicable to approved CAP vendors, including those rules regarding product integrity and drug pedigree, and that HHS be a third party beneficiary to these agreements with the right to enforce any of the provisions relating to CAP compliance. One commenter wanted assurance that a contract between a large distributor and a specialty pharmacy would not be considered a conflict of interest.

Another commenter requested that we require full disclosure of a potential CAP vendor's corporate relationships and specifically prohibit potential CAP vendor subsidiaries from bidding against their parent company or other subsidiaries with the same parent company.

Response: We appreciate the commenters' interest in maintaining quality of the CAP by ensuring integrity in all aspects of the approved CAP vendor and subcontractor relationship. We believe that we have stated clearly our intention to hold all subcontractors to the same rigorous standards that we require of approved CAP vendors. We also believe that we have the necessary authority to review, enforce, and take any needed action to ensure that quality and integrity of the subcontractor relationship is maintained.

Because an approved CAP vendor is ultimately responsible for any activity of its subcontractor and risks termination of its CAP contract if quality or integrity are compromised, we believe that the approved CAP vendor will take adequate steps to ensure compliance with all requirements. Therefore, we will not require a binding covenant between approved CAP vendors and subcontractors, although we would expect that an approved CAP vendor may want to include this type of provision in its subcontracts for its own protection.

Contracts between a distributor and a specialty pharmacy are not automatically problematic. However, these arrangements would be subject to the same requirements as specified in the CAP statute and regulations that apply to all other subcontracting arrangements. Approved CAP vendors may wish to consult with legal counsel to determine whether there exists unique circumstances that could present a conflict of interest.

We also appreciate the commenters' concern about corporate relationships and the possibility of a potential CAP vendor's subsidiaries bidding against their parent company or other subsidiaries with the same parent company. However, because of the complexity of many corporate relationships, we believe that rejecting bids based on a test such as the commenter suggests could exclude some legitimate and qualified entities from participating in the CAP. We will not prohibit any qualified bidder from submitting a bid to be an approved CAP vendor, but we expect applicants to submit any relevant information, including information about their corporate relationships. We will review all this information as part of the application and bidding process described in this final rule with comment and the July 6, 2005 interim final rule with comment.

(3) Confidentiality of the Bids (Potential CAP Vendor Information)

In both the March 4, 2005 proposed rule (70 FR 10746) and the July 6, 2005 interim final rule with comment (70 FR 39065), we affirmed that all cost information will be confidential and not made available for public display, and that bid prices will be kept confidential in accordance with section 1927(b)(3)(D) of the Act.

We also stated that section 1847B(a)(1)(C) of the Act provides that, in implementing the CAP, the Secretary may waive provisions of the Federal Acquisition Regulation (FAR), “other than provisions relating to the confidentiality of information.” The confidentiality provisions of the FAR apply to the data submitted by bidders and potential CAP vendors under the CAP.

However, we noted that what is confidential for FAR purposes may not necessarily be protected under the provisions of the Freedom of Information Act (FOIA), and that if a FOIA request is received for pricing information, the request will be processed in accordance with 5 U.S.C section 552(b) and 45 CFR part 5, subpart F to determine whether any of the FOIA's exemptions to mandatory disclosure may apply to protect the information.

Comment: One commenter expressed concern that drug pricing information may be subject to disclosure under FOIA and suggested that it is protected from disclosure under FOIA exemption (b)(4). This commenter also suggested that drug pricing information provided under the CAP be treated the same as the drug pricing information provided for Hospital Outpatient Prospective Payment System (OPPS) and the Medicare Part D prescription drug benefit. Another commenter wanted assurance that all potential CAP vendor cost data will be protected as proprietary and will remain confidential and unidentifiable by manufacturer or wholesaler.

Response: We again affirm that, to the extent permitted by law, all cost information submitted during the bidding process and as part of the contract's price adjustment process will remain confidential and not made available, and that potential CAP vendor pricing information will be kept confidential. The FAR directly addresses the government's obligation to protect contractor information submitted in response to a solicitation for competitive bids. If a FOIA request is received seeking disclosure of a bidder's pricing data, that request would Start Printed Page 70246be forwarded to the CMS FOIA officer for review in accordance with FOIA requirements. To the extent allowed by Federal law, we will assert applicable FOIA exemptions to protect confidential cost and pricing information. The FOIA exemptions are set forth in Department of Health & Human Services Freedom of Information regulations at 45 CFR part 5, subpart F.

(4) Approved CAP Vendor Requirements/Call Center Hours of Operation

In the July 6, 2005 interim final rule with comment (70 FR 39065), we stated that the approved CAP vendor would be required to—

  • Maintain the operation of a grievance process so that participating CAP physician, beneficiary, and beneficiary caregiver complaints can be addressed;
  • Provide a prompt response to any inquiry as outlined in the vendor application form;
  • Maintain business hours on weekdays and weekends with staff available to provide customer assistance for the disabled, including the hearing impaired, and to Spanish speaking inquirers; and
  • Provide toll-free emergency assistance when the call center is closed.

We also required that approved CAP vendors maintain a formal mechanism for responding to complaints from participating CAP physicians, beneficiaries, and their caregivers (if applicable) (70 FR 39065). Additionally, we stated that customer service is of primary importance and approved CAP vendors must demonstrate the ability to respond to inquiries on both weekdays and weekends (70 FR 39085).

Comment: We received no objections to any of the requirements. A commenter noted that although vendors are required to have procedures to resolve complaints and inquiries about CAP drug shipments, there were no clear standards for systems or procedures that approved CAP vendors must maintain. This commenter supported the establishment of a call center or other patient support center to answer patients' questions about billing, payment schedules, and other matters.

Response: We believe that customer service is of primary importance and that approved CAP vendors must demonstrate the ability to respond promptly and satisfactorily to inquiries from providers, beneficiaries, and caregivers. We believe that approved CAP vendors should have the flexibility to develop standards and systems that meet our requirements. However, we note that an approved CAP vendor will be required to respond to inquiries from a wide variety of sources, including beneficiaries and physician office staff, and that inquiries could come from a variety of time zones. Therefore, we are finalizing this policy and revising § 414.914 to reflect that an approved CAP vendor will be required to—

  • Maintain the operation of a grievance process so that participating CAP physician, beneficiary, and beneficiary caregiver complaints can be addressed.
  • Respond within 2 business days to any inquiry, or sooner if the inquiry is related to drug quality.
  • Staff a toll-free line from 8:30 a.m. or earlier and until 5 p.m. or later for all time zones served in the continental United States by the approved CAP vendor on business days (Monday through Friday excluding Federal holidays) to provide customer assistance, and establish reasonable hours of operation for Hawaii, Alaska, Puerto Rico, and the other U.S. territories.
  • Staff a toll-free emergency line for weekend and evening access when the call center is closed, and determine which hours on Saturdays and Sundays the call center will be staffed and which hours a toll-free emergency line will be activated.
  • Include assistance for the disabled, the hearing impaired, and Spanish speaking inquirers in all customer service operations.

We also recommend that all approved CAP vendors have arrangements in place to obtain translation services in other languages if serving a sizable population of beneficiaries or caregivers whose language is other than English or Spanish and who do not have access to translator assistance.

When a beneficiary has a question about a coinsurance bill from an approved CAP vendor, the beneficiary is directed to contact the approved CAP vendor or his or her supplemental insurance provider (if applicable). If the beneficiary has no supplemental insurance, and believes he or she is not liable for the coinsurance bill, but is unable to resolve the situation on their own, the beneficiary may contact the designated carrier's customer service staff for assistance. The dispute resolution process is described in § 414.916(d) and in the July 6, 2005 interim final rule with comment (70 FR 39098).

(5) Prompt Pay Discounts

In the July 6, 2005 interim final rule with comment, we stated that prompt pay discounts should be disclosed by the approved CAP vendor and included in determining reasonable, net acquisition costs for purposes of section 1847B(c)(7) of the Act, and that we were interested in receiving comments about how these discounts are arranged and whether they are indeed different from other price concessions and discount arrangements.

Comment: Some commenters questioned the inclusion of prompt pay discounts in the determination of approved CAP vendors' reasonable net acquisition costs. They argued that so long as prompt pay discounts truly represent the time value of money and the fair market value of the distribution and financial services that are provided and are not passed on to providers, they should not be included in the approved CAP vendor's net acquisition costs. The commenters also raised issues with the treatment of prompt pay discounts under the ASP system.

Response: We disagree that prompt payment discounts should be excluded from the determination of an approved CAP vendor's reasonable, net acquisition costs. Section 1847B(c)(7) of the Act makes reference to an approved CAP vendor's “reasonable, net acquisition costs”. The statute's use of the word “net” indicates these costs should reflect discounts the approved CAP vendor has received. Further, we believe it is appropriate that “net acquisition costs” be calculated in a manner consistent with the calculation of ASP. Prompt pay discounts are price concessions that must be included in a manufacturer's calculation of ASP. Please see section II.H.1 of this preamble, ASP Issues, for further discussion of prompt pay discounts under the ASP payment methodology.

(6) Bidding Process

In the July 6, 2005 interim final rule with comment, we stated that the composite bid ceiling will be determined on the basis of ASP prices in effect during the quarter in which the bids are generated, and that the single price for each drug (HCPCS code) will be initially determined on the basis of the median of the bids submitted during the second quarter of CY 2005 for that drug. We further stated that the price of each drug will then be updated to the mid-point of CY 2006 (five quarter increase) Producer Price Index (PPI) for prescription preparations.

Given the 6 month delay in implementation and the corresponding change in the bidding period, we will be making certain adjustments to the bidding process to account for more recent data. In general, we will retain the process described in the July 6, 2005 Start Printed Page 70247interim final rule with comment (§ 414.904). However, we will require bidders to base their bid on the October ASP file which accounts for the most recent ASP data available and can be found at http://www.cms.hhs.gov/​providers/​drugs/​asp. As a result of the use of the updated drug pricing data and the delay in the implementation, we will no longer need to update the bid price by 5 quarters of PPI. Instead, we will update prices by 4 quarters of PPI. This allows the data to be trended forward from the period in which bidding is conducted (the fourth quarter of CY 2005) to the period in which the single prices will actually be in effect (second half of CY 2006). Specifically, the price of each CAP drug will be updated to the mid-point of the 2006 payment period on the basis of projecting the overall change in PPI prices for prescription preparations.

Bidding for potential CAP vendors will commence upon publication of this final rule with comment. Bidders will have at least 30 days to submit an application. Upon publication of the final rule, CAP bidding forms and additional information regarding bidding timelines, and other related material, can be found at http://www.cms.hhs.gov/​providers/​drugs/​compbid/​bid_​form_​announ.asp.

c. Operational Issues

In this section, we address drug product waste and returns, and when unused portions of single-use drugs may be billable to Medicare under the CAP. We address billing issues and timing of claims processing and payment. We address comments regarding coinsurance and collection of Advanced Beneficiary Notice forms (ABNs) and arrangements between approved CAP vendors and participating CAP physicians for services relating to the CAP.

We also address several CAP drug-ordering issues. We describe the resupply option and emergency use within the CAP. We clarify when a Medicare beneficiary's height and weight are needed for ordering a CAP drug. We also clarify the “furnish as written” option. Finally, we address patient confidentiality.

(1) Unused Drug Product (Waste and Returns)

In the July 6, 2005 interim final rule with comment (70 FR 39062), we responded to commenters asking for specific guidance on how to manage drug waste and returns as follows:

Although a variety of situations may create quantities of unused drugs at the place of administration, we believe the unused CAP drugs will come in the following 3 forms:

  • An unopened vial (or vial package) as shipped by the approved CAP vendor.
  • An opened vial (that may or may not be reconstituted or partly used).
  • A drug that has been removed from a vial or package and is in a syringe, IV bag, or other device or container used for drug administration.

Unused quantities of a drug may increase the risk of waste, fraud and abuse, and attempts to use the excess drug may violate applicable pharmacy law or may compromise product integrity. We expect that approved CAP vendors will furnish drugs in a manner that will minimize unused drugs. We also expect that participating CAP physicians and approved CAP vendors will both make an effort to label, ship, and store CAP drugs in a manner that will allow the legally permissible reuse of an unopened and intact container of a CAP drug. Returns of unused products through a distribution system may be acceptable, but many States prohibit reusing drugs that have been dispensed by a pharmacy (For further information, see FDA Office of Regulatory Affairs (ORA) Compliance Policy Guides Manual Sec. 460.300, Return of Unused Prescription Drugs to Pharmacy Stock, CPG 7132.09). We are aware of situations when an approved CAP vendor may label a vendor-supplied outer container for prescriptions to keep the actual manufacturer's packaging intact and unlabelled. We further expect approved CAP vendors to offer and ship units of a drug that match the beneficiary's dosing requirements and HCPCS billing amount as closely as practical. In this way, a degree of waste will be prevented. Specific details, including how waste, returns, and their cost burden are handled, will depend on State law and regulation as well as the individual situations. Approved CAP vendors should establish policies on these issues (making sure that they comply with applicable laws and regulations) and make the policies available for physicians to review during the election period and through the term of the approved CAP vendor's participation in the CAP.

Approved CAP vendors will supply CAP drugs to participating CAP physicians' offices in unopened vials. However, in situations where a CAP drug is dosed by body weight or BSA, the amount of drug in vials may not match the Medicare patient's actual dose, and the approved CAP vendor will be forced to ship excess drug. In certain States, pharmacy law may prevent the use of excess CAP drug for another Medicare beneficiary if the order must be labeled as a prescription. The return process is guided by the following:

  • Federal Law and guidelines (such as the FDA/ORA CPG 460.300), State law, Medicare requirements (such as the Claims Processing Manual), drug stability, and appropriate standards (such as United States Pharmacopoeia Chapter 797, Pharmaceutical Compounding—Sterile Preparations) will be used to determine how an extra drug product(s) may be used for subsequent dosing on the same beneficiary or for use on another beneficiary.
  • If excess drug product remaining in a vial shipped by an approved CAP vendor must be returned, the approved CAP vendor is expected to accept excess CAP drugs for disposal and is expected to pay for shipping. The participating CAP physician is responsible for appropriately packing the drug. Consolidating shipping into larger and less frequent packages by the participating CAP physician would be encouraged. We do not intend for this process to be used as a vehicle for routine disposal of empty or nearly empty vials, disposal of any drug product not shipped by an approved CAP vendor, or disposal of drugs mixed in IV bags, syringes, associated needles and tubing, or other devices used in the administration of the drug product to a beneficiary.

The approved CAP vendor bills Medicare only for the amount of CAP drug administered to the Medicare beneficiary and the beneficiary's coinsurance amount will be calculated from the quantity of drug that is administered. Because the CAP statute authorizes us to pay the approved CAP vendor only upon administration of the CAP drug, any discarded drug (or drug that is considered waste) will not be eligible for payment.

We also stated that the CAP dispute resolution process will be available to resolve any associated disputes.

Comment: Most commenters objected to our payment policy for the unused portion of drugs. Most commenters perceived that the payment policy for the unused portion of a drug under the CAP was more restrictive than the payment policy for the unused portion of a drug under the ASP payment system. Many, but not all, commenters on this issue supported the general concept of payment for the unused portion of drugs contingent upon good faith efforts on the part of the participating CAP physician and approved CAP vendor to minimize unused drugs. However, some commenters indicated that payment to Start Printed Page 70248the approved CAP vendor for the unused portion of CAP drugs should not be contingent on good faith efforts by the participating CAP physician, but only good faith efforts by the approved CAP vendor in furnishing the drug.

Response: Under the ASP payment system, physicians may bill the program for the unused portion of a drug remaining in an opened single-use vial if the physician made good faith efforts to minimize the unused portion of the drug in how he or she scheduled patients and how he or she ordered, accepted, stored, and used the drug. This policy does not apply to the unused portion of drugs from multiple use vials.

We expect that approved CAP vendors and participating CAP physicians will act and interact in a manner that will minimize unused drugs. Section 1847B(a)(3)(A)(iii) of the Act states that payment for CAP drugs is conditioned upon the administration of these drugs. We are clarifying that we consider the unused portion of a drug remaining in an opened single-use vial to be administered for the limited purpose of section 1847B(a)(3)(A)(iii)(II) of the Act, but only if the participating CAP physician has made good faith efforts to minimize the unused portion of the CAP drug in how he or she scheduled patients and how he or she ordered, accepted, stored, and used the drug, and only if the approved CAP vendor has made good faith efforts to minimize the unused portion of the drug in how it supplied the drug. This policy does not apply to the unused portion of drugs from multiple use vials.

We disagree with commenters who indicated that payment for the unused portion of drugs should not be contingent on good faith efforts by the participating CAP physician, but only on good faith efforts by the approved CAP vendor in supplying the drug. The program should not pay for the unused portion of a drug resulting from circumstances that were avoidable through good faith efforts. However, in response to these comments, we are including a new obligation in participating CAP physicians' CAP election agreement that requires the participating CAP physician to make good faith efforts to minimize the unused portion of CAP drugs in how he or she schedules patients and how he or she orders, accepts, stores, and uses the drugs. The requirement stated in the July 6, 2005 interim final rule with comment (70FR 39048) still applies, that when a participating CAP physician does not administer a CAP drug during the time frame specified on the prescription order, or administers a smaller amount of the drug than was originally ordered, the participating CAP physician must contact the approved CAP vendor to discuss what to do. If it is permissible under State law, and if the CAP drug is unopened and both the participating CAP physician and the approved CAP vendor are in agreement, then the participating CAP physician may retain the drug for administration to another Medicare beneficiary. However, before the drug could be administered to another Medicare beneficiary, the participating CAP physician would need to provide the approved CAP vendor with a new prescription order for the drug, and the approved CAP vendor would need to provide the participating CAP physician with a new beneficiary-specific prescription order number.

If the unused portion of the CAP drug is from a single-use vial, and all of the other conditions are met, the approved CAP vendor may bill for the unused portion of the CAP drug in the single-use vial. However, if the unused portion of the CAP drug is from a multi-use vial or an unopened vial, the participating CAP physician and approved CAP vendor must come to an arrangement on what to do with the unused CAP drug consistent with statute, the CAP regulations, and all applicable State and Federal laws and regulations. We note that unused CAP drugs are the property of the approved CAP vendor.

Comment: Some commenters asked for clarification of wastage, spillage or spoilage.

Response: Any drug or portion of a CAP drug that is not administered to a Medicare patient is considered wastage, spillage or spoilage. We note that if the other conditions described in the previous response are met, the unused portion of a CAP drug from a single-use vial is considered to have been administered for purposes of section 1847B(a)(3)(A)(iii)(II) of the Act, and, therefore, would not be considered wastage, spillage, or spoilage.

Comment: One commenter indicated that totally unopened or unused vials or packages ordered by the participating CAP physician should be purchased by the participating CAP physician for his or her own inventory.

Response: We expect participating CAP physicians will make good faith efforts to minimize unused CAP drugs. One of the goals of the CAP program is to allow physicians a choice between obtaining CAP drugs from approved CAP vendors selected in a competitive bidding process or acquiring and billing for Part B covered drugs under the ASP drug payment methodology. We do not believe that requiring participating CAP physicians to purchase totally unopened or unused vials or packages for their own inventory is consistent with this goal.

Comment: One commenter stated that many neurology practices that administer botox infusions split vials of the medication between two patients in cases where the patient does not need the full vial. The commenter indicated that the interim final rule with comment would prohibit this practice.

Response: We indicated in the interim final rule with comment that unused quantities of a drug may increase the risk of waste, fraud and abuse, and attempts to use the excess drug may violate pharmacy law and may compromise product integrity. However, we also indicated that specific details will depend on State law and regulation as well as the individual situations. Approved CAP vendors will establish policies on these issues (making sure that they comply with applicable laws and regulations) and make the policies available for physicians to review during the election period and through approved CAP vendor's participation in the CAP. Note also our policy regarding unused portions of a CAP drug from a single-use vial, which is described above.

(2) Timing of Approved CAP Vendor Billing/Payment of Claims

In the July 6, 2005 interim final rule with comment, we stated the participating CAP physician must file his or her drug administration claim within 14 days of administration (70 FR 39050 and 39095), and that the approved CAP vendor could not bill the beneficiary for drug product coinsurance until the claims matched and the approved CAP vendor received payment from the designated carrier (70 FR 39052 and 39097).

Comment: Potential vendors have proposed ways to shorten the time frame of the approved CAP vendor's payment window. One suggested that approved CAP vendors should be permitted to bill and be paid for drugs upon delivery to a participating CAP physician. Another suggested that the participating CAP physician be deemed to have “purchased” the drug if the participating CAP physician has not filed his or her claim within 14 days of delivery. These potential vendors are concerned about the viability of the CAP from a cash flow perspective.

Response: In most cases, assuming the participating CAP physician and the approved CAP vendor have promptly and properly submitted their claims, the approved CAP vendor should be paid by CMS within two to three weeks from the Start Printed Page 70249date of drug administration. The anticipated sequence of events for the majority of CAP claims that are in compliance with local coverage determinations (LCDs) is described in the timeline in Diagram 1.

This timeline (diagram 1) is offered as an illustration of how the approved CAP vendor's drug claim and the participating CAP physician's administration claim would travel through the Medicare claims processing system using the month of October as an example. The claims depicted here are assumed to have passed “front end edits” and been considered “clean claims.”

In the July 6, 2005 interim final rule with comment, we asked the approved CAP vendor to submit its drug claim to the designated carrier no earlier than the first day of the anticipated week of administration as indicated on the drug order (70 FR 39040). After performing initial “front end” edits to validate the claim, the designated carrier will forward the approved CAP vendor's claim to the CMS central claims processing system. If there is not an immediate match between the approved CAP vendor's drug product claim and the participating CAP physician's drug administration claim in the CMS central claims system on the day the approved CAP vendor's claim is received, then the approved CAP vendor's claim goes into a recycling phase and will be reviewed for a match regularly thereafter. Section 1842(c)(3)(A) of the Act requires that no payment on an electronic claim shall be issued in less than 13 days. We add one day for mailroom and check handling and refer to this 14-day period as the “payment floor.” The payment floor clock starts on the day the approved CAP vendor's claim is received by the designated carrier as long as the claim passes all edits and is classified as a “clean claim”.

In the July 6, 2005 interim final rule with comment, we stated that participating CAP physicians are required to file their claims for drug administration services within 14 days of the date of administration (70 FR 39050). Statistics obtained from Medicare claims filing data indicate that 75 percent of physician claims are filed within 14 days of the date of service, and that 95.6 percent of all Part B claims are considered clean when first filed. Within 3 days of receipt of a participating CAP physician's clean claim that has not been suspended for medical review, the CMS central claims processing system will generate a match between the participating CAP physician's claim and the approved CAP vendor's claim and permit payment of the approved drug vendor's drug product claim, provided the 14-day payment floor has been satisfied.

In the July 6, 2005 interim final rule with comment, we stated that drug administration claims will undergo electronic medical review for compliance with LCDs (70 FR 39038). Historically, approximately 5 percent of Part B drug claims are suspended for manual review, and approximately 7 percent of all claims (that is, not just those for Part B drugs) are denied. We expect that a small number of CAP drug claims will be reviewed for off-label use.

As for the 20 percent coinsurance portion of the bill, about 80 percent of Medicare beneficiaries have a supplemental insurance policy that covers the beneficiary's cost sharing obligation. Approved CAP vendors will know which beneficiaries have a supplemental policy because that information is required to be included on the prescription order. Approved CAP vendors will also be able to verify the beneficiary's supplemental coverage by contacting the supplemental insurer.

If the supplemental insurer has an arrangement with CMS as part of the automatic coordination of benefits process, the approved CAP vendor's claim will automatically cross over to the supplemental insurer after Medicare has paid its 80 percent share of the claim. In addition, under the mandatory Medigap crossover process, claims will be forwarded to the supplemental insurers for their use calculating their financial liability after Medicare if the approved CAP vendor properly coded the claim with the trading partner (for example, supplemental insurers) information. In both of these situations, after the supplemental insurer receives the claim it will issue applicable payment to the approved CAP vendor.

When an approved CAP vendor has supplied a CAP drug for administration to a beneficiary without supplemental insurance, the approved CAP vendor may bill the beneficiary upon receipt of Medicare's payment from the designated carrier or upon administration of the drug, if the approved CAP vendor has received notice of administration from the participating CAP physician. The approved CAP vendor may enter into a voluntary arrangement with a participating CAP physician to receive notification that the drug has been administered. The approved CAP vendor may also enter into a voluntary arrangement with the participating CAP physician to arrange for the collection of the beneficiary's coinsurance after the drug is administered, or to deliver information and notices on coninsurance assistance.

(3) Arrangements Between Approved CAP Vendors and Participating CAP Physicians for the Collection of Coinsurance and ABNs

In the July 6, 2005 interim final rule with comment, we stated that nothing in the CAP statute or regulations prohibited an approved CAP vendor and a participating CAP physician from entering into an agreement governing their arrangements for the provision of CAP drugs or other items or services (70 FR 39050). We added that parties to these agreements must ensure that the arrangements do not violate the physician self-referral (“Stark”) prohibition (section 1877 of the Act), the Federal anti-kickback statute (section 1128B(b) of the Act), or any other Federal or State law or regulation governing billing or claims submission.

Comment: Some commenters requested that we state explicitly that approved CAP vendors and participating CAP physicians are allowed to enter into these arrangements. They suggested that drug industry relationships commonly include supplier/physician arrangements. These commenters believed that approved CAP vendor/participating CAP physician arrangements will promote more participation in the CAP, stimulate greater cooperation between the parties, and generate fiscal efficiencies.

Physician and manufacturer commenters requested that we implement the CAP with safeguards that preserve the participating CAP physician's prescribing authority in the presence of these arrangements. They asked us to ensure that approved CAP vendors have no incentive and no regulatory pathway by which to restrict, limit, or change a participating CAP physician's access to specific drug and biological therapy.

Response: We are stating explicitly that nothing in the CAP statute or regulations prohibits approved CAP vendors and participating CAP physicians from entering into voluntary written arrangements that include—

  • An arrangement between a participating CAP physician and an approved CAP vendor to notify the approved CAP vendor after the CAP drug has been administered to the beneficiary;
  • An arrangement between a participating CAP physician and an approved CAP vendor to communicate with the beneficiary about coinsurance for CAP drugs on behalf of the approved CAP vendor;
  • An arrangement between a participating CAP physician and an approved CAP vendor to issue an ABN on behalf of the approved CAP vendor;
  • An arrangement between a participating CAP physician and an approved CAP vendor to collect applicable coinsurance and deductible on behalf of the approved CAP vendor from the beneficiary with no supplemental insurance coverage after the drug has been administered; and
  • Any other appropriate and legal arrangement between a participating CAP physician and an approved CAP vendor. (We note that the provisions of § 414.914(h) also allow the participating CAP physician and the approved CAP vendor to enter into an arrangement for Start Printed Page 70252the participating CAP physician to deliver notices related to the vendor's coinsurance assistance program.)

We will not dictate the breadth of use or the specific obligations contained in these arrangements, other than to note that they must comply with applicable law and to prohibit approved CAP vendors from coercing participating CAP physicians into entering any of these arrangements, as noted below. All written arrangements between approved CAP vendors and participating CAP physicians must comply with the requirements discussed below.

These arrangements should be carefully scrutinized by the parties to ensure that these arrangements are not disguised payments for referrals for items or services payable by a Federal health care program. These arrangements are subject to the physician self-referral (“Stark”) prohibition, the Federal anti-kickback statute or any other Federal or State law or regulation governing billing or claims submission. Arrangements should be at fair market value for actual services provided and should not take into account the volume or value of referrals. Percentage compensation arrangements or per item arrangements for billing and collection services between participating CAP physicians and approved CAP vendors would be highly suspect under the fraud and abuse laws.

Approved CAP vendors who enter into these arrangements with participating CAP physicians remain subject to liability for improper waivers of deductibles and coinsurance, including violations of the Federal anti-kickback statute and liability under section 1128A(a)(5) of the Act. Cost-sharing waivers are permitted under certain conditions for financially needy beneficiaries as specified in section 1128A(i)(6) of the Act. Parties should monitor these arrangements to ensure that waivers are made appropriately and create safeguards to ensure that these arrangements are not used by approved CAP vendors or participating CAP physicians as inappropriate marketing tools.

A participating CAP physician's decision to enter into an arrangement with an approved CAP vendor must be completely voluntary. An approved CAP vendor may not refuse to do business with a participating CAP physician because the participating CAP physician has declined to enter into an arrangement with the approved CAP vendor. Approved CAP vendors must accept all participating CAP physicians who choose to enroll with that approved CAP vendor.

Comment: Some commenters proposed that approved CAP vendors should have authority to obtain beneficiary credit card authorization before shipping drugs for them. One commenter suggested that Medicare withhold the approved CAP vendor's 20 percent coinsurance from the participating CAP physician's drug administration claim payment. The participating CAP physician would then collect both the administration coinsurance together with the drug product coinsurance from the beneficiary and/or the beneficiary's supplemental insurer. The approved CAP vendor would be paid the full amount.

Response: The CAP statute requires that we develop a process for the sharing of information between the participating CAP physician and the approved CAP vendor related to the payment of deductible and coinsurance (section 1847B(a)(3)(C) of the Act). In the July 6, 2005 interim final rule with comment, we interpreted this to mean beneficiary contact information, Medicare information, and third party insurance information (70 FR 39041). In the interim final rule with comment, we stated that we will not ask the participating CAP physician to collect the beneficiary's credit card information and share it with the approved CAP vendor because this information is not necessary to complete the drug ordering process, nor is it part of any supplemental insurance coverage that the beneficiary may have. We maintain that position in this final rule with comment. We do not ask the participating CAP physician to collect and forward credit card information to a third party supplier in any other Medicare setting. The beneficiary will have supplemental insurance approximately 80 percent of the time, rendering beneficiary payment information unnecessary in most cases.

We do not believe it is appropriate to require participating CAP physicians to secure drug coinsurance payment information from beneficiaries with no supplemental insurance, since provisions of section 1847B(a)(3)(A)(ii) of the Act make the collection of coinsurance the responsibility of the approved CAP vendor. However, as discussed previously, the participating CAP physician and the approved CAP vendor may enter into a voluntary arrangement, whereby the participating CAP physician, on the approved CAP vendor's behalf, would collect coinsurance from beneficiaries with no supplemental insurance coverage.

(4) Resupply Option/Definition of Emergency

As stated in the July 6, 2005 interim final rule with comment (70 FR 39037 and 39047), the four criteria that govern the resupply option are contained in section 1847B(a)(5) of the Act, which says that a participating CAP physician may acquire drugs under the CAP to resupply his or her private inventory if all of the following requirements are met:

  • The drugs were required immediately.
  • The participating CAP physician could not have anticipated the need for the drugs.
  • The approved CAP vendor could not have delivered the drugs in a timely manner.
  • The participating CAP physician administered the drugs in an emergency situation.

As we also stated in the July 6, 2005 interim final rule with comment, these criteria are set forth in the CAP statute, and, therefore, we do not have the authority to change them, or to allow that some of them be optional.

In the July 6, 2005 interim final rule with comment, we defined “delivery in a timely manner” for the resupply provisions of the CAP as the ability to meet emergency delivery standards for timely delivery as defined in § 414.902. We also defined “emergency situation” for the purposes of the resupply provisions of the CAP in § 414.902 as an unforeseen occurrence or situation determined by the participating CAP physician, in his or her clinical judgment, to require prompt action or attention for purposes of permitting the participating CAP physician to use a drug from his or her own stock, if the other requirements of § 414.906(e) are met.

In the July 6, 2005 interim final rule with comment, we stated that we anticipated that the local carrier would, at times, conduct a post-payment review of claims for emergency drug replacement in order to determine whether participating CAP physicians were complying with conditions for emergency drug replacement. The local carrier would use the emergency replacement modifier code to identify claims for emergency drug replacement for random post-payment review.

Comment: Numerous commenters expressed concern that the emergency resupply provisions were too restrictive and would have a negative impact on patient care. These commenters stated that, particularly for oncology treatment, health status changes are common, resulting in frequent changes in drug Start Printed Page 70253dosage or medication(s). These commenters believe that the requirements regarding emergency resupply would result in delayed treatment for patients already ill, and increase the burden on the patient and their caregivers. The impact on people in rural areas who may live several hours from where they receive treatment was mentioned by many commenters, and it was suggested that the patient's driving distance be considered in the ability of a participating CAP physician to provide drugs out of office supply and be resupplied by the approved CAP vendor. One commenter also noted that acute and infectious disease patients could be at risk if there was any delay in treatment.

Some commenters expressed concern that participating CAP physicians who use the emergency resupply option might be subjected to unwarranted audits. Others expressed concern that frequent use of the emergency resupply option would result in adverse consequences for the participating CAP physician. There were also questions about the approved CAP vendor's ability to withhold shipment if the approved CAP vendor did not agree that an emergency existed or if they believe the drug that was used in the emergency situation would not be covered.

Response: As stated in the July 6, 2005 interim final rule with comment, we believe that the definition of emergency used in this situation should be one that enables the participating CAP physician to use his or her clinical judgment to determine when his or her patient needs immediate treatment. We have defined emergency for purposes of this provision as a situation determined by the participating CAP physician's clinical judgment to be an unforeseen situation that requires prompt action or attention. If the approved CAP vendor's emergency delivery timeframe would result in delivery of the drug after the time necessary to meet the patient's clinical need, it would be considered that the CAP drug could not have been delivered in a timely manner.

We are firm in our view that the determination of clinical need rests with the participating CAP physician and we leave it to the participating CAP physician to determine the scope of the clinical need. As previously stated, the participating CAP physician will assess whether all of the criteria are applicable and will document the patient's medical record accordingly. However, we do not believe that driving distance in itself should be a determining factor in the use of the emergency supply provision. Rather, the participating CAP physician should evaluate the entire clinical situation of the patient and make an appropriate determination based on all relevant information.

Approved CAP vendors do not have the authority to override a participating CAP physician's determination of what constitutes an emergency situation for purposes of the resupply provision. Policies regarding the shipment of CAP drugs are the same for the emergency resupply provision as they are for routine ordering and shipping of CAP drugs and for the “furnish as written” procedures. In all of these cases, the approved CAP vendor is required to deliver CAP drug(s) upon receipt of a prescription order, ensuring that the participating CAP physician's judgment about the appropriate treatment is the final determining factor in the decision-making process. The same principle applies to the emergency replacement process. If a participating CAP physician orders a CAP drug to resupply inventory on the basis of an emergency administration, the approved CAP vendor must ship it, unless the conditions of § 414.914(h) are met.

As stated in the July 6, 2005 interim final rule with comment, we anticipate that at times the local carrier would conduct a post payment review of emergency drug replacement in order to determine whether participating CAP physicians were complying with conditions for emergency drug replacement. We acknowledge that there may be some participating CAP physicians that may have legitimate reasons for more frequent use of the emergency resupply option. The post payment review process will also provide us with information on participating CAP physicians' use of the emergency resupply provision and help to distinguish between appropriate and inappropriate use of this provision. As we gain more experience with the CAP, we will assess whether the emergency resupply provision is working as intended, and whether further refinement is necessary.

(5) Order Form Information on Patient's Height and Weight

In the July 6, 2005 interim final rule with comment (70 FR 39095), we stated that the participating CAP physician would agree to provide specific information to the approved CAP vendor from whom he or she has elected to receive drugs information. The specific information required included the Medicare beneficiary's height and weight. We also stated that abbreviated information could be sent for repeat patient orders. We received comments regarding the patient's height and weight.

Comment: Some commenters stated that including the patient's height and weight on the CAP order form should not be required.

Response: It is possible for an approved CAP vendor to be a wholesaler distributor, a specialty pharmacy or a combination of both. State and Federal laws that govern specialty pharmacy operations may be different from those that govern wholesale distributor operations. For example, State laws, regulations, and recognized professional practice standards may require that specialty pharmacy services be provided by a qualified pharmacist. If the approved CAP vendor is a specialty pharmacy or distributor with an arrangement with a specialty pharmacy to supply drugs to a participating CAP physician, then information on patient height and weight may be required in order for a pharmacist to check a dispensed dose. If the approved CAP vendor operates solely as a drug wholesaler this information may not be necessary. To reflect the different requirements that may apply to different potential types of approved CAP vendors, we are amending § 414.908(a)(3)(v)(M) to specify that height and weight should be provided only if necessary.

(6) Furnish as Written

In the July 6, 2005 interim final rule with comment (70 FR 39043), we stated that we would allow the participating CAP physician to obtain a drug and bill Medicare under the ASP system using the “furnish as written” (FAW) option when medical necessity requires that a specific formulation of a drug be furnished to the patient, and that formulation is not provided by the approved CAP vendor. Documentation of the medical necessity must be maintained in the Medicare patient's medical record. The participating CAP physician would use a FAW modifier to identify that he or she was allowed to bill Medicare under the ASP system in this limited circumstance.

Comment: One commenter stated the examples given under the description of FAW were very narrow and would keep a participating CAP physician from using the FAW option proactively.

Response: If the approved CAP vendor does not carry a specific NDC that is medically necessary for a patient, the participating CAP physician may purchase the drug, bill for it and use the FAW modifier on the drug claim. In this situation, the local carrier will pay the participating CAP physician under the ASP payment system. We remind physicians that the FAW process Start Printed Page 70254requires documentation of medical necessity.

Although the July 6, 2005 interim final rule with comment contained several examples of when the FAW process may be used, we did not intend to imply that these were exhaustive. The examples were meant to be illustrative, and were not meant to exclude other situations where FAW could legitimately be used in order to furnish a patient with the most appropriate therapy. Rather, we wished to indicate two points—(1) Participating CAP physicians who use FAW must appropriately document clinical judgment in support of the use of FAW; and (2) FAW is not intended to provide participating CAP physicians with an “end run” around their decision to participate in the CAP. The CAP is in no way intended to bar access to a medically necessary therapy. However, where medical necessity is served by the drug formulation supplied by the approved CAP vendor, coverage is available only if the participating CAP physician obtains the drug from the approved CAP vendor.

We again remind physicians that routine orders for CAP drugs should be placed at the HCPCS level. Specific products not on an approved CAP vendor's drug list that are medically necessary for the beneficiary may be obtained through the ASP system. Please note that the approved CAP vendor has the ability to request CMS approval to add new drugs to its CAP drug list. This process was discussed in the July 6, 2005 interim final rule with comment (70 FR 39075) and further described previously in this section.

(7) Patient Data Confidentiality

In the July 6, 2005 interim final rule with comment (70 FR 39065), we stated that approved CAP vendors would be required to comply with the HIPAA Administrative Simplification Rules, including the Privacy Rule.

Comment: One commenter requested that CMS explicitly prohibit approved CAP vendors from using, sharing, or selling patient information for any purpose other than that which is strictly related to fulfilling CAP orders. Another commenter wanted assurance that approved CAP vendor subcontractors would be subject to the same confidentiality requirements as the approved CAP vendor.

Response: We concur with the commenters that patient information must be protected from misuse, and believe that this requirement is adequately addressed by the requirement that approved CAP vendors comply with the HIPAA Privacy and Security rules. We also note that subcontractors are held to the same requirements and standards as the approved CAP vendor, including those pertaining to confidentiality.

d. Beneficiary Issues

In this section we discuss the policy permitting an approved CAP vendor to stop supplying drugs for a beneficiary who is not meeting their coinsurance obligations.

We also discuss the ABN process as it pertains to the CAP. Finally, we respond to comments about the financial liability of a Medicare/Medicaid dual eligible beneficiary who receives a CAP drug.

(1) Coinsurance

In the July 6, 2005 interim final rule with comment, we specified requirements at § 414.914(g) to include a provision requiring approved CAP vendors to provide information on sources of cost-sharing assistance available to beneficiaries on request (70 FR 39096). We noted that routine waiver of deductibles and coinsurance could violate the Federal anti-kickback statute, as well as, the civil prohibition on offering inducements to beneficiaries at section 1128A(a)(5) of the Act (70 FR 39050). However, cost-sharing waivers are permitted under certain conditions for beneficiaries who are experiencing financial hardship.

We also stated in the July 6, 2005 interim final rule with comment that we would not require an approved CAP vendor to continue to supply CAP drugs for beneficiaries who do not pay their deductible or coinsurance. Rather, we would allow the approved CAP vendor to refuse to make further shipments to the participating CAP physician for that beneficiary as long as the requirements of § 414.914(h) are met. In instances where a beneficiary failed to meet his or her obligation to pay coinsurance or deductible for a CAP drug, and the approved CAP vendor refused to continue providing the drug, we stated that we would permit the participating CAP physician to opt out of that drug category for the CAP.

Comment: Commenters from the community of potential CAP vendors expressed support for the approved CAP vendor's right to refuse to ship drugs for beneficiaries who do not meet their deductible and coinsurance obligations. They recommend removal of the requirement that the approved CAP vendor wait up to 60 days before discontinuing shipment of drugs on behalf of beneficiaries who do not meet their coinsurance obligations. The commenters offer that their exposure for additional uncollected coinsurance during the waiting period represents a risk so great that it renders participation in CAP untenable, and they should be permitted to collect coinsurance amounts on the day they ship the drugs.

Physicians and some drug manufacturers commented that the 45 to 60 day waiting period is too short, suggesting the period after the vendor's referral to a specific, bona fide charitable organization should be extended to permit the beneficiary sufficient time to apply for the aid, and the charitable organization time to process the request. A longer period was requested for cognitively impaired beneficiaries.

Response: Approved CAP vendors who become concerned about additional drug coinsurance exposure during the waiting period may make reasonable contact with the beneficiary for assurance that he or she is making timely and meaningful efforts to secure additional sources of funding. The additional 15-day waiting period after the specific, bona fide charitable organization referral represents a safety valve, and is not suggested as the starting point for the beneficiary's effort to secure alternative funding. The regulatory time periods set up a framework for an enforceable remedy. However, in light of the comments, and to reflect our policy change that an approved CAP vendor may make an arrangement with a participating CAP physician to collect coinsurance on its behalf, we are making modifications to § 414.914(h) to reflect that the 45-day period will begin on the date that the bill for coinsurance is delivered to the beneficiary whether it is mailed by the approved CAP vendor or delivered by the participating CAP physician on the behalf of the approved CAP vendor. We are also clarifying that the delivery of the coinsurance bill need not be subsequent to Medicare payment if the approved CAP vendor has received notice of drug administration from the participating CAP physician and the beneficiary lacks supplemental insurance. Because we believe the regulatory provision with this technical modification appropriately balances the interests of all involved, we are not going to change the length of the waiting period in § 414.904(h).

Comment: Some physician commenters have indicated that they waive coinsurance for indigent beneficiaries in some cases and expect that vendors should do likewise as a matter of routine.

Response: Approved CAP vendors and participating CAP physicians must conduct their business in compliance Start Printed Page 70255with the requirements of sections 1128A(a)(5) and 1128A(i)(6) of the Act. In the July 6, 2005 interim final rule with comment (70 FR 39053) we stated that we were modifying the program requirements at § 414.914(g) to include a provision requiring approved CAP vendors to provide information on sources of cost-sharing assistance available to beneficiaries on request. It is important to note that routine waiver of deductibles and coinsurance can violate the Federal anti-kickback statute, as well as the civil prohibition on offering inducements to beneficiaries at section 1128A(a)(5) of the Act. However, cost-sharing waivers are permitted under certain conditions for beneficiaries who are experiencing financial hardship. The assistance offered by the approved CAP vendor must take the form of one of the following: A referral to a bona fide and independent charitable organization, implementation of a reasonable payment plan, or a full or partial waiver of the cost-sharing amount based on the individual financial need of the patient, provided that the waiver meets all of the requirements in § 1003.101(1) (Definition of “Remuneration”). The availability of waivers may not be advertised or be made as part of a solicitation; however, approved CAP vendors may inform beneficiaries generally of the various categories of assistance noted in the preceding sentence. In no event may the approved CAP vendor include or make any statements or representations that promise or guarantee that beneficiaries will receive cost-sharing waivers. We will evaluate the procedures that applicant vendors propose to implement to make cost-sharing assistance referrals as part of the approved CAP vendor application review process.

Comment: Some physician commenters opposed the vendor's right to refuse further shipment because they believe it will fall to the physician to communicate to the beneficiary that his or her drugs are not being delivered, even though the decision to refuse shipment was the approved CAP vendor's.

Response: We understand the commenters' concern. However, when notifying the beneficiary of the approved CAP vendor's refusal to ship CAP drugs, the participating CAP physician need not justify the approved CAP vendor's decision. Instead, the participating CAP physician need only direct the beneficiary to the approved CAP vendor's grievance process. We believe it is the responsibility of the approved CAP vendor to notify the beneficiary about the conditions (specified in § 414.914(h)) under which the approved CAP vendor could permissibly cease delivery of CAP drugs for a beneficiary.

Comment: A few physician commenters expressed concern that an approved CAP vendor could use the refusal to ship for nonpayment of coinsurance as a way to influence the participating CAP physician's treatment plan, such as forcing the participating CAP physician to admit the beneficiary to a hospital.

Response: In order to preserve the flexibility of the participating CAP physician as required by the statute we have significantly limited the instances in which an approved CAP vendor can refuse to ship. However, we have a very specific process to provide the approved CAP vendor with some economic protection, and we will monitor the instances where an approved CAP vendor refuses to ship for nonpayment of coinsurance to ensure it is not being abused. The participating CAP physician may seek assistance from the CAP designated carrier in working out disputes where the participating CAP physician believes the approved CAP vendor is abusing the process under § 414.917.

Comment: One physician group commented that the regulation should be revised to require that the approved CAP vendor must provide information on cost sharing assistance to needy beneficiaries. The commenter stated that because the regulation at § 414.914(g)(3) and § 414.914(h)(3) state that the approved CAP vendor may inform beneficiaries that they generally make available categories of assistance such as referral to a bona fide charitable organization, implementation of a payment plan, or a full or partial waiver of the cost sharing amount that they were not required to do so.

Response: In the July 6, 2005 interim final rule with comment (70 FR 39086), we stated that the approved CAP vendor would be required on request, to provide information to beneficiaries on sources of coinsurance assistance. The regulations at § 414.914(g) state that the “approved CAP vendor must provide assistance to beneficiaries experiencing financial difficulty in paying their cost sharing amounts * * *” However, § 414.914(g)(3) and § 414.914(h)(3) state that approved CAP vendors may inform beneficiaries that they generally make cost sharing assistance available. It was our intention as reflected in the language in the preamble and § 414.914(g) and § 414.914(h)(3) to require approved CAP vendors to have a cost sharing assistance program available if the beneficiary expressed a need for one.

Section 14.914(g)(3) and § 414.914(h)(3) were intended to convey that approved CAP vendors may generally inform beneficiaries of the existence of this program rather than waiting for the beneficiary to request assistance. It was not our intention to convey that the approved CAP vendor had the option not to provide this assistance. In order to resolve any confusion we are revising § 414.914(g)(3) and § 414.914(h)(3) to reflect our original intent. The revision now reads, “Approved CAP vendors must inform beneficiaries,” that they generally make available the categories of assistance described in paragraphs § 414.914(g)(1), (g)(2), and (g)(3) of this section.”

Comment: One manufacturer commented that the vendor should be required to document “reasonable collection efforts” before being allowed to cut off a beneficiary.

Response: Because approximately 80 percent of beneficiaries have a Medicare supplemental policy that includes coverage for Part B cost sharing, their coinsurance and deductible payments should be made automatically in most cases by their supplemental insurer under the coordination of benefits process. Some beneficiaries without supplemental insurance may have difficulty making their coinsurance and deductible payments at times, and may seek assistance from the approved CAP vendor or some other third party. As we stated previously in this final rule and in the July 6, 2005 interim final rule with comment and consistent with the requirements of section 1128A(a)(5) of the Act and § 414.914(g) of the regulations, at the time of billing, the approved CAP vendor must inform the beneficiary generally of the types of cost-sharing assistance that may be available. If the beneficiary is unable to pay the coinsurance or deductible, he or she may request assistance from the approved CAP vendor as described above. The approved CAP vendor has an obligation to provide the information requested, and to take one of the actions specified in § 414.914(g). However, if the beneficiary has not requested financial assistance and if after a period of 45 days from delivery date of the approved CAP vendor's bill to the beneficiary whether by the approved CAP vendor or by the participating CAP physician on the behalf of the approved CAP vendor, the beneficiary's coinsurance obligation remains unpaid, the approved CAP vendor may refuse to make further shipments of drugs to the participating CAP physician for that Start Printed Page 70256beneficiary. (We note that these provisions assume that the approved CAP vendor bills the beneficiary after payment is received from Medicare and his or her supplemental insurance provider (if applicable).)

If the beneficiary requests cost-sharing assistance and the approved CAP vendor refers the beneficiary to a bona fide independent charitable organization for assistance or offers a payment plan, the approved vendor must wait an additional 15 days from the date of delivery (which would be the postmark date when mailed and received date when hand delivered) of the approved CAP vendor's response to the beneficiary's request for cost-sharing assistance. If at the end of the 15-day time period, the approved CAP vendor has not received a cost-sharing payment (either from the charitable organization or from the beneficiary under the payment plan), the approved CAP vendor may refuse to ship additional drugs to the physician on behalf of that beneficiary. Further, if the approved CAP vendor implements a reasonable payment plan, it must continue to ship CAP drugs for the beneficiary, so long as the beneficiary remains in compliance with the payment plan.

Finally, if the approved CAP vendor waives the cost-sharing in accordance with section 1128A(i)(6)(A) of the Act and § 1003.101 and § 414.914(g)(3) of the regulations, it may not refuse to ship CAP drugs for the beneficiary. At this time, we believe that sufficient safeguards are built into the system to protect the beneficiary. Beneficiaries who believe that the approved CAP vendor is not adhering to these standards may use the vendor's grievance process. If that does not resolve the issue to their satisfaction they may request assistance from the designated carrier under the dispute resolution process. We will monitor the implementation of this provision to see whether a requirement that the approved CAP vendor document collection efforts should be implemented at a later date.

Comment: A beneficiary advocacy group requested that the approved CAP vendor be required to assess the beneficiary's financial condition and waive coinsurance for beneficiaries who meet a prescribed poverty test.

Response: Any beneficiary who is unable to meet his or her cost-sharing obligations is free to request assistance from the approved CAP vendor. We assume that if the approved CAP vendor administers its own plan rather than referring the beneficiary to a charitable organization for assistance, it will develop eligibility guidelines for the plan. We do not require any provider to waive coinsurance on a routine basis.

(2) Advance Beneficiary Notices (ABNs)

In the July 6, 2005 interim final rule with comment, we stated that the approved CAP vendor could issue an ABN to the beneficiary if the approved CAP vendor and the participating CAP physician did not agree about whether the drug administration service claim would be paid as a medically necessary service (70 FR 39058). We also stated that the approved CAP vendor may ask the participating CAP physician to deliver an ABN. If the participating CAP physician agrees to do so, he or she will describe both the administration of the drug and the drug product on the ABN, together with the estimated cost for each that the beneficiary must pay if he or she receives the drug and Medicare does not pay. We also noted that if the participating CAP physician declined to issue the ABN, then the approved CAP vendor could issue the ABN to the beneficiary before the drug was administered. In the July 6, 2005 interim final rule with comment, we used the phrase “signed ABN” where we meant to say “enforceable ABN” (70 FR 39039 and 39051). We wish to clarify this point because there are circumstances under which an ABN issued via telephone can be enforced. The requirements for delivery of ABNs can be found in the Medicare Claims Processing Manual, Pub. 100-4, Chapter 30, Section 40.3.4. These requirements may be accessed electronically at http://cms.hhs.gov/​manuals/​104_​claims/​clm104c30.pdf.

Comment: Some physicians commented that an obligation to collect an ABN on behalf of the approved CAP vendor represented an unwelcomed administrative burden. Others expressed concern that approved CAP vendors would overuse the ABN process, issuing ABNs even when the approved CAP vendor had no reasonable belief that the physician's drug administration claim or the vendor's claim for the drug would be denied. A commenter stated that it would be a logical anomaly for the approved CAP vendor to ask a participating CAP physician to collect an ABN in cases where the physician believes the drug administration services and, consequently, the drug product will be covered. The commenter believes this puts the participating CAP physician in an untenable situation and will serve to confuse the beneficiary unnecessarily.

Commenters from the community of potential vendors requested that we allow the approved CAP vendor to refuse to ship the CAP drug if the approved CAP vendor believes the applicable coverage policy prohibits payment and the participating CAP physician refuses to collect an ABN for the CAP drug on behalf of the vendor, suggesting that, in this case, the participating CAP physician should be allowed to use the furnish as written process. One commenter requested that we allow the approved CAP vendor to terminate CAP business with a participating CAP physician who refused to issue an ABN on behalf of the approved CAP vendor when the underlying claim was not paid.

Response: In response to the commenters' concerns, we reemphasize that the participating CAP physician's decision to issue an ABN on behalf of the approved CAP vendor is completely voluntary. An approved CAP vendor is always free to contact the beneficiary and issue an ABN on its own. Because the participating CAP physician's decision to issue an ABN is voluntary, the approved CAP vendor may not penalize the participating CAP physician who refuses to do so by refusing to ship the drug or attempting in some other way to force the participating CAP physician to obtain it. We note that, approved CAP vendors will have a disincentive to abuse the ABN process. Should an approved CAP vendor issue an ABN that is not consistent with CMS requirements, and the claim for the drug is denied and appealed to an Administrative Law Judge (ALJ), the ALJ could review the case and determine that the use of the ABN was inappropriate or invalid, thereby shifting liability to the approved CAP vendor. In addition, if an approved CAP vendor frequently seeks ABNs in cases where the participating CAP physician's local carrier routinely determines a particular drug to be covered, the approved CAP vendor may not be seen as a good business partner by the participating CAP physician and could lose his or her business at the next CAP election period. After careful consideration of the comments we have received, and balancing all the policy implications we have decided to maintain the policy with respect to ABNs set forth in the July 6, 2005 interim final rule with comment.

(3) Dual Eligibles

In the July 6, 2005 interim final rule with comment, we addressed the situation of beneficiaries who are dually eligible for the Medicare and Medicaid programs. We stated that Medicaid coinsurance payments would vary by State and that we had no authority to change the coinsurance amount based Start Printed Page 70257on who was responsible for payment of the coinsurance (70 FR 39054).

Comment: Several commenters requested that we specifically state that dual eligible, Medicare/Medicaid beneficiaries may not be held responsible for more coinsurance than what the Medicaid State Agency pays. They have asked us to make clear that approved CAP vendors may not balance bill the beneficiary for that portion of the 20 percent Medicare coinsurance that is above the given State's Medicaid upper payment limit.

Response: State Medicaid programs can limit coinsurance payments to the extent that any payment for a covered Medicaid benefit, when combined with Medicare payments, equals the amount of reimbursement payable under the Medicaid program. A State Medicaid program may deem an approved CAP vendor to be paid in full even if it has received either no coinsurance payment or a reduced payment from the State. Dual eligible beneficiaries have no liability for a covered Medicaid benefit beyond the State's payment amount as set forth in section 1902(n)(2) of the Act.

e. Physician Election Issues and Education

In the July, 6, 2005 interim final rule with comment (70 FR 39079), we stated that section 1847B(a)(1)(A) of the Act specifi